THE AMERICAN GAME
IMF Reforms and the Keystone XL Pipeline
By JC Collins
Yesterday I spent the
majority of my time updating KPI Reports on one screen and watching
the Senate debate on the Keystone XL Pipeline on another. Now I know
politics are absurd at best, but this so-called “debate” was about as factual and
informative as Saturday morning cartoons. The Democratic Senator from
California Barbara Boxer lead an emotional charge in opposition to the bill,
but her frequent references to the Koch Bros. and display of child like protest
signs, such as “The Misery of the Tar Sands” are more telling of the real story
as opposed to the trendy storyline of climate change she presented.
Equally disparaging and
irrelevant were the defenders of the pipeline, none of which presented any
factual information based on industry “best practices” or factual resource
data. The fact that both sides congratulated each other at the end on an
“excellent debate” which was “much needed” doesn’t change the reality of the
school yard nature of the Senate discourse.
Long gone are the days
where politicians aspire to greatness, not for themselves, but for the people
they represent. Long gone are the days where politicians compose accurate
platforms based on the selfless desire to promote a common efficiency.
Here in Canada the delay
in approving the Keystone XL Pipeline is not as news worthy as down in the
US. Yes, it will be cheered when it finally gets approved in
January, and it will, but those in the Oil Sands Industry already
understand that the oil is being transported to the Gulf refineries through multiple
methods, such as existing pipelines and rail cars, as well as new
pipeline construction which simply flies under the radar because it
doesn’t have the political “leverage” that Keystone does.
Additionally, plans for
east and west pipelines are in the development stage as well as the
construction stage.
The Democrats
reluctance to pass a Keystone bill has more to do with where their funding
comes from as opposed to the manufactured and manipulated data which they use
to promote their anti-Keystone position. Goldman Sachs was a huge sponsor
of Obama but was also heavily invested in the so-called “shale oil
boom” which is said to make America energy independent.
In 2012 Goldman reversed
its positions and began to finance Republicans as the winds had shifted along
with the shale depletion rates and global oil markets. Today, we are seeing the
broader implementation of the expected deflation from the QE policies of
central banks around the world.
And: http://www.reuters.com/article/2014/10/27/oil-forecast-goldman-idUSL4N0SM08A20141027
What isn’t being stated
is the shale oil well depletion rates are as high as 80% to 90% in
the first 12 to 24 months. This depletion rate ensures
that initial production numbers are unsustainable and it is the
clearest indicator that the shale revolution will end rather suddenly for America.
As global oil production
begins to decrease further, we are likely to see prices rise again, but this is
being offset currently with the heavy deflationary momentum created through the
QE policies. Oil production rates are declining and will continue to decline in
the coming decades. The argument for peak oil conspiracy is somewhat misleading
as there isn’t an infinity amount of resources in our finite environment, and
any process of resource replenishment will take multiples of years longer than
our ability to use and decrease the existing deposits.
The need for energy in
the coming years will increase which is why we are witnessing the resource wars
and positioning which are taking place today. Companies with vested
interests in specific regions and nationalities are strategically positioning
themselves for resource production and marketability.
The battle for control
of the European natural gas market reached an interesting conclusion yesterday
when none other than Henry Kissinger stated that Ukraine will not be joining
NATO and that economic sanctions against Russia were a mistake. This fits with
our analysis that US industry interests exchanged Europe for the strategic
resource deposits in the Middle East.
Even within the Middle
Eastern region we are witnessing the dividing of deposits, or at least the
denomination which deposits are sold in on the world market. If oil is
sold to China it will be sold in yuan, and if oil is sold to the US it will be
priced in dollars.
The move towards
denomination balance in world trade is reflective of the emergence of the
multilateral financial system. As discussed in many previous posts, the
renminbi will be added to the SDR basket composition by next July, and the 2010
IMF Quota and Governance Reforms will be implemented whether the US Congress
passes supporting legislation or continues to refuse to honor the agreements
that were made back in 2010.
The possibility was
considered that the Republicans in Congress would pass a version of the IMF
Reforms which didn’t contain the IRS Rule Changes that were directed at
reducing the political influence of the Koch Bros, in return for a symbolic win
by having the Democrats pass a Keystone bill which would fast track the last
segment of the lines construction.
The fact that Keystone
was once again rejected by the Democrats is a very strong indicator that the
IMF Reforms will not be passed before the January 6, 2015 transfer of power in
Congress. This goes against the demands of the IMF, US Treasury, and G20
countries, as stated in the summit in Australia last week.
In
the post Renminbi 人民币 and the Alternative IMF Reforms, we reviewed how the
2010 Package could be separated into individual components and implemented
independently, which would bypass any required congressional approval.
Additionally,
in the China Daily article titled XI Backs Higher IMF Standards it
is stated that China supports a “global infrastructure center” and will
subscribe and support the SDDS, or Special Data Dissemination Standard, of the
International Monetary Fund.
Representatives from the
IMF and China will be meeting in early December to review the procedures
associated with the SDDS. The SDDS is an important aspect of
internationalizing the RMB because it builds a proper reporting structure for
international transactions and will further secure China’s credit rating.
The internationalization
of the renminbi will be realized when the currency becomes fully
convertible. The initial expectation was that the RMB would be added
to the SDR basket composition in 2020, but the internationalization process
has been increased to allow for a 2015 addition. The emerging market for
RMB denominated liquidity is supporting this internationalization process,
as defined in the creation of the BRICS Development Bank and the RMB
denominated gold contracts issued by the Shanghai Gold Exchange, as well as the
Bi-Lateral Swap Agreements with central banks around the world.
This indicates that
the IMF will include the RMB in the SDR basket before full internationalization
and convertibility is achieved. The delays from the US Congress to pass the
2010 Reforms is forcing the IMF and G20 countries, including the BRICS
countries, to design and implement alternative structures and processes to
build the SDR liquidity framework.
For
more detailed information on the internationalization of the renminbi refer to
the IMF Staff Report on The People’s Republic of China, dated July, 2014.
The reluctance of the
Republicans in Congress to pass the 2010 Reforms has isolated the US on the
global financial scene. The expectation that this will change after
January 6th could be wrong, but what benefits would the GOP gain by further
delaying the reforms?
The fact that the
Democrats hanged one of their own yesterday is very telling of the stubborn and
defensive attitude which has developed in American politics over the last 6
years. Democratic Senator Mary Landeau brought the Keystone bill to the floor
in an effort to save her Senate seat in a run-off election in a few
weeks. The other Democrats who voted against the bill had nothing to gain
by voting against the bill, outside of covering their own positions in the next
mid-term election. To think any of them really care about the environment
and American fuel prices is nonsensical in the face of all the other political
farces and outcomes.
The Keystone bill will
get approved in the new year as one of the first acts of the new
Congress. The Democrats must of let one of their own hang for reasons
that are not obvious at this time. How the IMF 2010 Reforms play into
this is unknown but we can discern much from the lack of media attention given
to the issue.
What case can the
Republicans make in the new year for delaying the reforms further? Or will they
simply fast track their own version of an IMF bill with the Keystone approval
attached?
This would create
leverage to eliminate any administrative veto to Keystone, in the event the
required amount of votes are not gained to remove the threat of a veto all
together.
Whatever your thoughts
on the IMF Reforms and Keystone may be, the reality is that the rest of the
world is demanding the reforms be implemented without further delay. Do the
Republicans have the political capital and international influence to continue
holding the world ransom?
Highly unlikely.
And if they do continue to delay than we can assume that the plan is to create
a situation where the US influence and dollar are removed from the IMF under
the umbrella of a de-facto financial coup which could prove to be the
convenient cause and effect of the QE orchestrated deflation and liquidity
crisis.
The position of the USD
on the world stage is still viable and strong, as the foreign reserve accounts
of central banks around the world have continued to increase their dollar
holdings. Sure, the composition of these reserves has changed as RMB and
SDR’s have been added to the reserves, which has served to lower the overall
USD percentage of total reserves, but the world cannot turn completely against
the US or the dollar.
The game being played is
intriguing and fraught with increasing chances of randomness. At some
point this randomness will be eliminated and the process will continue under
the more visible framework of the multilateral financial system. Needless to
say there will be much speculation and brinkmanship in the coming months.
How the amnesty issue
will factor into the negotiations on Keystone and IMF Reforms between the
political parties in the US is difficult to imagine or determine. The Democrats
obviously want the votes this would gain them in the next presidential
election. The thought of having the Republicans control the White House and
both the Senate and the House in 2 years time is something the Democrats
would want to avoid if possible.
But does the rest of the
world even care? With US military spending being reduced and the hegemony
being shifted in the world, other countries may care little for American
political bantering and industry and corporate interests.
There is a big piece to
this puzzle missing. Let us be watchful and keep researching and analysing in
search of that which remains hidden. Maybe I’m weird, but this is the
most interesting and intriguing story in decades. The world is about to change
and very few even know it is happening. - JC
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