THE GEARS ARE GRINDING
DOWN
By JC Collins
It has become common knowledge in the mining industry
here in Canada that the large oil companies began holding strategy sessions
over a year ago to address this downturn in the market. The “sustainable
cost reduction strategies” were slow in coming at first but are now being
developed and implemented from one day to the next.
The industry is witnessing layoffs in the tens of
thousands with more to come. For each energy sector job lost there will
be 4 or more service industry jobs lost as well. This spider web of cause
and effect will mean a slow down in the broader economy with reduced revenues
for everything from local pubs and restaurants, to clothing stores
and regional manufacturers.
The planning sessions which began
a year ago tell us that this market turn was not happenstance.
The communication lines between the heads of the energy companies and
trans-border banks have intersected with the mandates of the international
institutions which are engineering and implementing the economic transition to a
multilateral framework.
The deflation which we have discussed throughout the
last year is now descending in full force. This deflation is allowing for
a massive contraction of the money supply to facilitate the transformation of
each segment of the international monetary system.
Massive deflation leads to massive liquidation for the
purpose of increasing cash balances. As everything from real estate to
commodities decrease in valuation we are witnessing a large liquidation
of physical assets, such as mining and construction equipment,
recreational vehicles, televisions, and everything else that companies and
individuals can sell for cash in hand.
This increase in cash balances can be considered an
increase in the quality of money. An increase in the quality of money
will likely facilitate the transformation of our current fiat based money
system to a commodity based system. Quality of money based on commodities
as opposed to fiat issuance will lead to an eventual flood of savings from
stocks and bonds to savings accounts.
The danger in this natural progression of quality
capital from stocks and bonds to saving accounts is underscored by the
bail-in threat posed by the larger institutions and governments. But it
is these same banking and investment institutions and governments which
deflation will harm the most. Though innocent “losers” will be sacrificed
during the deflationary period, the imbalances in the system which have been
built over the decades, when corrected, will ensure that corruption will
be dramatically reduced, if only for a few years before the imbalances begin to
manifest in the system once again.
The imbalances as defined in the Triffin Paradox, or
more appropriately, the USD global reserve system, has allowed for a gross
misalignment and mutation of the global monetary structures. These
imbalances have manifested throughout the international architecture as large
stock market increases, unsustainable energy costs, such as oil, as well as
real estate valuations, and easy access to capital.
The deflation which is now taking place will level
these imbalances and allow for the rise of high quality capital. This quality
capital will make the transition to a commodity based multilateral monetary
structure more efficient and timely.
Every monetary policy which has been implemented by
the central banks and financial institutions since the crisis of 2008 has
been for the purpose of holding back deflation. Now that those
tools, such as QE, are being retracted from the system, we are witnessing the
deflation which is required to correct the imbalances and allow for the
transition to the multilateral structure.
The storyline is also beginning to be distributed
amongst the global media outlets that monetary stimuli by central banks is no
longer working and that the accountability and mandates of the central banks
will need to be more aligned with the macro economic mandates of the
multilateral institutions.
In
the post The Globalization of Central Banks we reviewed how the architecture of
central banks will be consolidated within this larger mandate. No longer
will domestic growth be the only objective of central banks. The
larger imbalances created within the international monetary structure by
promoting only domestic monetary policies will no longer be allowed.
Managing Director of the International Monetary Fund
Christine Lagarde has again called for the implementation of a multilateral
framework, and the financial and geopolitical strategies which are now
unfolding support this process.
The recent moves by Russia and its central bank are
remarkable when considered as methods of disengaging from the USD system.
Converting the USD held in its foreign reserve accounts for rubles is diversifying
the global monetary structure, and is more about facilitating the multilateral
transition and reforming the monetary framework as opposed to replacing
the existing USD framework.
The geopolitical move by Russia to change the natural
gas routes into Europe is primarily concerned with decreasing the violence in
Ukraine by removing the need for that particular strategic position. The
attempts of America to maintain economic and geopolitical control over regions
of the world which it has controlled under the USD system, such as Europe and
Saudi Arabia, as well as Korea, among others, are fraught with the dysfunction
of continuing unsuccessful isolationist policies.
The coup yesterday which took place in Yemen is very
telling of the geopolitical positioning which has been allowed to take
place. Think of it like a company having to reduce its operating
costs. The CEO and CFO of the company state that $2 billion has to be cut
from the operating budget and the internal policies of the company have to be adjusted
to facilitate joint venture projects in regions of the world which are normally
outside of it’s existing growth structure.
Each division within the company is
responsible for their own cost reductions and policy adjustments. Yet each
division is primarily focused on an industry sector which can no longer operate
independently from the larger whole.
The larger monetary mandates which are being
handed down by the Bank for International Settlements are being
implemented much like an international corporation would transform itself
while attempting to grow as it becomes a part of a multilateral framework.
The flex allowed in the transition has been taken
advantage of by western interests as America attempts to stop Europe from being
ripped away from its strategic influence. The inevitable fragmentation of
the euro, and potentially even the European Union, should be obvious to most at
this point. European countries will position themselves with their
eastern trade partners as represented in the Eurasian trade union, with the
United Kingdom ultimately maintaining its allegiance with the North American
continent.
The moving parts of this transition, along with
the implementation schedule, is difficult to capture in one single post, but
the gears keep moving and deflation pushes deeper. The fact that gold and
the USD are both appreciating together is the harbinger of the
multilateral. The fundamentals of the monetary system are now being
directed by the multilateral structure as it begins to push up from underneath
the ruinous imbalances of the fragmenting USD system. – JC
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