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Peak Insiders
Peak Insiders
by
charleshughsmith
Executive Summary
- Triffin's Paradox leads to four principal conclusions that indicate why the U.S. dollar may well continue to strengthen from here
- Why the euro's troubles have been good for the price of gold
- Why the dollar can strengthen despite the United States' wishes
- Why the future may well see the price of both gold and the U.S. dollar rise
If you have not yet read Part I: Gold & the Dollar are Less Correlated then Everyone Thinks, available free to all readers, please click here to read it first.
In Part I, we examined the commonly offered correlations between the dollar, gold, interest rates, and the monetary base, and found no consistent correlations between any of these and the domestic economy. Clearly, the trade-weighted value of the dollar and the value of gold have at best marginal impact on the domestic economy.
Perhaps the dollar’s primary impact is on the international economy, as suggested by Triffin’s Paradox, which begins with the premise that the needs of the global trading community are different from the needs of domestic policy makers.
Prior to 1971, the dollar was backed by gold, which acted as a supra-national anchor to the dollar's reserve status. As the U.S. monetary base expanded while gold remained artificially pegged at $35 an ounce, roughly half of America’s gold reserves were shipped overseas before the policy was jettisoned.
Here is the Wikipedia entry on Triffin’s Paradox:
The Triffin paradox is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfill world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit. (emphasis added)
The use of a national currency (i.e. the U.S. dollar) as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars in to the United States. Net currency inflows and outflows cannot both happen at once.
This leads to some startling conclusions that many have great difficulty accepting…
Why Gold & the Dollar May Both Rise from Here
PREVIEW by charleshughsmithExecutive Summary
- Triffin's Paradox leads to four principal conclusions that indicate why the U.S. dollar may well continue to strengthen from here
- Why the euro's troubles have been good for the price of gold
- Why the dollar can strengthen despite the United States' wishes
- Why the future may well see the price of both gold and the U.S. dollar rise
If you have not yet read Part I: Gold & the Dollar are Less Correlated then Everyone Thinks, available free to all readers, please click here to read it first.
In Part I, we examined the commonly offered correlations between the dollar, gold, interest rates, and the monetary base, and found no consistent correlations between any of these and the domestic economy. Clearly, the trade-weighted value of the dollar and the value of gold have at best marginal impact on the domestic economy.
Perhaps the dollar’s primary impact is on the international economy, as suggested by Triffin’s Paradox, which begins with the premise that the needs of the global trading community are different from the needs of domestic policy makers.
Prior to 1971, the dollar was backed by gold, which acted as a supra-national anchor to the dollar's reserve status. As the U.S. monetary base expanded while gold remained artificially pegged at $35 an ounce, roughly half of America’s gold reserves were shipped overseas before the policy was jettisoned.
Here is the Wikipedia entry on Triffin’s Paradox:
The Triffin paradox is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfill world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit. (emphasis added)
The use of a national currency (i.e. the U.S. dollar) as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars in to the United States. Net currency inflows and outflows cannot both happen at once.
This leads to some startling conclusions that many have great difficulty accepting…
by
Gregor Macdonald
Executive Summary
- How to cut household exposure to oil prices
- Spending is shifting from road to rail transport. You need to get out in front of this.
- How to take advantage of the energy arbitrage that rail transport will offer in future years
- Important case studies of what's to come
- The big change ahead (and the argument for optimism)
If you have not yet read Part I: Getting On The Train, available free to all readers, please click here to read it first.
Portland, Oregon is a city well known internationally for its commitment to sustainability. Over the years, the downtown area has been wisely restored into a very pedestrian-friendly streetscape. And while Portland continues to have problems – mainly a weak economy that could benefit from greater diversification – the city continues to attract people from all over the world who are looking for a better place to ride out some of the problems now facing developed economies.
Over the past year, since moving to Portland myself, I've had a chance to do some accounting of how much I've reduced my own exposure to oil. Let me first say that getting oil out of the household budget was not my only reason for moving to Portland. However, as someone who started looking at these issues 10-15 years ago, the prospect of greatly reducing my oil consumption was a key factor in my decision to relocate.
Now, while it's true that reduced oil consumption is more common for everybody living here in Portland, the other important element (and this will seem obvious) is that living in other cities and regions typically means a greatly increased exposure to oil. So while the cost of food, medical care, and many goods is just as expensive here in Portland as elsewhere, it is now rather sobering to consider the burden of high oil prices in other regions from my new vantage point – especially given that oil has found a new equilibrium price around $100 a barrel.
By moving to Portland, we completely shifted the core of our energy consumption to natural gas and also electricity, which in the Pacific Northwest is largely sourced through hydropower. Electricity rates in the Pacific Northwest are either the lowest or among the lowest in the United States. Also, because of the rich offerings in public transportation choices, we were able to drop one of two cars. But there's more…
Reducing Your Exposure to Oil Prices
PREVIEW by Gregor MacdonaldExecutive Summary
- How to cut household exposure to oil prices
- Spending is shifting from road to rail transport. You need to get out in front of this.
- How to take advantage of the energy arbitrage that rail transport will offer in future years
- Important case studies of what's to come
- The big change ahead (and the argument for optimism)
If you have not yet read Part I: Getting On The Train, available free to all readers, please click here to read it first.
Portland, Oregon is a city well known internationally for its commitment to sustainability. Over the years, the downtown area has been wisely restored into a very pedestrian-friendly streetscape. And while Portland continues to have problems – mainly a weak economy that could benefit from greater diversification – the city continues to attract people from all over the world who are looking for a better place to ride out some of the problems now facing developed economies.
Over the past year, since moving to Portland myself, I've had a chance to do some accounting of how much I've reduced my own exposure to oil. Let me first say that getting oil out of the household budget was not my only reason for moving to Portland. However, as someone who started looking at these issues 10-15 years ago, the prospect of greatly reducing my oil consumption was a key factor in my decision to relocate.
Now, while it's true that reduced oil consumption is more common for everybody living here in Portland, the other important element (and this will seem obvious) is that living in other cities and regions typically means a greatly increased exposure to oil. So while the cost of food, medical care, and many goods is just as expensive here in Portland as elsewhere, it is now rather sobering to consider the burden of high oil prices in other regions from my new vantage point – especially given that oil has found a new equilibrium price around $100 a barrel.
By moving to Portland, we completely shifted the core of our energy consumption to natural gas and also electricity, which in the Pacific Northwest is largely sourced through hydropower. Electricity rates in the Pacific Northwest are either the lowest or among the lowest in the United States. Also, because of the rich offerings in public transportation choices, we were able to drop one of two cars. But there's more…
by
charleshughsmith
Executive Summary
- The U.S. is less prepared for contraction than the U.S.S.R. was
- The pressure to print money and the spectre of runaway inflation
- What we must learn from the Japan example (the U.S. is unlikely to tread a similar path)
- Why you must expect and prepare for the rules to change
If you have not yet read Part I: Anticipating the Devolution of Big Government, available free to all readers, please click here to read it first.
In Part I, we surveyed the four critical dynamics that will lead to the devolution of Peak Government: massive borrowing, institutionalized mal-investment, erosion of trust in government, and diminishing returns on public debt. In Part II, we consider how the devolution of Peak Government may play out in the real world.
We are indebted to author Dmitry Orlov for examining how apparently stable global empires can suddenly destabilize, much to the surprise of everyone involved. Orlov experienced the collapse of the Soviet Union first hand, and in his book Reinventing Collapse, he contends that America is actually less prepared than the former U.S.S.R. to weather the collapse of Central State institutions.
As I noted in my first series on Peak Government, this does not mean government ceases to exist; what it does mean is that government shrinks and assumes a different role in society and the economy.
Though there are many obvious differences between the former U.S.S.R. and the U.S., Orlov’s primary point is that complex, apparently stable governments can destabilize rather quickly once invisible “tipping points” are reached…
Understanding the Economic Impact of Peak Government
PREVIEW by charleshughsmithExecutive Summary
- The U.S. is less prepared for contraction than the U.S.S.R. was
- The pressure to print money and the spectre of runaway inflation
- What we must learn from the Japan example (the U.S. is unlikely to tread a similar path)
- Why you must expect and prepare for the rules to change
If you have not yet read Part I: Anticipating the Devolution of Big Government, available free to all readers, please click here to read it first.
In Part I, we surveyed the four critical dynamics that will lead to the devolution of Peak Government: massive borrowing, institutionalized mal-investment, erosion of trust in government, and diminishing returns on public debt. In Part II, we consider how the devolution of Peak Government may play out in the real world.
We are indebted to author Dmitry Orlov for examining how apparently stable global empires can suddenly destabilize, much to the surprise of everyone involved. Orlov experienced the collapse of the Soviet Union first hand, and in his book Reinventing Collapse, he contends that America is actually less prepared than the former U.S.S.R. to weather the collapse of Central State institutions.
As I noted in my first series on Peak Government, this does not mean government ceases to exist; what it does mean is that government shrinks and assumes a different role in society and the economy.
Though there are many obvious differences between the former U.S.S.R. and the U.S., Orlov’s primary point is that complex, apparently stable governments can destabilize rather quickly once invisible “tipping points” are reached…
by
Chris Martenson
Executive Summary
- Adapting our behavior is a must at this point. We really don't have the option not to.
- The number of claims on real wealth is increasing. How much of the "real wealth" do you own?
- Our economy is now truly a confidence-based system. What will be the fallout when that confidence falters?
- What are the key knowns & unknowns we need to be addressing now?
If you have not yet read Part I: In a Bad Spot, available free to all readers, please click here to read it first.
What is completely unknown at this point is what will happen to our very complex and interwoven financial system when it finally comes to grips with the idea that old-style growth is never coming back. One worrisome idea is that it will experience something akin to cardiac arrest and simply break down one day.
Maybe this will happen, maybe not. I will note that the degree to which the central banks have set themselves up as the ultimate saviors of the system has both an upside and a downside, and it is the downside that worries me the most at this point.
While all the trillions of dollars of intervention have stabilized the system, which I consider to be a good thing, the downside is that the central banks have placed themselves in a position where they had better succeed. If not? Then we discover just how important confidence is to a monetary system built, owned, and operated on trust. My guess is "very."
If We’re Ever Going to Take Control of Our Destiny, the Time is Now
PREVIEW by Chris MartensonExecutive Summary
- Adapting our behavior is a must at this point. We really don't have the option not to.
- The number of claims on real wealth is increasing. How much of the "real wealth" do you own?
- Our economy is now truly a confidence-based system. What will be the fallout when that confidence falters?
- What are the key knowns & unknowns we need to be addressing now?
If you have not yet read Part I: In a Bad Spot, available free to all readers, please click here to read it first.
What is completely unknown at this point is what will happen to our very complex and interwoven financial system when it finally comes to grips with the idea that old-style growth is never coming back. One worrisome idea is that it will experience something akin to cardiac arrest and simply break down one day.
Maybe this will happen, maybe not. I will note that the degree to which the central banks have set themselves up as the ultimate saviors of the system has both an upside and a downside, and it is the downside that worries me the most at this point.
While all the trillions of dollars of intervention have stabilized the system, which I consider to be a good thing, the downside is that the central banks have placed themselves in a position where they had better succeed. If not? Then we discover just how important confidence is to a monetary system built, owned, and operated on trust. My guess is "very."
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