Stalling growth of international reserves - Next Stop Total Financial Collapse

06 September 2013

Stalling growth of international reserves

Hugo Salinas Price


I have kept track of International Reserves (excluding gold) for many years, with data helpfully provided every week by Doug Noland, at prudentbear.com, who obtained the information from Bloomberg.

Here is the graph I have elaborated with data since 1948, when there was still a modicum of reason operating in the financial world.

http://www.plata.com.mx/Mplata/artic...013-30-ago.png

Lately, I worked out a graph showing in more detail the growth of these reserves in the period from August 2005 to August 30, 2013.

http://www.plata.com.mx/Mplata/artic...-05-Aug-13.png

I draw your attention to the slump in reserves which took place during the year 2008-2009. It was an ugly period, financially.

Then, notice the slowdown in growth of reserves during the past two years (24 months).
Finally, notice that growth in reserves has stalled in the last few months of this year. Growth appears to be topping-out. Since April 13, when reserves passed the $11 Trillion mark at $11.082 Trillion, in the four months to August 30, they have only increased by $86 billion – 0.78%

If the growth in reserves registered from August 2009 to August 2011, which averaged $1.5 Trillion yearly, had continued from August 2011 to August 2013, international reserves would now be over $13 Trillion; as it is, they are stalled at just over $11 Trillion. $2 Trillion are missing!
International reserves have two sources of growth:

1. Accumulation of Bonds (mainly Euro and Dollar Bonds) in central banks of the exporting nations, which come about due to export surpluses with which the exporters purchase bonds issued by the importing countries.
2. Accumulation of interest earned on the bonds, re-invested in bonds.

The international reserves are thus a measure of the credit which the exporters are willing and able to grant the purchasers of their exports.

If international reserves are not growing, but stalling out, this means that the exporting countries are not extending further credit, for whatever reasons, to the importing countries, mainly the US and the Euro Zone.

Born of the liberation of the world’s money from the shackles which tied it to gold under Bretton Woods, the world’s great credit-expanding machine is slowing down. $2 Trillion in international reserves have not been generated in the last 24 months. The cause must be a decline in international trade, through which enormous export surpluses of the East were sold to the West on credit, and the East received bonds for the extended credit. The market for government bonds of the West has been the eastern exporting countries, which have used their vast export surpluses to invest in western bonds.

If the exporting countries – the East – are slowing down on bond purchases, it most likely means they have less surplus left with which to purchase the bonds. Of course, they might have generated surpluses and used them to invest in the “Emerging Markets” – another name for what used to be called the Third World. Perhaps they are buying up the underdeveloped and chronically deficit-ridden Third World? That may be, but such a policy could hardly account for a $2 Trillion slow-down in growth of international reserves.

A $2 Trillion market for bonds has not materialized in the last two years; it is no wonder that the Fed has stepped in with QE to purchase the bonds which must be sold to keep the US Government in operation, not to mention to stave off utter collapse if the word were to spread that “There is no market for US and Euro Bonds at the volumes that the sellers require!”

The US and the Euro Zone are finding that they cannot float further credit in the exporting countries. This is a serious condition; the West depends on a market which will accommodate its expansion of credit – a market for its government bonds – for without that continual expansion the whole house of financial cards comes crashing down.

There appears to be no further market where the US and the Euro Zone can float their bonds. The only recourse is to monetize their government debt (QE) and that means monetary inflation.

The consequence of monetizing debt will have to be rising interest rates.

If the government debt were not monetized, US and Euro Zone bonds would have to be thrown on the world market, but – who would purchase them? Interest rates would skyrocket, even if there were possible buyers, which is doubtful.

As it is, the US can only continue to monetize government debt. Higher dollar interest rates are inevitable and will cause further government deficits; the debt overhang in both the US and Euro Zone is so great that a rise of a few points in interest rates will explode the deficits, and so on and so forth.

Bottom line: Stalling growth in International Reserves tells me that a world financial collapse is in the offing.

Please draw your own conclusions.

http://jessescrossroadscafe.blogspot...tempo-and.html

Silly me, I'm still wondering about the QE exit strategy.

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Originally Posted by Libertarian_Guard

Silly me, I'm still wondering about the QE exit strategy.

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Exactly! The Americans and Brits must monetize their bonds forever or their entire central banking franchise will collapse. I still maintain that the FED is monetizing more than it admits publically. In the mean time, the BRIIICS are busy constructing a new central trading house to be collateralized by gold bullion. One day soon, they will launch it and leave the petrodollar to crumble into dust.

Got gold? Got silver?

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Originally Posted by mamboni

Exactly! The Americans and Brits must monetize their bonds forever or their entire central banking franchise will collapse. I still maintain that the FED is monetizing more than it admits publically.

Got gold? Got silver?

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You've got that right.

Today's U$D is a proxy (and a charade) for keeping the whole MIC afloat. How else could we spend more $$$ on defense ( think offense) that the next 10 largest militaries combined?

Oh because we're a superpower, my a$$.

nuh-uh... the continuation of quantitative easing into the increasingly growing strength of the American economy is good for the future of the country... (insert rollyeyes here)

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Originally Posted by ximmy

nuh-uh... the continuation of quantitative easing into the increasingly growing strength of the American economy is good for the future of the country... (insert rollyeyes here)

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Keep that up and they'll name you FED Chairman. LOL

Quote:

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Originally Posted by mamboni

Got gold? Got silver?

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Got ammo?

"Total Financial Collapse" will require plenty of ammo to protect any gold and silver.

:)

I'll bet HT would write articles just like this when he reaches the top.

Just has to wait for all that debt to monetize.

"Unsustainable" doesn't even begin to describe this chart:

http://www.plata.com.mx/Mplata/artic...013-30-ago.png

This is one of the scariest things I've seen in a long time! How much longer can it go on??

A harsh consequence is inevitable. The dubious part is the timing. If governments begin to "take management" of retirement accounts, they could stall this for a generation and prolong the exponential increase shown in this chart.

Below is the same chart, cut off at 2010. It looked ominous at that point. And yet three years later, the game continues. Though the timing remains uncertain, the important thing is to be aware that the path is unsustainable.

Same unsustainable trajectory, 3 years ago. Notice at first glance it looks exactly the same:

Attachment 5377

Quote:

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Originally Posted by Sparky

A harsh consequence is inevitable. The dubious part is the timing. If governments begin to "take management" of retirement accounts, they could stall this for a generation and prolong the exponential increase shown in this chart.

Below is the same chart, cut off at 2010. It looked ominous at that point. And yet three years later, the game continues. Though the timing remains uncertain, the important thing is to be aware that the path is unsustainable.

Same unsustainable trajectory, 3 years ago. Notice at first glance it looks exactly the same:

Attachment 5377

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I agree with you, there will be a methodical winding down in all areas until there is absolutely nothing left, then the collapse will happen. Retirement accounts are just sitting there. They have to be consumed first.

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Originally Posted by vacuum

Retirement accounts are just sitting there. They have to be consumed first.

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This bothers me. I've worked hard and have a measly pension in the system that I know I'll never see. Still, getting the statements in the mail saying what I've got, I just shake my head now.

I just try and pick up a little gold and silver, that will be my retirement, if I ever get to retire that is..

Unlike a 401K or 403B or IRA, a pension is just a promise to pay you money some day, so there's no individual account to raid. I suppose the government could offer to "manage" your employer's (or former employer's) pension plan, and take over the entire pool of investments. They would probably do this by offering employer incentives to allow a takeover.

The retirement money grab will happen gradually, as they continue to run out of paper to feed the system. First it will be voluntary conversion of accounts into annuities (a la social security). Then it will voluntary for existing balances, but mandatory for all new investments. They will also make purchase of U.S. Treasuries the "default" investment for new employees, unless they actively choose otherwise.

The only thing to stop the paper fraud from continuing for another generation would be the masses recognizing that it's just another ponzi scheme, and putting up some resistance. That's why they will do this slowly and methodically, a little at a time. Hopefully more and more people will awaken to the fraud and not allow it.

Sparky, you are one of the smartest ones here, I'm glad to be able to read your posts.

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Originally Posted by madfranks

Sparky, you are one of the smartest ones here, I'm glad to be able to read your posts.

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Oh voy, the mush eek

http://www.youtube.com/watch?v=4TZXw45V9CE

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Originally Posted by Horn

Oh voy, the mush eek

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Very touching, Horn. Feelin' the GSUS love. :)*#*

This is their way of taking America down.

Why no cut back on spending , why no plan to fix anything.........no its peddle to the metal all the way