Deluded Currency Cultists Believe The Dollar Is Invincible

At the onset of the derivatives collapse in 2007/2008 it would have  been easy to assume that most of America was receiving a valuable  education in normalcy bias.

In 2006, the amount of ego on display surrounding mortgage investment swimming-in-money was so disturbingly grotesque anyone with any true understanding of the  situation felt like projectile vomiting. To watch the smug  righteousness of MSNBC and FOX economic pundits as  they predicted the infinite rise of American property markets despite  all evidence to the contrary was truly mind blowing. When the whole  system imploded, it was difficult to know whether one should laugh, or  cry.

The saddest aspect of the credit crisis of 2008 was not the massive  chain reaction of bankruptcies or the threat of institutional  insolvency. Rather, it was the delusional assumptions of the public that  the grand mortgage casino was going to go on forever. There is nothing  worse than witnessing the victim of a Ponzi scheme defend the lie which  has ultimately destroyed him. As much as I am for people waking up to  the nature of the crisis, there comes a point when those who are going  to figure it out will figure it out, and the rest are essentially  hopeless.

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The cultism surrounding the U.S. economy and the U.S. dollar is truly  mind boggling, and by “cultism” I mean a blind faith in the fiat  currency mechanism that goes beyond all logic, reason and evidence.

In recent weeks it has become more visible as global financiers play  both sides of the Ukrainian conflict, luring Americans into a frenzy of  false patriotism and an anti-Russo-sports-team-mentality. My personal  distaste for Vladimir Putin revolves around my understanding that he is  just as much a puppet of the International Monetary Fund and  international banks as Barack Obama, but many Americans hate him simply  because the mainstream media has designated him the next villain in the  fantasy tale of U.S. foreign policy.

Open threats from Russia that they will dump U.S. treasury bond  holdings and the dollar’s world reserve status if NATO interferes in the  Ukraine have been met with wildly naive chest beating from dollar  cultists.  I am beginning to see the talking points everywhere.

“Let them dump the dollar, Russia’s holdings are minimal!” Or, “Let  them throw out Treasuries, they’ll just be shooting themselves in the  foot!” are the battle cries heard across the web. I wish I could convey  how insane this viewpoint is, especially in light of the fact that many  alternative economic analysts, including myself, have been predicting  just such a scenario for years.

Despite the childish boastings of the dollar devout, there is an  extraordinarily good possibility that the life of the greenback will be  snuffed out in the near term. Here are the facts…

1) Russia will not be alone in its decouple from the dollar system.  China, our largest foreign creditor, and India (a supposed ally) have  clearly sided with Russia on the Ukranian issue. China has stated that  it will back Russia’s play in the event that sanctions are brought to  bear by NATO, or if a shooting conflict erupts.

2) China has already been slowly dumping the dollar as a world  reserve currency using bilateral trade agreements with numerous  countries, including Russia, India, Australia, Brazil, Germany, Japan,  etc. These agreements allow FOREX currency swaps and export/import  purchases to be made with China without the use of the dollar. China has  been preparing itself for a divorce from U.S. economic dependence for  at least a decade. The idea that they would actually follow through over  political tensions should NOT surprise anyone if they have been paying attention.

3) A total drop of the dollar or U.S. treasury bonds by Russia and  Chinad608a82840b848b78f8a1b26ec02a8d4 would send shock waves through global markets. Russia is a major  energy supplier for most of Europe. China is the largest export/import  nation in the world. If they refuse to accept dollars as a trade  mechanism, numerous countries will fall in line to abandon the greenback  as well. The fact that so many Americans refuse to acknowledge this  reality is a recipe for disaster.

The only advantage the U.S. has traditionally offered in terms of  international trade has been the American consumer, whose unchecked debt  spending partly fueled the rise of the industrialized East, not to  mention the biggest credit bubble in history. The role of America as a  consumer market is collapsing today, however. The mainstream media and  the Federal Reserve can blame the steady decline in retail sales on the  “weather” all they want, but negative indicators in global manufacturing  often take many months to register in the statistics, meaning, this  destabilization began long before the days turned cold.

4) China has been shifting away from export dependency since at least  2008, calling for a larger consumer based market at home. This process  of enriching the Chinese consumer has almost been completed. The lie  that China “needs the U.S.” in order to survive economically needs to be  thrown out like the utter propaganda it is.

5) China (and most of the world) has ended new dollar purchases for their FOREX reserves, and has no plans to make new purchases in the future.

6) China executed the second largest dump of U.S. Treasury bonds in history in the past month.

7) Russia, China, and numerous other countries, including U.S.  “allies”, have been calling for the end of the dollar’s world reserve  status and the institution of a new global basket currency using  the IMF’s Special Drawing Rights (SDR). Even Putin has suggested that  the IMF take over administration of the global economy and issue the SDR  as a world currency system. This flies in the face of those who argue  that the IMF is somehow “American run”. The truth is, the IMF is run by  global banks and no more answers to the U.S. government than the Federal  Reserve answers to the U.S. government.

8) The Federal Reserve has been creating trillions of dollars in fiat  just to prop up U.S. markets since 2008, and we are still seeing a  considerable decline in global manufacturing, retail, personal home  sales, and a general malaise in consumer demand. Without a full audit,  there is no way to know exactly how much currency has been generated or  how much is floating around in foreign markets. Any loss of world  reserve status would send that flood of dollars back into the U.S., most  likely ending in a hyperinflationary environment.

9) Another rather dubious argument I see often is the claim that the  Federal Reserve and the U.S. Treasury could simply “negate” a Treasury  dump by refusing to acknowledge creditor liabilities. Or, that they  could simply print what they need to snap up the bonds, much like the  German government tried to do during the Weimar collapse. Unfortunately,  this plan did not work out so well for the Germans, nor has it worked  for any other nation in history, so I’m not sure why people think the  U.S. could pull it off. However, this is the kind of cultism we are  surrounded by. These folks think the U.S. economy and the dollar are  untouchable.

 

Yes, the Fed and the Treasury could hypothetically erase existing  liabilities, but what dollar cultists do not seem to grasp is that the  dollar’s value is not built on Treasury purchases. The dollar’s value is  built on faith and reputation. If a nation refuses to pay out on its  debts, this is called default. A default by the U.S. would immediately  damage the reputation of bonds and dollars as a good investment. Global  markets will refuse to purchase or hold any mechanism that they think  will not earn them a profit. How many investors today are anxious to  jump into Greek treasury bonds, for instance?uscrises

Finally, it is unwise to operate on the assumption that foreign  creditors will accept dollars as payment on U.S. Treasury bonds if they  believe the Federal Reserve is monetizing the debt. When Weimar imploded  under the weight of currency devaluation, many foreign governments  refused to accept the German mark as payment. Instead, they demanded  payment in raw commodities, like coal, lumber and ore. Expect that China  and other debt holders will demand payment in U.S. goods,  infrastructure, or perhaps even land.

10) Most treasury holdings in foreign coffers are not long term  bonds. Rather, they are short term bonds which mature in weeks or  months, instead of years. Dollar proponents constantly cite the  continued accumulation of treasury bonds by other governments as a sign  that the dollar is still desirable as ever. Unfortunately, they have  failed to look at the nature of these bond purchases. When China rolls  over millions in short term bonds and replaces them with other short  term bonds, this does not suggest they have much faith in America’s long  term ability to service its debt. It would also make sense that if  China had plans to remove itself from the dollar system, they would move  into short term bonds which can be liquidated quickly.

11) China is on the fast track to becoming the largest holder of  physical gold in the world. Russia has also greatly expanded its gold  purchases. Whatever losses they might suffer from a dump of their  Treasury bond investments; it will be more than made up in the  incredible explosion in precious metals prices that would follow.

12) The most common argument against the dollar losing world reserve  status has been that such a shift would be “impossible” because no other  currency in the world has the adequate liquidity needed to replace the  dollar in global trade. These people have apparently not been paying  attention to the Chinese yuan. China has been quietly issuing trillions  in yuan denominated bonds, securities and currency around the world.  Current estimates calculate around $24 trillion created by the PBOC and  the banks under its control.

Mainstream talking heads are calling this a “debt bubble.” However,  this debt creation makes perfect sense if China’s plan is to create  enough liquidity in its currency in order to offer a viable alternative  to the U.S. dollar. Linking the yuan to the IMF’s basket currency would  complete the picture, forming a perfect dollar replacement while  dollar cheerleading-economists stand dumbstruck.

13) China’s retreat away from dollar denominated investments has left a hole in the U.S. bond market.  Recently, that negative space was filled by an unexpected source; namely Belgium.  A country whose GDP represents less than 1% of total global GDP buying more U.S. bonds than China?  The whole concept sounds bizarre.  Where is the capital coming from?

Think about it this way – Belgium is the political center of the European Union and a haven for international financiers.  There are more corporate cronies, lobbyists, bureaucrats, and foreign dignitaries in Belgium than in all of Washington D.C.  But more importantly, Belgium struck a deal with the IMF in 2012 to begin pumping SDR denominated funds into “low income economies”.  I would suggest that this funding flows both ways, and that now, the IMF is feeding capital into Belgium in order to buy U.S. Treasury Bonds.  That is to say, the IMF is going to start using smaller member countries with limited savings as proxies to purchase U.S. debt using IMF money.

The ultimate danger of the IMF (run by internationalists, not the U.S. government) pre-positioning itself as the primary buyer of U.S. debt is that when the U.S. finally defaults (and it will), the IMF is likely to become the “guardian angel” of the U.S. economy, offering aid in exchange for total administrative control of our financial system, and the institution of the SDR as a world reserve replacement for the dollar.

14) The serious prospect of regional conflict or world war over tensions between the Ukraine and Russia, Japan and China, the U.S. and Syria, the U.S. and Iran, the U.S. and North Korea, etc., could make the effort of exposing the plan to shift economic power into a one world system centralized under the IMF almost meaningless.  How many people will truly care about the financial power grab by banking elites if it drifts under the surface of catastrophic engineered wars?  They’ll be too busy hating and fighting artificially created boogeymen to pay attention to the real globalist culprits.

I have been pointing out for quite a long time that globalists need a  “cover event”; a disaster, an economic war or a shooting war, in order  to provide a smokescreen for the collapse of the dollar. Alternative  analysts have been consistently correct in predicting the trend towards  the dump of the dollar. Years ago, we were laughed at for suggesting  China would shift towards a consumer based economy and away from U.S.  dependence. Today, it is mainstream news. We were laughed at for  suggesting that nations like Russia and China would drop the dollar as a  reserve currency. Today, they are already in the process of doing it.  And, we were laughed at for suggesting that Russia or China would use  their debt holdings as leverage against the U.S. in the event of a  geopolitical conflict. Today, they are openly making threats.

I have to say, I’ve grown tired of the dollar cultists. How many  times can a group of people be wrong and still argue with those who have  been consistently right? The answer is that zealots never actually  escape their own delusions, even when their delusions lead them and  those around them to ruin. I suspect that in the face of complete dollar  collapse, they will still be rationalizing the chaos and pontificating on our “lack of understanding”  while the theater burns down around them.

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Source: alt-market.com

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