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The US dollar’s future as reserve currency

From the Wall Street Journal (paywall):

Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia. The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.

The Saudis are angry over the U.S.’s lack of support for their intervention in the Yemen civil war, and over the Biden administration’s attempt to strike a deal with Iran over its nuclear program. Saudi officials have said they were shocked by the precipitous U.S. withdrawal from Afghanistan last year.

From what I can recall, the demise of the dollar as the world’s most important reserve currency has been predicted for so long that it was probably being stated fifty years ago. Predictions of “currency wars” often crop up in the business sections of bookstores. Take this racy example from James Rickards.

The underlying problem is not oil exports, or whether Sleepy Joe is getting on well with whatever shithead is running Saudi Arabia. The problem is that the US government has racked up a debt of $28.43 trillion. Further, US savings rates haven’t held up. The US has been too reliant on savings from countries that have at times wished it ill. This is not sustainable. It is funny really. Sustainability is one of the buzzwords of our time, denoting a concern about the Planet, but surely if it also means anything it means having a state that does not go bankrupt.

The US Federal Reserve put up interest rates today, and in the next few months, is likely to put them up more. (See an interesting discussion involving a friend of mine, Keith Weiner, about the Fed.) Every time it does so, the interest costs of the US debt stock will rise. The amount of interest payable on that debt will be the equivalent of, say, an aircraft carrier fleet. High indebtedness is not just stupid in financial terms. It is a national security issue.

11 comments to The US dollar’s future as reserve currency

  • Rudolph Hucker

    The problem is that the US government has racked up a debt of $28.43 trillion.

    This is no debt in the terms you & I might understand. i.e. If we borrow money, then we pay it back, with interest.

    For the US gov (and other govs), the solution is simple. It’s either a Ponzi scheme (pay back from future “investors”) or just print more virtual currency (quantitative easing). Or both. Inflation? That’s for the suckers to worry about. WEF-grade people have already shifted out of cash to land and other tangibles that are better long-term bets.

  • Martin

    Not that I didn’t already think that already but the $28 trillion figure nicely illustrates how hollow a lot of contemporary American ‘prosperity’ is.

    To the extent the indebtedness been ‘mutually beneficial’, its been good for both Chinese apparatchiks and American bankers and other corporate oligarchs. The US working/middle class are getting shafted.

  • Paul Marks

    28 Trillion?

    Not true Johnathan Pearce – it was over 30 Trillion a month ago, and that does not even count the unfunded liabilities (which are endless Trillions). Back in the 1980s David Stockman and Ronald Reagan were horrified when the debt got over ONE Trillion – now it is over THIRTY Trillion.

    Roger Sherman is vindicated – allowing the Federal Government (and the Credit Bubble bankers – who are always joined-at-the-hip with governments) to create money “in emergencies” has led to folly after folly. Over the long term such “emergency action” always makes things WORSE.

    Even the supposedly conservative President William Howard Taft thought that the government should have more “flexibility” in its response to financial crises such that of 1907 – failing to realise that it was the “flexibility” of bankers (winked at by government laws – such as the National Banking Acts) that CAUSE the crises. Lending should be Real Savings (the actual sacrifice of consumption) – not Credit Money expansion.

    Now the situation is hopeless – utterly hopeless.

    The greatest genius could take over the finances of the United States and nothing good could be done at this point – things have gone beyond the point of no return.

    The “Dollar” is finished – and the Global Power Elite (the Davos Crowd) know this well, indeed they happy that it is the case.

    Even though the Dollar has been openly fiat (i.e. government order – whim) since 1971 (and, in reality, long before 1971) it is still a national currency – not under international “governance”.

    An international fiat (order – whim) currency is what the international elite want – indeed that is what they have wanted since at least the 1940s (J.M. Keynes came up with a plan for it – long before the World Economic Forum even existed).

    The American economy?

    An economy that thinks that “Free Trade” is produce endless “money” (from nothing) and use it to “pay for” mass imports.

    Americans are about to get much (very much) poorer.

    And so are we here in Britain – we are going to get very poor as well.

    And the Davos crowd?

    For awhile they will be fine – but the People’s Republic of China Communist Party dictatorship will come for them, it does not need them any more.

    Dr Klaus Schwab and his son think they control the People’s Republic of China – that Xi and co are their puppets.

    Schwab and the rest of the Davos international elite are going to find out that they are mistaken.

  • Paul Marks

    Boys and girls, I do not have access to some hidden arcane knowledge – just type in United States Debt Clock into a Search Engine and look for yourselves.

    It is “Game Over”.

  • Paul Marks

    1933 – “Sorry, but you can not have the physical gold (or silver) your CONTRACT says – because it is an “Emergency”, indeed we are going to steal the physical gold you have – as you are not allowed to “hoard” it”.

    An “Emergency” that lasts 88 years is not an emergency – it is a SYSTEM, a system of corruption, of Organised Crime, centred in the Axis between New York City (Wall Street) and Washington D.C. (the Federal Government).

    Well this system of evil (for that is what systematic monetary and financial corruption is – evil) is finally coming to an end – although, I believe it will not be till 2025 that it will be officially admitted that the system has come to an end.

    Which is apt – as it was in 1935 that the Supreme Court ruled (five to four) that it was fine for the government to steal gold and rip up private and public contracts – thus (as the Dissenting four Justices pointed out) ending the United States as a Constitutional Republic under the Rule of Law.

    I repeat that, I believe, it will not be till 2025 that it will be officially admitted that the system, the system of Organised Crime – systematic corruption, has come to its bitter end.

  • Johnathan Pearce

    Paul, why 2025, specifically?

  • Paul Marks

    Johnathan Pearce – a political reason.

    The current Administration can not admit that the system has failed – it would take the blame. People could be paying a thousand Dollars for a loaf of bread (and still not finding any bread) and the regime would still be saying “there is not much inflation” or “it is those GREEDY industrialists and farmers” – their grasp of economics is in line with the “moral economy” cretin John Hales in the 16th century – blaming rising prices on “greed” rather than Debasement of the coinage

    But the next Administration (comes in on January 20th 2025) can blame its predecessor.

    But that does not mean a return to sanity.

    No – the plan may well be for an international “digital currency” programmed to only allow people what they “need”, as we live in little cubicles in “Smart Cities” on our “Guaranteed Basic Income” (which might cover a loaf of bread – if we are lucky).

    Just ordinary people of course – “You will own nothing” was not intended to apply to the special, Davos, people.

    In some ways Japan has experimented with some of this – for example the capsule hotels for people who get too drunk to go home. But, in Japan, people do NOT live in these things full time.

    Japan also broke the back of organised crime – by making it incredibly difficult for members of such gangs to operate in the economy (they found they could not get a bank account – or use payment services).

    The West will now do this to people on the basis of their political opinions – indeed it has already started.

    The Republican candidate for President in 2024 (whoever it is – remember Donald John Trump will be 78 – so it may not be him) needs to be asked some hard questions.

    “Are you against Agenda 2030, the Great Reset, yes or no?”

    If they answer “it just a crazy talk – just a conspiracy theory” then it will be clear that the fix-is-in and the international elite win, regardless of who is elected.

  • Paul Marks

    Also watch out for the “they are private companies – so the 1st Amendment does not apply” dodge.

    The Environment and Social Governance (ESG) system – is “private”.

    Even Black Rock (which controls TRILLIONS in investments – and gets endless “cheap money” from the Federal Reserve and the Woke banks) is a “private company”.

    The vast banks (who can blackmail and coerce everyone else) are “private companies”.

    The Cantillon Effect (the Credit Money flow) means that the economy has been corruptly concentrated.

    It is not a natural process (Karl Marx was WRONG) – the concentration into a handful of politically “Woke” enterprises has been artificially induced by the monetary and financial system.

    That is what I was trying to explain to Bulldog Drummond – but he thought I was after him and his (relatively) small commercial enterprise.

    I am not the enemy of Bulldog Drummond and others like him – he will find out who his enemies are, only too soon.

    I suspect that his enterprise does not get cheap money from the Central Bank and those allied to it – his enemies are the people who do.

  • Paul Marks

    People may loose their property by “eminent domain” – being forced to give up their property in return for (increasingly worthless) “Dollars” (or “Pounds”).

    But it need not be that way – there are other ways.

    Take PROPERTY TAXES – if you can not pay your PROPERTY TAXES you loose your property. No need for “Eminent Domain”.

    And with declining real incomes over time – fewer and fewer people will be able to pay Property Taxes in such States as New Jersey.

    There are other taxes to – for example the Governor of South Dakota first entered politics because of inheritance tax (or estate tax – different name for much the same sort of thing).

    Her father died in a farm accident – and suddenly they got a demand for a lot of money in tax. They almost lost the family farm.

    Johnathan Pearce – Corporations do not have to worry about Inheritance Tax or Estate Tax.

    Do you see why I think that Milton Friedman (with the best of intentions) got it WRONG on Corporations and taxation.

    Warren Buffett loves inheritance tax – he goes to family run business enterprises (and not just in the United States) urging the owners to sell out to his Corporation, in order to “protect your children” by putting the money into trusts.

    Is that the future we want? Trust fund kids? With all production (not just goods – FOOD as well) controlled by a few vast corporations owned by Black Rock, the Banks and Governments?

    Oh yes – Central Banks (governments) are buying shares – indirectly.

    Public-Private-Partnerships – very Stakeholder Capitalism, Davos.

  • Paul Marks

    “Paul – the correct solution to this is not to tax corporations more, it is to stop taxing individuals so much”.

    If anywhere comes up with that solution, and gets rid of such things as high rates of income tax, capital gains tax and inheritance tax, then I would agree with the statement.

    As long as it is clear who-owns-what and property can not just be stolen by bandits or the “official bandits” (government), which has been a problem with some countries (both high tax and low tax countries).

    One of the astonishing things about, for example, many Latin American countries is that much of the land is still “not clearly titled”.

    A nice way of describing a really horrible situation.

    Those people who complain about “Anglos stealing Mexican land” do not really understand that the “Spanish land grants” tended to be vague drawings with even vaguer sentences written underneath.

    The horrible thing is that some, some, of Latin America is still like that. Even Theodore Roosevelt was not always wrong – and when he said that (old) “Spanish land law” was one of the principle things that held Latin America back, he was correct.

    “Who owns this land?” – “well it is a matter of opinion, and who has the most armed men and ..” with peasant farmers and whoever could take rent out of them.

    It does NOT have to be this way – for example land in Uruguay tends to be “clearly titled” (people can actually know who owns want – the basic precondition for sound economic development), it also avoided a Covid lockdown.

  • Paul Marks

    Johnathan Pearce – one sign of the sheer stupidity (the utter IGNORANCE) of Mr Putin is his mental image of Russia’s “foreign currency reserves”.

    He clearly believed that this was a physical pile of notes – not just entries on bank computer records. He has been utterly astonished that this “hundred billion” (or whatever it was supposed to be) could just vanish with the pressing of a few computer buttons.

    The Dollar and the other fiat currencies are inherently worthless – even the Keynesian Paul Krugman (winning of the SO CALLED Nobel Price for Economics) admitted that their only value was what “men with guns” could make people do.

    Mr Putin had over 20 years to establish a gold currency – but he did not do so. He did not do so because he was too IGNORANT to understand that he had to – if he wished to follow an independent policy.

    I always knew that Mr Putin was a violent criminal – but what I did not grasp was just how ignorant he is.

    When will the People’s Republic of China break with the Dollar? I do not know – but I do know it will be at a moment timed to do the most harm to the dying West.

    The only chance for the survival of the West was with (with – not in opposition to) the Russian people – the Russian people NOT Mr Putin.

    However, vicious racist ravings (such as those by Mr Krass – who Perry quotes in another post) seem to be shutting off our one chance of survival.

    If the problem really is Russia, the Russian PEOPLE (not Mr Putin), there is no hope for the West – none.

    The People’s Republic of China Communist Party Dictatorship will dominate this world – and people such as Dr Klaus Schwab and his “World Economic Forum” (and “United Nations Organisation”) will celebrate – till they realise that the PRC Dictatorship does not need them any more.

    Perhaps at some point in the future the Chinese people (who are human beings – just the same as the rest of us) will overthrow the Dictatorship.

    But we will not live to see it.