When
You See This Happen,
You
Know It’s Game Over For The Dollar
Exactly 70 years ago to
the day, hundreds of
delegates from 44 nations were busy at work in
Bretton Woods, New Hampshire creating a brand new financial system.
World War II had just ended.
Europe was in ruin.
And since the US was
simultaneously the largest economy in the world, the primary victor in the war,
and the only major power with its productive capacity intact, it was easy to
dictate terms: the dollar would dominate the new system.
Every nation would hold dollars
as the primary reserve currency, and the dollar would
be redeemable for gold at $35/ounce.
Also, global commerce would be
conducted and settled in dollars, and these settlements would clear through the
US banking system.
Naturally this created
substantial demand from foreign governments who needed to begin accumulating
dollars for trade and reserves.
So through a variety of programs,
from the Marshall Plan to the IMF and World Bank, the US began flooding the
world with dollars.
Initially everything
went according to plan.
But soon the US government
realized something important– foreign demand for the
dollar was so strong that they
could get away with printing more dollars than they
had gold.
This allowed them to run all
sorts of deficits and spending initiatives– more war,
more welfare, more waste… all with
minimal accountability.
Initially the consequences
were insignificant.
Sure, the price of gold in
London was a few dollars higher than in the US
(they called this the ‘gold
window’).
But demand for the dollar was
still strong. So why bother changing?
By 1971, the situation
had gotten far worse. Another
decade of war,
excessive spending, trade
deficits, and money printing had pushed many
foreign nations to their breaking
points.
Foreign nations’ dollar reserves
far exceeded the US government’s gold
holdings. And with confidence
waning, many began redeeming their dollars
for gold.
Only days later, Richard Nixon
put a stop to this and unilaterally terminated
the US dollar’s convertibility to
gold.
Think about the magnitude of this
decision: Nixon was effectively defaulting
on US obligations to the rest of
the world– a complete betrayal of their trust.
Yet despite this massive shock
that reset the global financial system, the
dollar somehow managed to remain
the world’s #1 reserve currency.
You’d think they would have been
grateful, thanking their lucky stars that the
rest of the world gave them a
second chance. But no.
Over the past 43 years, the
US has continued to print,
devalue, and mismanage the
dollar.
Along the way, they’ve created epic bubbles and financial
shocks.
- They’ve run up
the biggest deficits and debt levels ever seen in the history
- of the world.
- They’ve bickered
internally to the point of shutting down government.
- They’ve passed
arrogant, painful regulations and commanded the rest of the
- world to comply
under threats tantamount to financial homicide.
- They’ve
unleashed their tax and securities authorities to terrorize
- anyone doing
business with the US.
- They’ve totally
ignored foreign pleas to restructure the IMF and World Bank.
- They’ve slammed
foreign banks with record fines simply for doing business
- with nations
that the US doesn’t like.
- They’ve waged
pointless wars. They’ve spied on their allies.
- They’ve meddled
in other nations’ affairs.
- And they’ve
demonstrated absolutely no willingness or ability to improve.
Simply put, other
nations are done.
Fed up, really. And
it’s not just
words.
Consider that in a matter of
months, the US will be overtaken by China as
the world’s largest economy.
Not to mention, the total
combined GDPs of China, India, Russia, and Brazil
are roughly the same as the US
and EU combined.
Just as the US was the
biggest player back in 1944,
China is the biggest
player today. So it seems clear
that the renminbi will
become a critical component
of a new financial
system.
The renminbi already has
experienced rapid growth as a dollar alternative
for trade; in May, cross-border
settlement surged 52% from the year prior.
Renminbi settlement banks are
being set up from London to Canada, and
the central
banks of both France and Luxembourg have signed agreements
for renminbi clearing.
There have already been numerous
Western companies (like McDonalds)
that have issued
renminbi-denominated bonds.
And even the provincial
government of British Columbia issued a renminbi
bond earlier this year. It was a
whopping five times oversubscribed.
I’d expect within the
next 2-3 years we’ll start
seeing trade
settlement in renminbi, even when
none of the parties
are in China.
Today, for example, a transaction
between a Paraguayan merchant and
a company in Angola will likely
settle in US dollars.
Soon, I think we’ll start seeing
that transaction done in renminbi. And once
that happens, you’ll know it’s
game over for the dollar.
Shortly after, national
governments in western countries will issue
renminbi bonds (perhaps Greece or
Portugal will be first). And eventually,
even the US government itself.
Today, 70 years after
Bretton Woods, leaders
from China, Russia,
India, Brazil, South Africa,
and several other
nations are hard at work in
Fortaleza, Brazil
creating a new development
bank that will compete
against the US-controlled
World Bank.
This is a major step in an
obvious trend towards a new financial system.
Every shred of objective data is
SCREAMING for this to happen.
It’s a different world. Everyone
realizes it except for the US government, which
is still living in the past where
they’re #1 and get to call all the shots.
The consequences of
missing this boat are enormous, and it’s going to
be a rude awakening
for anyone not paying attention.
2 comments:
Do you want that contribution in Renimbi or US dollars?
When you say the US just kept printing money, you meant the federal deserve which is a rogue organization of private bankers that surreptitiously wrangled the monopoly of printing our money. I look forward to their losing their stranglehold on us. People need to wake up. The federal deserve is not the US.
Post a Comment