July 7th, 2011
The Wall Street Journal / Market Watch / By Matthew Lynn
LONDON (MarketWatch) — In London last week some smart businessmen launched the country’s first gold ATM. Stick in your credit card or some cash, and the machine will swap your plastic or paper money for a small bar of the real stuff.
That may well tell us that London remains, as it always has been, a place where monetary entrepreneurs flourish.
But it tells us something else as well. The role of money in the global economy is one of the big themes of this decade. Gold is on the up. The euro is falling apart. And, perhaps most importantly of all, the dollar is in long-term decline.
The crisis in the euro zone may have distracted our attention from it for a while, but the relentless dethroning of U.S. currency the dollar as a global reserves currency is proceeding apace.
There were two further pieces of evidence in the last few days. Data released by the International Monetary Fund showed the percentage of dollars held by central banks in their reserves is still declining year on year. And a UBS survey of investment institutions with $8 trillion under management showed a majority no longer think the dollar will be the reserve currency in 25 years time.
There cannot be much dispute that the dollar is losing its central role. And yet there is still very little agreement on what will replace it. Gold? The Chinese renminbi? The IMF’s quasi-money, the special drawing right? Or something no one has thought of yet. No one really knows.
If there is one big call investors need to get right over the next few years, it is surely answering that question.
The figures make it clear enough that the dollar is not the force it once was. The proportion of dollars held by central banks around the world had fallen to 60.7% by the end of the first quarter of this year. That compares with 61.8% at the same point last year. That may not sound much, but as Stephen Lewis of London-based Monument Securities points out, that amounts to $58 billion fewer dollars held than if the percentages had stayed the same. Not exactly loose change, even among central bankers.
Measured over a decade, the trend is clear enough. Go back to 2001, and the proportion of central bank reserves held in dollars was 71%. It only goes down a bit every year. But over time, that starts to add up. Once the dollar drops below 50% of central bank holdings, we can officially declare that its days as the reserve currency are done. It looks like that will happen some time between 2015 and 2020 — but it could well be sooner.
Most big asset managers now agree. A UBS survey of investment institutions showed a majority no longer think the dollar will be the reserve currency in 25 years time — the first time the investment bank had reported a clear majority reaching that conclusion. The euro has lost support as well: only about 5% of fund managers think it will be the world reserve currency in a quarter of a century, down from around 20% five years ago. The Asian currencies are not making much headway, nor, rather surprisingly is gold. The big winner is the SDR. A majority now reckon it is the most likely candidate, compared with roughly 10% last year.
In some senses, that is reasonable enough. A basket of the world’s biggest currencies would seem to offer a more solid store of value than just one. It diversifies your risk. And it recognizes that the U.S. is just one major economy among several, not the dominant player as it was in the years immediately after World War Two.
And yet the SDR is, in fact, a poor contender. It is just made up of a bunch of other currencies — right now, the dollar, the euro, the pound and the yen — none of which look very strong. If you get into a fight, having four hundred-pound weaklings on your side isn’t much better than having one. It doesn’t really have any advantages over the dollar by itself as a store of value. And it has all the same weakness. If the Federal Reserve or the Bank of Japan starts printing money like crazy, your SDR goes down in value the same way your dollar would. You’ve gained nothing.
In reality, there are two real candidates to replace the dollar.
One is the renminbi. The world’s reserve currency is usually the money that circulates in the world’s biggest economy. That was true of the pound in the 19th century, and the dollar in the 20th. And if the Chinese economy is the world’s biggest, as it soon will be, that is going to be the currency that really counts.
Another possibility is a currency unit based on a basket of commodities. After all, raw materials are the one thing that every country absolutely has to have access to. And every form of money is a proxy for real stuff in one way or another. A unit that was one part gold, one part oil, one part iron ore, and one part rice, would look like something that was going to hold its value for a long period of time.
What will it be? It makes a huge difference. If it is the renminbi, you need to buy into Chinese assets, regardless of the fact they may look over-valued right now. If it becomes a reserve currency, everyone in the world will have to hold it. The Chinese will get a lot of very cheap capital, just as the U.S. did when the dollar was dominant.
But if it is a commodity-based currency unit — and that would be this columnist’s bet — then the one big call you need to make for the next decade is to keep buying raw materials even when they do look over-priced. Either way, the euro looks finished, and the dollar is heading for a more minor role in the world economy.
And whatever else is happening in the global markets, that is one trend that trumps everything else.
Matthew Lynn is a financial journalist based in London. He is the author of "Bust: Greece, the Euro and the Sovereign Debt Crisis," and he writes adventure thrillers under the name Matt Lynn.
July 7th, 2011
By Kim Stallings
The State of Florida v Casey Marie Anthony, a trial dubbed by the Mainstream Media as the "Social Media Trial of the Century," began on May 9, 2011 and ended on July 5, 2011 with a verdict for Ms. Anthony of not guilty on charges of first degree murder, aggravated manslaughter of a child, and aggravated child abuse. (She was, however, found guilty on four counts of providing false information to law enforcement.)
Throughout the trial, coverage was extensive via virtually all cable and broadcast news outlets (HLN, with Nancy Grace at the forefront--who coined the moniker "Tot Mom" for Ms. Anthony--became the "The Casey Anthony Show" for all intents and purposes for the duration of the trial).
From the outset, while acknowledging the tragedy of the murder of Caylee or any child, we at Conservative Refocus made a conscious choice NOT to jump on this bandwagon of sensationalized coverage, and we did not run a single article related to the trial--until today.
For the most part, other Conservative media also stayed away from the Anthony trial and focused instead--as we did--on political issues with far-reaching implications for the well-being of our country (a struggling economy, out-of-control government spending, the continuous "war of words" between Democrats and Republicans in government, etc.).
Throughout the past two months as the Anthony Circus was on parade, Conservative Refocus noticed a slight dip in traffic ranking. We follow our web analytics daily. In the beginning, we were not too concerned. Slight fluctuations are the norm. But recently we began to question why our traffic on-site seemed to be fairly normal, but our national and international rankings continued to slip. We had no answers.
And then the Anthony trial ended and almost immediately two things occurred. Conservative media icons (such as Sean Hannity)--previously not a part of the "Casey Anthony Circus"--began to cover the trial and verdict ad nauseum (we're still groaning about this one). And our traffic ranking suddenly began to pick up once again. We couldn't help but wonder--as to the latter: Could there be a connection?
Then today, this from Technolog: "At the time of the [Casey Anthony] verdict, traffic to news websites jumped abruptly from less than 2 million views to more than 3.2 million, according to content delivery network Akamai." Pretty easy to see where the focus of a preponderance of US citizens lies.
Sadly, average American citizens are typically enthralled by sensationalized "entertainment news" such as the Anthony trial. It is, after all, much easier to follow the gossipy, glamorized hype of a murder mystery than it is to focus on the reality of our country in crisis. It's pure escapism--typical of our soundbite culture.
One can only imagine the powerful impact this same audience might have if they turned even a fraction of the time and energy spent on entertainment news to focus on the real crises unfolding around us.
July 7th, 2011
July 7th, 2011
By Richard Cowan, Rachelle Younglai, Tim Reid and Caren Bohan
WASHINGTON (Reuters) - A small team of U.S. Treasury officials is discussing options to stave off default if Congress fails to raise the debt limit by the Aug. 2 deadline, sources familiar with the matter said on Wednesday.
Senior officials, including Treasury Secretary Timothy Geithner, have repeatedly said there are no contingency plans if lawmakers do not give the U.S. government the authority to borrow more money.
But behind the scenes, top Treasury officials have been exploring ways to prevent a financial meltdown that would be triggered if the government was unable to pay its bills on time, sources told Reuters.
Treasury has studied the following issues:
- Whether the administration can delay payments to try and manage cash flows after Aug. 2;
- If the Constitution allows Obama to ignore Congress and the government to continue to issue debt; and
- Whether a 1985 finding by a government watchdog gives the government legal authority to prioritize payments.
Mary Miller, assistant secretary for Financial Markets, and Richard Gregg, Treasury's fiscal assistant secretary, are leading the specialized Treasury team.
They have discussed, but the White House has dismissed, the option that Treasury could rely on the 14th Amendment of the U.S. Constitution to go ahead with bill payments even in the absence of a debt limit increase.
There has been growing speculation in Washington in recent days that Treasury could use the amendment -- which some argue says the government cannot renege on its debts -- to ignore the congressionally imposed limit on the amount of money the United States can borrow.
But White House spokeswoman Amy Brundage said, ``Despite suggestions to the contrary, the 14th Amendment is not a failsafe that would allow the government to avoid defaulting on its obligations.''
The Treasury team has also talked about the Government Accountability Office's 1985 assessment that Treasury has the authority to prioritize payments.
Michael Barr, a former Treasury official who worked closely with Miller, said he spoke with Miller and Gregg a month ago.
``They were exploring if there were any legal and practical alternatives. It was not obvious to them that the president has the legal authority to pick and choose who gets paid,'' he said.
The team has also spoken to the Federal Reserve about how the central bank -- specifically the Federal Reserve Bank of New York -- would operate as Treasury's broker in the markets if a deal to raise Treasury's $14.3 trillion borrowing cap is not reached on time. (Editing by Ross Colvin and Jackie Frank)
July 7th, 2011
It's so obvious, it's a wonder nobody thought of it before: releasing vast quantities of sulphuric acid into the atmosphere to save - yes, save - the planet.
Geoengineers investigating ways of cutting global warming have tended to focus on injecting sulphur dioxide into the upper atmosphere. This imitates the way volcanoes create sulphuric acid aerosols, or sulphates, that could reflect solar back into space.
Releasing sulphuric acid, or another condensable vapour, from aircraft would give better control of particle size, says Keith. This would allow more solar radiation to be reflected back into space, while using fewer particles overall and reducing unwanted heating in the lower stratosphere, he says.
He also describes a new class of engineered nano-particles that he reckons could offset global warming more efficiently and with fewer negative side-effects than sulphates.
Keith concedes that geoengineering is, to say the least, controlversial.
"A downside of both these new ideas is they would do something that nature has never seen before. It’s easier to think of new ideas than to understand their effectiveness and environmental risks," he admits.
"Geoengineering is inherently imperfect. It cannot offset the risks that come from increased carbon dioxide in the atmosphere. If we don’t halt man-made CO2 emissions, no amount of climate engineering can eliminate the problems — massive emissions reductions are still necessary.”