Thread by @wmiddelkoop

In 2014 I wrote The Big Reset.

The most important part: Chapter 6 - The Big Reset

A Sunday thread - inspired by the IMF - calling for a 'New Bretton Woods Moment'

amazon.com/Big-Reset-Revi… or free download en.cdfund.com/download-the-b…

New rules have been discussed not only inside the advanced
economies, but with all emerging economies, including China.

Jean-Claude Trichet, former president of the European
Central Bank

With the status of the US dollar as the international reserve
currency being shaky, a new global currency setup is being
conceived.

Zhou Ming, General Manager of the Precious Metals
Department ICBC

The world is moving step by step toward a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project.

Ambrose Evans-Pritchard, international business editor,
The Telegraph

I believe that basically the system is broke[n] and needs to be
reconstituted. The system we now have has broken down, only we haven’t quite recognized it. So you need to create a new one and now is the time to do it.

George Soros, hedge fund manager

INTRO
The world economy and its currency system can be compared
to supertankers. All route changes have to be planned well in
advance. If history has taught us anything, it is that a currency
tends to lose its world reserve status over a long period of transition.

The ‘endgame’ is often drawn out over decennia. The British
pound first suspended its gold standard at the start of World
War I in 1914, but it was not until 1944 that the dollar became its successor (during the last Big Reset).

Although the US understands that the dollar will one day
lose its world reserve currency status, the Americans will try
to maintain their monetary supremacy for as long as possible.

Actually, it was already apparent to the Americans back in 1971 that the endgame for this dollar-based system had begun. For over 40 years, the US has used all its power, creativity and flexibility to keep its monetary allies on board.

Every trick in the book has been used to convince countries to support the dollar and to marginalize the role of gold.

But since the Fed has started to monetize most of the newly
issued debt as part of its QE operations, the point of no return
has been passed. Probably even within the next decade, the
global financial system will have to find a different anchor.

We can expect the US to take the initiative again before a real crisis of confidence occurs.

Why do you expect a Big Reset of the global
financial system?

Our financial system can be changed in almost any way as long as the main world trading partners can agree to the changes.

There are two types of resets: those that are planned well in
advance – such as the Bretton Woods reset in 1944 which affected almost the whole world – and smaller resets needed due to monetary developments.

Examples of the latter are the introduction of the gold-backed D-Mark after the Weimar hyperinflation in 1923 in Germany, the closing of the gold window by the US in 1971, and the theft of depositors money during the rescue of the Cyprus banking system in 2013.

Two major problems in the world’s fijinancial system have to
be addressed: 1) the demise of the US dollar as the world’s reserve currency, and 2) the almost uncontrollable growth in debts and in central banks’ balance sheets.

For all of these issues, central banks have only been buying time since the start of the credit crisis in 2007. Insiders predict that much more radical action will be needed before 2020

In 2013, the Chinese openly said that the time had come to
‘de-Americanize’ the world. They called for ‘the introduction
of a new international reserve currency that is to be created
to replace ‘the dominant US dollar’

But given how sensitive this issue is, nothing can be said in
public. Any official comments about a new ‘Plan B’ will crash
financial markets (Plan A) immediately. Central planners know
the only way to plan a reset is to do it in total secrecy.

That is why investors have to watch what central bankers do instead of what they say and prepare themselves well in advance.

Many monetary reforms, like the one in Cyprus, are executed
on the weekends when financial markets are closed. On many occasions, there are no concrete warning signs. Only insiders
and their ‘smart-money’ (i.e., hedge-fund) friends tend to be
positioned well in advance.

China stopped buying US Treasuries in 2010 and has been loading up on gold ever since, which is a sign not to be ignored. The Russians have been aggressively buying gold as well, ever since the start of the credit crisis in 2007.

The fact that the US is still fighting gold with everything in its power is a clear indication that gold will probably be an important part of a planned reset. If not, it will at least be the best safe haven when the storm passes.

How can the international monetary system be
changed?

Most people see our financial system as a binary system with
only two options: it will work (0) or it will crash (1).

They tend to forget that this is a highly flexible system, which can be adjusted in many ways. Because the current system is constructed by mankind and does not follow the rules of natural law, almost any desired change can occur.

We do not live in a binary black and white world. Rather,
reality is in 256 shades of grey. It is therefore much more logical to expect an outcome for our reset to range somewhere between 1 and 256. Some debts will be cancelled. Some parts of the financial
system nationalized

In theory, all debts worldwide could be wiped out on a Sunday
afternoon. We could start from scratch with a new balance sheet the next morning. These kinds of scenarios are hard to comprehend, but when the need is highest, solutions can become very creative.

A new reset will simply bring our monetary system to the next
phase. All parties involved have so much to lose if they wait too long implementing the necessary changes.

And the US knows they have the most to lose. They understand they will need to take the initiative again, just as they did in 1944 (Bretton Woods 1.0) and 1971 (Bretton Woods 2.0). The wait is on for Bretton Woods 3.0

When did experts begin to understand the the system had to change?

Soon after the start of the crisis in late 2008, the IMF and others began brainstorming about the next phase for our financial system.

According to IMF historian James Boughton, some world leaders have been calling for a ‘new Bretton woods’ ever since.. He also gave a few examples of other historical resets:

In 2012, the former Bank of England Governor Mervyn King predicted advanced economies would probably not be able to get out of the current crisis without large debt restructurings and a recapitalization of the financial system (i.e. banks)

The United Nations called for ‘a new Global Reserve System’
based on the IMF’s Special Drawing Rights (SDRs) as early as
2009.

In that same year, Governor Xiaochuan of the People’s Bank
of China (China’s central bank) published a long statement in
support of these ideas. He called for replacing the dollar as the dominant world currency.

He also said the financial crisis showed the need for ‘an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.’ He also explained that the interests of the US and those of other countries should be ‘aligned’

In China, a few more studies for changes to the current monetary system have been published as well. There are also some very strong statements in ‘The road map of the reform of the international monetary and financial system’ (2009), which can be found at the UN website

A report, published by the prestigious Institute of World Economics and Politics (IWEP), part of the Chinese Academy of Social Sciences, in early 2009, shows very clearly what the Chinese elite really thinks about the current dollar/IMF-centred system.

According to the author, ‘the lack of independence has damaged the authority of the IMF irretrievably. Any reform of the IMF less than a total overhaul is not acceptable.’ This report is also very important for understanding
the Chinese position

Why is a monetary reset desired by China?

In recent years, the Chinese calls to get rid of the so-called
‘dollar trap’ has intensified. In 2011, the Chinese newspaper
People’s Daily criticized the irresponsibility of the US debt
policy.

in 2013, the state news agency Xinhua
distributed a commentary declaring that the time had come to
‘de-Americanize’ the world. What is remarkable about this article from our perspective is that it, in effect, calls for a Big the need for a ‘new global financial system’

Will gold be part of a currency reset?

While most experts believe there will be no return to a full gold
standard, gold will probably play a much greater role in the next phase of the fijinancial systems.

If we have learned anything from the history of money, it is
that gold (or silver) have always been needed to rebuild trust in monetary systems. The former president of the Dutch central bank, Jelle Zijlstra, wrote:

Zijlstra: The intrinsic value of gold along with its romantic image has until the 1960s dominated the international monetary framework. It was perhaps a rather irrational anchor, however it was a stable anchor..

Zijlstra: ... Eventually, this changed, not because old-fashioned understandings had been replaced by more
modern ones, but because the United States of America found the role of the dollar threatened by gold.

Some American insiders have even been calling openly for a
return to the gold standard. One such insider is neo-conservative Robert Zoellick, the former President of the World Bank, who wrote an open letter to the Financial Times in 2010 entitled ‘Bring back the gold standard’

Professor Robert Mundell argued for a return to the gold standard for both the dollar and the euro as well.
Mundell is seen as one of the architects of the euro and has
been an advisor to the Chinese government and is connected to the Remin University (publisher of The Big Reset)

China has made clear they would prefer to choose the path of cooperation instead of confrontation although they would prefer to start with a ‘new world central bank’.

Are there any Western studies on a monetary reset?

In a Chatham House study titled ‘Beyond the Dollar Rethinking the International Monetary System’ (2010), the question for a needed reform of the current monetary system was studied by experts from the West and East as well.

It called for an ‘expansion of the role of the IMF’s Special Drawing Rights’.

The report recommended the following changes to the international monetary system:
Develop a multicurrency reserve system that is appropriate
for a world of regional trading blocs – Europe, Asia, the
Americas – alongside a still preeminent dollar.

The Chinese, who participated in this study called for another
study because they were surprised that a possible new role for gold was not mentioned.

This led to a new study by the Chatham House Gold Taskforce
titled ‘Gold and the International Monetary System’, which was
published early 2012. The group acknowledged that gold bullion could serve as a hedge against the declining values of fiat currencies ..

and that it plays a role as a reserve asset, but concludes
that for bullion to play a more formal role in the international monetary system,‘it would be imperative that it neither hinders the system’s performance nor creates unacceptable constraints on national economic policies

The report even mentioned the idea that gold could be added
to the SDR’s currency basket. One of the members of this Taskforce was House of Lords representative
Lord Meghnad Desai, who published a note around in which he mentioned a role for gold within the
SDR as well.

In Currency Wars, Jim Rickards describes a scenario in which a new gold-backed dollar could be introduced in the US:

A ‘new’ gold dollar will be created at ten times the value of the
old dollar.'

According to Rickards, such a gold revaluation, including a new gold-backed dollar, is one of the last instruments available to the Fed to avoid a total collapse of the dollar system. A revaluation may be needed because the Fed is quite insolvent ..

A revaluation of the almost 9,000 tonnes of US gold reserves to $8,000 per ounce would mean over $2.2 trillion in gold assets instead of $11 billion at the time of writing

The Chinese realize that the US could surprise the world with
a unilateral gold revaluation. Wikileaks revealed a cable, sent
from the US Embassy in Beijing in early 2010 to Washington, in which a Chinese news report about the consequences of such a dollar devaluation was quoted.

Gold revaluations or fiat money devaluations have been debated by many experts, as it may be the only way to prevent worldwide hyperinflation.. revaluing gold to back up and reset the monetary system could be one of the least disruptive ways out of the credit mess.

Does the US feel threatened by these Chinese
initiatives?

These developments indicate that a monetary, economic and geopolitical ‘reset’ process has already started. The Chinese, like the Russians, clearly want to end the current dollar hegemony ..

During the annual IMF spring meeting in May 2015, the BRICS Ministers of Finance and the presidents of their central banks held a meeting in which they discussed ‘a completely new economic system,’ according to reports by the Chinese state press agency.

Another criticism is that the US move to more neoliberalism
and global capitalism since the 1980s has led to a change in the functions of the IMF. Criticasters claim allies of the US receive ‘bigger loans with fewer conditions.’

Foreign governments who are non-allies have to sacrifice their political autonomy in exchange for IMF funds and often have to sell assets crucial for their economy to foreign (often US) companies.

The former Tanzanian President Julius Nyerere, who was
angered that debt-ridden African states were forced to hand
over their sovereignty to the IMF (and World Bank), once asked: ‘Who elected the IMF to be the ministry of fijinance for every country in the world?’

The Chinese have openly asked for a ‘new world wide central bank.’ Joseph Stiglitz, a former chief economist at the World Bank, has also agreed that the IMF ‘was reflecting the interests and ideology of the Western financial community.’

The ‘helpful hand’ by the IMF and World Bank toward military dictatorships friendly to the West has been criticized as well.

Are there any signs of a coming global monetary
reset yet?

At the 2014 edition of the Chinese International Finance Forum (IFF) ‘a new global fijinancial order has been discussed with China.’

The IFF Forum points to several ‘top priorities’ needed to
transform the current monetary system:

– establishing new global financial frameworks
– formulating new regulatory systems
– reconstructing new pattern of the world finance

For three days the forum (including UN, World Bank and IMF
participants) discussed ‘the new framework for the global
financial and economic system.’

In 2014, at the annual meeting of the Bretton Woods Committee, Paul Volcker also proposed working toward a monetary reset in a speech titled ‘A new Bretton Woods’

At a conference in Germany in 2014, Jürgen Stark, former vice president of the Bundesbank and also former chief economist of the ECB, concluded that ‘the system is out of control.’

.. he warned the attendees directly against a probable collapse of the global monetary system. He said that the ECB ‘has completely lost all ability to control and the economic situation,’ and that ‘the whole system will not survive.

During a panel discussion at the World Economic Forum in Davos in early 2014, Christine Lagarde (IMF/ECB) said it was
time to ‘move to another monetary policy.’ In her prepared remarks she mentioned the word ‘reset’ more than ten times in a two and a half minute timeframe.

Epilogue

History reveals countless examples of failed monetary systems. After the debasement of the Roman Denarius and the subsequent fall of the Roman Empire, it took 500 years before a developed civilization re-emerged in Europe.

In the 1980s, the leaders of the Soviet Union were convinced
their communist Ruble-regime would last forever and they
continued waving from the balcony until the bitter end.

Us Westerners concluded that our dollar-system, based on
free markets, was a superior one because all of the communist countries ‘switched over’ to our side after the fall of the Berlin Wall.

Now, with more and more markets controlled by central
bankers, it is clear Western capitalism has reached its end. We
have now entered an era of state capitalism. China is a perfect
example. Just like Russia, the US, the EU, the Arab World, the UK and Japan.

Economies of West and East are now intertwined
in a way never seen before. In the same manner as the communists leaders did at the end of the 80s, our governments, (central) bankers, institutional investors and even accountants have all joined forces to pretend
all is still fine.

But of course most of them know our economic
system will fall apart once they stop QE, an euphemism for
printing ever more money.

Central bankers have been monetizing all net debt issuance (2015), in an effort to reflate the $200 trillion in global outstanding debt. Since money can only be created as (new) debt, fund managers, charging yearly fees of 1%, have seen their revenues (and bonuses) explode ..

Wall Street and City-traders will continue to ‘milk the system’
for as long as possible.

The roll-out of Zero Interest Rate Policies (ZIRP) around the world, implies that central banks are really the only buyers left in many bond markets. We are therefore trapped in a vicious circle of more deflation, more QE and even lower yields leading to more deflation.

Central banks will have to double down once more. Trillions of sovereign bonds on balance sheets no longer represent their book value, since the principal can’t ever be repaid. Only a debt restructuring can solve this problem.

That’s why more and more money has started fleeing towards the general stock markets and other hard assets.

Even Alan Greenspan, the former chairman of the Federal Reserve, has been sounding the alarm bell. Not in public of course, but during private conversations at a New Orleans conference:

Greenspan: The Fed’s balance sheet is the tinderbox for the US economy. It is mathematically impossible to cover future government promises, which by default includes debt and derivatives of the major too big to fail banks

That’s why authorities are now turning to precisely those measures which we so despised in the former Russian communist system. Economic figures are increasingly being manipulated and colored to reflect a rosier picture.

Good news is often the result of propaganda and the work of spin-doctors. The economy and its financial markets are being increasingly centrally controlled. Interest rates are manipulated, gold wars are fought and authorities, almost openly, prop up stock markets.

As a result, a huge disconnect between the price and the value of almost all assets has emerged. Government bonds, priced as risk free, might lose most of their value, while gold, by many seen as worthless, may rise tenfold in the next decade.

The value of gold, going up and down, can be compared to one’s view of the land, from a boat floating on the waves. It’s not the land that’s moving up or down, just the boat. Indeed, black has turned into white, while white has turned into black.

For the very first time in history, a financial and monetary
crisis has emerged which is so severe that it has the capacity to end in an all-encompassing distrust of paper assets. This could even lead to an unprecedented wave of hyperinflation

Central bankers are therefore very much aware that it is essential to come up with a monetary reset plan before this will occur. Authorities will do everything possible to modify the
financial system in order to avoid another 2008-style collapse.

It’s not a matter of if, but only when, they will introduce their reset plans. Should the ongoing negotiations about a reset fail to lead to a satisfactory settlement among the world’s main trading partners, things could get spooky. Wars have been started with much less at stake.

When this book was first published in early 2014, the idea
of a financial-economic reset was completely new. While timing is always a little troubling for me, I dare to say the
next ten years (2015-2025) will bring some of the biggest changes to our financial architecture.

END

All tweets in this thread are being part of the Big Reset manuscript, written in 2010-2014, and published in 2014 by Amsterdam University Press. The book is available in 8 languages (Arabic and Chinese)

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