The dollar as the reserve currency is slowly falling apart. From James Rickards at dailyreckoning.com:
Analysts and authors, myself included, have been warning about the collapse of the dollar as the global reserve currency for years. I described this prospect in my first book, Currency Wars (2011), and in several other books in the years since.
This process can take many years. For example, the decline of sterling as the leading global reserve currency played out over 30 years from 1914 (the beginning of World War I) to 1944 (the Bretton Woods conference).
Still, events today are playing out so quickly that the collapse is happening in front of our eyes.
It’s no longer a matter of a major event on the horizon; it’s occurring in real-time. Russia has just linked the ruble to gold at a rate of 5,000 rubles to one gram of gold. China is discussing with Saudi Arabia the prospect of paying for oil in yuan.
Israel is likewise considering taking yuan in exchange for its high-tech exports. China and Russia are creating new payments systems to avoid U.S. sanctions. You get the point.
What happens when foreigners decide buying U.S. debt with still microscopic interest rates, with the prospect of being paid back in rapidly depreciating dollars, isn’t such a good deal? From David P. Goldman at americanmind.org:
America’s increasing reliance on foreigners to lend us money could crater the dollar.
The United States has borrowed $18 trillion from foreigners since the Great Financial Crisis of 2008, a staggering sum that is nearly equal to America’s annual Gross Domestic Product. The notion that the dollar’s dominance in world finance might come to an end was a fringe view only five years ago, when America’s net foreign investment position was a mere negative $8 trillion. Notably, the net international investment position fell by $6 trillion between 2019 and 2022, roughly the amount of federal stimulus spent in response to the COVID-19 pandemic.
The basic solution to our economic problems would be if establishment elites would get the hell out of the way. From Brandon Smith at alt-market.us:
I think one of the great misconceptions about economic crisis is that solutions are always dependent on centralized government action. In truth, most financial disasters are actually caused by too much government action and involvement. Central banks like the Federal Reserve are also primary culprits; as I outlined in last week’s article their machinations, which are independent of government oversight, fall into the category of deliberate sabotage. The Fed bankrolls corruption through fiat money creation while government officials and corporations utilize that money to wreak havoc on our living standards.
Ending the Fed would solve the fiat money problem, but there’s still a host of agenda driven politicians and bureaucrats to deal with before our nation can right the ship.
One clear way to fix our system would be to first force government to interfere less. As a point of reference, consider the common media narratives surrounding the covid pandemic. Along with the White House the media has been the premier driver of irrational fear over the spread of covid, which ended up being a minor threat compared to the hype as the average Infection Fatality Rate was no more that 0.27%. Yet, in response to a virus that was a mortal danger to less than one-thrid of 1% of the population, bureaucrats declared a national emergency requiring insane and unconstitutional lockdowns.
While Russia wages war on Ukraine, the U.S. wages war on Europe. From Michael Hudson at thesaker.is:
It is now clear that today’s escalation of the New Cold War was planned over a year ago, with serious strategy associated with America’s plan to block Nord Stream 2 as part of its aim of blocking Western Europe (“NATO”) from seeking prosperity by mutual trade and investment with China and Russia.
As President Biden and U.S. national-security reports announced, China was seen as the major enemy. Despite China’s helpful role in enabling corporate America to drive down labor’s wage rates by de-industrializing the U.S. economy in favor of Chinese industrialization, China’s growth was recognized as posing the Ultimate Terror: prosperity through socialism. Socialist industrialization always has been perceived to be the great enemy of the rentier economy that has taken over most nations in the century since World War I ended, and especially since the 1980s. The result today is a clash of economic systems – socialist industrialization vs. neoliberal finance capitalism.
The dollar has been losing market share of international trade for years and that may continue. However, keep telling the world that dollar reserves are no longer safe and the decline may be dramatic and sudden. From Wolf Richter at wolfstreet.com:
Dollar drops to lowest share in 26 years. Slowly but surely?
With inflation raging in the US following the Fed’s $5-trillion money-printing orgy and interest-rate repression, the question constantly arises: When will the rest of the world throw in the towel on the dollar as the dominant global reserve currency? If this were to happen all of a sudden, it would spell chaos. But it is happening little by little.
The global share of US-dollar-denominated foreign exchange reserves fell by 40 basis points from Q3 to 58.8% in Q4, setting a new 26-year low, edging out the low in Q4 2020, according to the IMF’s COFER data released at the end of March. Dollar-denominated foreign exchange reserves consist of Treasury securities, US corporate bonds, US mortgage-backed securities, and other USD-denominated assets that are held by foreign central banks and other foreign official institutions.
Before the dollar is laid to rest, a new global reserve currency will have to found, and that’s not that easy. From Charles Hugh Smith at oftwominds.com:
Sealing the USD’s coffin requires conjuring up a replacement reserve currency, and that turns out to be a lot more challenging than many understand.
You know the scene in movies where the body-bag is being zipped up or the coffin lid slid into place when the recently deceased startles everyone by suddenly sitting upright? That’s an analogy for the funeral currently being planned for the US dollar–a funeral that has been cancelled.
OK, I get it: there are plenty of reasons why so many expect the dollar to die: it’s a fiat currency, for goodness sakes, and those always die sooner than expected; US debt is soaring like an Elon Musk rocket; its purchasing power is in freefall; America’s unipolar moment is history in a multi-polar world, and let’s face it, it’s simply not as pretty as other currencies.
Die, dollar, die!
But sealing the USD’s coffin requires conjuring up a replacement reserve currency, and that turns out to be a lot more challenging than many understand.
Is the unipolar world already a thing of the past? From Pepe Escobar at thesaker.is:
The “rules-based international order” – as in “our way or the highway” – is unraveling much faster than anyone could have predicted.
The Eurasia Economic Union (EAEU) and China are starting to design a new monetary and financial system bypassing the U.S. dollar, supervised by Sergei Glazyev and intended to compete with the Bretton Woods system.
Saudi Arabia – perpetrator of bombing, famine and genocide in Yemen, weaponized by U.S., UK and EU – is advancing the coming of the petroyuan.
India – third largest importer of oil in the world – is about to sign a mega-contract to buy oil from Russia with a huge discount and using a ruble-rupee mechanism.
Riyadh’s oil exports amount to roughly $170 billion a year. China buys 17% of it, compared to 21% for Japan, 15% for the U.S., 12% for India and roughly 10% for the EU. The U.S. and its vassals – Japan, South Korea, EU – will remain within the petrodollar sphere. India, just like China, may not.
Sanction blowback is on the offense. Even a market/casino capitalism darling such as uber-nerd Credit Suisse strategist Zoltan Poznar, formerly with the NY Fed, IMF and Treasury Dept., has been forced to admit, in an analytical note: “If you think that the West can develop sanctions that will maximize the pain for Russia by minimizing the risks of financial stability and price stability for the West, then you can also trust unicorns.”
The U.S. government is pushing Russia and China away from using the dollar and undermining its reserve currency status. From Pepe Escobar at unz.com:
Russia says half its gold assets were frozen – is this for real or a slick play by Moscow?
It was a long time coming, but finally some key lineaments of the multipolar world’s new foundations are being revealed.
On Friday, after a videoconference meeting, the Eurasian Economic Union (EAEU) and China agreed to design the mechanism for an independent international monetary and financial system. The EAEU consists of Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, is establishing free trade deals with other Eurasian nations, and is progressively interconnecting with the Chinese Belt and Road Initiative (BRI).
For all practical purposes, the idea comes from Sergei Glazyev, Russia’s foremost independent economist, a former adviser to President Vladimir Putin and the Minister for Integration and Macroeconomics of the Eurasia Economic Commission, the regulatory body of the EAEU.
Glazyev’s central role in devising the new Russian and Eurasian economic/financial strategy has been examined here. He saw the western financial squeeze on Moscow coming light-years before others.
Quite diplomatically, Glazyev attributed the fruition of the idea to “the common challenges and risks associated with the global economic slowdown and restrictive measures against the EAEU states and China.”
Translation: as China is as much a Eurasian power as Russia, they need to coordinate their strategies to bypass the US unipolar system.
The Eurasian system will be based on “a new international currency,” most probably with the yuan as reference, calculated as an index of the national currencies of the participating countries, as well as commodity prices. The first draft will be already discussed by the end of the month.
U.S. sanctions against Russia may well be the death rattle of the dollar as the world’s reserve currency. From Nick Giambruno at internationalman.com:
“It’s possible to have more than one reserve currency.”
These are the recent words of Jerome Powell, the Chairman of the Federal Reserve.
It’s a stunning admission from the one person who has the most control over the US dollar, the current world reserve currency.
It would be as ridiculous as Mike Tyson saying that it’s possible to have more than one heavyweight champion.
In other words, the jig is up.
Not even the Chairman of the Federal Reserve can go along with the farce of maintaining the dollar’s supremacy anymore… and neither should you. (This has profound consequences for you and your savings, more on that in a moment.)
Powell’s comments occur in the context of what could prove to be one of the most short-sighted and self-destructive acts in history… the US government’s economic war against Russia.
In the wake of Russia’s invasion of Ukraine, the US government has launched its most aggressive sanctions campaign ever.
Exceeding even Iran and North Korea, Russia is now the most sanctioned nation in the world.
“This is financial nuclear war and the largest sanctions event in history,” said Peter Piatetsky, a former Treasury Department official.
He went on to say, “Russia went from being part of the global economy to the single largest target of global sanctions and a financial pariah in less than two weeks.”
Here’s a brief rundown of what has happened.
The US and European governments froze the US dollar and euro reserves of Russia—the accumulated savings of the nation—worth around $300 billion.
Russian banks have been kicked out of SWIFT, the system to send international wire transfers.
A stampede of Western companies have left Russia and are banning average Russian citizens from using their platforms.
Popular cryptocurrency exchange Coinbase blocked over 25,000 accounts linked to Russia.
Visa, MasterCard, and American Express have cut off Russia from their networks.
Even formerly neutral Switzerland joined the orgy of sanctions.
These are just a few examples of how Russia is being cut off from the US-dominated global financial system.
Of course, all this comes as no surprise to the Russians. They have prepared for this exact outcome for many years together with China. The Chinese Communist Party understands that if the US can take down Putin, they will be next. That’s why the Chinese are unlikely to abandon their strategic partnership with Russia.
Fiat currencies have already failed spectacularly. The dollar is worth about 2 percent of what it was when the Federal Reserve began in 1913. The debasement picked up speed after Nixon cut the last vestige of the gold standard in 1971. Fiat currencies always fail, and for the same reasons. From QTR Fringe Finance via zerohedge.com:
Friend of Fringe Finance Lawrence Lepard released his most recent investor letter a few weeks ago with his updated take on the monetary miasma spreading across the globe.
Larry had joined me for several interviews last year and I believe him to truly be one of the muted voices that the investing community would be better off for considering. He’s the type of voice that gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely.
Larry was kind enough to allow me to share his thoughts heading into 2022.
Before Russia invaded Ukraine, Larry predicted that a “crack up boom” could be on its way and also offered his take on gold, inflation, monetary policy, bitcoin, fiscal policy, the ongoing supply chain crunch, and much, much more. That analysis is included.
Now, the invasion of Ukraine has helped catalyze a number of his predicted scenarios.
Here are several Fringe Finance excerpts from Larry’s thoughts on the Ukraine invasion and the markets heading into 2022, from prior to the invasion.
Russia Invading Ukraine Has Caused A ‘Monetary Earthquake’
What just happened in the last two weeks is enormously important and misunderstood by many investors.
The Russian invasion of Ukraine and the corresponding Western sanctions and seizure of Russian FX reserves are nothing short of a monetary earthquake. The last comparable event was Nixon’s abandonment of the gold standard in 1971.
Russia, with the backing and support of China, just told the world that it is no longer going to sell its oil, gas and wheat for Western currencies which are programmed to debase.
The West in its response just said to all countries around the world: “If you have foreign exchange reserves, held in our system, they are no longer safe if we disagree with your politics.”
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