World Weary Dollars
The baby boomers of the currency world begin to creak and moan...
Bill Bonner, reckoning today from Dublin, Ireland...
How can we ‘move on’ into the future when the past was so felicitous?
We still have the world’s reserve currency. We can ‘print’ money at virtually no cost…and the rest of the world takes it at par value. You want to buy oil? Better have dollars.
We can invade other countries…but they can’t invade us. We have 750 military bases (nobody knows for sure) all over the world.
Our stocks are worth $45 trillion. Our real estate has a $36 trillion price tag. The face value of US government bonds alone is $31 trillion.
Our universities charge $50,000 per year and more…but are full of foreign students, eager to learn our secrets.
And our writ is law …all over the world. Do the Russians wish to modify the borderlines with their former Soviet sisters – that they drew themselves? Better ask us first!
Nice, huh?
End of an Era
Well, say goodbye…because – like it or not – that’s yesterday’s world. That era came to an end in the final days of July, 2020. It was then that the 40-year trend towards lower and lower interest rates – without inflation – finally reached its bottom.
Tomorrow’s world is going to be different. Today, we look at how and why.
Last week, Joe Biden was here in Ireland. The news focused on President Michael O’Higgins’ pet, Misneach, a Bernese mountain dog. When Biden approached, Misneach – a good judge of character – barked and growled.
While Misneach was drawing applause from all over the world, Chinese and Brazilian leaders were meeting in Beijing.
“Every night I ask myself why all countries have to base their trade on the dollar,” commented President Luiz Lula da Silva.
A lot of people are wondering. Bloomberg:
Members of the BRICS group – Brazil, Russia, India, China, and South Africa – are expected to outpace the US-led G7 in terms of their contribution to the world’s economic growth, from this year, Bloomberg reported on Monday.
According to the outlet’s calculations – based on the latest IMF data – the BRICS countries will contribute 32.1% of the world’s growth, compared to the G7’s 29.9%.
The report indicated that in 2020, the contributions from BRICS countries and the G7 to global economic growth were equal. Since then the performance of the Western-led bloc has been declining. By 2028, the G7’s contribution to the world economy is predicted to decrease to 27.8%, while the BRICS will account for 35%.
BRICS by BRICS
Let’s see, the BRICS have more people. And since 2020, they have a bigger economy, too. Why do they need dollars?
Part of the reason the US was able to ‘print’ so much new money without causing inflation was that the extra dollars were spent on foreign-made goods. They were sent to places such as China and Vietnam…and they never came home. Instead, they were taken up by foreign central banks as ‘reserves.’ But that is changing…and faster than predicted. Bloomberg:
De-Dollarization Is Happening at a ‘Stunning’ Pace, Jen Says
The dollar is losing its reserve status at a faster pace than generally accepted as many analysts have failed to account for last year’s wild exchange rate moves, according to Stephen Jen.
The greenback’s share in global reserves slid last year at 10 times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions, Jen and his Eurizon SLJ Capital Ltd. colleague Joana Freire wrote in a note. Adjusting for exchange rate movements, the dollar has lost about 11% of its market share since 2016 and double that amount since 2008, they said
The dollar is still king. But the guillotine is waiting. Here's silkroadbriefing.com:
Pakistan Drops US Dollar, Euro To Trade With China In RMB Yuan
Professor Ahsan Iqbal, Pakistan’s Minister of Planning, Development and Special Initiatives, has stated that Pakistan is a long-time supporter of China’s efforts to expand the use of the Renminbi (RMB) as a global currency.
And here’s Tyler Durden from ZeroHedge:
In recent months, Brazil and Argentina have discussed the creation of a common currency for the two largest economies in South America.
In a conference in Singapore in January, multiple former Southeast Asian officials spoke about de-dollarization efforts underway.
The UAE and India are in talks to use rupees to trade non-oil commodities in a shift away from the dollar, according to Reuters.
For the first time in 48 years, Saudi Arabia said that the oil-rich nation is open to trading in currencies besides the U.S. dollar.
Anti-Dollar Drivers
But the attacks on the dollar are not coming only from the up-and-coming BRICs. Here’s Business Insider:
The anti-dollar drive spearheaded by Asia has spread to Europe, with France growing sour on the greenback's dominance.
Now, even Europe appears to be jumping on the anti-dollar bandwagon, with French president Emmanuel Macron recently warning against the continent's dependence on the greenback.
Yesterday, the dollar was on top of the world. Today it is slipping. Tomorrow, most likely…we will find out what happens to all those trillions of dollars, now held overseas, when the greenback is no longer needed as a ‘reserve currency.’
When they left, bright eyed and bushy tailed, dollars were the business arm of the world’s rising power, going forth to build a glorious future. Now, the baby boomers of the currency world lie in their vaults dreaming of yesterday’s love affairs and commercial triumphs. Their hair gray. Their foreheads creased with worry. Their backs hunched over. Weak. Fragile.
Get ready to welcome them home.
Regards,
Bill Bonner
Joel’s Note: Regular readers will recall that it was the high priestess of dollar destruction herself, Janet Yellen, who recently admitted that US sanctions against Russia might risk undermining the greenback’s reserve status around the world. Here she was a week or so ago, sounding off to the government’s official media outfit (CNN):
"There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar," Yellen admitted to Fareed Zakaria in an interview. "Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative.”
Meanwhile, in totally unrelated news, the Standard Chartered Renminbi Globalization Index, which measures international renminbi usage in global trade, rose 26.6% last year as BRICS nations sought alternative settlement mechanisms beyond the US-imposed financial sanctions.
Hmm…
Then, as if to dare the world to action, Miss Yellen went on to add that “the dollar is used as a global currency for reasons that are not easy for other countries to find an alternative with the same properties."
Those properties included America’s robust capital markets and the rule of law, according to Yellen, who observed that "we haven't seen any other country that has the basic... institutional infrastructure that would enable its currency to serve the world like this."
As for the “rule of law,” Miss Yellen made no mention of the US government and her partners freezing hundreds of billions of dollars of foreign reserves and dollar assets held by Russia and her partners… nor the confiscation of billions of dollars worth of private property held by Russian nationals (who may or may not even agree with Mr. Putin’s actions in the Ukraine.)
When asked in the very same interview whether those frozen/stolen assets might be used to rebuild the Ukraine (no doubt using NATO-approved, “good guy” contractors), Yellen agreed that yes, "Russia should pay for the damages that it's caused."
Of course, there were certain “legal constraints” that might determine what can be done with said assets, Yellen admitted, but “we're discussing with our partners what might lie in the future."
All’s fair in love and war, as the saying goes. So while the US and her business partners get ready to spend the spoils, the rest of the world watches on, wondering whether a dollar is really worth the trouble after all…
With all the talk and ink there is never any suggested solution to the ongoing problems with elected presidents and congress. After a while the criticism gets to be old and nobody pays attention to what is said. For a great number of American the rot they found themselves in is going on and most of them don’t even bother to vote. When one gets to listen to sales pitches and complaints it dilutes the important content coming our way from time to time. Many vote because their brother is running for the office.
The presidential debates are a circus and those that debate are clowns.
The real arguments are never surfacing but rhetoric floods the air space. The media stirs things up to make the circus go on for a little longer then the show itself.
This last president just blows the lid off every kind of argument and reasoning.
Biden’s background is enough to make one wonder how the voters could have elected a man that represents nothing but a political hustler like his father was. Coming from a family of alcoholics he learned survival skills at any cost. He chose the Democratic Party because that is where the job opening was. He learned how to scout opportunities like a hungry wolf. He could not serve in the military because of asthma but he could maintain his position in politics for over fifty years. This alone triggers many questions. His son, Hunter, was discharged from the navy because of cocaine.
In this great country of ours people cannot find a candidate worthy of the position to be elected to lead the nation. We have to resort to sleazy candidates to lead this country astray. Perhaps we should think of importing one from China?
Our manufacturing has been exported, our currency is taking a huge dive, middle class being the core of this nation is struggling and we create a n energy Armageddon for those in charge to get richer. As individuals all we can do is to infest others with a need to focus where the focus needs to be. We need leadership who has the ability to lead, be knowledgeable in the domestic and international affairs and who has our country at heart. We need to stop arrogance on the international stage, threaten with muscles, make claims of superiority and pretend being the worlds police.
Janet Yellen is continuing her path of destruction with new rules for the FSOC. If you are not familiar with the FSOC, it is a relatively new government committee headed up by Ms. Yellen that want to regulate business and be able to pick winners and losers through regulation and then bail outs. This is totally opposite of capitalism where individuals transaction are based on mutual benefit and does not involve the government. We don’t need the government limiting business or bailing out their cronies that make bad decisions.