Saudi oil IPO may be part of a plan to support the exorbitant privilege of US dollars.

Saudi oil IPO may be part of a plan to support the exorbitant privilege of US dollars.

by tonytran2015 (Melbourne, Australia).

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(Blog No. … ).

#exorbitant privilege, #reserve currency, #de-internationalized, #dollar, #Shanghai Cooperation Organization,

After US government overlooked the assassination of his political opponent, it is now time for the ruler of Saudi Arabia to return the favour.

Saudi Arabia is selling its prized national asset (https://survivaltricks.wordpress.com/2019/11/03/saudi-aramco-ipo-worlds-most-profitable-company-to-go-public-bbc-news/), probably to obtain US dollars and use it to buy up Treasury Notes which are being off loaded by the Shanghai Cooperation Organization. It can be said that Saudi Arabia will replace the Shanghai Cooperation Organization as a large holder of US Treasury Notes.

If these Treasury Notes are not bought up, interest rate in USA may shoot up and the US government may had prevented that by already printing a lot of money in recent weeks (https://nationandstate.com/2019/10/28/pento-the-fed-is-panicking-to-stop-a-depression/).

1. US dollars have been used for international trading and wealth storage.

Currently US dollars and US Treasury Notes (which will be coverted to US dollars in the future on their designated dates) are kept by central banks around the World as currency for international trading and as a mean for storing national wealth.

(Issued dollar notes: 1200B total, with an estimated 480B inside USA, and an estimated 720B outside USA. The amount of US dollars circulated inside USA is estimated to be only 40% (using the estimate of 2003 that may be outdated) of all issued US notes.
Treasury notes: 22400B total, 15700B inside USA, 6530B outside USA.)

The amount of liabilities to foreign hands includes 720 billion USD in issued notes, plus the (interest rate dependent) discounted values of about 6530 billion dollars in US Treasury Notes. Their sum makes up nearly 7250 billion US dollars of liabilities to foreigners. Total of US dollars and Treasury Notes in domestic circulation is 16180B.

2. The Shanghai Cooperation Organization and its plan.

The Shanghai Cooperation Organization (China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan, Pakistan, India) have agreed to form their gold and oil backed replacement currencies, one of which may be the Chinese yuans (https://www.forbes.com/sites/nathanlewis/2016/05/05/china-is-laying-the-foundation-for-the-next-world-gold-standard-system/#305670a7689e, https://www.zerohedge.com/news/2018-03-30/yuan-oil-futures-contract-gold). The organization may extend to include original Bric Countries and even to includes North Korea and Iran. These countries (China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan, Pakistan, India, Brazil, North Korea, Iran) would replace their holding in US dollars with holding in replacement currencies as well as gold and oil certificates.

Russia dumps half its US dollar holdings, while boosting gold, yuan & euro share of forex reserves, https://www.rt.com/business/470040-russia-dumps-dollar-reserves/

‘Our currency’s stable, why not use it?’ Russia looks to ditch US dollar for exchanges in rubles & euro in energy exports, https://blogfactory.co.uk/2019/10/13/russia-more-interested-to-trade-in-ruble-or-euro-but-no-more-in-dollars/

China and Russia still have large hangover holdings of US dollars (As of 2018, China officially hold 1123 billions of US but true total amount traceable to China may be around 2000 billion dollars.). They have to prop up US dollars so that they can offload their US dollars and US treasury notes at high prices to US friendly nations (e.g. Japan, South Korea, EU, UK, Canada, Australia,…), and their main purpose is NOT for selling Chinese goods to USA as currently believed by US optimists.

It is possible that after their synchronized off loading of US dollars, China will end its artificial propping up of US dollars. So the current upward movement of US dollars have to be considered together with the total unloading of US treasury notes by China.

3. The reduced Exorbitant Privilege.

After the completion of this replacement of an estimated 3000 billion USD, the Shanghai Cooperative group shall hold little amount of credit in US dollars. All dollars and Treasury Notes in their holding will be purposely sent back to USA and the remaining US-friendly countries. As the amount of dollars and Treasury Notes there increases from 20600B (=22400B+1200B-3000B) to 23600B, there would be an additional inflation of 23600/20600-100% =15% for US dollars on top their familiar inflation rate (as there are more currency and currency equivalent Treasury Notes competing for the same amount of service and goods). The US dollars therefore lose some of their “exorbitant privilege” and their annual inflation will then be funded domestically by USA and her fewer friendly countries still holding the US dollars and US Treasury Notes.

4. Destabilizing effects from massive off-loading of Treasury Notes held by China.

These immature Treasury notes compete to be exchanged into dollar notes and may get noticeably lower values than their face values (in terms of issued dollars). Their lower values mean higher interest rates. The Federal Reserse Banks don’t like high interest rates and have to print more dollars to buy up these T Notes. This requires the FR Banks to print many more US dollars but such action causes inflation in the present or requires the Treasury to issue new Treasury notes of even longer terms causing even higher inflation rate in that distant future.(https://en.m.wikipedia.org/wiki/Money_supply

M0: The total of all physical currency including coinage. M0 = Federal Reserve Notes + US Notes + Coins. It is not relevant whether the currency is held inside or outside of the private banking system as reserves.

M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits

M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

MZM: ‘Money Zero Maturity’ is one of the most popular aggregates in use by the Fed because its velocity has historically been the most accurate predictor of inflation. It is M2 – time deposits + money mmarket

.)

5. Rescue is needed.

Therefore the US may require its friendly nations to buy Treasury Notes from Shanghai Cooperation countries. Saudi Arabia may thus act to help the US.

References

[1]. https://www.bbc.com/news/business-50070823

https://survivaltricks.wordpress.com/2019/11/03/saudi-aramco-ipo-worlds-most-profitable-company-to-go-public-bbc-news/

[2]. https://survivaltricks.wordpress.com/2019/11/07/the-next-fall-of-us-dollars-after-their-rejection-by-shanghai-cooperation-organization/

[3]. https://en.m.wikipedia.org/wiki/Reserve_currency

[4]. https://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html

There is about $1.2 trillion dollars of U.S. currency in circulation…The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.

[5]. https://www.federalreserve.gov/paymentsystems/coin_currcircvolume.htm

[6]. https://www.federalreserve.gov/pubs/bulletin/1996/1096lead.pdf

[7]. https://www.frbsf.org/education/publications/doctor-econ/2004/april/money-supply-currency-counterfeit/

“According to the Preface of a March 2003 Report to the Congress by the Secretary of the Treasury, about 60 percent of the outstanding U.S. currency was held overseas; in 2003 that was about $370 billion!”

[8]. https://www.stlouisfed.org/publications/central-banker/spring-2007/how-us-currency-stacks-upat-home-and-abroad

” Today, the Treasury and Board of Governors staffs estimate that nearly 60 percent of all U.S. banknotes in circulation, or close to $500 billion, is held outside the United States. “

[9]. https://www.investopedia.com/articles/investing/080615/china-owns-us-debt-how-much.asp

“China took the top spot among foreign creditors at $1.123 trillion, followed by Japan, at $1.042 trillion, as of December 2018. “

[10]. https://www.thebalance.com/what-is-a-reserve-currency-1978926

“The five countries with the most foreign reserve currency in 2018, according to the World Bank, were:

China: $3.2 trillion
Japan: $1.3 trillion
Switzerland: $787 billion
Saudi Arabia: $509 billion
Russian Federation: $469 billion”

“the Chinese yuan hasn’t taken off as a major reserve currency due to concerns over a sudden devaluation … The same is true for the euro following the sovereign debt crisis in 2009 and the immigration crisis in 2016-17.”

[11]. https://www.valuewalk.com/2019/08/top-10-largest-foreign-holders-us-treasury-securities/

The US national debt currently stands at a record $22.4 trillion …

A large portion of the US Treasury securities is owned by Americans, … The US government and Federal Reserve together hold more than $8.1 trillion … Another $7.6 trillion is held by American investors…

As of May 2019, foreign holders have $6.53 trillion worth of US Treasury securities. …

These are the top 10 largest foreign holders of the US Treasury securities:
10- Belgium, $190.5 billion
9- Hong Kong, $204 billion
8- Cayman Islands, $216.1 billion
7- Luxembourg, $229.6 billion
6- Switzerland, $231.4 billion
5- Ireland, $270.7 billion
4- Brazil, $305.7 billion
3- United Kingdom, $323.1 billion
2- Japan, $1,101 billion
1- China, $1,110.2 billion

… China’s holding is much higher than what’s officially represented… through entities in…

[11]. https://ticdata.treasury.gov/Publish/mfh.txt

As of May 2019, foreign holders have $6.53 trillion worth of US Treasury securities.

[12]. https://en.m.wikipedia.org/wiki/Shanghai_Cooperation_Organisation

[13]. https://geopolitics.co/2017/04/23/gamechanger-india-pakistan-iran-joining-brics-shanghai-cooperation-organization/

[14]. https://en.m.wikipedia.org/wiki/BRIC

[15]. https://www.forbes.com/sites/nathanlewis/2016/05/05/china-is-laying-the-foundation-for-the-next-world-gold-standard-system/#305670a7689e

[16]. https://www.zerohedge.com/news/2018-03-30/yuan-oil-futures-contract-gold

[16b]. Russia dumps half its US dollar holdings, while boosting gold, yuan & euro share of forex reserves, https://www.rt.com/business/470040-russia-dumps-dollar-reserves/

[16c]. ‘Our currency’s stable, why not use it?’ Russia looks to ditch US dollar for exchanges in rubles & euro in energy exports, https://blogfactory.co.uk/2019/10/13/russia-more-interested-to-trade-in-ruble-or-euro-but-no-more-in-dollars/

[17]. Real life lessons on national economics.posted on September 12, 2018

[18]. https://en.m.wikipedia.org/wiki/Exorbitant_privilege

[18b]. https://en.m.wikipedia.org/wiki/Money_supply

M0: The total of all physical currency including coinage. M0 = Federal Reserve Notes + US Notes + Coins. It is not relevant whether the currency is held inside or outside of the private banking system as reserves.

M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits

M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

MZM: ‘Money Zero Maturity’ is one of the most popular aggregates in use by the Fed because its velocity has historically been the most accurate predictor of inflation. It is M2 – time deposits + money market

.)

[19]. https://nationandstate.com/2019/10/28/pento-the-fed-is-panicking-to-stop-a-depression/

… They have a $130 billion revolving repo facility shoving $130 billion every night, rolling it over, trying to re-liquefy the banking system and back into QE–$60 billion per month. At the peak, it was $85 billion. So, they are almost back to the peak of QE (during the Great Recession). They did not scale in, the Fed went to $60 billion right away.”

Why …?

Pento says the Fed is panicking to stop a “depression.”

[20]. https://nationandstate.com/2019/10/31/repo-madness-the-rest-of-the-story/

[20]. https://www.bbc.com/news/business-50070823

[20b]. https://survivaltricks.wordpress.com/2019/11/03/saudi-aramco-ipo-worlds-most-profitable-company-to-go-public-bbc-news/

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