The American Game

The American Game

November 19, 2014 

IMF Reforms and the Keystone XL Pipeline
By JC Collins

Yesterday I spent the majority of my time updating KPI Reports on one screen and watching the Senate debate on the Keystone XL Pipeline on another.  Now I know politics are absurd at best, but this so-called “debate” was about as factual and informative as Saturday morning cartoons. The Democratic Senator from California Barbara Boxer lead an emotional charge in opposition to the bill, but her frequent references to the Koch Bros. and display of child like protest signs, such as “The Misery of the Tar Sands” are more telling of the real story as opposed to the trendy storyline of climate change she presented.

Equally disparaging and irrelevant were the defenders of the pipeline, none of which presented any factual information based on industry “best practices” or factual resource data.  The fact that both sides congratulated each other at the end on an “excellent debate” which was “much needed” doesn’t change the reality of the school yard nature of the Senate discourse.

Long gone are the days where politicians aspire to greatness, not for themselves, but for the people they represent. Long gone are the days where politicians compose accurate platforms based on the selfless desire to promote a common efficiency.

Here in Canada the delay in approving the Keystone XL Pipeline is not as news worthy as down in the US.  Yes, it will be cheered when it finally gets approved in January, and it will, but those in the Oil Sands Industry already understand that the oil is being transported to the Gulf refineries through multiple methods, such as existing pipelines and rail cars, as well as new pipeline construction which simply flies under the radar because it doesn’t have the political “leverage” that Keystone does.

Additionally, plans for east and west pipelines are in the development stage as well as the construction stage.

The Democrats reluctance to pass a Keystone bill has more to do with where their funding comes from as opposed to the manufactured and manipulated data which they use to promote their anti-Keystone position. Goldman Sachs was a huge sponsor of Obama but was also heavily invested in the so-called “shale oil boom” which is said to make America energy independent.

In 2012 Goldman reversed its positions and began to finance Republicans as the winds had shifted along with the shale depletion rates and global oil markets. Today, we are seeing the broader implementation of the expected deflation from the QE policies of central banks around the world.

See: http://online.wsj.com/articles/SB10000872396390444752504578024661927487192
And: http://www.reuters.com/article/2014/10/27/oil-forecast-goldman-idUSL4N0SM08A20141027

What isn’t being stated is the shale oil well depletion rates are as high as 80% to 90% in the first 12 to 24 months. This depletion rate ensures that initial production numbers are unsustainable and it is the clearest indicator that the shale revolution will end rather suddenly for America.



As global oil production begins to decrease further, we are likely to see prices rise again, but this is being offset currently with the heavy deflationary momentum created through the QE policies. Oil production rates are declining and will continue to decline in the coming decades. The argument for peak oil conspiracy is somewhat misleading as there isn’t an infinity amount of resources in our finite environment, and any process of resource replenishment will take multiples of years longer than our ability to use and decrease the existing deposits.



The need for energy in the coming years will increase which is why we are witnessing the resource wars and positioning which are taking place today.  Companies with vested interests in specific regions and nationalities are strategically positioning themselves for resource production and marketability.

The battle for control of the European natural gas market reached an interesting conclusion yesterday when none other than Henry Kissinger stated that Ukraine will not be joining NATO and that economic sanctions against Russia were a mistake. This fits with our analysis that US industry interests exchanged Europe for the strategic resource deposits in the Middle East.

Even within the Middle Eastern region we are witnessing the dividing of deposits, or at least the denomination which deposits are sold in on the world market.  If oil is sold to China it will be sold in yuan, and if oil is sold to the US it will be priced in dollars.

The move towards denomination balance in world trade is reflective of the emergence of the multilateral financial system. As discussed in many previous posts, the renminbi will be added to the SDR basket composition by next July, and the 2010 IMF Quota and Governance Reforms will be implemented whether the US Congress passes supporting legislation or continues to refuse to honor the agreements that were made back in 2010.

The possibility was considered that the Republicans in Congress would pass a version of the IMF Reforms which didn’t contain the IRS Rule Changes that were directed at reducing the political influence of the Koch Bros, in return for a symbolic win by having the Democrats pass a Keystone bill which would fast track the last segment of the lines construction.

The fact that Keystone was once again rejected by the Democrats is a very strong indicator that the IMF Reforms will not be passed before the January 6, 2015 transfer of power in Congress. This goes against the demands of the IMF, US Treasury, and G20 countries, as stated in the summit in Australia last week.

In the post Renminbi 人民币 and the Alternative IMF Reforms, we reviewed how the 2010 Package could be separated into individual components and implemented independently, which would bypass any required congressional approval.

Additionally, in the China Daily article titled XI Backs Higher IMF Standards it is stated that China supports a “global infrastructure center” and will subscribe and support the SDDS, or Special Data Dissemination Standard, of the International Monetary Fund.

Representatives from the IMF and China will be meeting in early December to review the procedures associated with the SDDS.  The SDDS is an important aspect of internationalizing the RMB because it builds a proper reporting structure for international transactions and will further secure China’s credit rating.

The internationalization of the renminbi will be realized when the currency becomes fully convertible.  The initial expectation was that the RMB would be added to the SDR basket composition in 2020, but the internationalization process has been increased to allow for a 2015 addition.  The emerging market for RMB denominated liquidity is supporting this internationalization process, as defined in the creation of the BRICS Development Bank and the RMB denominated gold contracts issued by the Shanghai Gold Exchange, as well as the Bi-Lateral Swap Agreements with central banks around the world.

This indicates that the IMF will include the RMB in the SDR basket before full internationalization and convertibility is achieved. The delays from the US Congress to pass the 2010 Reforms is forcing the IMF and G20 countries, including the BRICS countries, to design and implement alternative structures and processes to build the SDR liquidity framework.

For more detailed information on the internationalization of the renminbi refer to the IMF Staff Report on The People’s Republic of China, dated July, 2014.

The reluctance of the Republicans in Congress to pass the 2010 Reforms has isolated the US on the global financial scene.  The expectation that this will change after January 6th could be wrong, but what benefits would the GOP gain by further delaying the reforms?

The fact that the Democrats hanged one of their own yesterday is very telling of the stubborn and defensive attitude which has developed in American politics over the last 6 years.  Democratic Senator Mary Landeau brought the Keystone bill to the floor in an effort to save her Senate seat in a run-off election in a few weeks.  The other Democrats who voted against the bill had nothing to gain by voting against the bill, outside of covering their own positions in the next mid-term election. To think any of them really care about the environment and American fuel prices is nonsensical in the face of all the other political farces and outcomes.

The Keystone bill will get approved in the new year as one of the first acts of the new Congress.  The Democrats must of let one of their own hang for reasons that are not obvious at this time.  How the IMF 2010 Reforms play into this is unknown but we can discern much from the lack of media attention given to the issue.

What case can the Republicans make in the new year for delaying the reforms further? Or will they simply fast track their own version of an IMF bill with the Keystone approval attached?

This would create leverage to eliminate any administrative veto to Keystone, in the event the required amount of votes are not gained to remove the threat of a veto all together.

Whatever your thoughts on the IMF Reforms and Keystone may be, the reality is that the rest of the world is demanding the reforms be implemented without further delay. Do the Republicans have the political capital and international influence to continue holding the world ransom?

Highly unlikely.  And if they do continue to delay than we can assume that the plan is to create a situation where the US influence and dollar are removed from the IMF under the umbrella of a de-facto financial coup which could prove to be the convenient cause and effect of the QE orchestrated deflation and liquidity crisis.

The position of the USD on the world stage is still viable and strong, as the foreign reserve accounts of central banks around the world have continued to increase their dollar holdings.  Sure, the composition of these reserves has changed as RMB and SDR’s have been added to the reserves, which has served to lower the overall USD percentage of total reserves, but the world cannot turn completely against the US or the dollar.

The game being played is intriguing and fraught with increasing chances of randomness.  At some point this randomness will be eliminated and the process will continue under the more visible framework of the multilateral financial system. Needless to say there will be  much speculation and brinkmanship in the coming months.

How the amnesty issue will factor into the negotiations on Keystone and IMF Reforms between the political parties in the US is difficult to imagine or determine. The Democrats obviously want the votes this would gain them in the next presidential election. The thought of having the Republicans control the White House and both the Senate and the House in 2 years time is something the Democrats would want to avoid if possible.

But does the rest of the world even care?  With US military spending being reduced and the hegemony being shifted in the world, other countries may care little for American political bantering and industry and corporate interests.

There is a big piece to this puzzle missing. Let us be watchful and keep researching and analysing in search of that which remains hidden.  Maybe I’m weird, but this is the most interesting and intriguing story in decades. The world is about to change and very few even know its happening. – JC
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