Over the weekend some interesting information sort of coalesced into what might be considered a strong indication for what might happen come springtime.
This information spans multiple issues, from the Iranian nuclear issue, to peak oil, to Israeli security, to the global economy and the massive amounts of US debt in foreign hands.
- Israeli sources last week said Iran was 3 months from having the capability to build a nuclear device (the JPost says “to build a bomb, but I think that is over-simplifying things a little)
- Israels election will be March 28, 2006
- Iran will create a new Oil Market, to compete with the “Brent Crude”,”Texas Crude”, and “Dubai Crude”… but traded in Euros instead of Dollars.
- The US Fed will stop publishing M3 results, which tracks production and is used to calculated inflation (and thus how much USD the Government is printing) on March 23, 2006
I believe the most ominous of these snippets is not the Israeli saber-rattling but rather the ceasing of puplication of the M3 reports. This, combined with the new Iranian Oil Bourse seem to point to something on the horizon. I think the “power-that-be” see something coming and a sort of circling of the wagons is happening.
The M3 report, as explained here, is a comprehensive report published by the government which basically tracks all production, savings, accounts and spending in the US economy. Thus, it is used to track inflation and the printing of US dollars to keep up with US Debt. Without that information it becomes quite a bit harder for economists and investors to know exactly what is driving the economy.
So with US Current account deficits and government and consumer debt at all time highs due in large part to foreign investors holding vast amounts of “PetroDollars” what will happen when Iran starts this new “Iranian Oil Bourse” trading in Euros? That will mean more US Dollars being converted to Euros, and the US having to print more USD to keep up. This website has a good explanation of inflation since the 30s… and how in the past 20 years printing USD has been used to prop up the US Economy.
According to the explanation above:
The average annual increase in M3 during the past 20 years was 5.9%. However, during the past 3 months, M3 has increased at an annualized rate of over 10%. Given that the US dollar is also the reserve currency of the world, such high inflation rates for the dollar could impact more than the value of this currency alone.
My understanding is that printing billions of USD to replace foreign currency reserves that are lost to the Iranian Oil Bourse/Euro would be reflected in these M3 reports. Unfortunately, we will apparently never know, at least directly, whether that is actually happening. And what is *excluded* from the M3 reports? Military expenditures, so what better way to “prove” the economy is doing OK than to boost the numbers that we *do* see?
I think Iran is causing the US Administration and Fed some serious angst and it has little to do with the Nuclear program. If anything, the indicators above would seem to point to the nuclear issue being used as a distraction mechanism, namely. Israel attacks Iran re: nuclear weapons (and to appeal to a new spring mandate)… incredible instability ensues… no one uses Iranian Oil Bourse (or it simply collapses) thus keeping USD in more foreign reserves and staving off the immense downward pressure on the US dollar and economy and boosting the already lucrative defense contractors/establishment.
Is it a bit tin-hatish? Sure. But call me crazy for thinking that wars have been started for far less.
And for the record, no I don’t think attacking one of the Iranian nuclear establishments will do it… this isn’t Iraq… it’s not all at Osirak… it is well documented that the Iranian nuclear “complex” is spread wide and far across the Iranian landscape. If Israel really wants to deliver an Osirak-like blow, they’d have to do so in multiple operations… and without the cover and distraction provided to the Iraelis by the Iran-Iraq war as there was in ’81, it’s hard to fathom how the Iranians would not retaliate with everything they had. So I don’t think the Israelis are even that nuts… but hey, what do I know?
So in short… you may want to make your New Years resolution “Spend less, save More”… and stick to it this time. Because come springtime, world events may not be so conducise to that $10,000 Mastercard bill.
I just found that local business/investment guru and talk-show host Michael Campbell (he’s also BC Premier Gord Campbell’s brother) includes the above linked article by Paul van Eeden on his MoneyTalks.net website. Just thought this would interest those who might be skeptical of the qualifications of my sources.
Fed Reserve Bank of San Fransisco definition of “M3” and for the sake of completeness, can cause definitions are funny… I included M2 and M1 as well. 🙂
M3. Measure of the U.S. money stock that consists of M2 plus large-denomination time deposits (in amounts of $100,000 or more), balances in institutional money funds, RP liabilities (overnight and term) issued by all depository institutions, and Eurodollars (overnight and term) held by U.S. residents at foreign branches of U.S. banks worldwide and at all banking offices in the United Kingdom and Canada. Excludes amounts held by depository institutions, the U.S. government, money funds, and foreign banks and official institutions.
M2. Measure of the U.S. money stock that consists of M1 plus savings deposits (including money market deposit accounts), small-denomination time deposits (time deposits-including retail RPs-in amounts of less than $100,000), and balances in retail money market mutual funds. Excludes individual retirement account(IRA) and Keogh balances at depository institutions and money market funds.
M1. Measure of the U.S. money stock that consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) travelers checks of nonbank issuers; (3) demand deposits at all commercial banks other than those due to depository institutions, the U.S. government, and foreign banks and official institutions, less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts and demand deposits at thrift institutions.