MOVEMENT AWAY FROM DEMOCRATIC NORMS IS TANTAMOUNT TO A MOVEMENT AWAY FROM THE DOLLAR

 

There is an undeniable movement occuring in the Democratic West towards Strong Man Style Fascism.  Netenyahu's judicial reform in Israel, the Reich Citizens movement in Germany, and the trashing of the US Judicial System by those who disagree with it enforcement policy are all symptoms of the same disease.

According to a recent Axios poll 35 percent of Americans would prefer an autocrat to a democratically elected leader - if the autocrat more closely represented their personal views.  The figures in recent polls are even higher in many European countries. (Source: https://www.axios.com/2022/09/12/two-americas-index-democracy)

I think what many pro autocratic Americans don't really understand is that without the support of a powerful Democratic Judicial System the Dollar as a reserve currency would be toast.  (that's a technical economic term.)

If US economic contract law were subject to the whims of an Autocrat nobody would trust the dollar as a settlement currency.

Already, carpricious trade wars, tarrifs and sanctions have damaged the dollar in ways the average American has yet to understand.

It is difficult to overestimate the damage that the loss of reserve status for the dollar would do to a country the is carrying 30 trillion dollars worth of Sovereign Debt and another 70 trillion dollars worth of Unfunded liabilities.

If you think inflation is now a problem and can't see what the loss of reserve currency status would do to the US and Global economy, I'm afraid you have a very limited imagination.

The problem we are facing now is that most every country on earth is already anticipating the effects of this anti deomocratic movement on the dollar.

A slow but perceptible shift away from the dollar is occuring all across the globe.

It is not too late to return to an embrace of democracy.  That would help.  But the problem is complex and sure to get worse before it gets better.

And the only hedge against it for the priviate citizen is storing wealth in hard assets.

That is a verdict with 5000 years of human history to support it.

BRICS: PERHAPS NO UNIFIED CURRENCY ANNOUNCEMENT - BUT A DE-DOLLARIZED SETTLEMENT AGREEMENT AMONG 40 COUNTRIES IS ALL BUT CERTAIN

 The BRICS group of fast-developing economies — Brazil, Russia, India, China and South Africa — has positioned itself as an alternative to the Western-dominated global order. BRICS officials say that spirit has sparked the interest of some 40 countries in joining as the bloc gears up for a summit in August.

Current BRICS chair South Africa is hosting the three-day meeting in Johannesburg next month and says BRICS expansion will be high on the agenda.

Argentina, Iran, Saudi Arabia and the United Arab Emirates are among the countries looking to join, South Africa's BRICS ambassador, Anil Sooklal, told journalists, adding that it demonstrated the confidence Global South nations have in the organization.

"Twenty-two countries have formally approached BRICS countries to become full members. There's an equal number of countries that has been informally asking about becoming BRICS members," Sooklal said.

INFLATION VS DEFLATION

 

There's a raging debate right now about whether inflation or deflation will take hold in the US and global economy.

Here's the simple answer: if the debt overwhelms US and global companies so that global finance collapses you'll get deflation.

If the US and Global Central Banks come to the rescue and print money and bail everyone out you'll get inflation - or stagflation.

If there is a Sovereign Debt Crisis the central banks will still try to print their way out and you'll get inflation or stagflation.

I'd bet the Central Banks keep printing.

GOLD: THE STABILITY HEDGE

 

Most people think of gold as an inflation hedge.  This is not true either historically or theoretically.  It can be true if the inflation is one that cause instability because the mass of the population can no longer afford basic amenities like housing, education, health care, food, energy: such as now.  

Our particular inflation is very destabilizing.  

However in a strong economy growing at trend 4 percent with affordable amenities, such as the US had in the fifties and sixties (in spite of - or partially because of a 70 percent tax rate) inflation was a result of healthy economic growth and not a cause of instability so gold was not really necessary as a hedge against instability.  

Yet gold played a hidden role in keeping debt in check as debt had to be convertible back into gold - so it was stabilizing behind the scenes.  

When we broke the gold conversion in 1971 debt instruments began to be invented, attitudes towards balance sheets shifted, experiments with derivatives sprang into existence - and many credit this with the birth of modern finance which, they say, brought the standard of living up across the globe.  

Perhaps.  In some ways it did.  If you look at the world in a very short term sort of way. 

But by the end of the decade inflation has careened out of control and had to be tamed by Volker raising rates to 18 percent, causing a a debt reset that sent the global economy into a long recession.

Since then the world economy has been lowering rates continually fostering a second wave of debt induced inflation that is so out of conrol that there is no advanced economy whose debt to GDP ratio is under 100 percent and the global debt is growing at an alarming rate.

This in spite of central banks raising rates a tiny bit (by historical standards.)

In fact raising rates now only increases debt by adding to the debt service load!

Talk about No Way Out.

And talk about Instability.

This instability is paralelled in the political and social world.

People who can't afford housing and food and care for their kids are angry.

And unscrupulous politicians spring up to take advantage of this.

We now have leaders and candidates who preach hatred, violence, retribution, exclusion, and scapegoating.  (Just like in the last virulent debt laden period of the 1930s.)

It is once again socially acceptable in the western world to hate Jews and Blacks and Browns and anyone who thinks or looks differently.

Whether you're for or against this, you have to admit it is terribly detsabilizing.

And gold is a hedge for that type of instability too because it leads ultimately to more financial instability.

This is why the world's central banks are now loading up on gold.  It is why the Governments of China and India are actively encourging their populace to load up on gold.

It is not yet part of the US conscsiousness, but it is making inroads. 

You see it if you are active in the hard asset markets.  You see it in ads on youtube and on television.  And you're begining to see it in the recommendations of astute asset managers.

It's early.

If you're on the fence you haven't missed anything yet.  

The instability will get much worse before it gets better.

Hard Asset mid year check in

 

THough it seems tha gold has languished a bit thorugh the beginning of 2023, as rates have tightened and the dollar has strengthened, there has been no fallout  into the Hard Asset Market which - at the high end - continues to soar.  Here is are a few examples from the last year of popular investments for those who wish to invests in things that exist in the physical world:

A Mickey Mantle game worn jersey sold for $615,000

A MIchael Jordan signed basketball card with a bit of his jersey sold for 1,444,000 dollars

A coroantion medallion of Joseph I of 100 dukats sold for $360,000

A Panticapaeon gold stater from 350 BC sold for over 6 million dollars in a NAC auction.

KUrt Cobain's smashed signed fender sold for $600,000

A hat wornd by Napoleon at the battle fo Jenna sold for $1,200,000

 René Magritte's L'Empire des lumières ($42.3 million).May 23, 2023

How long will the dollar last as the world’s default currency? The BRICS nations are gathering in South Africa this August with it on the agenda

 

In August 2023, South Africa will host the leaders of Brazil, Russia, India, China and South Africa – a group of nations known by the acronym BRICS. Among the items on the agenda is the creation of a new joint BRICS currency.

The BRICS summit comes as countries across the world are confronting a changing geopolitical landscape that is challenging the traditional dominance of the West. And while the BRICS countries have been seeking to reduce their reliance on the dollar for over a decade, Western sanctions on Russia after its invasion of Ukraine have accelerated the process.

And latest reports indicates that the countries ready to join the BRICS alliance are Afghanistan, Algeria, Argentina, Bahrain, Bangladesh, Belarus, Egypt, Indonesia, Iran, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Saudi Arabia, Senegal, Sudan, Syria, the United Arab Emirates, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe.

The development will come as a blow to the United States of America and other Western nations, which will see their GDPs dwindle to that of the BRICS.

That all said, a new BRICS currency faces major hurdles before becoming a reality. But what currency discussions do show is that the BRICS countries are seeking to discover and develop new ideas about how to shake up international affairs and effectively coordinate policies around these ideas.

De-dollarization momentum?

With 88% of international transactions conducted in U.S. dollars, and the dollar accounting for 58% of global foreign exchange reserves, the dollar’s global dominance is indisputable. Yet de-dollarization – or reducing an economy’s reliance on the U.S. dollar for international trade and finance – has been accelerating following the Russian invasion of Ukraine.

he BRICS countries have been pursuing a wide range of initiatives to decrease their dependence on the dollar. Over the past year, Russia, China and Brazil have turned to greater use of non-dollar currencies in their cross-border transactions. Iraq, Saudi Arabia and the United Arab Emirates are actively exploring dollar alternatives. And central banks have sought to shift more of their currency reserves away from the dollar and into gold.

All the BRICS nations have been critical of the dollar’s dominance for different reasons. Russian officials have been championing de-dollarization to ease the pain from sanctions. Because of sanctions, Russian banks have been unable to use SWIFT, the global messaging system that enables bank transactions. And the West froze Russia’s US$330 billion in reserves last year.

Meanwhile, the 2022 election in Brazil reinstated Luiz Inácio Lula da Silva as president. Lula is a longtime proponent of BRICS who previously sought to reduce Brazil’s dependence on and vulnerability to the dollar. He has reenergized the group’s commitment to de-dollarization and spoken about creating a new Euro-like currency.

The Chinese government has also clearly laid out its concerns with the dollar’s dominance, labeling it “the main source of instability and uncertainty in the world economy.” Beijing directly blamed the Fed’s interest rate hike for causing turmoil in the international financial market and substantial depreciation of other currencies. Together with other BRICS countries, China has also criticized the use of sanctions as a geopolitical weapon.

The appeal of de-dollarization and a possible BRICS currency would be to mitigate such problems. Experts in the U.S. are deeply divided on its prospects. U.S. Treasury Secretary Janet Yellen believes the dollar will remain dominant as most countries have no alternative. Yet a former White House economist sees a way that a BRICS currency could end dollar dominance.

Currency ambitions

Although talk of a BRICS currency has gained momentum, there is limited information on various models under consideration.

The most ambitious path would be something akin to the Euro, the single-currency adopted by 11 member states of the European Union in 1999. But negotiating a single currency would be difficult given the economic power asymmetries and complex political dynamics within BRICS. And for a new currency to work, BRICS would need to agree to an exchange rate mechanism, have efficient payment systems and a well-regulated, stable and liquid financial market. To achieve a global currency status, BRICS would need a strong track record of joint currency management to convince others that the new currency is reliable.

A BRICS version of the Euro is unlikely for now; none of the countries involved show any desire to discontinue its local currency. Rather, the goal appears to be to create an efficient integrated payment system for cross-border transactions as the first step and then introduce a new currency.

Building blocks for this already exist. In 2010, the BRICS Interbank Cooperation Mechanism was launched to facilitate cross-border payments between BRICS banks in local currencies. BRICS nations have been developing “BRICS pay” – a payment system for transactions among the BRICS without having to convert local currency into dollars. And there has been talk of a BRICS cryptocurrency and of strategically aligning the development of Central Bank Digital Currencies to promote currency interoperability and economic integration. Since many countries expressed an interest in joining BRICS, the group is likely to scale its de-dollarization agenda.

From BRICS vision to reality

To be sure, some of the group’s most ambitious past initiatives to set up major BRICS projects to parallel non-Western infrastructures have failed. Big ideas like developing a BRICS credit rating agency and creating a BRICS undersea cable never materialized.

De-dollarization efforts have been struggling both at the multilateral and bilateral level. In 2014, when the BRICS countries launched the New Development Bank, its founding agreement outlined that its operations may provide financing in the local currency of the country in which the operation takes place. Yet, in 2023, the bank remains heavily dependent on the dollar for its survival. Local currency financing represents around 22% of the bank’s portfolio, although its new president hopes to increase that to 30% by 2026.

Similar challenges exist in bilateral de-dollarization pursuits. Russia and India have sought to develop a mechanism for trading in local currencies, which would enable Indian importers to pay for Russia’s cheap oil and coal in rupees. However, talks were suspended after Moscow cooled on the idea of rupee accumulation.

Despite the barriers to de-dollarization, the BRICS group’s determination to act should not be dismissed – the group has been known for defying expectations in the past.

Despite many differences among the five countries, the bloc managed to develop joint policies and survive major crises such as the 2020-21 China-India border clashes and the war in Ukraine. BRICS has deepened its cooperation, invested in new financial institutions and has been continuously broadening the range of policy issues it addresses.

THE SILLY SEASON

 

June and July are typically the silly season for gold.  This is the dead season for Indian and Chinese ceremonial buying of physical gold.  And with this lull it becomes very easy for the big bullion banks like Chase to flood the futures markets with sell order attacks - only to cover much lower and thereby taking the money off all the small traders (which is everyone but the bullion banks that have uunlimited trading funds thanks to the Fed)

This is not conspiracy theory.  It is fact backed up by several lawsuits that have punished the bullion banks  for this very behavior with fines that deprive them of nearly one percecnt of the money they make engaging in the behavior.

It is also the season where many traders take vacations and market volume tends to drop so that, again, large volume trades - or just organized hype - can make certain sectors of the market influence  mass perceptions of the market as a whole.

Add to this a Fed that has dramatically raised rates into a slowing economy for the first time since the 1970's (when the US was a creditor nation) and you have a recipe for mass confusion.

Raising rates at all at a time when the debt market - which dwarfs all other markets - has been structured for an entire generation on the predication of rolling debt over for ever in a zero rate environment - is in itself tremendously confusing.

It's never been done before.  The effects are known to be LONG AND VARIABLE meaning we haven't even started to experience them - yet evryone has an opinion about what's going on.

The only smart opinion is that we will find out as the massive waves of DEBT REFINANCING hit the economy.  That hasn't started.  But it will by all acounts start in the next several months.  And go on for the next several years.

Meanwhile the price of gold is on sale.  And just supposing the world's largest debt refinancing across the entire global economy doesn't go as well at 8 percent as it did at 1 percent, this is a great time to buy some portfolion protection.

Got Gold?