Posted on 02/28/2022 7:33:51 AM PST by Diana in Wisconsin
The war being waged by Russia in Ukraine shows no signs of coming to any type of peaceful end.
Meanwhile, it appears to me that a separate war on the U.S. dollar could be “officially” waged at any moment, by Russia and China collectively, as the situation in Ukraine grows more dire, as Russia’s options wane and its ties with China grow closer.
While the hope is still to avoid a World War III type scenario, escalating sanctions from the West are forcing an increasingly unhinged Vladimir Putin to consider his options for pushback.
For example, on Sunday, Putin put nuclear deterrence forces on high alert as a response to increasing pressure from NATO, in a move that the U.S. ambassador to the United Nations said “escalates the conflict unacceptably.”
In the same breath that Putin made this announcement, he continued to push back on economic sanctions being levied against Russia:
"As you can see, not only do Western countries take unfriendly measures against our country in the economic dimension - I mean the illegal sanctions that everyone knows about very well.”
This may be because the bigger story over the weekend was the beginning of removing Russia from the SWIFT intra-bank messaging system, along with sanctions targeting Russia’s Central Bank.
SWIFT helps provide services related to the execution of financial transactions and payments between banks worldwide. Central Bank sanctions from the EU and the Fed instantly make Russia - and its currency, the ruble - pariahs elsewhere in the world.
Russia’s Central Bank reserves are generally controlled by foreign central banks. If those foreign banks decide to freeze access to such reserves, Russia only has its tangible assets (such as oil, and gold reserves) to fall back on.
The ruble is expected to collapse as a result of these sanctions.
Said one analyst on Twitter over the weekend, the Kremlin “has no good off-ramps at this point”.
The obvious consequences of these sanctions is a run on Russia’s banks and a crippling of the Russian economy.
The Bank of Russia (Russia’s Central Bank) will now try to prevent a crisis of confidence among the citizens of the country to slow the economic bleeding.
The BBC reported that Russia’s Central Bank has claimed it “has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the financial sector."
Regardless of whether this is true (the global FX markets will be the judge), it brings up a topic that only “conspiracy theorists” have talked about for decades: the resolve of fiat currencies, and the importance of having tangible bank reserves.
During decades of peace, it’s easy to simply ignore critical questions raised about the backing of fiat currencies while the next trillion dollars casually rolls off the Fed printer and is inequitably distributed through programs like the Paycheck Protection Program. Not unlike equity markets when they’re in a mania, few critical questions are asked while loopholes like money printing are exploited until something eventually gives out.
Now, something is giving out. All those quotes about the “world order” changing as a result of Putin’s recent action? They’re worth paying attention to. They’re the definition of something “giving out”.
*SNIP*
While the idea will likely be written off by economic experts, it’s important to remember that, even if such an idea doesn’t succeed, it could still create chaos for global economic markets and life in the West. We’re already in the midst of a supply chain crisis here in the U.S. - now, add to that the facts that:
Russia has tangible reserves in the form of oil and gold. Russia is the top supplier of imported gasoline to the United States. “In 2021, Russia accounted for 21% of all U.S. gasoline imports,” Forbes writes.
China is a major supplier of…basically everything…we use in the West on a daily basis. China was the United States' largest supplier of goods imports in 2020, according to the USTR. China is currently our largest goods trading partner with $559.2 billion in total (two way) goods trade during 2020, the same report notes.
*SNIP*
Now, it could be time for China and Russia to collectively “flip the switch”.
The writing has been on the wall for a while: Russia and China “de-dollarizing”, both countries stacking their gold reserves and China quickly looking to implement a digital currency.
Over the last five years, only overtly paranoid people like me looked at these actions and concluded they were the lead up to something much bigger.
Now that Russia has put itself at war with the West, the potential reasons, all of a sudden, become much clearer.
I have long argued that our arrogant treatment of the US dollar and our reliance on being able to print it whenever we want was a fool‘s errand. Austrian economists and conservatives who made these points were written off as conspiracy theorists for making suggestions that our country should shore up its balance sheet and back its currency with something tangible.
Now, in the midst of one of the most consequential wars in decades, our people may be starting to see exactly why having your monetary policy house in order is a good idea. Because the sh!t, eventually, always hits the fan.
Built by Indian software developers.
Let me rephrase that..."garbage" built by Indian software developers.
Seriously, they have cost US companies more money in reworked efforts than just about anything else in the last two decades.
War and conflict always have a financial and market component, and an effect on those components.
There is less trust and faith placed in the American government and Federal reserve than ever before, by ordinary people.
We'll see what happens.
Let's see. Pretend I'm the leader of a country.
Do I want to base my trade deals on a currency that nations (including Russian citizens right now) will literally fight to protect access to?
Or do I want to base my trade deals on garbage code some Indians hacked together in their slums, that represents factory nations who depend on buying nations to even survive?
Decision, decisions...
Many don’t seem to understand that if the dollar got weak, a good bit of that factory activity would return to the US. China DOES NOT want that to happen. They are already having fits over supply chains getting yanked.
There should be - but the exact opposite is true right now. Look at the DXY against a basket of other currencies. It's not the "toilet paper" that some would have others believe.
Is debt-based currency evil? Yes. But it's the strongest debt-based currency in the world - by far.
Hence their peg to the US dollar.
Nobody in the US is going to buy Chinese garbage products constructed of polluted melamine if the price of that product begins to equal a better product made in the US.
“Right now dollars are held tighter than bitcoin and bitcoin has remarkable returns over than past decade and the dollar is flat vs gold, silver, oil.”
If bitcoin were ever to become the reserve currency, one ‘coin would be worth millions.
And yet we keep hiring Indians here, over our US citizens.
That tide is beginning to turn in companies who are waking up to reality.
It doesn't sound nice to say, but the Indian culture has no problem with lying and manipulating to achieve their goals.
Most Indian resumes are complete fabrications, and many of them cheat on interviews.
I know. I've interviewed a great many of them.
Russia could start demanding energy payments from Europe in gold. They have plenty of leverage. But I agree with the author’s hypothesis that the Greens operating Biden wanted this result. There are too many parties with an interest in destroying the petrodollar.
I’ve read that we have thousands of US doctors that can’t get a residency because we import thousands of foreign trained doctors instead.
China produces the worlds goods. They have a lock on rare earth metals. Their manufacturing is incredible. They produce more PhD’s each year than we have total in the united states. When they take back Taiwan, they’ll control 90% of the world’s chips. You want chips or rare earth metals or any of the Chinese crap you buy at Walmart, they’re going to be paid in China’s new digital currency. That’s their plan. The US doesn’t have a plan except to print money and expand CRT and AGW hysteria.
Would you sign up with a system run by the mafia?
I called it.
Neither country needs the US. Especially with a child groping pervert as president. Russia shits off the gas and Europe freezes. China shits off everything, including Taiwanese chips after Biden lets them invade, and that’s it for decades. No more mean tweets though .
Apparently the author pays zero attention to the bond market and banking system of any of these countries. Otherwise this would be seen as the nonsense that it is.
“Sounds like the systems are already up and running. Just depends on how many countries sign up.”
The Yuan is not freely traded. It’s pegged to the dollar. China does not have a transparent financial market. It does not have the enormous liquid market of US Treasury paper backing it up. All of this and more is needed for it to ever be considered a reserve currency and it’s not remotely close.
A modern reserve currency is of necessity mostly backed not by gold but by the legitimacy and reliability of a large, developed economy with an immense chain of proper accounting practices and ledgers. These assure that no one can create more currency and manipulate currency values on the sly.
Yet, even if a prospective global reserve currency is issued by a sufficiently large economy and has books that are honest and transparent and skilled manager in its central bank and treasury, much more is required of a prospective alternative to the dollar.
An alternative reserve currency must, like the dollar, be backed by an issuer that is politically stable, reliable in its agreements and undertakings, and culturally, politically, militarily, and economically dominant. The alternative reserve currency issuer also needs a combination of allies and international institutions that come to the aid and rescue of nations that intend to rely on the dollar alternative. This is where the EU and the euro fall short.
In practice, a dollar reserve reliant country that is friendly to the US benefits from a wide range of assurances and benefits from the US and its allies. They get access to aid and loans. They get access to the US and world economy on fair, even beneficial terms. Their people can travel to the US and enjoy its domestic amenities.
When troubles arise, the US and its allies will help. Not just disaster and emergency assistance, but a range of loans and grants on good terms. They also get the political, diplomatic, and military might of the US against the depredations of aggressive neighbors or internal insurgencies.
There is no 911 for countries to call, but the next best thing is that the leaders of a dollar reserve country friendly to the US can call for help and it will arrive. That is why we have a large, capable blue water navy with a massive fleet of aircraft carriers and an Army and Air force that can project power around the globe. Among other reasons, our armed forces help protect the value of the dollar by protecting the dollar's friends when they are imperiled.
What does the US get in return? The dollar's users around the world invest in Treasury securities -- which means that they finance our massive public debt. Above all, they finance Medicare, the largest single federal expenditure. Indirectly, the young men and women of our armed forces are helping to keep their grandparents healthy and housed against the burdens of age.
For all that Russia and China and the EU might envy the dollar, none of them are capable of replacing it. Above all, no one with a lick of sense trusts Russia and China not to engage in exploitative and predatory conduct at every turn if they had the world's primary currency. So the dollar endures.
*APPLAUSE* :)
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