In my previous writing TRH #41, about monetary censorship, we discussed some implications of Russia being sanctioned (removed from the global payments system). We mentioned how this could sever the petrodollar system and mark the end of the USD as global reserve currency. Lots of big implications at play here and I don’t feel like a lot of it makes the mainstream headlines. A lot of political opinions exist around this topic, I don’t want to get into that, rather, simply just speak to the facts.
First off, the USD has been the global reserve currency since 1944. Putting it extremely simply, this means, as the world produces goods they store that value in the form of dollars in anticipation of future trade. You want to have a positive trade balance which means you produce more than you consume - pretty simple. Everyone wants dollars, and guess what, we can supply them! Countries like Russia who produce a lot of goods run very large trade surpluses. They are constantly trading their physical goods (which the world desperately needs) for dollars.
If everyone is competing to produce real goods in exchange for dollars, and we’re the supplier of dollars, what do you think our trade balance looks like? I’ll give you a hint: it is a lot easier to export pieces of paper than it is to export real goods. Let’s look at a visual.
YIKES! Our trade balance is extremely negative. Our main export is dollars, not manufacturing/production. All of a sudden it makes a lot of sense why the industrial jobs have gone overseas and our once thriving industrial cities have collapsed. We have enjoyed decades of creating dollars and exchanging them for real goods. Those days are coming to an end.
What are the implications of this? It is easy to create a dollar, it is hard to produce a barrel of oil or any commodity for that matter. We have been manipulating the supply of dollars for decades and this became especially obvious in 2008 when we printed $800 billion out of thin air to bailout our banking system. We continued to print throughout the decade and then put the printer into overdrive once 2020 came around. The printing is only accelerating on an exponential trend. Don’t believe me? Take a look for yourself.
Ask yourself, why would any country want to trade their hard earned goods for easily created dollars? They don’t. Putin didn’t just realize this last month. He has openly expressed wanting to move off dependency of the dollar for years.
Putin knew he would get “sanctioned” so he has planned accordingly by reducing his exposure to dollars and US treasuries and increasing his exposure to gold.
From the looks of it I don’t think Russia is alone on this thought
Remember when I said countries that run a trade surplus store dollars in anticipation of future trade? These reserves are called FX reserves and are stored at central banks around the world. With our sanctions we cut Russia off from their FX reserves and showed the ENTIRE world that if you don’t behave we will cut you off from your foreign reserves.
This is where it gets interesting. Check out these headlines below.
The adoption of bitcoin is happening, the incentives in place are too strong to ignore. The world needs a neutral reserve asset to settle trade in which is free from political manipulation, cannot be debased (printed), hard to confiscate, divisible, easy to send across boarders and Russia is getting that ball rolling by offering real goods for settlement in gold and better yet BITCOIN!
Russia is going to start selling its hard earned commodities for hard to produce money. Russia holds all the leverage in this global conflict because they produce things the world needs versus merely the production of [increasingly worthless] dollars.
“No seller would exchange products for money that fell from the sky.” - Richard Koo, Nomura
Conclusion
All we produce in this country is US dollars and we have suffered as a result. Our middle class has been shipped overseas while our political elite have filled their pockets. The divide between the haves and have nots has grown to unspeakable levels. Housing, education, and medical bills are unaffordable. We are all slaves to debt. I am a firm believer that most of the problems in the world have been a direct or indirect result of a manipulated and easily debased money.
The best thing the US could do is adopt bitcoin as a reserve currency and re-shore our manufacturing. Start producing real goods within our boarders while allowing companies and individuals to store their wealth in a currency that cannot be manipulated. I do not see this happening from a top down governmental approach and that’s just fine. Bitcoin adoption starts on the fringe and works from the bottom up. Bitcoin is money for the people. Fiat is money for the government. Keep stacking.
An absolute must follow on macroeconomics is Luke Gromen. He has been spot on with everything that has been happening. Below is a link to phenomenal podcast that covers everything going on as well as a thread that puts the podcast into more laments terms. If interested I would encourage everyone to at least read the thread below if not listen to the podcast.