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It will be a LONG time coming.

person holding lighted dollar bills — Photo by Jp Valery on Unsplash

One article highlighted below brings out a point that I made two years ago when everyone in the alternative press was writing (as many still are) about how the BRICS nations were determined to replace the US dollar as a global currency:

In early June, a rumour began to circulate — which was widely reported in the Indian press as true — that the government of Saudi Arabia had allowed its petro-dollar agreement with the United States to lapse.

This non-exclusive arrangement between the two countries never required the Saudis to limit their oil sales to dollars or to recycle their oil profits exclusively in U.S. Treasury securities (of which it holds a considerable $135.9 billion) and Western banks.

Indeed, the Saudis are free to sell oil in multiple currencies, such as the Euro, and participate in digital currency platforms such as mBridge, a trial initiative of the Bank of International Settlements and the central banks of China, Thailand, and the United Arab Emirates (UAE).

Nonetheless, the rumour that this decades-long petrodollar agreement had come to an end reflects the widespread expectation that a seismic shift in the financial system will overturn the rule of the Dollar-Wall Street regime. It was a false rumour, but it carried within it a truth about the possibilities of a post-dollar or de-dollarised world.

While I would disagree with the downtrend destination for the dollar in the last line, the rest confirms what I’ve said in the past two years about the dollar not being replaced with a BRICS currency (or any other currency) anytime soon, though many of my own readers may wish it would be. Collapse of the dollar is not imminent, though the collapse of anything is eventually inevitable.

…click on the above link to read the rest of the article…

Sense and Nonsense on Petrodollars

June 17, 2024

*Folded dollar bill (featuring George Washington) against a map of Saudi Arabia.*

Last week several reports suggested the termination of a US-Saudi petrodollar agreement, and speculated a Saudi Arabian move to sell oil on world markets in various currencies, including the Chinese yuan. The accounts were rife with inaccuracies: the Saudis’ have transacted in non-dollar currencies for decades, and there has never been a formal treaty, much less with a specified expiration date, governing the loose arrangement that has come to be called the ‘petrodollar system.’

But even the fragments of broken mirrors reflect reality, and despite their fundamental errors a significant trend is in evidence: Saudi Arabia is progressively reducing its dependence on the United States. Quite possibly reflective of its recent admittance to the expanded BRICS block it is exhibiting a greater inclination to settle oil transactions in currencies other than the US dollar. Owing to the US and Western Europe’s increasingly entangled alliances, and its own efforts to diversify away from dependence upon energy exports, Saudi Arabia has been increasing its diplomatic and economic engagements with China, Iran, Russia, nations considered primary US foreign policy adversaries. Recent moves toward accepting non-dollar currencies reflects broader geopolitical shifts away from US currency hegemony.

The concept of the petrodollar, established in the 1970s, was an informal arrangement where Saudi Arabia agreed to sell oil exclusively in US dollars in exchange for US military protection and investment in US Treasury securities. In the immediate wake of the collapse of the Bretton Woods system in 1971, the arrangement bolstered the value of the US dollar and secured US military support for Saudi Arabia. It also ensured relatively consistent demand for US government debt, a windfall which five decades later has become a millstone of damning heft.

…click on the above link to read the rest of the article…

Dollar’s Reign May Not Last Much Longer (If History Is Any Guide)

June 16, 2024

Dollar’s Reign May Not Last Much Longer (If History Is Any Guide)

Chart of the Week #6

Today’s chart ties into the de-dollarization trend we’ve been talking about a lot lately in these pages.

When most people around the world think about money, they’re probably thinking of the U.S. Dollar. That’s because the greenback is the world’s primary reserve currency. This, of course, is in no small part thanks to its dominant role in global oil trade.

But the U.S. Dollar hasn’t always held the throne. If you look at the graph below, you’ll see that the history of the world’s reserve currencies began with the Portuguese Real in 1450 (and has continuously shifted from one currency to another since then).

This coincided with the Age of Discovery in the 15th century when Portuguese navigators like Vasco da Gama opened new sea routes to Africa, India, and Asia. Portugal’s expanding maritime empire and colonial territories gave it control over key trade routes and access to plenty of gold and silver.

For centuries that followed, those who dominated commerce and had the most gold made the rules. Unlike today’s U.S. Dollar, these currencies weren’t fiat abstractions; they were literally made of precious metals or backed by them. They were money.

And so, around 1530, the Spanish took over, followed by the Dutch about a century later, and then the British, all the way to the Bretton Woods Conference in 1944. That’s when a new system was established (solidifying the dollar’s global dominance that began after WWI), tying almost every nation’s currency to the U.S. Dollar at a fixed rate… and the dollar to gold at $35 an ounce.

Alas, the dollar’s tether to gold wasn’t meant to last.

…click on the above link to read the rest of the article…

The End Of The Petrodollar

June 13, 2024

The End Of The Petrodollar

The Saudis, New Chapter in Energy Economics, De-dollarization, and the American-Made Pressure Cooker

“Oil is too important a commodity to be left in the hands of the Arabs.”
~ Henry Kissinger

Just last Sunday, one of the most significant economic deals of the century came to an end. The long-standing petrodollar agreement between Saudi Arabia and the United States officially expired on June 9th, 2024.

This system, which has been in place for 50 years, is now gone.

Despite what the mainstream media might have you believe, yes, it does point to a big change in global economics, and yes, it could seriously affect every American’s life.

So this week, I want to break down exactly what’s happening, why it’s happening, and how it will impact us and generations to come.

But first, let’s set the stage with some context, because it’s crucial…

"Rise" of the Dollar

You’ve probably heard the saying, “The one with the gold makes the rules,” right?

This was the position the U.S. was in after World War II.

The U.S. had won the war and boasted the world’s largest gold reserves. This allowed it to reshape the global monetary system around the dollar.

The new system, created at the Bretton Woods Conference in 1944, tied almost every nation’s currency to the U.S. dollar at a fixed rate. It also pegged the U.S. dollar to gold at a fixed rate of $35 an ounce.

This arrangement made the U.S. dollar the world’s premier reserve currency, effectively forcing other countries to hold dollars for trade or redeem them with the U.S. for gold.

But, by the late ’60s, splurging on welfare and the Vietnam War, along with printing money to cover the deficit, pumped tons more dollars into circulation compared to the gold reserves backing them.

…click on the above link to read the rest of the article…

Gold & Oil: Understanding Rather than Fearing Change

June 11, 2024

Gold & Oil: Understanding Rather than Fearing Change

There is much legitimate (as well as dramatic) talk about the failing US, its debased currency and its identity-fractured/inflation-taxed middle-class which has been increasingly described more aptly as the working poor.

The End, or Just Change?

But is America coming to an end? Will the USD lose its world reserve currency status? Will the greenback disappear? Will gold or BTC save us from all that is breaking before our media-clouded eyes and increasingly centralized state?

Nope.

America is slipping, but not ending.

The USD is being repriced not replaced.

The greenback is still a key spending, liquidity and FX currency. But it’s no longer the premier savings asset or store of value.

Gold (now a Tier-1 asset btw…) will continue to store value (i.e., preserve wealth) better than any fiat money; and BTC will certainly make convexity headlines in the future.

And yes, we all know the Fourth Estate died long before Don Lemon or Chris Cuomo stained our screens or insulted our collective IQ.

And as for centralization, it’s not coming, but already here.

Be Prepared Rather than Emotional

So, yes there is tremendous reason for informed and genuine concern, but rather than wait for the end of the world, it would be far more effective to logically prepare for a changing world.

Rather than debate left or right, black or white, straight or trans, safe or effective, smart (Barrington Resolution) or stupid (Fauci), we’d likely serve our individual and collective minds far better by embracing the logical and tabling the emotional.

Toward that end, we’d be equally better off relying on our own judgement rather than that of the children making domestic, monetary or foreign policy decisions from DC to Belgium…

Logically speaking, the USD (and US of A) is changing.

…click on the above link to read the rest of the article…

Why the dollar will lose its status as the global reserve currency

May 17, 2024

Why the dollar will lose its status as the global reserve currency

By the early 400s, the Roman Empire was coming apart at the seams and in desperate need of strong, competent leadership. In theory, Honorius should have been the right man for the job.

Born into the royal household in Constantinople, Honorius had been groomed to rule, practically since birth, by the finest experts in the realm. So even as a young man, Honorius had already accumulated decades of experience.

Yet Rome’s foreign adversaries rightfully believed Honorius to be weak, out of touch, divisive, and completely inept.

He had entered into bonehead peace treaties that strengthened Rome’s enemies. He paid vast sums of money to some of their most powerful rivals and received practically nothing in return. He made virtually no attempt to secure Roman borders, leaving the empire open to be ravaged by barbarians.

Inflation was high. Taxes were high. Economic production declined. Roman military power declined. And all of Rome’s foreign adversaries were emboldened.

To a casual observer it would have almost seemed as if Honorius went out of his way to make the Empire weaker.

One of Rome’s biggest threats came in the year 408, when the barbarian king Alaric invaded Italy; imperial defenses were so non-existent at that point that ancient historians described Alaric’s march towards Rome as unopposed and leisurely, as if they were “at some festival” rather than an invasion.

Alaric and his army arrived to the city of Rome in the autumn of 408 AD and immediately positioned their forces to cut off any supplies. No food could enter the city, and before long, its residents began to starve.

Historians have passed down horrific stories of cannibalism– including women eating their own children in order to survive.

…click on the above link to read the rest of the article…

Unification Of CBDCs? Global Banks Are Telling Us The End Of The Dollar System Is Near

April 30, 2024

Unification Of CBDCs? Global Banks Are Telling Us The End Of The Dollar System Is Near

World reserve status allows for amazing latitude in terms of monetary policy. The Federal Reserve understands that there is constant demand for dollars overseas as a means to more easily import and export goods. The dollar’s petro-status also makes it essential for trading oil globally. This means that the central bank of the US has been able to create fiat currency from thin air to a far higher degree than any other central bank on the planet while avoiding the immediate effects of hyperinflation.

Much of that cash as well as dollar denominated debt (physical and digital) ends up in the coffers of foreign central banks, international banks and investment firms where it is held as a hedge or used to adjust the exchange rates of other currencies for trade advantage. As much as one-half of the value of all U.S. currency is estimated to be circulating abroad.

World reserve status along with various debt instruments allowed the US government and the Fed to create tens of trillions of dollars in new currency after the 2008 credit crash, all while keeping inflation under control (sort of). The problem is that this system of stowing dollars overseas only lasts so long and eventually the consequences of overprinting come home to roost.

The Bretton Woods Agreement of 1944 established the framework for the rise of the US dollar and while the benefits are obvious, especially for the banks, there are numerous costs involved. Think of world reserve status as a “deal with the devil” – You get the fame, you get the fortune, you get the hot girlfriend and the sweet car, but one day the devil is coming to collect and when he does he’s going to take EVERYTHING, including your soul.

…click on the above link to read the rest of the article…

How De-Dollarization is Likely to Play Out

February 13, 2024

How De-Dollarization is Likely to Play Out

Much has been written in recent years about “De-dollarization” — the shift from the use of the US dollar as the “international reserve currency” in favour of more diverse bi-lateral and multi-lateral currency agreements and transactions.

The current system has a long and complicated history, but its most essential features are as follows:

In 1944, with the war grinding on and currencies in crisis, most countries signed on to the Bretton Woods Agreement, which “required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates, with the dollar convertible to gold bullion for foreign governments and central banks at US$35 per troy ounce”. The US dollar hence replaced the “gold standard” with US dollar reserves, rather than amounts of gold, being what each country was required to maintain to support the fixed rates of exchange. The IMF was simultaneously established to enforce the Agreement.
This replacement of gold with the US dollar created for the US what is called exorbitant privilege. It means that basically they can create (print into existence) additional US dollars without limit and without any requirement that they be supported by assets, and other countries are required to honour them as ‘real’ money. As a result, the US can run up unlimited deficits (eg through reckless military and ‘security’ spending), deficits that would render any other country bankrupt and lead to a crippling devaluation of their currency and severe IMF-imposed restrictions on future spending (as has happened to many ‘developing’ countries in the Global South).

…click on the above link to read the rest…

What Are the BRICS Planning With the August 22nd Durban Accords?

August 14, 2023

What Are the BRICS Planning With the August 22nd Durban Accords?

What are BRICS planning with the Durban Accords?

Photo by Khashayar Kouchpeydeh

In my first explainer about the BRICS nations, you met the players and you know why their decisions affect the global economy. But why do their decisions affect us?

You need to understand that first – before the August 22nd Durban Accords will make any sense. (But once you do understand, you’ll be astonished…)

Professor Reagan’s class is now in session!

Global trade runs on U.S. dollars

Since World War II, the U.S. dollar has enjoyed the role of global reserve currency. You may have heard those words before – here’s what they mean…

Worldwide, when companies or nations transacting with one another don’t share a common currency, they use U.S. dollars. When a Chilean copper mine sells tons of raw ore to a Canadian refiner, they invoice (and get paid) in U.S. dollars.

Obviously, most nations don’t have a common currency (the exception is the Euro zone). So the use of dollars for international trade is simply huge, approximately 85% of the global total.

So the world relies on dollars to do business. That’s a great deal for us! That means, for example, that deficit spending and newly-printed money always have a home somewhere in the world. Simply because the world has to have dollars.

Like I said, that’s a great deal for the nation that exports dollars. It’s not such a great deal for everyone else…

“It’s our currency, but it’s your problem”

In 1971, President Nixon ended the convertibility of dollars to gold.

The rest of the world, to put it mildly, went nuts. The gold standard was supposed to prevent inflation – but it hadn’t (primarily because American citizens weren’t allowed to swap dollars for gold since 1933).

…click on the above link to read the rest…

America’s empire is bankrupt

May 2, 2023

America’s empire is bankrupt

The dollar is finally being dethroned

Let’s start with the basics. Roughly 5% of the human race currently live in the United States of America. That very small fraction of humanity, until quite recently, enjoyed about a third of the world’s energy resources and manufactured products and about a quarter of its raw materials. This didn’t happen because nobody else wanted these things, or because the US manufactured and sold something so enticing that the rest of the world eagerly handed over its wealth in exchange. It happened because, as the dominant nation, the US imposed unbalanced patterns of exchange on the rest of the world, and these funnelled a disproportionate share of the planet’s wealth to itself.

There’s nothing new about this sort of arrangement. In its day, the British Empire controlled an even larger share of the planet’s wealth, and the Spanish Empire played a comparable role further back. Before then, there were other empires, though limits to transport technologies meant that their reach wasn’t as large. Nor, by the way, was any of this an invention of people with light-coloured skin. Mighty empires flourished in Asia and Africa when the peoples of Europe lived in thatched-roofed mud huts. Empires rise whenever a nation becomes powerful enough to dominate other nations and drain them of wealth. They’ve thrived as far back as records go and they’ll doubtless thrive for as long as human civilisations exist.

America’s empire came into being in the wake of the collapse of the British Empire, during the fratricidal European wars of the early 20th century. Throughout those bitter years, the role of global hegemon was up for grabs, and by 1930 or so it was pretty clear that Germany, the Soviet Union or the US would end up taking the prize…

…click on the above link to read the rest…

Time to trash Triffin

April 12, 2023

Time to trash Triffin

The dollar-based credit bubble is imploding, and emerging economies are seeking protection by accepting trade settlement in other currencies. The US policy of threatening regime change, currency destabilisation, or other means of ensuring nations remain in its sphere of influence are now failing.

Mainstream economists in the West insist the dollar is irreplaceable, and that as a trade settlement medium China’s yuan is strictly limited. Referring to Triffin’s dilemma, China would have to run deficits to provide the necessary currency liquidity. But they ignore the role of bank credit, which can be expanded at will to meet trade settlement demand.

Furthermore, China’s exchanges offer hedging facilities into physical gold, attracting Middle Eastern energy exporters away from petrodollars, until the new trade settlement currency planned by Sergey Glazyev comes into existence.

For evidence of Russia’s intentions to reintroduce gold into trade settlement, a translation of the semi-official position penned by Glazyev jointly with his deputy is appended to this article.

Increasing systemic risk in US, European, and Japanese banking systems is accelerating the movement of international trade settlement away from fiat dollars into safer havens. These are or will be ultimately backed by physical gold.

The world is changing before our eyes…

Quietly, informed opinion is beginning to accept that America has lost its global influence. Even Brazil, Argentina, and Mexico are openly planning for a future where their international trade will turn away from North America and Western Europe to an Asia firmly bound into the rules of China and Russia — rules that insist on evolving payments away from the dollar to their own currencies or into trade settlement currencies being planned.

…click on the above link to read the rest…

Role Reversal: The Collapse of the Dollar-Enforced Empire

April 10, 2023

Role Reversal: The Collapse of the Dollar-Enforced Empire

The Soviet empire started to crumble around 1989. The time period between the forming of the North Atlantic Treaty Organization (NATO) in the late 1940s and the retreat of Russia from Eastern Europe with the eventual collapse of communism in Russia is known as the Cold War. There was a great power confrontation in Europe that did not result in war.

Essentially, US-led NATO stood its ground to prevent further Soviet expansion from the territory it occupied at the end of World War II and waited for the inevitable collapse. Now, perhaps not everyone saw the collapse of the Soviet empire as inevitable. But all one had to do was view the Soviet empire for oneself, up close and personal, which is what I did in the early 1970s as a young Air Force officer.

The State of the Communist Economy

The Russian economy at that time is painful to describe. Moscow and Leningrad (Saint Petersburg), the so-called jewels of the Soviet Union, were depressing. Everything was shoddily built. There were very few cars on the streets. There were no retail shops deserving of the name. Lines formed in the middle of the night awaiting the opening of the few bakeries. I saw this for myself from my hotel window on the Nevsky Prospekt in Leningrad. GUM, the “world’s largest department store” near Moscow’s Red Square, sold nothing that was equal to what could be found in any garage sale in the West.

Actually, that should not be a surprise since at one time all those garage-sale goods were marketable. I did not visit Berlin, but those who did say that crossing the Brandenburg Gate from West Berlin to East Berlin was shocking…

…click on the above link to read the rest…

“The Last War We Can Afford To Fight”: Tucker Carlson Sounds Alarm Over De-Dollarization, Slams Biden Admin For Pissing Off World

April 6, 2023

“The Last War We Can Afford To Fight”: Tucker Carlson Sounds Alarm Over De-Dollarization, Slams Biden Admin For Pissing Off World

As we’ve noted several times of late, a growing number of countries are threatening the US dollar’s status as the global reserve currency by conducting global trade without it – you know, the thing Saddam and Gaddafi threatened to do before they were ‘liberated’ from their mortal coils for other stated reasons.

Some recent headlines;

Fox News host Tucker Carlson has picked up on this, big time, noting that the process began after the Biden administration started wielding the dollar as a political weapon by freezing US dollars held by Russians.

Carlson cites an article from the Daily Caller, in which authors E.J. Antoni and Peter St. Onge write:

A second critical feature of a reserve currency is its apolitical nature. Which Biden is now gutting. After both parties in Washington destroyed the dollar’s stability with inflation, now the Biden administration has chosen to wield the dollar as a weapon. Together, the message to foreigners they should get out while they still can.

In response to Russia’s war with the Ukraine, the US froze the dollar reserves of Russia’s central bank. To be clear, these were not American assets, but were dollars owned by the Russian central bank and the Russian people. The seizure was intended to cause bank runs and collapse Russia’s credit system. It didn’t work.

Instead, it exposed the Biden administration’s willingness to violate the trillions of dollars foreigners rightfully own. The danger of this precedent is difficult to overstate.

This part is a must-hear from Carlson in response to the above (starts at 7:15 in the video below):

…click on the above link to read the rest…

BRICS Nations Developing “New Currency” as Quest for Global De-Dollarization Accelerates

April 6, 2023

BRICS Nations Developing “New Currency” as Quest for Global De-Dollarization Accelerates

China and Brazil recently finalized a trade deal in their own currencies completely bypassing the dollar, but that’s not the only bad news for the world’s reserve currency.

Last week, a Russian official announced that the BRICS nations are working to develop a “new currency,” yet another sign that dollar dominance is waning.

State Duma (the Russian legislative assembly) deputy chairman Alexander Babakov said the transition to settlements in national currencies is the first step. We’ve already seen this occur with recent oil deals between India and Russia being settled in currencies other than dollars.

The next one is to provide the circulation of digital or any other form of a fundamentally new currency in the nearest future. I think that at the BRICS [leaders’ summit], the readiness to realize this project will be announced, such works are underway.”

That summit is scheduled for August.

Babakov said the BRICS nations are developing a strategy that “does not defend the dollar or euro” and that “a single currency” would likely emerge within BRICS, pegged to gold or “other groups of products, rare-earth elements, or soil.”

Brazil, Russia, India, China, and South Africa make up the BRICS block. It accounts for about 40% of the global population and a quarter of the global GDP.

Last year, Iran officially applied to join BRICS, and according to a report by The Cradle, several nations have expressed interest in joining the bloc, including Saudi Arabia, Algeria, UAE, Egypt, Argentina, Mexico, and Nigeria.

Former Goldman Sachs chief economist Jim O’Neill coined the BRIC acronym. In a recent paper published by Global Policy Journal, he urged the expansion of BRICS.

“The US dollar plays a far too dominant role in global finance,” he wrote. “Whenever the Federal Reserve Board has embarked on periods of monetary tightening, or the opposite, loosening, the consequences on the value of the dollar and the knock-on effects have been dramatic.”

…click on the above link to read the rest…

De-dollarization Has Begun.

April 6, 2023

Last week, China and Brazil reached an agreement to settle trades in one anothers’ currencies. Over the past 15 years, China has replaced the United States as the main trading partner of resource-rich Brazil, and as such that shift may have been inevitable. But within the context of recent circumstances, this appears to be another in a series of recent blows to the central role of the dollar in global trade.

As the world’s reserve currency, the US dollar is essentially the default currency in international trade and a global unit of account. Because of that, every central bank, Treasury/exchequer, and major firm on Earth keeps a large portion of their foreign exchange holdings in US dollars. And because holders of dollars seek returns on those balances, the ubiquity of dollars drives a substantial portion of the demand for US government bonds in world financial markets.

The switch from dollars to a yuan-real settlement basis in Chinese-Brazilian trade is only the latest in a growing trend. Discussions of a more politically neutral reserve currency have gone on for decades. The profound economic disruption experienced by Iran, and more recently Russia, after being evicted from dollar-based trading systems like SWIFT, however, have led many nations to consider imminent contingency plans. India and Malaysia, for example, have recently begun using the Indian Rupee to settle certain trades, and there have been perennial warnings about Saudi Arabia and other energy exporters moving away from the dollar. On that note, China also recently executed a test trade for natural gas with France settled in yuan.

DXY Index (1980 – present)

It’s not just the conscription of the dollar in economic warfare, but increasingly error-fraught monetary policy regimes that are driving various interests away from the greenback…

…click on the above link to read the rest…

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