Unfashionable and Undervalued
Huge changes are happening in the global monetary system. We are approaching the failure of the US dollar as the international reserve currency, and the reintroduction of gold as the world’s primary monetary asset
This prediction might look nuts. Especially to those in the English-speaking world, who have lived for decades inside a bubble of financial unreality.
Because many of us lived our whole lives inside this bubble of unreality, we see as normal, desirable and permanent.
It is none of those things.
The bursting of the US Dollar Superbubble is well underway.
WHEN IT BEGAN
We can argue about when its demise first began. Some might say 1922. Or 1971. Or September 16th 2019. The tipping point might be the damage coronavirus did to the economy.
But aside from the details, the direction of events is clear (at least).
There is not enough adequate analysis of this in mainstream or alternate media.
Most people won’t know until it’s too late.
There is a growing sense that things are going wrong in the West – politically, culturally, and economically. Many of these problems are direct results of our international monetary system.
This system relies on the creation of ever-increasing amounts of US Dollar debt to keep functioning. Or it collapses.
The US Dollar is the Superbubble of our title.
It destabilizes entire societies by forcing global financial institutions to use government debt as their primary store of wealth. This is a terrible idea. Debt-based systems are inherently unstable, and the international role of the USD system is in a much more precarious state that is widely admitted. Some people are waking up to the problem.
Digital or paper dollars can be created in infinite amounts at almost no cost. The only real limit is foreigners’ willingness to accept and save in US promises-to-pay. As there is no chance these promises will be honoured, why have foreigners stockpiled vast amounts of something that can only lose value? The Petrodollar is part of the answer.
A very short summary of the Petrodollar system.
Since the early 1970s, the United States has ensured the world only trades oil with US dollars. Linking the oil market to the US dollar is called the Petrodollar system. It was a major factor in creating international demand for US paper, because foreign nations needed dollars to buy oil. Foreigners cannot print US dollars themselves, so they export real goods and services to the U.S. to get dollars to buy oil. This has funded the enormous US deficit (nearing $21 trillion last time I looked). Thus, a large percentage of US government spending on welfare and warfare is funded by foreign nations – including nations threatened by US sanctions and war. This system is totally crazy. They more I learn, the crazier it looks.
Under the Petrodollar system oil is only available for US dollars. This means that every time a barrel of oil is sold, US dollars are required. Raising the oil price means extra dollars are required per transaction, which means foreigners must increase the amount of real stuff they send to the US – in order to get more dollars to pay for oil.
Another major drawback; sometimes the US wanted to create extra demand for dollars internationally. To do this they have raised the price of oil by political and military actions in places where oil is abundant and cheap to extract. The US raised the oil price in 1973, and again from 2003 onwards, when various interventions in the Middle East prevented Iraqi, Iranian, Libyan and Syrian oil coming to market in large volumes.
Dedollarization.
The USD/oil link has been fraying in recent years as oil-exporting and creditor nations have started to bypass the US dollar in energy trading. Another aspect of dedollarization is that major Central Banks have stopped increasing their US Dollar reserves. Instead (since 2013), the major central banks have switched to buying more [something else] than US paper. This is an important signal as to where we are going.
Dedollarization is gathering pace, and is having major effects in international politics, trade flows, and the US government’s ability to fund itself. As the process accelerates, it brings forward the next major financial crisis. This crisis will see a transition to an entirely new international monetary and economic system. This new financial system has been decades in the making. Although not yet in effect, its outlines can be discerned. I will cover that in future posts.
“The key is not to predict the future, but to prepare for it.”
– Pericles.
The end of currency systems are always chaotic and often violent. Despite threats of war, and panic in the streets, I am optimistic and expect a more peaceful, prosperous and stable world to emerge after the US dollar Superbubble pops. No-one could prepare for all possible eventualities in the messy and chaotic ending of a debt Superbubble. However, anyone seeing the bigger picture, might navigate a path through the crisis. If history is an accurate guide, the process of destroying trillions of US Dollars in paper-promises will be less painful and dangerous for those in possession of appropriate real assets, including perhaps [something else].
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