Planck Foundation

The Global West Will Become A Common Currency Union

During the last years more and more nations are demanding their gold reserves back out US custody (see

By this the USA faces the same problem they faced in 1971 under Nixon. See for the details of the 1971 problem and unilateral forced solution.

As this has huge consequences the US must come up with a pre-emptive ‘solution’ in somewhat 1971 style (but only now even more impressive). If they don't act pre-emptive on this matter the consequences are quite severe for the US: As then they will have to buy requested physical (note: not paper, but physical) gold on the open global market (as the gold the nations brought to US is used by the US for other purposes: see the 'remelting statements' in the German gold repatriation case). These US purchases would send gold far up north in pricing (and that will undermine the dollar system at its roots: as more gold influence in the global monetary system delivers the US not any advantage above others: it will make the US a normal instead of a super power).

Please note that this analysis is not on gold. We not even like the role of gold in monetary systems. But it's a mathematical fact that effect of a price rise of gold in the global monetary system delivers a more fair more equal monetary playing field with no special headstarts/advantages for any nation (as the US has enjoyed since 1944).

This gold problem comes for the US in a bad timed moment as two huge developments already had huge influence. a) The role of the dollar as global reserve currency (currency used in international trade/settlements) for a 85% level in 2008 to 65% in 2014. And this 'market share' of the dollar is still declining. Many nations have created many bilateral arrangements to facilitate bilateral trade (without the dollar as intermediar). Many central banks of nations have created many bilateral currency swaps to facilitate bilateral trade without the dollar as intermediar. See for more details on this. b) The foreign appetite for US federal debt (still the most liquid type of financial paper: as good as the cash dollar) has declined from 90% before 2008 till 15% in 2014. The impact of those two developments were already huge. The gold issue comes burden this situation even more (accumulating/multiplying both the speed and impact of those 3 development).

The consequences of this (no longer by monetary exceptionalism driven advantages driven) situation would be severely for the US: The 'American Century’ will be over. Note: The American Century was fully driven/powered by the global monetary upperhand situation: to even such an extent that the US could develop a 75% consumption driven economy and the US become the biggest military power on earth. The effect would be instantly that the almost inflation free US governmental funding by endless QE would stop overnight (the FRB currently buys 85% of the US federal debt issued) and therefore a governmental shutdown will become a reality (not by political choice of the Republican Party, but just by lack of funding). As a result a) the US economy will collapse to 50% of its current level (as it has become to that extent federal funded/driven) and b) the global military position of the US (build from out above 1000 foreign bases) will become unfunded and therefore powerless overnight too.

Note that any leadership position ever never is turned in voluntary: leadership roles are not given, but (nasty) fought for. Don't forget: the whole US system is since 1944 based on / funded by its monetary model: 1944 (Bretton Woods), 1973 (Kissinger's petro dollar recycling), etc. Having and keeping the monetary upperhand delivers not small advantages/headstarts to the US.

Please note that these gold repatriation initiatives tell indirect another significant story: a huge decline of trust in the US and its monetary value and its economy. This is not a tiny little development with tiny little consequences. Trust always comes walking (grows slow), but when it disappears it runs away (when trust is deceived / proven to be misplaced). Exceptionalism that comes with self-restriction is quite sustainable. Exceptionalism that is delivered with arrogance is not sustainable as it will be resisted. Exceptionalism is a headstart advantage as long as it has self-restriction. Otherwise exceptionalism will be gone by the wind very easily.

The US pre-emptive solution probably will be: ‘throwing another nation earlier under the bus’ (as tried with Greece some time ago, but that was prevented by the EU/ECB). As when a significant nation goes bankrupt the consequence is instantly/overnight heavy weather in the financial system. Risk becomes priced-in again (as it was early 80ties when interest rates where north of 10% worldwide) and interest rates will surge again from current low levels to somewhere around 10%. After such an event Central Banks their interest setting and money supply will not be able to determine the monetary weather for quite some time: the impact of events (better said: risk assessment aka the market) just will take the steering wheel over.

These high interest rates around 10% will not only burden companies and households: it will also burden governments. Why? As they all in their 'wisdom' have financed the long state debt by short term loans that have to roll over frequently. A splendid advice of their core funding advisers: the advisers are strangely also the players at the governmental debt sales auctions (maximalizing fees for them). Rolling state debt over in an around 10% interest realm is not easy: so both canceled auctions and high interest loans will eat out the governmental budgets of govs with debt everywhere. See for more details on this.

For the US taking the lead is the only way to maintain their global monetary power position and the benefits on global production attached to it. If the US can convince the EU and JP to join they are in severe dire straits. Know that monetary power equals economic power and economic power equals military power. The events of 1944, 1971, 2008, etc tell a very clear story: monetary leadership equals an almost free ride on the system.

If this happens the US will deliver the ‘only solution’ overnight (which is all ready ‘drafted’ ready). And all governments in the Global West will comply (as they don't see that much other options). The solution the US will ‘propose’ is new currency union for the Global West (US, EU, JP). This will be decided overnight by Obama, Juncker or Tusk and Abe (just those three). One small little detail: there’s a small line between a draft and dictate if 2 of those 3 are baffled.

Everybody in the chain of command under those 3 leaders will comply as they are baffled too. Also because they don’t understand the big picture that much, face an overnight deceasing financial system and are buried under national debts. The lubricant for getting it passed the next day by all parliaments is erasing of the national debts (an action that will reduce pensionfund assets with 50%).

This Global West Currency Union will be the ‘all or nothing’ solution of the USA to this problem: they don’t have no other choice than the one described above. China and Russia will not join, as well the other BRICS nations and the rest of the Global East and Global South. The Middle East will not join instantly: they will demand a compensation for their huge losses that this switch has delivered them.

Russia is angry on the US meddling in Ukraine and NATO extension to their borders. China is angry on the US meddling in Hong Hong and West China. Two huge strategic mistakes the USA made that eliminated the chance for an US driven global currency. In the history books of the future these two actions will be named as the reasons why a global reset of the financial system under leadership of US was not possible. instantly: they will demand a compensation for their huge losses that this switch has delivered them.

The Global Rest will not comply anymore by US monetary leadership, they'll accept their losses on financial paper of the Global West owned by them and they'll take quite another economic path than the Global West. They will go for the productive the Rhineland model of capitalism, instead of the financial Anglo-Saxon model of capitalism. They will listen more to Friedrich Raiffeisen and Friedrich List than Adam Smith. See for more details on this.

With growth figures between 5 and 10% the Global Rest will be able to do so. Their economies are getting in fast pace less and less depending on the declining demand from the US, EU and JP. Of course write down on all financial assets in the Global West they own will hurt them, but they will still thrive and survive better that ever before (as the wealth transfer to the US by the dollar is stopped). They will seek other and build mutual interest based monetary and economic relations. The just will make the old post WWII global power structures obsolete as writing them down as reactionary old guys with no (economics, monetary and therefore political) power at all. See and for more details on these quite significant game changers.

That a monetary union without a political union doesn't work is something that history has told us over and over again. As in that unbalanced system 1) there will be donors and takers (which will lead to a revolt of the donors) and 2) those in dire straits can't use monetary tools to fix their situation. The Atlantic Union (regardless if it only will be a monetary one or also a political one based on NATO/TTIP) will be an union of stagnation. It will not be capitalistic, it will be one big 'feast' of special interests serving oligarchy: not longer your performance will bring you success, but how close you are to the rulers. It will have the seeds of its own dead already in it when put in place.

As a result of this all the Global West will become a somewhat isolated island/unit in the global monetary and economic ocean: with huge FX/import problems for basic things like energy. The era of the Global West as consumption instead of production region are over: 1) They have a huge economic problem attached to the too old demographics. 2) Erasing most of the pension fund assets will deliver a huge economic / purchase power contraction. 3) Imports will become much more expensive (less consumption by same GDP data). See for more details on this.

An objective assessment of the status quo economies of the Global West delivers a tarnishing image. The Global West has gone drunk of itself the last 30 years (to speak with the words of a former US president while assessing Wallstreet). Overextension in monetary means, governmental budgets and military means has somewhere/sometime an end. Building economies on monetary advantages, credit growth and military expansion is not too wise: somewhere there's an end to both those three: that's no politics, it more mathematically: it just comes with the nature of it: both have a limit somewhere.

In some more concrete words: too much credit driven consumption, too less production: outsourcing most of it production (aka outsourcing real economic growth), too much resources to control (war on terror story: the DDR had a 'thriving' economy due to that), too much resources on conflicts (currently also under the war on terror banner: but WWII Germany wasn't a success either: don't forget the cost of damaged veterans, both psychological as physical: the hidden cost of war that's always and everywhere swept under the carpet quickly), total financilization of economies (when the financial industry grows beyond 2-3 % GDP, it becomes parasitic on the real economy), removing the debugging of the market by governmental actions (bad business are kept alive by governmental funding), rigged markets in many sectors (special interests driven businesses/corporations have due to their government connections the upperhand on non special interests driven general businesses/corporations), supported markets in many ways (even market indicators like S&P are supported by supporting purchases).

The Global West has forgotten that production is the source of prosperity: they forgot somewhat what brought them to prosperity (productivity, competition in fair markets with level playing fields and an open information society). A lot of that had to do with (latent) self overvaluing: 'the other' should do the work for them (as they are 'less developed'): a lot of latent imperialism and even fake white supremacy nonsense in this attitude. The Global West is heading for dire straits if this propped up artificial system collapses. The Global West is still a little self centered/obsessed. The reality is that 'it' no longer happens in the Global West.

The main facet that will hurt the most in the recovery of the Global West is that South America, Africa, the Middle East (West Asia), Asia and Russia will not love the Global West as block that much (as they have bossed them around for more than a century, waging wars in their neighborhood, left then with a lot of useless financial paper). The concept of foreign sponsored coups (in South America) and destabilization by divide and conquor (as done in the Global East and Global South) will backfire tremendously. A famous quote is applies to this is 'you can fool some people all the time, but you can't fool all people all the time'). Never underestimate the huge impact of the gradual steady rising self esteem of the Global Rest: that will be one of the major drives in the 21st century (Putin is one of the first in this movement, but certainly not the last: it has not even started yet). This will result in cool relations at best. Destabilization as core of foreign policy doesn't pay off that well. A more negative scenario is the one that happened by the collapse of Russia: a situation of a total stop of imports into Russia, laying a distress on any ship/plane coming from Russia. Hitting the walls of monetary/economic reality while living the dreams will not be a pleasant experience for the Global West. Europe will have not that much joy within and after their transatlantic marriage.

As stated above: this analysis is not on gold. We're no fan of gold at all. We think gold is economic dead/useless stuff without any other value than financial, nor having any contribution to the economy. It's just an expensive but effective insurance tool against inflated financial paper. Still we don't like gold that much. Gold is the toy of frightened people who think they and their children can survive a Mad Max like world. The role of gold for nations is more clear (hedging their monetary system and economy against the unsustainable money creation of/by the global reserve currency). When a global reserve currency goes down gold explode in value and monetary power polarity changes occur overnight. A parabel: When force a ball to stay under water, the moment you loose grip it will jump out the water. When the US looses it grip on the global monetary system, wealth/economic/monetary levels around the world will be shifted overnight. Still we think gold is useless stuff with no other contribution than insurance against run-a-way abuses in the fiat system. We prefer the backing of currencies by real economic assets (as done in the EQE/EBS model) far more as 'backing' by gold.

If you want to strangle an economy you must go back to the gold standard. And besides that strangling: a gold standard model doesn't guarantee fiat money creation: it's just a fake illusion, a promise no gold standard ever has kept. The gold standard is just a closed fiat system for special interests. The gold standard is also based on trust in a system without transparency. The days this was viable are over. Trust equals transparency in today's world. Tis last line is maybe the most important concept in this whole page. As all other things mentioned just diverts from that decline of trust. This is why we don't believe that much in gold 'backing' of currencies and think more transparant currency backing models (like EQE/EBS) will finally become the defacto currency backing anywhere in the world. Therefore: it's time for a new model, not the fiat model, nor the gold model, the EQE/EBS model. See for more details on this.

See also International Currency Stability
See also Europe: Diagnosis and Prescription
See also Governmental Funding Turbulence
See also Labour Taxation
See also Money Creation
See also Energy Open Finance Platform
See also Global PV Solar Energy Finance Model
See also EQE/EBS Model Summary Diagram
See also BQE: Bilateral Currency Swaps
See also Gold Backing vs EQE/EBS Backing
See also Secular Stagnation as Denial Term
See also Financial QE vs Productive QE
See also Productive Capitalism Perspectives
See also Emerging Nations - Electricity PPP
See also Emerging Nations - Solar PPP
See also Easy Instant Solarizing Nations
See also Making The Euro More Offensive
See also Structural EU/EC Boat Refugees Solution

See also Global Solar Rollout - Description - Diagram
See also Regional Solar Rollout - Description - Diagram
See also Obama Administration Energy Strategy
See also China As Global Leading Solar Energy Nation
See also Open Finance Platform for Energy Investments
See also Iceland 3.0: Geothermal and Energy as Currency
See also Addressing Economic Decline of the Global West
See also IntraContinental: Continental Rail Schedules
See also Global West Enters Economic Adulthood
See also Global East Driven Globalization 2.0
See also Financial Capitalism vs Productive Capitalism
See also CIRI (China India Russia Iran) Avoids Dollar
See also Global West Gets A Common Currency
See also What Ended Global West Dominance
See also National Economic Development Organizations
See also Desert Investment Economics
See also Ending Global Poverty (By Sea Water Irrigation)

See also Global Deserts Exploration Model
See also WaterTech and MicroCredit Merge
See also Lupin As Soy Replacer
See also Global Seed Cartels Aren't Right
See also Global Food Model: Local to Global
See also Sun / Earth Interactions
See also Telco 3.0 : Telco out of the Cloud
See also National Business Clusters Abroad
See also Scientific Education/Research Funding
See also Iran: National Economic Plan
See also Immigrants and Trade
See also Emerging Nations - Minerals PPP
See also Emerging Nations - Deserts PPP
See also Emerging Nations - Energy PPP
See also National Solar Fund Model
See also Secular Islamic Finance
See also Open Energy Finance Platform

Gijs Graafland / Planck Foundation / Amsterdam / 2014

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