Absolutely on target with this. The key thing to using a weapon is to know both a) when to use it, b) when not to use it, c) at some point it will have diminishing effects and your enemy will copy it. Once we tied the USD to policy and showed it to be a completely political weapon with zero neutrality, other governments were incentivized to find both counters and other options. I'm a full on statist patriot, but I'm also a practical man and completely understand why Russia and China have sought other options. If positions were reversed, I would want the US to do the same. Put another way, we turned the petro-dollar into an ied, handed the detonator to our competitors, then gave them a reason and the right time to press the button. How are we surprised when they press it?
The writing is on the wall. I just wonder if the Fed would be stupid enough to create a 2nd dollar... a currency issued by the treasury that is backed by a hard asset of some kind. I'll use gold as the default example, although, as Lepard has pointed out, there is a great chance that China/Eastern thought defaults to basing their currencies in gold as evidenced by the massive accumulation of the physical asset to do so while the USA will be left with some other assets to choose from... meaning, there is no way the USA can commandeer enough physical gold NOW to back it's ridiculous international debt. Thus, the USA will need another natural resource abundant enough locally to stockpile and back a new currency. Or at least, keep the fiat to service old sins, and new option to those that want it backed by something else. Like btc. (I'm not a fan fyi, I just think the options will be limited and btc is just ONE option they could fall on... but not being in control of supply will cause some sort of upheaval at the treasury AND the Federal Reserve in any case.)
Of course, the flaw here is that every single dollar holder says: "I want the new thing"... so... what a fucking quagmire we have created here. China/Russia have been planning for over a decade for this. Look at their CB's decisions for reserve assets as the only example we need.
I don't see how the USA gets out of this without complete destruction of the ccy. We built an highway without off ramps.
"The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." - Lenin
There is another quote I can't quite remember about how less than 1 in a million will realize it.
Americans are ignorant and stupid about a lot of thing.....of which they should not be. One of the biggest is money: what it is in dollars, where it comes from, and the system of it. Tell an American that money is debt, and they will look at you like you are an idiot, but the fact is, dollars are a unit of debt.......period.
We are like spoiled rich kids who enjoy daddy's money but has no clue from where it comes.
Hey Chris. I share your concerns about the dollar. I do have more questions though. Why would China kill the goose that lays golden eggs? America buys all their shit… you crush your customer, and your own economic well being collapses. How do you answer that? Also, most of the world.. and primarily Western civilizations, condemn the atrocities Russia has committed. I’m certain that if a good portion of the world unites against Russia… they will solve their oil/energy needs problem, and leave Russia to bathe in their own oil.. sure they could sell it to China, and that may be fine for them. I don’t think this means the end of the West.
First of all, when you look at what Russia actually does (as opposed to what it says), you will see that over the last weeks they did everything they could to service their USD denominated debts and paid coupons on their bonds in dollars. So, they a) serviced their debts, and b) did so in USD, which means it further depleted their reserves. Why do they do that? The only answer I can think of is: they do not want to lose access to capital markets when sanctions will be lifted (presumably in years). If they were determined to ditch the dollar for good, they'd be happy to default on their USD debt and show everyone in the West the middle finger.
Second, the idea that they back the Ruble with gold and only accept payment for oil in gold-backed Ruble or outright gold. I just don't see anything happening in that direction, and I believe it would be a bad strategic move. I encourage you to read Credit Suisse Zoltan Poszar's latest note to get a glimpse how complex moving oil from Russia is going to be if Europe isn't buying it anymore. Also, if Russia backs its Ruble by gold, I guess most people in Russia will just want to sell their Rubles and get gold to protect themselves.
And yet, since RUS invasion the USD has increased and ready to breakout to new highs. Like so many other things, Austrians are correct in a rational world that doesn't exist. Reality is that the blowback has been so great that U.S. standing has improved without doing anything and Austrians want to believe gold or oil or trade partnerships will rebalance the financial system. In the end, it will always be about perspective supporting a thing as long as you control the narrative. Currencies will always strengthen with power despite the rational thinking of Austrians, and U.S. power is still number one - despite all the obvious deficiencies. BTW, I'm an Austrian...
Who trusts china or russia when rules and laws change with the direction of the wind. That is why the dollar will stay as the reserve currency. Its not going to change anytime soon and i wouldnt change my dollars for rubles or yuan. What makes us special is our laws, democracy, freedom, and creativity.
The US$ is reaching a more obvious transition point, marked by Ukraine, but maybe the overall process will continue along a slow path just like it always has.
Want it to go fast?
Then unleash the cyberp0lyg0n kraken!
All kidding aside, it looks like we are queued up for eating grasshoppers first.
Can you cite any reliable sources for your opinion that Putin and Xi “both have ugly track records of human rights abuses?” If you’ve not read Chomsky’s ‘Manufacturing Consent,’ you should. I’d be interested in absolute proof that these two world leaders are the law-breakers you believe. (And let’s not forget that the US installed two of the most horrific dictators the world has ever seen: Shah Reza Pahlavi (Iran) and Augusto Pinochet (Chile), both puppets installed after bloody US coups.)
Fantastic blog post, Chris! I honestly would love if you had Luke Gromen on your podcast. He has been writing about the US closing the global reserve window being akin to the US closing the gold window. Highly inflationary and highly conducive to reshoring of manufacturing. This is a major change to our monetary system, and much like in August of 1971, the world gave it a big yawn. I am loading up on Gold stocks. Gold still above $1,900 with rising yields is an incredible show of strength.
Keep writing, please! I'm always learning more about economics and you, along with ZH, are helping so much. Critical thinkers need help when we have questions. ;-)
I've been trying to get my family to prepare with varied success, but my husband and I have been getting hard assets thanks to you all.
Thanks for making this a free post.
Absolutely on target with this. The key thing to using a weapon is to know both a) when to use it, b) when not to use it, c) at some point it will have diminishing effects and your enemy will copy it. Once we tied the USD to policy and showed it to be a completely political weapon with zero neutrality, other governments were incentivized to find both counters and other options. I'm a full on statist patriot, but I'm also a practical man and completely understand why Russia and China have sought other options. If positions were reversed, I would want the US to do the same. Put another way, we turned the petro-dollar into an ied, handed the detonator to our competitors, then gave them a reason and the right time to press the button. How are we surprised when they press it?
Hey well, this falls under the "play stupid games, win stupid prizes" category for the New Monetary Theory morons.
The writing is on the wall. I just wonder if the Fed would be stupid enough to create a 2nd dollar... a currency issued by the treasury that is backed by a hard asset of some kind. I'll use gold as the default example, although, as Lepard has pointed out, there is a great chance that China/Eastern thought defaults to basing their currencies in gold as evidenced by the massive accumulation of the physical asset to do so while the USA will be left with some other assets to choose from... meaning, there is no way the USA can commandeer enough physical gold NOW to back it's ridiculous international debt. Thus, the USA will need another natural resource abundant enough locally to stockpile and back a new currency. Or at least, keep the fiat to service old sins, and new option to those that want it backed by something else. Like btc. (I'm not a fan fyi, I just think the options will be limited and btc is just ONE option they could fall on... but not being in control of supply will cause some sort of upheaval at the treasury AND the Federal Reserve in any case.)
Of course, the flaw here is that every single dollar holder says: "I want the new thing"... so... what a fucking quagmire we have created here. China/Russia have been planning for over a decade for this. Look at their CB's decisions for reserve assets as the only example we need.
I don't see how the USA gets out of this without complete destruction of the ccy. We built an highway without off ramps.
"The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." - Lenin
There is another quote I can't quite remember about how less than 1 in a million will realize it.
Americans are ignorant and stupid about a lot of thing.....of which they should not be. One of the biggest is money: what it is in dollars, where it comes from, and the system of it. Tell an American that money is debt, and they will look at you like you are an idiot, but the fact is, dollars are a unit of debt.......period.
We are like spoiled rich kids who enjoy daddy's money but has no clue from where it comes.
Hey Chris. I share your concerns about the dollar. I do have more questions though. Why would China kill the goose that lays golden eggs? America buys all their shit… you crush your customer, and your own economic well being collapses. How do you answer that? Also, most of the world.. and primarily Western civilizations, condemn the atrocities Russia has committed. I’m certain that if a good portion of the world unites against Russia… they will solve their oil/energy needs problem, and leave Russia to bathe in their own oil.. sure they could sell it to China, and that may be fine for them. I don’t think this means the end of the West.
First of all, when you look at what Russia actually does (as opposed to what it says), you will see that over the last weeks they did everything they could to service their USD denominated debts and paid coupons on their bonds in dollars. So, they a) serviced their debts, and b) did so in USD, which means it further depleted their reserves. Why do they do that? The only answer I can think of is: they do not want to lose access to capital markets when sanctions will be lifted (presumably in years). If they were determined to ditch the dollar for good, they'd be happy to default on their USD debt and show everyone in the West the middle finger.
Second, the idea that they back the Ruble with gold and only accept payment for oil in gold-backed Ruble or outright gold. I just don't see anything happening in that direction, and I believe it would be a bad strategic move. I encourage you to read Credit Suisse Zoltan Poszar's latest note to get a glimpse how complex moving oil from Russia is going to be if Europe isn't buying it anymore. Also, if Russia backs its Ruble by gold, I guess most people in Russia will just want to sell their Rubles and get gold to protect themselves.
And yet, since RUS invasion the USD has increased and ready to breakout to new highs. Like so many other things, Austrians are correct in a rational world that doesn't exist. Reality is that the blowback has been so great that U.S. standing has improved without doing anything and Austrians want to believe gold or oil or trade partnerships will rebalance the financial system. In the end, it will always be about perspective supporting a thing as long as you control the narrative. Currencies will always strengthen with power despite the rational thinking of Austrians, and U.S. power is still number one - despite all the obvious deficiencies. BTW, I'm an Austrian...
Who trusts china or russia when rules and laws change with the direction of the wind. That is why the dollar will stay as the reserve currency. Its not going to change anytime soon and i wouldnt change my dollars for rubles or yuan. What makes us special is our laws, democracy, freedom, and creativity.
The US$ is reaching a more obvious transition point, marked by Ukraine, but maybe the overall process will continue along a slow path just like it always has.
Want it to go fast?
Then unleash the cyberp0lyg0n kraken!
All kidding aside, it looks like we are queued up for eating grasshoppers first.
Let’s do our part to uncouple the US from our dependency on the Chinese supply chain. Visit www.reservecurrency.co
Can you cite any reliable sources for your opinion that Putin and Xi “both have ugly track records of human rights abuses?” If you’ve not read Chomsky’s ‘Manufacturing Consent,’ you should. I’d be interested in absolute proof that these two world leaders are the law-breakers you believe. (And let’s not forget that the US installed two of the most horrific dictators the world has ever seen: Shah Reza Pahlavi (Iran) and Augusto Pinochet (Chile), both puppets installed after bloody US coups.)
Fantastic blog post, Chris! I honestly would love if you had Luke Gromen on your podcast. He has been writing about the US closing the global reserve window being akin to the US closing the gold window. Highly inflationary and highly conducive to reshoring of manufacturing. This is a major change to our monetary system, and much like in August of 1971, the world gave it a big yawn. I am loading up on Gold stocks. Gold still above $1,900 with rising yields is an incredible show of strength.
Keep writing, please! I'm always learning more about economics and you, along with ZH, are helping so much. Critical thinkers need help when we have questions. ;-)
I've been trying to get my family to prepare with varied success, but my husband and I have been getting hard assets thanks to you all.
As someone that grew up in Upper Darby, what’s the play here?
I think you are exactly right here and have had a feeling this would be coming for 2 years, just waiting for gold to make it's move now.