// TLDR for the squirrels…
I have written extensively the past few weeks about commodities. They are fascinating to me – I mostly like the stuff you dig out of the ground, but I’ve spent a few hours now pouring over grain reports and it’s just really interesting stuff. No, I’m not at the contract level with this stuff.
My conclusions are that the US produces WAY too many commodities to ever be counted out, but our currency is debauched, our exchanges are rigged, our use of the USD as the world’s currency will face stiff challenges, and our globalized markets are about to get segmented into rivaling factions. The USD will not go away, but it is clear the strength of it worldwide is about to be significantly diminished.
This will create a potential situation where observers could see the DXY increase over years, but the cost of all things we get will rise – meaning our USD against the rest of the world’s currencies will diminish.
Our markets are too intermingled to be vanquished – but weaknesses with allies and their production will be exposed. I can see a day where there is a BRICS+ currency pairing against a basket of non-BRICS+. You will see third world producer nations get wealthier and move further from the West’s influence. The BRICS+ implementation will not be smooth.
It will be disruptive, and you may see many market blow ups as shorts get taken to the woodshed one week at a time. I ultimately believe this will result in healthier USD exchanges and reformation of HFT will go hand in hand with balanced budget amendments and fixing our currency. Given our production capabilities, we will get punched in the mouth, hard, but on the other end of this is a strong rivalry where competition is more fair and producer nations get a bigger piece of the pie with more stable currencies as a result.
//End TLDR for the squirrels. Get a pot of coffee on and digest.
We have wrung the last drop
One of my major findings in my piece on commodities had to do with the USD sliding in value to commodities, where the DXY could continue higher – which is more of a function of how the DXY is measured. It stands to reason that you would measure your currency against the other world’s largest currencies to see relative value, but this doesn’t take into account the yuan or a million other currencies which may strengthen substantially against the USD.
The reasoning being is that I believe there will be some sort of commodity-BASED currency. Not “backed”. I had also mentioned a few years ago how I believe that all commodities are money, but gold is the best form of money. To me, this has a currency highly tied to the commerce in its exchanges and how efficient – but FAIR an exchange is. I am of the opinion that what I have witnessed with our exchanges has led to a situation of unfairness, which created a very small uber-wealthy conglomerate which has been pitted against a form of peasant-like producers which can no longer produce for their masters. This is the story of how this ends and allows producers to get back more of the pie they are baking.
The below graphic I have used a lot, but I need this image to be burned in everyone’s heads for the next 5-10 years of commerce.
Money is NOT currency. It CAN be, however, when people do not trust a currency. Currency is how you transmit this financial energy. Sure, you could barter sugar for coffee, but it doesn’t mean sugar is a great currency. Currency helps you move financial energy from one class to another.
I also made the case that currency depreciates in value year over year due to the inflation of the currency supplies, very similar to how electricity loses heat over distance. Meaning, it’s not great to hold currency for any duration of TIME without risk of loss of spending power, especially when inflation is elevated.
This also doesn’t mean gold is a great currency either, but I can make the argument that it’s the best STORE of the money class and perhaps the first that is rotated into when there is a trust in currency crisis.
When you want to convert the items above to currency, you can sell them to someone for currency. If you need to consume something like a commodity to eat or make other things, you use currency to buy.
The MAJOR issue I believe is that most people today have been confused with the difference between currency and money. The $20 bill with the gold seal on it didn’t help, as it then gaslit people over decades that the paper was money. That was merely a certificate that allowed you to substitute hauling around gold bricks for paper alternatives.
So my big finding was that the USD CURRENCY is going to slide, heavily, against the things you see above. Why? Because we have acquired too much debt, to the point where it casts doubt that we can make good on paying our notes off without debauching the currency in the process of paying it back. Thoe who would buy fixed debt at 3.5% may understand that we have 3.5-5% of inflation going to be reality for the foreseeable future, so why would they buy it? They won’t. Some may be forced to at proverbial gunpoint, but I don’t see masses thinking that losing 1-2% of your purchasing power each year is a good deal.
I’m aware you aren’t “printing” cash into existence, but the principle of loss of spending power with the more currency in the system is true. Put another way, you borrow a lot of money from a bank, then take out credit cards to pay your monthly bills rather than earn the money to pay back.
I did NOT say the US would fail into a smoldering pile of ash. However, I said their CURRENCY would. I believe someone has inspired a better form of currency, with a stronger backing of repayment, with less loss of purchasing power. In this situation, the USD is Blockbuster and the BRIC$ (BRICS commodity-based currency) is Netflix offering streaming services. At first, you saw businesses at blockbusters decline, then suddenly, it disappeared. Blockbuster at one point early could have competed with Netflix, perhaps even bought them. By the time they tried to stand up a Netflix-like backend, it was too late. The Blockbuster here is the USD as the WORLD’S PRIMARY RESERVE CURRENCY, not necessarily disappearing, yet.
At issue is you need to understand the US produces a TON of things – I’ll add some charts below. But to me, there’s a lot of things we COULD produce, but due to change or some other green nonsense, but choose not to. In that case, we flog people to create more of this for us, and use our exchanges to push the price into dirt and offer them our currency. For some, it may be a REALLY good deal. Consider perhaps a country mining copper to then sell for USD, which they can turn around and buy some of our Wheat surplus. This is global trade, at a 100,000 ft level.
My major issues, however, are that our exchanges seem to push prices into dirt because….globalism. As I mentioned here before, my cousin and her husband lost their dairy farm due to milk prices being ground to dust. Their costs would keep rising each year, but the amount they would get paid would get less and less. Obviously, with commodity production, over time, you can find efficiencies with production. However, most of these types of efficiencies are done by a few ways:
- Massive companies can finance expensive new machinery to make things cheaper
- Larger companies can get better financing rates and out-gun you on lower leverage costs
- Labor costs can be reduced
- Jurisdiction of production can be changed
In a purely globalist society, you could see the poorest nations producing “stuff” and getting paid, and with this money, be able to buy goods from nations who manufacture the raw materials and send it back to them. However, the catch 22 here is that often the costs of things they buy may go up relative to the more money they are earning from producing goods. Not in all cases, but the idea here is that if you are producing goods now in the hellholes of the earth, with virtual slave labor – there’s no more blood you can squeeze from that rock.
We have hit these limits of efficiencies, yet the overlords selling thosuands of gold contracts on a blip of the DXY are utterly clueless as to what that means. It means they are short selling things that can never hope to deliver on, nor did they ever plan to. And that, my friends, summarizes the plight of American economics at the moment. Selling millions of something, you have never seen or held in your hands, to someone who has no interest in ever taking it or holding it in their hands. And this is how you kill free markets. You use high amounts of leverage to spec gamblers who have automated machines that can buy/sell thousands of items in blips of a second to make .0000001% of the country rich while the rest suffer.
Over the last few years of investing in mining, you learn about jurisdictional risk. You learn about things like how cobalt is mined. You learn about blood diamonds. Artisanal gold. Slave labor. This is the only next reality possible to cut prices to get more stuff to make your iPad. But, that is not happening. I can assure you that the ESG folks are just starting to catch a whiff of cobalt production and the blood from the rock has been taken as far as it goes.
I believe that globalism sort of hit its peak. These are potentially the cheapest goods we can ever buy, relative to our incomes. And bought, we did. On credit, nevertheless.
What that has done was drain global stocks of “things” down to perilously low levels, because no one could produce more at these slave-like wages. While the demand was there, the shelves were going empty, not able to restock fast enough.
My major finding is that perhaps the Fed smashing us with higher Fed Funds rates was to absolutely smash demand into oblivion. Why? Because if the shelves are damn near empty, and you cannot restock at these prices, it means that things have to go up in price, a lot, to re-stock – or producing companies all screech to a halt as they have no raw materials to make things with. Imagine what that does for your current favorite shit stock at 130x P/E ratio? Hence, the solution for low prices – is low prices. Had they not done this, as aggressively as they have done, it is entirely possible inside of 3-6 months we would have heard about a lot more global shortages in things like metals and companies that produce things, and had no materials to produce things, would go bankrupt overnight.
At the onset of our inflation kicking in, Russia then invaded Ukraine. Say what you want about Putin, but he is not dumb. Nor is he Hitler. He comes from a culture of chess grandmasters. We promote a culture of TikTok 10 second dance videos. I believe, this was for a lot of strategic purposes, and it seems to be playing out as he had hoped.
- Kicked out of SWIFT and reserves taken. This got him sympathy from a lot of the fringe BRICS+ community. Now that the dollar was weaponized against Russia, sympathy came in the form of “what happens to our USD reserves now if we make the US unhappy”
- Ruble got stronger. A whiff of gold talk and the ruble went back to strength of 2015 or so levels.
- Energy prices went higher.
- NATO getting fractured. NATO promised to never expand east, in 1991. All they have done was do so. Talk of Ukraine joining NATO was what triggered this.
- Strengthens BRICS+
- Denying West certain products, like oil, can drive up their costs.
- Exposes high costs of ESG to West and puts them at competitive disadvantage.
- Begins to have countries stop using the dollar as much, introducing perhaps another currency alternative based on commodities as money
In this scenario, you may have a lot of Canadian companies who mine all over the world. They have the know-how, the capital – the trick then is how do you get many of these bad jurisdictions on a more level playing field with the Western companies who are coming in and exploiting your land?
The Ghana example here I think is a Cat 5 hurricane, a 9 on the Richter Scale, an F5 tornado that many may be dismissing as a cheap nationalization trick that will go nowhere. I think this needs careful attention. Like day to day watching this play out kind of attention.
To recap, Ghana is forcing their gold miners to sell them 20% of their gold they mine at fair market value in their local currency. The beauty of this model is that it is NOT mine nationalization. It allows the cedi to buy gold, locally. In my research in discussions with Rafi Farber, he said that “a currency only has value if it can buy gold”, and he quoted Mises Regression Theorem with that. With Ghana, they are forcing the sale of gold. Now, if it was 100% in cedi, the miner might have a grip. But with these miners, you can see that they have local workforces they have to pay. It makes sense for Ghana to force Newmont to pay their workforce in local currency. However, they can’t really FORCE this – but if you are forced to sell a portion of your gold in cedi, what are you doing with it? Are you holding it? No. You can sell it for USD, but maybe you take a hit on the exchange. That number, might be somewhat close to their local expenses with miners and suppliers – so why bother to deal with it, just use that income to pay miners locally.
I believe this model is going to go viral, for just about all of these countries that have natural resources exploited, but their currency has problems. This will have an effect of strengthening just about every single currency on earth against the USD. Why would Chile not do this with their copper miners? Mexico with their silver miners? Oil producers. Think about how all of these localized currencies now can get stronger if you have foreign companies extracting YOUR resources? It stands to reason you may want to defend your currency to then perhaps buy more American food with it. And, these governments can start to acquire stockpiles to DENY from exchanges to drive up prices to a point where the PRODUCERS feel it is fair.
Then, you look at this…
This shows me there may be a LOT of problems with getting metals in the future. Could be 1-2 years out, but if Chile is this massive copper producer, and they start buying 20% of all copper for their warehouses, they can choose to at some point sell into an exchange or even borrow against it.
How countries and companies own things gets messy with commerce
The US produces a LOT of things which I’m going to cover below. It makes sense that we can then sell wheat, convert that wheat into USD currency, and then buy metals. Sounds easy enough. Highly liquid, and the money of international commerce – for now.
However, IF that USD currency is getting weaker against the world, AND less metals may be available on exchanges, how are you getting these metals? You could potentially see 5 years out how Mexico, Peru, China, etc could have their own BRICS+ exchanges? What if Mexico, Peru, and China all got together and created an OPEC-like cartel for silver? You can start to play this out how a COMEX-like pricing mechanism, in a single day, can blow up. However, these countries also need American food, oil – and with this, there’s a delicate balance. But I feel that balance has now tipped towards commodities producers as the SWIFT/Russia debacle has the USD on a one-way plane ticket to being devalued against everything else.
If Mexico does the 20% thing with silver, their currency gets stronger against the USD. Meaning, essentially, they can buy more wheat. In return, we are essentially selling wheat for less USD. This makes our farmers poorer.
Now, I don’t necessarily see countries buying 20% of wheat in local currencies. Why? Domestic producers are most likely the ones producing (rather than foreign miners in Ghana, etc) and wheat doesn’t necessarily hold up well over time. Meaning, you could potentially see stockpiles of copper, silver, gold, etc by a lot of these governments – perhaps oil and nat gas as well.
Then you wonder how a farmer in Kansas could end up with his wheat in North Africa? Well, no one is calling him on the phone. The farmer can sell to exchanges, and there are services out there for people to buy from, or point you to how to set up these things. This isn’t a blog post to cover that – it’s a year of training somewhere to understand it far better than I could in a few paragraphs.
Suffice it to say, these people don’t take block of gold. They take USD currency.
If you were to go to the CME group web page, you can see how just in 5 seconds you can see how many different types of markets you can buy from. And there may be smaller exchanges which are placing items for sale here.
As much as I talk about the doom and gloom bear case scenario for the USD, all of these things move from our exchanges with USD. So, tomorrow, the USD is not going belly up. Sorry USD haters, it’s not going kaboom this year.
What I talk about, rather, is a case where the USD gets weaker against other currencies (and money, like commodities). You could also see a day where there are BRICS-type of exchanges that compete with the COMEX. Here, we see prices in USD. At a BRICS-types of exchange, perhaps you see things priced in grams of gold. Think about how that would work. With the USD, there is no relative value to gold. It’s only an inflationary one over 50 years. However, silver, priced in grams of gold, has thousands of years of historic relevance. This is where an exchange, priced in gold grams – actually demonstrates the intrinsic relative value of the item sold, expressed in terms of gold.
Today, if I want a futures exchange account, I open an account and fund it with USD. Perhaps I want to buy a silver contract, I might need $10k in USD credited to my account. But these exchanges also have massive gold vaults and they trade gold. What’s to stop a BRICS-type of exchange from asking you to buy gold on your local gold exchange with your local currency, and once credited, you can buy futures contracts there with grams of gold. Day to day the price of wheat would trade against gold, and be relatively stable.
What I’m suggesting is that over the next few years, you may see the spending power of the USD greatly decrease in the wake of other things which may create a direct competition for the USD. Perhaps you sell cattle on a BRICS+ exchange and get gold grams. You can then cash out of that in your local currency as it is converted. Gold doesn’t leave the exchange, unless you expressly buy gold contracts – which are sold in BRICS+ currency. To get BRICS+ currency, you are selling your local currency to the FX exchange. Meaning – for the next 1,000 years, you can see the gold to silver ratio expressed in grams per gold of this exchange be relatively constant. What is VARIABLE is your local currency to BRICS. Nations would then be more careful about spending and aggregate items (like buying gold in cedi, or silver in pesos) to also sell on the exchanges, so the nation has money. This allows nations to prosper from companies extracting their riches. And – it can be a viable alternative to oppressive taxing to get revenue and borrow against. You can create bonds based on the silver in your warehouses, rather than on future tax receipts. Think about how that makes your currency much stronger!!
What does the US produce?
I’m going to break things down into food, minerals, and energy. You will see we have zero problems producing a lot of stuff. The issue overall is our currency and exchanges.
First with food – I spent some time looking at WASDE reports that my buddy sent me the link to. He’s a soy trader for a hedge fund, and I wanted to see where some schmuck like me could get some good data. I then spent time trying to build out the chart to see how well the US stacks up.
To start off, let’s use some ballpark numbers for relevance. The US has about 340 million people and the world has about 8.05b people. It came up to roughly 4.2% of the world’s population. So if numbers were below this 4.2% for world’s supply, we were perhaps short on it compared to the world, but if it was over, perhaps we might be a decent exporter.
What you find with our food production is staggering.
All of the green items we are far above the average. Those in the pink, we might have some issues.
Some highlights from above:
- We export 49% of the wheat we produce, but are still only 6.42% of the world’s supply.
- We are 25.9% of the world’s feed grain supply
- We are 31% of the world’s corn supply. But, we don’t export nearly as much because of…ethanol
- We export 43% of the rice we plant
- We export about half of all soybeans we produce, which is about a third of world supply
- We are top world suppliers in soybean oil (19%), soybean meal (19%), cotton (13%), beef (21.7%), pork (54%), chicken (28%), turkey (50%), and eggs (20%). There may be SOME variations in this as some of these had different sourcings and years, so these are approximates
Some things that caught my eye:
- 65% of the oats we consume are imported, and we drew down our stocks 18% last year.
- we import 29% of our sugar
- Barley draw down in stocks were down 41% year over year.
- Wheat stocks were down 21%
- Pork stocks up 21% year over year
What this is telling me is that we are producing a HELL of a lot of stuff. But I’m going to ask you how this might change if:
- USD got weaker worldwide against real things. Would input costs to produce these goods not go up
- Energy costs go up in USD. Would profits not shrink?
Let’s now look at minerals. We need to build things with industry, right?
The same as above, I had to cobble some of these sources from different things. Most were statista and the USGS minerals sites. I be that $39 Statista monthly cost would be great for people like me that nerd out on charts, but I cannot justify $500 a year now to get data to write this blog for you. So you can deal with some ballpark observations here.
First, what I wanted to point out in the “produce locally” column is what ALL of this is about. We use 8000 tons of silver a year, but we only produce 1020? That means we have to buy from other countries, using USD. 19% of aluminum. 16% of palladium, 11% of platinum, and about 24% of our refined zinc. What I didn’t add on here was rare earths, but as you can imagine, we are woefully behind the Chinese on this.
Katusa research was the source for the below – shows we have 12% of world production as of 2019. Sorry about the chart – seems a little crude, but not a lot of easy to find charts out there on this with recent data – for free.
With China dominating this, you could imagine the cost of these items could be absolutely ramped up by them.
One thing to note about the minerals chart is that the US does produce 6% of the world’s gold and only needs to import about 25% or so each year.
Let’s now look at energy. Below, I wanted to create a graphic for this piece to catch some eyes, so that’s why this is a little fancy. You can see going back to 1900, we pretty much were self-supporting until you see that fun little star.
That little star was the beginning of the petro dollar, where the US agreed to sell the Saudis weapons and protect them, and the Saudis would sell oil in USD to anyone in the world. This essentially made the USD backed by oil. Not gold.
However, if the Chinese are now buying oil in Yuan from the Saudis, does that infer the Yuan is backed by oil? One can see how the world is changing quickly, and with it, this sort of kind of diminished the need for ANYONE to convert their local currency to USD to buy oil now. What we have seen from Ghana above was to then say they will use that gold to purchase oil. The Russians have said they will take gold for oil.
Does that then mean gold is backed by oil? Or, is oil backed by gold? All of this “backing” infers 1:1 swaps. But they are all commodities. Fire it all into an exchange and let God sort it out.
My point is that the US cut a lot of production over the years and leaned on the Middle East to give them oil, and in return we gave them green slips of paper. IF the green slips of paper are losing relevance, in the near term of 5 years, it would then stand to reason that with a weaker USD that more of them would be needed to buy oil from the Saudis.
Here we have the top oil producers.
At this site, I got the below graph that shows the US is the top Nat Gas producer.
Maybe we should look at coal? While we are the second highest producer, we also have ridiculously high stores for hundreds of years. China has perhaps 20 years left, at best.
Here’s the real problem. Uranium. Nuclear power here is 20% of baseline generation.
Wrapping it all up
I never, ever have said the US is screwed long term. I have, however, been very adamant that our paper fiat system where we force the world to use the USD is coming to an end. I believe that the US and close allies will continue to use the system we are on for perhaps 5-10 years yet. That is, you want wheat, go to the exchanges and buy it in USD.
You can obviously see that global finance is currently all intertwined with USD. What my contention is that there is death by 1,000 paper cuts coming. Sure, today we can have Chinese companies buying soy through our markets in USD. But why would they then not sell manufactured goods to us in Yuan, gold, or a BRICS+ currency (I call it BRIC$).
It would stand to reason that exchanges are where this begins. If you have Russian gas you want to sell in rubles or gold, you can sell that in the open market. Assume for a second, Russia wants to sell on an exchange for gold or BRIC$. They can sell contracts on there and member states – or ANYONE permitted – can buy these in that currency. For every single one of these contracts sold in gold or BRIC$, it’s one less contract sold in USD.
At most issue is the USD is 60% of the world’s reserve currency, and the DXY is measured against major world currencies.
Let’s assume, for one minute, that countries did not like what Yellen did by seizing Russian foreign reserves of gold and USD. If you are Russia, China, and perhaps 100 other nations that may have conflict with the US, you are actively, daily, trying to stand up something that removes the overarching power that SWIFT has with international commerce.
Meaning, you want to reduce the power of the USD, not crush it. Why? Look at all of the production the US has – which also means it has a lot of consumers to buy your goods. The world needs the USD, and to say you will just smash the population of the United States in bugs is inaccurate, at best.
My contention is, and has been, that the dollar will be significantly weakened against perhaps a gold or commodities-BASED system. It would stand to reason that a more physical BRICS-type of exchange selling goods in BRIC$ or gold would be how you might see this entire power shift change. If the USD is 60% of world reserve currency assets, you could see with a situation like this where many countries send their dollars to the COMEX to then extract things, as well as sell for gold on the open market to bid it up.
I believe the main issue at play is the US-based exchanges, which do high frequency trading and print contracts out of thin air relentlessly to drive down prices to have production happen in the remote corners of the world. ESG initiatives have an added tax that western-based companies seem to have, but these costs have not translated into higher prices for commodities. Put simply for Western-based businesses, your lemonade stand which was making you 10% a year on your capital deployed is now making 2% because you cannot pass the underlying prices that went up to the consumer. Likewise, BRICS-based producers may not have this ESG tax and with it, could continue to get you the 10% return on your capital. IF the USD is weakening due to many people converting it, you could also see western-based producers getting paid less USD to produce. Meaning, you may start to run into serious shortages.
I believe this is where the LME crisis came from, as a contributing factor.
It stands to reason that the BRICS+ nations have a game plan.
- De-dollarize at a gradual rate to continue to entertain commerce with the West, but on increasingly better terms for you.
- Recruit more and more countries into the economic alliance to build an army of consumers that are BRICS friendly
- Stay away from ESG to allow production of commodities cheaper than Western-based companies.
- Have real exchanges with a currency that many countries can trust – such as gold being the anchor.
The US has massive resources and sells a lot on exchanges. But our exchanges are broken, just like our debt is. It would stand to reason that over the next 5-10 years, less market participants will be involved in USD exchange transactions and more may be involved in non-USD commodities transactions.
The US has some points of pain
- Too much debt, and zero plan to rein in spending. At all. This is creating a glide path for runaway inflation as other countries can physically see the debauchery in real time. Debt here is increasing the risk of default, but we cannot default if we can print and lend to eternity. The inflection point is coming – high interest rates, and debt spiraling, who wants to buy our debt? Everyone appears to be sellers of our debt, and now, the USD.
- Metals to make things – we have a severe problem with getting silver, lead, aluminum, palladium, platinum.
- Energy concern – if a Thanos snap happens it stands to reason we may be denied uranium from Kazakhstan and perhaps down the road, Namibia. We do not produce uranium. This appears to be a MASSIVE opportunity in the making to find US junior uranium companies for a 5-10 year hold. While we now export a lot of oil, we still import a ton and as you can see, have drawn down 300 million barrels on a war-time strategic petroleum reserve. We have the ability to source our own, and it appears the Saudis are breaking the band up.
- Our exchanges now, to me, are laughable. While many markets may be legit and solid, my experiences the last 3 years understanding the bullshit COMEX markets makes me lose faith on a 10 year time cycle for exchanges. What you find is that there are perhaps a few dozen puppet masters running this stuff with high frequency trading, they know where all stops are, and there’s a specter of government interference in the markets which has me maintain little faith in actual price discovery. In the span of 3 short years, I have seen literally every silver primary producer take on another primary metal just to keep the lights on.
If commodities are money, the US production capability of all of these commodities are what makes us the richest planet on earth. The whole problem, however, is our “fake” exchanges then push production costs down, bankrupting producers and driving more and more production into dirt. Without the USD as the main weapon to force compliance, it stands to reason many countries, one by one, may take a stand. This will be death of the USD by a thousand paper cuts, and you will eventually see a lot more commodity sales going to BRICS-type exchanges at higher costs. This event creates a form of arbitrage, where BRICS-friendly entities can use existing USD to make a run on the bank to grab what’s left in the warehouses for $1.90 and sell on the BRICS-friendly exchanges for $2.20 in gold. Given our exchanges are a lot of paper trading, this may have an effect of “give me what’s in the vault” in short times.
I believe the mechanisms are there for “nickel” to happen to just about anything not nailed down – it may continue like this for a time. The world’s reserve currency may be USD at 59%. Then 58%. Then 56%. One day you then wake up and it’s 38%. You look in the COMEX warehouses, and there’s no metals. You look a the DXY at 115 and you are proud of your “strong dollar” while the price of gold in USD is $3,000.
I believe the root of all of this is our exchanges. I believe the thumbs on the scale have made so many in Washington and NYC rich beyond belief. I also believe that this exposes Europe’s ESG movement as perhaps one of the most cataclysmically stupid moves in history, and could lead to an EU-wide depression until policy changes to allow them to run on cheap energy again.
Ultimately, the fix for the US is to fix our exchanges, but it will not come easy. We may have to see the eventual dissolution of the COMEX down the road, but I believe prior to that, that there may be laws introduced banning HFT. That would be a start. Think about if you are a wheat farmer and one day the COMEX just disappeared? How could American commerce proceed without these types of exchanges? It is ALSO possible a rival exchange to the COMEX starts to pick up traction, but this is not likely given how this is entrenched in our financial system.
You can see that for the next 5-10 years, the USD is king – but the king is about to be stabbed with a letter opener 863,114 times in the matter of the next 5 years. This has the effect of potentially taking the USD world reserve currency under 50%, or even more, depending on how successful BRICS-type of exchanges work, and what kind of market share they take.
Look, the US produces too much damn stuff to be taken down, but if you weaken the USD significantly, the values you are paying the farmers and miners will go down to exhaust production. If commodities are money, and the USD is to be weakened, and this threatens production of all commodity money, I’m then taking my scraps of USD and exchanging it for anything not nailed down. This could see the participation of treasury buying stop from BRICS+ countries, and see the draw down of USD in foreign reserves, by a LOT.
IF a lot of these dollars go from offshore to onshore, that is perhaps $17T of USD coming into our markets to buy our stuff. This will have the effect of prices going up with super inflation, so a producer may think this is good – but costs going up higher.
If you want to weaponize the USD and SWIFT, the world can fight back by OPEC not selling oil to non-BRICS countries. Russia can stop sales of Uranium, palladium, and platinum to non-BRICS countries. US can stop soy and pork exports to China in retaliation. This begins a form of trade war started by us weaponizing the world’s reserve currency. I believe we made a checkers move and a chess grandmaster is our opponent working a 5-15 year plan to have money flow East. And it involves the USD, but significantly less of it.
Overall, you can see a path where countries start to wane off of the USD, sell goods to BRICS+ exchanges, and perhaps create bonds based on commodities. The world is become an interesting place – and you can see how in that type of world, the US and Canada could succeed, but other G7 nations who do not have this type of production might be having issues.