I’m writing this on the heels of my Tweet this morning on vacation about Ghana and using gold to buy oil. Brent Johnson has been doing some of his normal talk about how he’s right and we’re wrong, and I wanted to put something a little more definitive to paper to preserve the moment.
Let me state here the word “inevitable” is not the same as “imminent”. This can unpack the next 5-10 years or so where I can see the USD system as we know it long in the rearview mirror.
Anyone can go online and see that the trend over the last 20 years has taken world foreign currency reserves in USD from just over 70% to about 60%. Not hard to find a lot of this. If this exact trend continued, you’d potentially see us at 50% by 2045 or so. But, some things have happened that might accelerate this a bit.
First, let’s review where we are in the game.
The above would indicate that at some future point another currency would take over from the USD. However, I’m not sure it’s going to happen like that. There are advantages and disadvantages to being “the” global reserve currency. One thing I have noticed over the last 60 years or so is that all of our “good manufacturing” jobs left, especially from the 1980s on. One can see how our dollar “strength” has led to us buying things cheaper elsewhere. Likewise, the middle class liked how Walmarts popped up – as jobs disappeared and money got tighter, places like this made shopping affordable.
I believe we are at the end of this cycle, as we know it. Why? The middle class here has been mostly hollowed out, and with that, I believe there are only two real alternatives left:
- Enable MMT, the printing press, and issue universal basic income (UBI)
- Someone else takes over the reserve currency as de-globalization in supply chains happen. This helps reset the middle class here and manufacturing gets brought back. It may be brought back as traditional manufacturing jobs, but I see it as a lot of high tech manufacturing with AI and automation.
In that respect, I feel the US itself is at a cross-roads. There are many here who want nothing to do with MMT, and these people are very much in favor of de-globalization of supply chains. They want us to drill our own oil, get our own resources developed, and be less reliable on the middle east for oil and southeast Asia for chips. The “globalists” are trying to hold on to MMT.
So our identity right now most see as far left wokists versus those pesky racist and xenophobic far rightists. Actually, this is fundamentally a socialist left who wants MMT and money printing versus a de-globalist right who wants sound money and savings.
The problem is, no matter if the left or right win from here on out, our $31T in debt can never really be paid down, and with the unfunded liabilities of (pick your obscene number), the system now is pretty much on runaway to a zero value.
Those that realize this are trying to, as long as they can, print as many of these pieces of paper as they can, as long as they can be used, to get as much “stuff” as they can. I have no other reason why we deny permits for oil here, but then go and beg the Saudis to increase production. Simply put, we can exchange slips of green paper for their “stuff” and we can keep ours locked up underground until everyone runs out of “stuff”. Then do the same with gold, silver, just about any other resource out there. We do not allow our people to extract it – but ensure a policy where we can buy it with green slips of paper elsewhere.
I believe those days are in the final phase.
When we confiscated Russian foreign reserve currency after the Ukraine invasion, that was the last straw for many nations. THAT was the first sentence in the final chapter in the novel of the US dollar supremacy. To deny this fact is to be ignorant of how the world fundamentally works.
This does not mean Armageddon is tomorrow. It means the explosion happened to trigger the avalanche, and a mountain of snow is coming. Someday.
I first learned about BRICS in grad school for my MBA in 2016 or so. BRICS is the alliance of Brazil, Russia, India, China, and South Africa. At the time I was doing my program, it was called BRICS + 17, and the other 17 or so nations were “emerging markets” to include countries like South Korea and Vietnam. The BRICS alliance isn’t some sort of military alliance, or really any kind of formal trade union that I’m aware of. But the idea was these countries were on the outside looking in of Western finance. These countries have gold as money historically, perhaps going back a few thousand years.
I hear today that countries are “applying” to the BRICS, so I guess there is some sort of super secret handshake and membership process to get into the Discord chats. What has been making headlines lately is just about every week, another nation is trying to join.
You hear things about “BRICS currency” and “basket of BRICS” and “gold backing”. It’s in its infancy at the moment, but you can look at these countries and start to wonder – what do most have in common? Many of them don’t like us, or have fallen out of favor with us.
You can see in the orange how more are proposed to join. One can also see how the Chinese Belt and Road initiative in the middle east and Africa might also sway influence.
But more recently, we have heard Saudi Arabia interested. The same Saudis who are willing to sell oil for Yuan.
While a certain dollar cheerleader could smirk and easily dismiss this map, it makes up about 30% of the world’s GDP and 50% of the world’s population – as well as 60% of the world’s gas reserves.
One thing I believe that you can also say that is accurate is a lot of these countries don’t exactly like each other. Or trust each other.
You know what these countries do trust? Gold.
To me, this is how all of these countries translate their currencies into spending power.
We have just seen the new Italian PM Meloni tear apart the French colonialism speaking about how the French print their currency and give it to the African countries where they send children down mine shafts to mine gold. The point she was trying to make is that perhaps France should not be printing dollars to send there, but rather let the people there mine their own gold to sell on the open market. The ultimate goal for them was that instead of rescuing Africans from desperate poverty to send them to Italy, rather fix the problems that cause this poverty there.
My Twitter feed lit up with re-Tweets of this.
But think about it. When you think of a lot of these BRICS nations, you think of countries that dig/drill and we pay them dirt cheap for it – based off of our COMEX paper shit exchanges. Our Western banks drive these paper prices down, and someone, somewhere, says, “I can dig silver for that price!” – which then happens to get this done by cheap labor across the world in very poor areas. What if these countries did not partake in these exchanges and refused to supply them? What we have seen over the last few years were other exchanges stood up – perhaps meant to eventually starve the COMEX of any raw materials to thus ensure price discovery is done by the nations actually pulling the materials out of the ground.
It appears to me that with COVID, globalization is over. But I think dollar bulls also don’t understand the ramifications of that, bigger picture. If you talk to Katusa, he’s a massive dollar lover – as he’s been to every hell hole in the world and testifies as to how well sought after the USD is. I get that. But one can also see Ghana’s move as a blueprint others might follow to stabilize their currencies.
Imagine that many of these countries then say, “you must sell us 20% of your gold at spot” or the like, but they buy in local currencies, and not USD. Now imagine that is every material exploited from their lands. It would stand to reason that the mining company would take that local currency, then turn around and pay their localized expenses in that currency. This is not confiscation, rather, guaranteed buyers at market rates.
Imagine Ghana and other countries started doing this, with all items, en masse…
- There would be absolutely less demand for USD.
- Gold would be pulled from the market and held by countries directly, thus driving up market rates
Now, bigger picture, if there is less demand for USD, and more people are getting out of USD and putting it into assets, that drives up the costs for things for us HERE. This is what Maloney was talking about with re-patriating our dollars and importing the inflation we previously exported.
Instead of high demand for dollars to go OUT, dollars will be coming IN. This, to me, absolutely jacks up asset prices here of everything. And we may have seen part of this with real estate and stocks. But – if there’s less gold going to market, and these countries are buying it, it would also then drive up the asset class of gold, by a lot – as it would not only absorb excess dollar liquidity like a sponge, but it would also be used as a form of money/currency again.
Just as the “dollar strength” went up as countries demanded it, you can see “gold strength” going up as countries demand it.
The death of the dollar
I believe that the CBDC is absolutely necessary to be an efficient tax revenue collection mechanism. How do you solve $1T deficits? Hire 87,000 IRS agents and then nickel and dime every US citizen into oblivion to cut that gap. But, you would think this would eliminate the deficit. No, rather, it allows them to do more new spending and add more capital controls. I am unaware of a single US citizen who voted for the existence of the CBDC, and I also believe this will eventually become a 2024 talking point where the anti-globalists do not want the CBDC, and the party that wants to give out money like candy to voters will need it to buy votes.
I believe the CBDC is the eventual move from the USD as we know it into a “cashless” society. It might still be called the USD, but it would more or less be the 4th evolution of it – from initial gold backing (1) to Bretton Woods (2) to the Petro Dollar (3) – we would go to the “digital dollar” as the reincarnation of the USD. But the problem is, with what we have just seen with the melt down of all of crypto land, when this is backed by nothing, its value is…nothing.
I believe this is where you get your marketing text books out from grad school and look up “product differentiator”. And this is where I think dollar bulls leave off with the story, unable to see the next move on the board. The next move is tying your currency to an asset. Two years ago, I called Kinesis an “Asset Backed Digital Currency” and I saw the promise of the application of the blockchain to being tied to assets.
I believe this may be how you would have to look at a Western-based digital currency versus a BRICS-backed digital currency. It’s like comparing Ethereum to Kinesis. Both tokens are on the blockchain, but ETH is backed by nothing (non-asset backed digital currency) whereas Kinesis is backed by gold or silver (asset backed digital currency – or ABDC as I dubbed it). Your PRODUCT DIFFERENTIATOR here is a currency backed by hot air versus a currency backed by something. My GUESS is the BRICS basket of currencies, IF it chooses some form of backing, will devastate the digital dollar.
I believe Brent is extremely accurate, today, as he points out there is no BRICS currency, and he more or less scoffs at the existence of one. But one only has to look for a few minutes to understand the flows of gold into these countries over the last 13 years or so since the GFC to understand that it APPEARS there is intention to use gold somehow, some way, with their currencies. I would also agree that a 1:1 gold peg is so 19th century, in that one can see how banking and fractional reserve banking has allowed for monumental advances in technology over the last year.
Where is the problem? Over-leverage. Infinite printing. Lack of transparency with how much currency actually exists. Well, the blockchain can solve that.
To me, I believe the trust with BRICS starts with gold as the center of their financial system. To START, you can see Ghana sending gold to Saudi for oil. So, day 1, with no trust, gold to oil is 1:1. No leverage. But what happens if Ghana has a mineral that the Saudis need? Maybe Ghana wants to be paid back in gold.
One can also see that sending gold by plane back and forth for each transaction would be extremely cumbersome. Now try doing this with 100 other nations. Gold is NOT practical to do for this. But what might make sense is perhaps Ghana and the Saudis agree on a price of oil, in gold, and the Saudis want to buy copper, in gold. The trade is there, and the NET result of this trade is that Ghana owes the Saudis 1 T of gold. Are they flying it on a plane?
What I CAN see happening is BRICS-friendly banks exist that have this gold in a vault. For example, pretend that Ghana and Saudi both deposited gold in a Swiss vault. The 1T of gold difference is then sent to Saudi via the blockchain. Everyone can see this transaction on ledgers, and can follow the flow of the gold. The gold is never transferred by plane, as it sits in a vault both of them trust. The token was issued by the Swiss bank, and as part of a BRICS network of banks, the tokens can be redeemed from ANY BRICS-friendly bank in the world. As the gold is redeemed, the tokens are destroyed.
Now, imagine how a Yuan or Ruble would then trade against gold. A country could issue its CBDC and the amount of currency that exists in this blockchain is known to all. All GOLD in the BRICS banking system is known to all. As Russia digital rubles increased in number, its value against the gold would decrease. As gold enters the BRICS banking system, the Rubles would increase in value against the gold.
At first, you are seeing trade of 1:1 with differences settled in gold. But, over time, you could see that perhaps for every 100 rubles that existed, there was 1g of gold in the system. You could see a day where purchases of one country to another could have their gold as a collateral, of perhaps 10% or so. Meaning, perhaps they have $1m in gold in the vaults, and a country might then allow a $10m transaction. Perhaps you trust Russia far more than China – so maybe Ghana would allow China at a 5:1 rate and Russia at a 10:1 rate. When these transactions are done, there is a lien placed on the gold tokens as collateral.
All of what I’m talking about could be 20 years down the road, but you can see a path in the next 2 years where our MMT ways diverge from the rest of the world, who is sick of taking our pieces of green paper and no longer accept them, OR, prices go vertical as exchanges might move from the COMEX. IF we lose price “discovery” (read, financially engineer lower prices), to me it means that these nations will start to receive more compensation and purchasing power for their goods.
It’s not all bad
I think the net result to the US is a drastic change in lifestyles here, but there’s massive opportunities also here. Our dollar, as we know it, is going to get ground to dust as the BRICS nations sniff a gold backing – or some form of basket of commodities backing. One can simply see what happened to the Ruble when Russia even hinted at a gold backing.
Since that date, the Ruble significantly strengthened against the USD and has leveled out since July. Note – there is currently NO gold backing of the Ruble, but one can see what the specter of this did to the value of the Ruble.
If you live in the US, also know that we have absolutely silly stupid amounts of natural resources. I firmly believe the globalists have used “conservation” as a means to gaslight you into not using our own resources to further achieve the globalist agenda of using our green slips of paper for Saudi oil.
As many resources as we have, so do the Canadians. Where we start to run into trouble is the natural resources of Europe are a problem. They have to import a ton of things. I heard they actually do have nat gas, but that would require fracking which they don’t want to so. So, they will have to import our LNG after it appears the Brits blew up Nord Stream 1 and 2.
But to me, Europe has been close allies with the US and Canada since World War 2, so all of us here want to preserve these alliances. Think: NATO. What if we could defeat the Soviets without firing a shot by outspending them with our banking system and making them collapse? What if BRICS can defeat NATO without firing a shot by destroying the globalized supply chains and forcing us to exploit our own natural resources – and thus starve Europe of the ability to print cash and energy, thus sending them back to the 1600s?
So if I’m in the US, I’m thinking 5 years from now, owning Hecla and Exxon Mobil might be good plays. Perhaps US-based chip manufacturers or the first to win quantum computing can make us stand out. But when it comes to materials production, I think our days of using green slips of paper to get precious resources from a mountain in the middle of Africa might be numbered. It’s not today or tomorrow, but one can clearly see the path to get there.
I believe we have been in some form of currency war since 1971, where it was painfully clear to the world that we printed a lot more dollars than we had of gold. By allowing gold to float in a free market, by 1980 we could have had a 1:1 gold to USD backing – and a few years later our dollar was at 150 and we needed the plaza accords. Gold went the way of the dodo as we then lowered interest rates for 40 years and levered the shit out of everything. We went from a save nation to a debtor nation in 40 years. And, the credit card payments are due, and we’re broke.
We’ll see how a fed funds rate of 4.5-4.75% works out. My guess? 2023 is going to be a shit storm. But think about all of those countries who are pegged to the dollar, issued debt in USD, and are broke as shit? All of these BRICS nations are out there now trying to recruit all of those screwed over by us, and by now, the list is long.
We have seen what happened to the ruble with the hint of gold. We have witnessed the accumulation of gold. We have witnessed the break down of the petro dollar. We have seen the US abuse the SWIFT system and confiscate Russian foreign reserves. That day may go down as the day the dollar died. It was the Pearl Harbor of our currency, but it was self-inflicted upon us. As a nation, we had a good run of printing green slips of paper and getting everyone else’s raw materials and finished goods – but in the meantime, we built a nation of highly capable technical workers. We conserved all of our resources for this end game.
One can see the race next is to CBDCs in the next 12-36 months. We can see how the debt bomb is about to explode with these high rates. The best-case scenario may have a decade of stagflation ahead. However, I see our enemies using this time to “de-dollar”. You can see how everyone is selling out of Treasuries. You can see the central banks buying gold. You can read the articles insinuating a BRICS currency basket will be tied to gold or commodities.
It is clear to me that a version 4.0 of the dollar is coming, and soon. The “digital dollar”. I believe this entire system will get voted out of existence within a few years of inception, and we may never see those 87,000 agents get hired in. It is clear to me that COVID was released from a lab, and everyone had this war game planned out – we responded probably with far more QE than our enemies had expected, and with this, this rampant inflation and subsequent interest rate hikes to try and fight this inflation is about to deflate most of the whole damn system. Which is when $17T of USD reserves that are offshore buy the shit out of anything not nailed down. I believe gold does not deflate like other assets – as it will be clear the world is going to have gold being used in some way.
I believe the COVID bomb hitting us was the death knell of the dollar – but we have to give credit to our financial wizards to be able to keep kicking these cans down the road. I believe we are at the onset of the unwinding of Exter’s pyramid, with cryptos continuing their unwinding as hedge funds and anything connected with crypto starts falling apart with contagion. It is clear to see pension funds failing, and money bombers coming out to backstop this – which does nothing more than print more USD into the system into a form of hyperinflation.
Pick your poison. A hyperinflation to try and save the system where a loaf of bread is $500, or a Great Depression 2.0 where we rebuild stronger from the ashes and rebuild our supply chains from the ground up.
Where things start to get better is when our digital dollar then is tied to some form of commitment to gold or commodities to our currency. Imagine a day where we can exploit the gold in California and use it to buy oil from the Saudis. I believe Canada and us are well positioned to do this, but I do worry about Europe.