G20: Crash and Burn or Spark of Hope?

This weekâ??s G20 summit is much anticipated by most investors. Members of the G20 are likely going to propose some big changes for the world economy, ones that will likely affect the US and almost every other industrialized nation. Japan wants to create a new IMF lending facility and China wants to see the US dollar tossed out as the worldâ??s reserve currency. Unfortunately, this is just the tip of the iceberg when it comes to some of the potential changes and issues that could prove further divisive for many countries worldwide. The big question that many investors will have among all of this fervor and hype is how all of this will affect my portfolio?

Japan’s influence on the global political environment is undeniable. In the past 60 years they have gone from being one of the world’s poorest nations to the world’s leader in many sectors and everything in between. Wednesday it will likely propose a new IMF lending facility directed toward providing loans to emerging nations. Lending to nations that are building their economies seems like an excellent idea and a wonderful way to help pick up the pieces of this economic storm while keeping everyone involved, but the catch to this proposal is the fact that the new facility will supposedly make the loans in SDR’s, not US dollars or any other country’s currency. For those of you who don’t know what an SDR is, it’s a fiat currency made up as a mean to lend between over 185 already established economies without having to involve US dollars as a reserve or as a means of legal tender or trade. The Japanese proposal is linked with China’s proposal that the US dollar be taken off the world currency market as the go to reserve currency.

The link from China to Japan is quite clear when examined under the lens of the world economic climate and how the current crisis has affected everyone down the chain from the US. Itâ??s been a domino effect of financial collapse, and for the Chinese, who have been buying up US gold reserves and taking part in the SDR program for years, itâ??s an excellent opportunity to pull the rug out from under the US economy while simultaneously emerging as the worldâ??s financial superpower by default. England and Japan are in no position to assume the role as the worldâ??s economic leaders, but China, with its seemingly limitless resource pool of labor is chomping at the bit to climb another rung higher on the worldwide economic ladder.

Whether or not these proposals will have any real traction in the worldwide economic community is yet to be seen. But whether or not these proposals will affect the health, vitality, and order of the current economic climate worldwide is undisputable. Dropping the US Dollar, as the worldâ??s reserve currency would have extremely negative affects on the US economy at a time when America is reeling from economic collapse that is beginning to rival the great depression in scale and scope. For investors, gold will be king in a situation where SDRâ??s are adopted in favor of the US dollar, and stocks will likely be smothered in a storm that would likely ensue if world trade was now conducted in SDRâ??s.