Why Your Gold IRA Might Depend On The IMF! (Part 1)

Ironically, given all the talk of homeland security, the travel ban, and putting walls up - down Mexico way - the biggest threat the United States has faced for years will probably be triggered at a meeting, in the heart of Washington DC, scheduled to take place April 21-23.

These talks have been a long time coming, and are the culmination of years of careful maneuvering, bartering, skillful negotiation, and planning. What these discussions set out to do, will resonate throughout the financial world for years to come, and may turn worldwide economics on its head - for good. We see gold backed IRAs as a way of mitigating the effects of the likely outcome.

This little quote, by the Nobel prize-winning economist Robert Mundell, neatly sums up the perceived wisdom of the last few decades;

“The problems started before World War I. The gold standard was working very well. But it broke down because of the war and what happened in the 1920s. And then the US started to become so dominant in the world, with the dollar becoming the central currency after 1930s, the whole world economy shifted America’s way.”

And this has remained the case, throughout living memory, the United States leading the world as its powerhouse and economic miracle. Calling the tune.

Until Recently …

Back in the 1970s and 1980s China started to develop its manufacturing capacity. With vast internal resources, and infinite workforce, and a work ethic born of the survival mentality of the Mao years. At first, the goods were cheap, knock off copies of Western produce, shoddily made, badly packaged, and treated with contempt.

Gradually though, Chinese companies began to develop their manufacturing, and they started to make things people not only needed, but actually wanted. A few even began making goods to a standard equal to, or exceeding those of the traditional manufacturing companies.

China caught most of the West on the back foot. The West did not start taking Chinese business seriously until the 1990s. By then, it was way too late to do anything about it. China had a foothold in all major markets and started exporting higher quality goods throughout the globe.

As American manufacturing died, Chinese manufacturing grew.

This was mirrored in other countries in various ways. Brazil, Russia, India, and South Africa, all developed different industries, and with the help of their governments, their willingness to adapt to new ideas and ways of doing things, to use cheap labor, well-educated workforces, and the wish to improvise and learn - resulted in spectacular gains.

These countries, collectively, became known as the BRICS economies. Like all groups, or collectives, they have their ups and downs, their crises, and their successes.

One of the major reasons for these triumphs was the support and funding for them by the IMF, (International Monetary Fund).

Buddy, Can You Spare A Dime?

The IMF is one of those institutions which everybody has heard of but very few people know anything about.

To quote their own website:

“The IMF, also known as the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944. The 44 countries at that conference sought to build a framework for economic cooperation to avoid a repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s.

The IMF's responsibilities: The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.”

Now, it has long been accepted, the US dollar acts as the reserve currency of the world. The greenback has been the benchmark, against which, all other currencies have been valued. It is the US dollar in which commodities like gold and oil are priced. It is the US dollar which is the currency in which most global transactions are made and settled. The greenback has reigned supreme for as long as anybody can remember.

Because of its international nature, the IMF gave voting rights to each country. These voting rights are set out as a quota - and can be seen here.

These quotas and voting rights are subject to change. Recently quota reform at the IMF has become a hot topic.

Again, quoting their own website:

“Currently, a member's quota plays a key role in defining four aspects of that member's relationship with the IMF:

(1) The amount of financial resources that a member contributes to the IMF;

(2) The member's voting power in institutional decision making (along with basic votes);

(3) The level of access of the member to IMF financing; and

(4) The member's share of general Special Drawing Rights (SDR) allocations.”

This question of the quota and the voting rights, has been vexing the BRICS countries for some time. They have been pushing for their voting rights to be upped on the basis of America’s share of the world economy shrinking by nearly 50% since 1960. This means America is now responsible for just 25% of the world's net worth each year.

In the second part of this article we will look further at the reasoning behind the Chinese and Russian push for the voting rights to be changed - the rationale behind this, and the implications for the global economy.

If you have been thinking about starting a gold IRA, silver IRA or a 401(k) rollover, you should look at a Gold IRA Guide to better understand this investment vehicle.

This guide explains the workings and details of gold and silver IRAs and how you can use them to hedge against the effects of inflation and other financial risks to your wealth.