THIS
IS YOUR ONE WAKE-UP CALL
By Jeff D. Opdyke, Editor of Profit
Seeker. April 27, 2014
under the Title “China Escapes Ties to the Dollar”
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My ultra-brief comment: Hugo Adan
“Cuando las ratas escapan
del barco es porque saben que este se va a hundir”
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Dear Sovereign
Investor,
No wisdom is quite as dangerous as
conventional wisdom.
When the masses believe a truth is
so self-evident that they fail to question the possibility that another reality
exists, disaster awaits. I direct your attention to last decade’s conventional
wisdom that housing prices move only in one direction … to the conventional
wisdom a decade earlier that tech stocks were the future … to the conventional
wisdom before 2001 that America was immune to outside terror attacks.
Another self-evident belief is now
quietly under assault: The belief that because the U.S. dollar accounts for 81%
of global trade, its supremacy is beyond question. New events in New Zealand,
however, hint at the radical change to come.
Like the housing crash, the bursting
of the tech-stock bubble and the events of September 2001, the unquestioned
belief that the dollar will remain the axis around which global trade spins
will destroy financial lives across America … though you don’t have to be one
of the victims.
So, here’s what happened …
Last month, China and New Zealand hooked up in a currency deal that will now allow the two countries currencies to trade against one another directly. Seems boring, technical, pedestrian … right? Well, it is … unless you happen to understand the ramifications that ripple through the U.S. dollar.
Last month, China and New Zealand hooked up in a currency deal that will now allow the two countries currencies to trade against one another directly. Seems boring, technical, pedestrian … right? Well, it is … unless you happen to understand the ramifications that ripple through the U.S. dollar.
See, the Chinese and Kiwis do a lot
of trading, mainly in dairy products. New Zealand is the world’s largest milk exporter — by a landslide — and China is
slurping up more than $3.2 billion worth of New Zealand dairy annually. Until
now, all of that trade has gone through the U.S. dollar. The Chinese would
convert yuan to greenback and then transfer those greenbacks to New Zealand,
where milk producers would have to reverse the process and convert the
greenbacks into New Zealand dollars.
It’s a process occurring untold numbers of times around the world — every day of every year. Ever since the Bretton Woods Agreement of 1944, the dollar has occupied center stage in world trade, with countries converting their currencies into dollars to buy goods elsewhere. The equivalent of more than $5 trillion flows through the global currency markets daily, and more than $4 trillion of that is in U.S. dollars. Some of it is currency speculation, but the great bulk of it is global trade.
The incessant trade in dollars —more than $500 million every hour means unnatural demand for our currency as a trading vehicle. It means unnatural support for a currency that, fundamentally, should not be very strong because of the weakness in financial leadership up and down the ranks of Congress and the exceedingly precarious position of America’s finances. It means unnatural demand for U.S. Treasury paper as a hedge against currency moves.
That, in turn, means a lower cost of goods for you and me, since in a world where the dollar is not so widely traded, our currency would trade at a lower value relative to all the consumer goods we import. It means lower gas prices at the pump, since oil is priced in dollars. It means lower food prices, since global agricultural commodities are priced in dollars.
Conventional wisdom would have you believe this state of affairs is permanent.
It is not.
All the proponents who mouth that mantra are leading the gullible to a slaughter.
The China/New Zealand currency pact, though certainly small beer relative to global trade, is indicative of a much larger trend that will impact your life in the not-too-distant future.
It’s a process occurring untold numbers of times around the world — every day of every year. Ever since the Bretton Woods Agreement of 1944, the dollar has occupied center stage in world trade, with countries converting their currencies into dollars to buy goods elsewhere. The equivalent of more than $5 trillion flows through the global currency markets daily, and more than $4 trillion of that is in U.S. dollars. Some of it is currency speculation, but the great bulk of it is global trade.
The incessant trade in dollars —more than $500 million every hour means unnatural demand for our currency as a trading vehicle. It means unnatural support for a currency that, fundamentally, should not be very strong because of the weakness in financial leadership up and down the ranks of Congress and the exceedingly precarious position of America’s finances. It means unnatural demand for U.S. Treasury paper as a hedge against currency moves.
That, in turn, means a lower cost of goods for you and me, since in a world where the dollar is not so widely traded, our currency would trade at a lower value relative to all the consumer goods we import. It means lower gas prices at the pump, since oil is priced in dollars. It means lower food prices, since global agricultural commodities are priced in dollars.
Conventional wisdom would have you believe this state of affairs is permanent.
It is not.
All the proponents who mouth that mantra are leading the gullible to a slaughter.
The China/New Zealand currency pact, though certainly small beer relative to global trade, is indicative of a much larger trend that will impact your life in the not-too-distant future.
Even
Our Friends are Abandoning the Dollar
Looking just at the BRICS nations (Brazil, Russia, India, China and South Africa),
we find that they represent 41% of the global population and 20% of global
trade. Internal trade among the BRICS exceeds $200 billion annually and is
growing at more than 25% a year. How much sense does it make for them to trade
among themselves by way of the U.S. dollar?
It makes zero sense … and business and political leaders in the BRICS nations fully recognize this. They’ve signed their own pact to begin moving the dollar out of the equation. Separately, China and Russia are now pricing their oil trades in Russian rubles. The Russians, meanwhile, are looking to set up a similar arrangement with other countries as a way to push America’s petrodollar out of the global oil patch.
It makes zero sense … and business and political leaders in the BRICS nations fully recognize this. They’ve signed their own pact to begin moving the dollar out of the equation. Separately, China and Russia are now pricing their oil trades in Russian rubles. The Russians, meanwhile, are looking to set up a similar arrangement with other countries as a way to push America’s petrodollar out of the global oil patch.
It’s not just the BRICS, though, that are abandoning the
dollar. So, too, are our friends.
Just last month, Germany’s central bank and China’s central bank signed a memorandum that would allow Frankfurt to become a center for settling trades in yuan a move that would mean German and other European businesses could trade directly in the yuan without going through the dollar. No coincidence that German and Chinese leadership also recently announced that they’re expanding a cargo rail service between the two countries that has effectively rebuilt the famed Silk Road.
Oh, and just for added measure, the Bank of England last month also signed a preliminary accord with China that will allow London to become a trading center for yuan as well, which will soon axe any need for British firms to first convert pounds to dollars before trading with China.
Can you see the writing on the Great Wall?
Just last month, Germany’s central bank and China’s central bank signed a memorandum that would allow Frankfurt to become a center for settling trades in yuan a move that would mean German and other European businesses could trade directly in the yuan without going through the dollar. No coincidence that German and Chinese leadership also recently announced that they’re expanding a cargo rail service between the two countries that has effectively rebuilt the famed Silk Road.
Oh, and just for added measure, the Bank of England last month also signed a preliminary accord with China that will allow London to become a trading center for yuan as well, which will soon axe any need for British firms to first convert pounds to dollars before trading with China.
Can you see the writing on the Great Wall?
You
Have One Choice and Only One Choice
The conventional wisdom that insists
the dollar will always be the reserve currency at the center of global trade is
about to be proven painfully wrong. The U.S. dollar, though 81% of global trade
today, will soon enough represent substantially less, and that will be
problematic for Americans who sub to conventional wisdom.
Take a quick, mental assessment of
your life. How much of your income, your assets, your investment portfolio,
your insurance, your retirement plan is priced in dollars? Pretty close to
100%, I would bet. As all these new currency deals sidestep the dollar in
global trade, demand for the dollar will wane and our dollar’s value will slide
and your lifestyle will absolutely be under threat.
You have one and only one choice: Get some of your wealth out of the U.S. dollar.
This is the wake-up call.
You have one and only one choice: Get some of your wealth out of the U.S. dollar.
This is the wake-up call.
Until next time, stay Sovereign …
Jeff D. Opdyke
Editor, Profit Seeker
Editor, Profit Seeker
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