By JC Collins
Now that current events are confirming the analysis which has been
developed here over the last year and 2 months, it’s time to move forward and
understand the broader ramifications of what these changes will mean for the
monetary world.
There have been numerous proclamations over the last few years in
regards to the irrelevance of the International Monetary Fund and the SDR –
Special Drawing Right. Now that it has been officially announced by both
China and the IMF that the yuan will be added to the SDR composition by the end
of this year (stating that they are in discussions is tantamount to a
confirmation of such), the conspiracy theories and faulted analysis of the
BRICS countries overthrowing the IMF and World Bank, and by default America,
should be tossed in the trash bin where they belong.
It has been repeatedly stated here that neither China, nor the United
States, want the added domestic pressure of using their respective currencies
as the global reserve unit of account. Yet, the US Congress has failed to
ratify the 2010 IMF Quota and Governance Reforms. Reforms, which will
restructure the IMF Executive Board and quota system, leading into the systemic
framework changes to the international monetary system.
Treasury Secretary Jack Lew stated yesterday that America is beginning
to lose influence in the world, along with veto control in the global
institutions which it has dominated since the end of WW2.
The Plan B reforms which the G20 and IMF announced earlier in the year
are now materializing in the form of the exodus by European countries to the
Asian Infrastructure Investment Bank, and the ongoing discussions between
Ukraine and Greece with the eastern powers of Russia and China.
The SDRM – Sovereign Debt Restructuring Mechanism, meme and media
representation is beginning to pick up momentum. As each region and country
falls further into economic deflation, and as the world enters the final stages
of deleveraging from the expansion of debt which culminated in the financial
crisis of 2008, the obvious nature of the multilateral architecture will
become more clear.
The statistical research which has concluded, and been pompously
presented as the collapse of the USD and the rise of a new gold standard,
or trade system, is inherently flawed in that it’s analytical baseline is
positioned upon past economic data.
This is the same data which has led most analysts off track from the
slowly rising framework of the multilateral SDR system. Whether it’s QE
policies, ZIRP, NIRP, or the migration of gold, no economic model has
accurately predicted the full transition because the transition segments, such
as the QE deleveraging, can not be referenced and understood on old economic
data and models.
The Group of Thirty is a non-profit organization which is mandated with restructuring
the international monetary system, and it’s members are a list of the top
central bankers and economists in the world. These are the people making the
decisions and engineering the multilateral framework. America, China,
Russia, Europe, and all other prominent country’s and regions are represented
on its board.
Occasional Paper 87 from the Group of Thirty (G30), published in May,
2013, titled Debt, Money, and Mephistopheles, makes clear plans for the “redesign of financial
regulation and macroprudential policy” to prevent another crisis like
the one in 2007. The paper goes on to describe how a “combination of
macroeconomic and macroprudential policies are needed to navigate against the
deflationary headwinds created by post-crisis deleveraging“.
From this policy paper the purpose and intent of the QE strategy is
clear. Presenting QE as leading to the collapse of the monetary system is not
representative of its purpose and design.
When we extrapolate this knowledge into the vast amount of analysis and
predictions which have been offered up over the last few years, we begin to
realize the error in relying on old economic data and models in attempts to
determine future outcomes.
This is why most analytical predictions will not be realized.
In addition, analytical outcomes with an agenda use active deceptions as
methods of persuasion. These active deceptions:
- Understate
- Overstate
- Distort
These distortions will degrade the predictive value of a statistical
model, leaving both writer and reader floating freely in the make believe world
which relies on past data. Data which does not take into consideration
the fundamentals and macropudential mandates of the multilateral transition
plan.
There is much talk of a Black Swan Event in the economic and
geopolitical worlds. This concept has been used by endless analysts and
columnists as the emotional content in essays and blog posts. The Black
Swan Event, we are told, will lay waste to any plans which may be in the works,
and lead the world into years and decades of depression, and/or war.
But let’s take a closer look at this concept, and the probability of
something of this caliber actually taking place.
JASON, a study group division of the MITRE Corporation, completed a Rare Event study in October, 2009. This study
analyzed and measured the probabilities of 9/11 magnitude events.
Based on the methodologies used in the study, it was concluded that
between the years 1968 and 2006, there was a 23% probability of a 9/11
magnitude event. Obviously there was such an event, and the probability
was still less than 50%.
Based on the same baseline data, the group determined that the
probability of such an event between 2009 and 2019 is 7%.
What is interesting is that the study referenced the term Black Swan
Event. Here is what it had to say:
We frequently encountered references to “Black Swans” in our study. The
Black Swan metaphor was popularized by a recent Book The Black Swan:
The Impact of the Highly Improbable by Nassim Taleb [39]. The metaphor has
clearly had great impact on how people are thinking about rare events, so we
considered Taleb’s argument carefully.
Taleb’s argument is that many high-magnitude rare events (Black Swans)
are fundamentally unpredictable, and that efforts to predict them are futile,
dangerous, and even intellectually fraudulent – particularly when using
statistical models based on past observations, and especially if the
statistical model assumes Gaussian variance around some mean event size. His
term “Black Swan” is a reference to a (supposed) European belief that all swans
were white until black swans were discovered in Western Australia in the
1700’s. Black swans came to be used in philosophy as an example of a logical
failure of inductive reasoning – that is, just because all previously observed
swans are white does not necessarily mean that the next swan will be white.
Taleb makes important points but carries his argument too far. It
isunfortunately true that some mathematical models for risk forecasting assume
Gaussian variance despite substantial countervailing real-world evidence.
Taleb’s criticism of economic risk models (such as the Black-Scholes-Merton
options pricing model, which assumes that market prices make
Gaussian-distributed moves) is particularly poignant given the world’s current
economic situation. But though this is damning criticism of specific models’ faulty
assumptions, it is not a damning general criticism of the careful use of
modeling to help predict risk.
What we can take from all of this is that the probability of a 9/11
magnitude event is marginal at best, and the probability of a Black Swan Event
is even less so.
The use of the term is out of proportion to the realities taking place
in the monetary infrastructure. The analytical conclusions which call for such
an event, along with the collapse of the dollar, and global depression, are
inaccurate because they are based on old economic models which haven’t
accurately considered the changing dynamics and architecture of the emerging
multilateral, such as the designed deleveraging purpose of QE policies.
Though the USD will adjust to find a new position within the
multilateral system, it will not collapse. The stock markets will be the
last to deleverage, but that is an adjustment which is required to bring back
balance to the system. The world will not end and the lights will come on
tomorrow. The transition away from the USD as the primary unit of account
is taking place piecemeal and with intent. The real world applications of
this transition model are not yet clear, but this is more a time of opportunity
as opposed to the fear which is being promoted based on old economic
modeling. – JC
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