Decline of the Dollar

In the Western financial system altogether, the excesses have reached insane proportions, far beyond anything seen in economic history. Major economic factors are pushing the decline of one of the most powerful empires ever – the United States of America. US power is almost entirely based on its unbelievably successful currency. The Global Reserve status (based on the Petrodollar mechanism discussed here) has given the dollar 40 years of ‘legs’ as we say. It has supported the fiat currency very well.

Interestingly, the perverse dynamic causes dollar strength in the short term, even in the teeth of the great Covid money printing binge. First, people want to ditch assets rapidly during a panic. The only thing in easy reach is the dollar. It’s so easily tradeable and has the best global reach. Second, the USD has the overwhelming denomination of debt – everything from Treasuries to US corporate debt, to municipals, to entire 3rd world nations, who can’t issue debt in their crap currencies.

Eventually, however, these bulges work through the system and the dollar begins its slow and steady decline again. Here’s the USD purchasing power for the last 100+ years. It’s not pretty.

Dollar Decline

China is well acquainted with the perils of fiat currency, with an ancient history of abuse by the rulership. It also penalizes the citizenry, for after a short time of illusory prosperity comes the crash. Most people lose. Unbacked currencies cause wreckage because governments never have the discipline to rein themselves in. The citizens of China understand well the value of sound money and the concerns over unbacked currencies.

The background story of this looming crisis is the crossover between the rising star of China and her allies – the so-called BRICS for Brazil, Russia, India, China and South Africa – against the falling star of the US and her allies – the West. The US leadership has grown quite, if not completely, corrupted. It is no longer a viable democracy. This is not a moral point – it is simply a natural progression of empire. In the West, we have a saying: power corrupts and absolute power corrupts absolutely. 

Corruption of the US economic system

I think the saying is inaccurate, however. Power magnetizes corrupt people, and extreme power draws the most corrupt. It is not that power causes corruption, but that corrupt men are drawn to power. Corrupt men gain power because they have no moral restraint. In fact, it has been shown that politicians and financiers – largely the subject of my book – have a ten times higher rate of sociopathy. Almost 10% of this group has no conscience. They do not care if their actions cause harm, suffering, or even death. They happily profit off of war and the deaths of millions. They will cheat, lie and steal. Punishment is not a deterrent. They have little fear about being caught. They will do anything for power. (Take it with a big grain of salt – the study was not well constructed and such studies tilt toward the dramatic.)

Again, this is not a moral argument. The argument is cause and effect as to the nature of power. Also, an object lesson appears – this situation is ever the lot the mass of humanity faces. This only presents a current aspect of that recurrent dilemma. We must face it.

The Western power has grown old and is abusive of the planet and people altogether. The US leadership is starting war upon war – seemingly their only diplomatic tool. These wars are started, this book suggests, to defend the US currency in a specific way – namely the tie to oil. 

China & Russia Coalition

China and Russia have formed a coalition against the West. The goal is overthrowing the tyranny of the US dollar. The means are primarily economic. Reinstating gold as a sound currency seems to be the job of China. Breaking the link between oil and the dollar is the job of Russia. This development in the world is a good thing, but there will be much danger in the near future. As has been said, the US will resort to war to defend its currency. It has already done so. 

A carefully walked line of skillful diplomacy is required by the other powers. They must remain united and slowly peel off other nations into the growing fold of the BRICS. Calling the US a rogue nation is increasingly accurate. Whereas before it enjoyed hegemony over most of the globe and was able to dictate policy, when a nation and leaders become intoxicated with their own power and abuse it relentlessly, at some point the abuse becomes too much for the rest of the world – and it revolts. But no one can fight this beast directly. Instead, the skillful coalition will work together, seeking out soft spots and weak spots, then bring it to its knees on that basis. That day is not far off, in terms of the life of nations. It may be 10 or even 15 years. But it will be no more than 25 and I predict closer to the first number. 

It will, in any event, be a series of stages, with the power of the Sino-Russian coalition increasing in measured doses with the threat of war rebuffed or softly enfolded at point after point over the ensuing years.

In the meantime, both nations and their allies will accumulate real assets, primarily gold, farmland, in-ground oil and other commodity resources. China is aggressively, but quietly, reverse-monetizing her reserves – changing paper into physical and business assets.

The end result is predictable, but the journey is not. At some point, this coalition of nations will eclipse the Western power. The US will fall back into a regional power, where it will stabilize for some decades. Though unlikely, it may even suffer a catastrophic power loss, falling into the third world and losing hegemony even over North America. But it will decline.

Predictions about the US Dollar

The US currency will eventually suffer a crisis level devaluation as the world repudiates it. This grows increasingly likely with the vast sums of printing done over Covid-19. China and Russia will negotiate a means to minimize losses – they already are without public knowledge. The US citizens and others holding US dollars will suffer the greatest losses. Many wealthy people in the States will wind up with almost nothing. The absolutely wealthy, however, will manage to increase their wealth and power by being out of the US dollar, even shorting it. They will own farmland, strong businesses, and gold. In some sense, simply owning such assets is already a short on the US dollar. The situation will be similar in Europe as the Euro dies, probably ahead of the dollar. The Euro may very well cease to exist; the dollar will survive, but depleted.

The citizens will suffer, not understanding why. They will rightly blame their leaders and wrongly blame the leaders of other nations. Some will clamor for war and trade protections. Meanwhile, China, Russia, and well-situated allies will move through increasing strength and their citizenry will prosper. The game is China’s to lose. If they stay the course, they will win.