(continued from part 2) …
Of course, as Bob laments in his song, The Times They Are A-Changing, but not to anything we haven’t seen before, even in our short lifetime.
4. The United States chose to deepen the void in bilateral relations with Moscow by expanding the sanctions list against Russian companies and individuals, according to the Russian Foreign Ministry. Moscow will respond to the expansion of the US sanctions list, which is destroying bilateral relations and leading to the escalation of confrontation, the Russian Foreign Ministry said Friday. “By imposing new sanctions against Russian citizens and companies, the United States have shown once again that they have chosen the path toward deepening the confrontation,” the Foreign Ministry said in a statement on its official website.
5. Wages and salaries in the U.S. rose in the second quarter at the slowest pace on record, dashing projections that an improving labor market would boost pay. The 0.2 percent advance was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, also rose 0.2 percent in the second quarter from the prior three months.
6.Japan’s release of pictures of Chinese construction activity in the East China Sea will only provoke confrontation between the two countries and do nothing for efforts to promote dialogue, China’s Foreign Ministry said. In a defense review this week, Japan urged Beijing to stop building oil and gas exploration platforms close to disputed waters in the East China Sea and expressed concern that Chinese drills could tap reservoirs that extend into Japan’s waters. In a statement late on Wednesday, China’s Foreign Ministry said it had every right to develop oil and gas resources in waters not in dispute that fall under its jurisdiction. …
7. The IMF has developed a reserve currency basket called SDR, or Special Drawing Rights. For the past few years, the institution has openly called for the SDR to replace the dollar as the world reserve currency. And this day is closer than anyone thinks. Barron’s has already reported that “the talk [to replace the U.S. dollar by SDRs as the world’s reserve currency] has gained momentum recently.”
8. Coming on October 2015: The IMF will complete its twice-a-decade review of the currencies that set the value of the SDR. And it’s very likely the IMF will add the Chinese yuan as an official reserve currency to the SDR basket. In the last few years, the use of the Chinese currency in international markets has already grown in a very big way. The proportion of China’s trade that’s settled in yuan has risen to about 20%. And, in the last few years, the market for bonds denominated in yuan has grown from zero to $72.9 billion. China has also signed agreements to trade the yuan freely in cities from Hong Kong and Singapore to Frankfurt and London. All these developments greatly increase the chance the IMF will include the yuan in the SDR. And that will pose a major threat to the dollar.
9. While Russia has eclipsed Saudi Arabia as China’s largest supplier of oil, China is still Saudi Arabia’s biggest customer for oil exports. Saudi Arabia feels betrayed by the U.S. détente with Iran. It no longer feels obligated to maintain the petrodollar deal worked out by Henry Kissinger in the mid-1970s that required oil to be priced in dollars. China has worked out swap lines with Switzerland that allow yuan to be swapped for Swiss francs. This means that if Saudi Arabia takes yuan for its oil, it can swap the yuan for francs, which is one of the most sound currencies. Deals of this type, including the massive Russia-China energy deal announced in June 2014, spell the end for the dollar as the leading reserve currency.
10.China is also getting ready to launch its first crude oil futures contract denominated in yuan. This will give China greater influence in global pricing of oil, putting the petrodollar in danger. And it’s not just oil. China is conducting trials to launch a yuan-backed gold pricing benchmark. This means China could soon become the price setter for gold bullion. This new Chinese gold price benchmark may be launched before the end of the year, posing another major threat to the dollar.
(continued in part 4)