Tuesday, April 14, 2015

AIIB

Today's blog is about money.  If you are not interested in money nor its implications on your future, just move on to the next item on your reading list.  IF you don't mind a boring blog entry on monetary history and banking, then proceed at your own caution... 


The History:

AIIB:  The four letters that represent the Asian Infrastructure Investment Bank.  Its probably the most important development in over 70 years since the Brenton Woods agreements were made back in the days after World War II.  Those agreements led to the development of the IMF and World Bank and established the foundation for world financial transactions and that all currencies would be based on its value relative to gold.  44 countries signed up for that initial agreement and a bank, the IBRD was set up to help countries rebuild and recover after the war.  The US insisted that the dollar should be the reserve currency because at that time, the US controlled nearly 2/3 of the world's gold and that we could back dollars redemption with gold.  

Totally invalid now..but imagine holding a bunch of these back then.. $35 for 1 ounce of gold

Unfortunately, the US, under Nixon broke that agreement and in 1971 the dollar was no longer redeemable for gold. At that point in time, the US was already short of gold to cover the dollars it had on hand.   Instead, we convinced the world that the dollar should still be the reserve currency and that the US would promise to exercise control over it and not use it for its own advantage (like printing too much of it, etc.).



Well we all know how that promise came out.  Then there was the petro dollar, but we will cover that in another blog post.

Under the current system, despite the dollar abuse,  the US still has extraordinary control over the IMF, the World Bank and other institutions where sovereign nations can borrow money.  The use of these institutions, which are dollar based, have been increasingly used to further political and policy agendas and have become the 'financials weapons of war'.  The reasoning goes that if you control the world monetary flow, you can strangle any country's economy by imposing limits to their credit and banking capabilities (e.g. like we are trying to do to Russia)

The AIIB:

It didn't take long for many countries that were developing economically and growing rapidly to figure out that this was an unfair situation.  When the IMF proposed rules giving more say to emerging and developing countries, the US congress sat on its approval which continues to date.  The US and its banker lobbys wanted to retain control of that power.

With the battle of supremacy over the next reserve currency and China's rise to the top of the economic heap, China proposed the formation of the AIIB as an alternative for alternative financing for Asian countries in direct competition to the World Bank and the IMF.  Most likely the currency would be Yuan based and with China's recent flurry of activity to acquire gold, it may be that the Yuan would be backed by gold.  Little did they know that the AIIB would be a lightning rod for those unhappy with the current IMF based system.



The US had tried its best to discourage countries from joining as founding members, but with little success.  Except for the US and possibly Japan, countries have been flocking to the new AIIB.  As of 2 days ago, the number of countries have reached 46 (more than the original Brenton Woods countries).  The mad rush to join the AIIB, despite the US objection, is a clear indication that the world is ready for an alternative to the dollar and the western banks that control the financial systems we have in place.  


While the AIIB is just a bank and not a governing body, its influence is not by monetary rules and regulation of the planet.  Instead, it will be offering an alternative to the world's dependence on the dollar and the powers that control it.  With nearly 7 trillion in anticipated loans for Asia alone, the AIIB serves as a great vehicle for China and other wealthy countries to make money.  Only this time, money will be wealth in another currency and perhaps even be backed by gold.  It will likely push the yuan to either a co-reserve currency or replace the dollar completely over time.

With Russia developing an alternative to the SWFT, it won't be too much longer before things get totally out of the control of the US and its allies.  With money moving out of dollars and money transfers out of control of SWFT, there is no way the US can use its financial system as leverage.  It will barely be able to survive the fallout of this change to the world order.   To protect yourself, the only answer is to acquire non-dollar dominated assets.  Its always good not to have all your eggs in one basket.  

So what's all this have to do with Thailand?   Thailand will be a founding member of the AIIB and will likely finance some of its major infrastructure projects using the bank.  For our readers, its maybe time to think about how a massive shift away from the dollar would impact you personally.  Would you be ready to have your 'wealth' (not dollars) reduced by 70%.  Would you still be able to come to the land of smiles and be smiling or will you be frowning about how much things have increased in price since you were last here?   Could you even afford to live here in retirement?

AIIB.  These four letters will likely change your life --big time.  Check it out for yourself!

5 comments:

  1. What would you recommend Average Joes do to diversify a bit away from USD? Thanks.

    ReplyDelete
  2. A lot will depend on your particular situation. I am a proponent of buying physical gold (bars and not coins) as a simple method of diversification. I wouldn't go whole hog crazy, but a percentage that you could feel safe holding for a long period, without interest. If you don't have a lot of free cash, I would also consider things that can be 'bartered' or traded in a bad situation. If they have value in a barter situation, they will likely hold their value and you can likely later sell them in the future for at least what you paid for them. Some extreme examples are ammunition, firearms, knives, quality hand tools, basic medical equipment, etc.

    Since the US doesn't prohibit you from having an overseas account and assets (you just have to declare them and pay taxes on any income), some money iin a safe currency is something to consider. I for one, like the Singapore dollar, but opening an account there is not easy for Americans.

    Lastly, there is real estate. But the problem is that governments have been known to confiscate land and personal assets when they wanted (i.e communism, state of emergency/marshal law, eminent domain, etc.). Plus real estate is immobile -- you can't take it with you if for some reason you have to flee. The alternative is having some real estate already outside the country...but that takes some planning and may be out of the realm and interest of the 'average Joe'

    In other words, the average Joe is basically pretty much screwed unless they bail out of the system completely. I don't see any other way to avoid the pain...only ways to make it a bit less painful.

    ReplyDelete
  3. Thanks for your reply. By difficult (opening a Singapore account), do you mean paperwork-wise or legal-wise?

    ReplyDelete
  4. Most if not all the banks there will rufuse to accept US customers unless one is working there, has a business, etc. Can't just fly in and open an account like in some countries. Also cannot do it online.

    ReplyDelete

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