What Happens When The World No Longer Wants, Or Needs US Dollars?
Chuck Butler and I recently discussed how government deficit spending, and monetizing the debt has caused a worldwide awakening. Inflation is killing the value of the dollar, and our creditors understand that.
But wait, there’s more! The interview continues….
DENNIS: BRICS used to stand for Brazil, Russia, India, China and South Africa. Global Research reports, Doomsday for the Buck? A Reserve Currency Is No Longer Needed.
Quoting Paul Craig Roberts:
“It was Washington’s economic sanctions against Russia, the theft of Russia’s central bank reserves, and the theft of Venezuela’s gold, not the conflict in Ukraine, that weaponized the US dollar and resulted in global realignment.
…. The US dollar is used as world money to settle imbalances in international trade, but the sanctions woke the world up to the risks of using the dollar.
Consequently, the BRICS suddenly expanded, (adding) Argentina, Egypt, Iran, Saudi Arabia, and the United Arab Emirates. The organization now contains essentially the entirety of world oil production and 40-45% of World GDP.
…. Saudi Arabia announced the end of the petrodollar when it began accepting payment for oil in other currencies. The BRICS are working out how to carry on trade among themselves without use of the US dollar, which in effect brings to an end the role of the dollar as world reserve currency.
…. What this means…is that the US will begin having financing problems for its large budget and trade deficits. As long as the dollar was the world money, foreign central banks kept their reserves in US Treasury debt.
…. The situation is changing. If…about half of the world’s population and 40-45% of world GDP cease using the dollar, the foreign central bank market for US debt shrinks considerably. Having offshored its manufacturing, the US is import-dependent.
Declining use of the dollar means a declining supply of customers for US debt, which means pressure on the dollar’s exchange value and the prospect of rising inflation from rising prices of imports.”
RT adds fuel to the fire:
“In terms of oil reserves, BRICS will also control nearly half of the world’s total, 719.5 billion barrels out of 1.6 trillion. If Venezuela, which has recently applied for membership, is accepted into its ranks, the group’s control will be even greater – around 65.4%. In comparison, the G7 group …. (The US, UK, Germany, Italy, Canada, France, and Japan) controls only 3.9% of known crude reserves.”
This is overwhelming; let’s break it down.
Chuck, Nixon cut a deal with the Saudis creating the petrodollar, solidifying the USD as the world currency. Because the US weaponized the dollar, aren’t the BRICS really uniting to reverse the process?
If so, why does the world need dollars?
CHUCK: Well, that’s the point, isn’t it Dennis? Even Gomer Pyle shouldn’t be surprised. It should have been expected.
When the Saudis removed the USD requirement for oil contracts, the game was over. No longer THE PETROL DOLLAR, is the death knell.
Weaponizing the U.S. dollar doesn’t’ mean adding guns to it; shutting Russia out of SWIFT, and freezing their dollar assets in the U.S., was considered to be weaponizing the dollar.
The world saw this and said, “if the U.S. can do this to a country like Russia, they sure as hell can do it to us”. “Weaponizing” the dollar through exclusion of the SWIFT payment system forces other nations to seek other alternatives to trade freely in the world market. They must protect their citizens and be able to sell their exports in order to survive. Our government’s actions really accelerated the demise of the dollar as the world currency.
They began reducing their dollar reserves and buying Gold. Central Banks around the world bought 1,136 Tons of Gold in 2022; a record for a year’s worth of buying! Can’t say I blame them either…
Once countries realize they have no need for dollars in reserve; there goes the neighborhood!
DENNIS: Let’s look at consequences of these acts and how it affects all of us. What do you expect?
Spain, the Dutch, England, and others once had the privilege of their currency holding the esteemed “reserve currency” status. When they lost that status, their standard of living, their way of life, changed dramatically – for the worse!
Their fate will be our fate… When a country loses the reserve status everything becomes more expensive. When the Beatles came to the Ed Sullivan Show in the early 60’s, they showed pictures of Liverpool England to give us an idea of where the boys came from. It was depressing, looking like a country in near ruins.
My favorite example was how U.S. gas prices were much cheaper than in the U.K. That will go away; particularly when you look at the BRICS nations and their control over energy supply. Higher gas prices affect everything we buy.
This is just an example, but NOT an isolated example; everything we import into the U.S. will be much more expensive than it is today – by a large margin.
People are finally understanding what I preached for years; the U.S. was sending all of its manufacturing overseas. Remember Ross Perot saying, “The giant sucking sound,” referring to jobs leaving our country? If the jobs hadn’t gone elsewhere, we would not be subjected to mass price increases… I’m just saying…
DENNIS: Doesn’t this create a dilemma for much of the world? If they all started dumping their trillions in US debt, it would cause the dollar to collapse and they would lose trillions. How do you see this panning out?
CHUCK: Yes, it would. I’ve warned that Treasuries were in trouble. I envisioned all the countries of the world sitting around a conference table in a room with one door. Should they all run for the exit at the same time, the doorway would become jammed up, and the trading would be very nasty.
J. Paul Getty said, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
The big boys get it, and will work together to do a calm, zipper-like exit so things go smoothly. This is what the creation of the BRICS will do. They will coordinate their selling so that it doesn’t upset the apple cart of dollar and Treasury trading.
DENNIS: It sounds like musical chairs, they want to get rid of their debt holdings, let some other poor sucker be holding the bag when the music stops; then boom!
I’m concerned, the government is still spending and borrowing at historic levels. Not only will they need to finance their current deficit spending, but they also must roll over existing debt as it matures.
Bonner says it is “inflate or die!” If interest rates rise in a free market, could it literally bankrupt our government and cause us to default?
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CHUCK: Absolutely! I’ve subscribed to the “inflate or die” saying, and believe that’s what the leaders of this country have to decide; which road they will take, high inflation or massive tax increases and spending cuts.
No matter which one they choose, both roads lead to misery… One just gets you there faster…
Treasury yields will continue to rise; that’s the only way the U.S. can make them attractive to buy. Eventually, without massive spending cuts and higher taxes, the U.S. will have to buy its own bonds, monetize the debt, creating even higher inflation. That’s a mess that will really shove down any remaining credibility of the U.S. government and dollar.
The higher interest cost to service the bonds will cut into the tax collections that help support this country. Bond servicing costs have already passed the cost of national defense. Next is Social Security and Medicare… Then… default…
|“However (political parties) may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion.”
— George Washington
DENNIS: While default sounds simple, I see terrible implications. You’ve said the politicians must STOP SPENDING money we don’t have – immediately. They won’t do that willingly; with understandable fear the welfare class will storm the palace.
Since the Tea Party movement, the public has been trying to push back; yet the entire political class ignores it, referring to it as voter “hissy fit.” Both parties continue to govern against the will of the majority.
While things can’t go on as they are forever, is true political reform a possibility without a real overhaul in our political system?
CHUCK: Let’s go back to “inflate or die.” Sometimes it takes a true crisis, not a made-up political one, to get politicians off their butts working together. They face some tough choices.
|Politicians become motivated when they see it is in THEIR best interests to do what is right.|
Remember when citizens stormed the Fed when Volcker raised interest rates? Well, they are likely to do the same if/when inflation skyrockets. Historically, a revolution results; sometimes just taking place at the ballot box. Let’s hope that is what it takes.
I think most citizens will be willing to sacrifice some if they see true reform, not just Congress looking after special interests….
Dennis here. Next week Chuck and I look at Armageddon possibilities. He offers some very specific suggestions on how to survive and protect your wealth. Stay tuned!
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On The Lighter Side
Last weekend the September equinox began; the beginning of fall. While the trees are still predominantly green, daughter Holly’s driveway is already full of leaves falling off the trees. The evening temperatures are still in the high 50s but somehow the trees know. Soon southern Indiana will be ablaze with beautiful fall colors.
Next week the West Side Nut Club’s Fall Festival begins. We went several days last year and it was a lot of fun. The festival ends on Saturday, October 7th with the Main Parade. We will bring lawn chairs and cooler early, plant them on the grass median in the middle of the street, and enjoy the festivities.
Jo sent a cool announcement:
“EVANSVILLE, Ind. (WFIE) – It’s official, the West Side Nut Club’s Fall Festival has been named the ‘Best Fall Festival’ in the country by USA Today.”
It’s a huge draw, last year the “half-pot” drawing hit $1.64 million for one lucky winner.
It runs an entire week, come enjoy the fun. Just be sure to bring a good appetite!
Quote of the Week… (this really hit home!)
“Find someone who isn’t afraid to admit that they miss you. Someone who knows that you’re not perfect, but treats you as you are. One who gives their heart completely. Someone who says I love you and means it. Find someone who wouldn’t mind waking up with you in the morning and seeing your wrinkles and your gray hair but still falls in love with you all over again.”
Friend Phil C. sends along some “Boy were they wrong!”
- “There is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will.” Albert Einstein 1932
- “We don’t like their sound, and guitar music is on the way out.” Decca Recording Company on declining to sign the Beatles, 1962
- “Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia.” Dionysis Lardner, 1830
- “I think there is a world market for maybe five computers.” Thomas Watson, chairman of IBM 1943
- “Everyone acquainted with the subject will recognize it as a conspicuous failure.” Henry Morton, president of the Stevens Institute of Technology, on Edison’s light bulb 1880
- “The horse is here to stay – the automobile is only a novelty – a fad.” The president of the Michigan Savings Bank advising Henry Ford’s lawyer not to invest in the Ford Motor Co. 1903
- “Television won’t last because people will soon get tired of staring at a plywood box every night.” Darryl Zanuck, movie producer, 20th Century Fox, 1946
- “There is no reason for any individual to have a computer in his home.” –Ken Olson, president, chairman and founder of Digital Equipment Corporation (DEC) in a talk given to a 1977 World Future Society meeting in Boston.
- “If excessive smoking actually plays a role in the production of lung cancer, it seems to be a minor one.” W. C. Heuper, National Cancer Institute, 1954
- “I must confess that my imagination refuses to see any sort of submarine doing anything but suffocating its crew and floundering at sea.” HG Wells, British novelist, in 1901
And my favorite:
- “It’ll be gone by June.” Variety Magazine on Rock n’ Roll, 1955
In the words of Wolfman Jack…. “See ya on the flip side!”
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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