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Friday, April 25, 2014

Dollar under attack: The Russia China alliance

It's really not possible to overstate the importance of the Russia/China (India Brazil South Africa) alliance.

It's not that they're going to start invading countries.  Sure there will be territorial disputes that get lots of press, but they'll be largely symbolic - not to the people who get killed in those territories - but in terms of the global stage.  These territorial disputes will certainly have no substantive impact on the United States.  Not even Ukraine.

It's not that they'll launch a nuclear attack on the US.  Why would they?  It's not in their own interest.

It's not that they'll introduce the world to a communist ideology that will compete with capitalism.  Capitalism and Communism are infotainment ideas that fuel fake news outlets, talk radio and Hollywood movies but they have no existence in the real world.  Russia and China, like the US are crony capitalist states - which is a form of economy much closer to Mercantalism than to free market capitalism, which entirely ceased to exist in the world after 2008.  If it ever really existed.

They have one common issue that unites them: TRADE.

And they have one clear current objective to maximize PROFIT on TRADE.  And that objective is to CUT OUT THE DOLLAR as the SETTLEMENT CURRENCY.

That's it.  Because if they settle their trade in their own currencies then they can used their own printed debt to float their own economies.  They will stop buying our debt.  They will stop funding our deficits.  They will fund their own.

This attack on the US Dollar may or may not have small elements of historical enmity and resentment attached.  But this is largely irrelevant.  It just makes good economic sense.

It's in their own interest.  And they can do it.  They are doing it.

As they succeed, it becomes increasingly difficult for the US to fund itself through debt issuance.

As they succeed the massive global dollar stock loses value.

And as they succeed the price of all real goods denominated in dollars become increasingly expensive.

That's why the wealthy are amassing hard assets with a vengeance.

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