EDITOR'S NOTE: The article below attempts a clever subversion of mainstream perspective on American policy. According to its authors, Washington unwittingly accomplished the exact opposite of its intentions with regard to the US dollar’s domestic and international status. Domestic policies have only served to weaken the dollar from inflation. Internationally, the sanctions on Russia, however damaging its effects, may be driving nations to accelerate de-dollarization efforts. After all, what good is a country’s domestic currency if the dollar, owing to its hegemony, can simply “flip the switch” on it? The authors consider these and other similar moves to represent the blunderous side of America’s global coinage, claiming that “the decline of the American Empire” is virtually at hand. Too extreme a view, or a sobering ounce of truth and wisdom?
Putin bites back, cancel finance and new world workarounds...
Bill Bonner, reckoning today from San Martin, Argentina...
The Russian bear has claws… and teeth.
Here’s the latest, from Fortune:
In the FX world, the ruble had its biggest gain in the week yesterday, climbing nearly 7% against the dollar. One impetus for that came from Russian president Vladimir Putin's surprise statement on Wednesday to demand that "hostile states"—presumably the European Union—pay for Russian energy imports in rubles.
That confusing statement knocked global equities and sent natural gas and oil prices soaring in afternoon trading on Wednesday as confusion gripped the markets about what Putin could possibly mean.
Let’s take a guess.
The ‘democratic alliance,’ led by the USA, ‘sanctioned’ Russia’s dollars. Russians who had no part in Putin’s war suddenly found their money was no good. They couldn’t access their foreign bank accounts. They couldn’t go about their business as usual – even as they were offering valuable goods and services to overseas buyers. Financially, they were ‘de-platformed.’
What good is money that someone can cancel with a flip of a switch… on his own say-so? Not much. So, it was inevitable that the Russians would look for workarounds. Michael Hudson comments:
If you sanction a country, you force it to become more self-reliant and across the board, from agriculture to dairy products to technology, Russia is forced to become more self-reliant and at the same time to depend much more on trade with China for the things that it is still not self-reliant in.
So America is bringing about exactly the opposite of what it intended… American sanctions are driving Russia and China together, and America has gone to China and said, Please don’t support Russia. Most recently, on Monday, March 14, Jake Sullivan came out and told China, we will sanction countries that break our sanctions against Russia. And basically, China said, fine.
Yes, the decline of the American Empire continues… one blunder at a time.
The US feds are actively undermining the dollar with inflation… and reducing its reliability further with sanctions. It is only a matter of time before a replacement is found. Cryptos? A gold-backed ruble? The yuan?
In the meantime, fixed-income investments – in dollars – are taking a beating. Bloomberg:
Global bond markets have suffered unprecedented losses since peaking last year, as central banks including the Federal Reserve look to tighten policy to combat surging inflation.
The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt total returns, has fallen 11% from a high in January 2021. That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008.
In the 1970s, investors thought they could protect themselves from inflation by buying stocks. Stock prices held more or less steady throughout the decade. But inflation steadily reduced real values. By the end of the decade, adjusted for inflation, investors were down about 60%.
But in an inflationary period, bonds get killed even deader than stocks. In the ‘70s, bonds were called “certificates of guaranteed confiscation.”
And now, over the last 14 months, $2.6 trillion has been confiscated… but from whom? Well… from savers… retirees… people with fixed-income investments.
And consumers. Consumer spending is said to be 70% of the GDP… which puts it at about $15 trillion. At today’s inflation rate, consumers will have $1.21 trillion ($22 x .079) ‘confiscated’ this year. That’s how much more they will have to spend just to get the same goods and services.
And so… the rip-off continues. And we continue to wonder: what is really behind it? Why would America’s elite be so ready to sacrifice the dollar… and punish the middle and lower classes?
The answer seems obvious. One man’s loss is often another man’s gain. One man is the confiscator. Another is the confiscatee. All of that money, now being taken away from consumers, investors, and savers, goes to someone else. To whom?
Oh, dear reader… that is such a ‘soft-ball’ question!
The elite controls the US government and uses it to shift wealth from the public to itself. But the federal government owes approximately $30 trillion. At today’s 7.9% inflation rate, the fed’s pile of debt will shrink by $2.37 trillion, in real value, this year – a huge saving.
That money may have been spent years ago – provided to cronies, clients… Wall Street… bureaucrats… lobbyists… Critical Race Theorists… whatever. The Feds didn’t have the money then. So, they paid for it ‘on credit.’ And now, they’re settling up. In effect, inflation is just another tax… and another way to continue moving money from the Main Street economy to the 10% of the population who actually run things.
But let’s dig a little deeper.
The point we have been making is this: the biggest crime in American politics is not committed by Democrats against Republicans…nor ‘conservatives’ against ‘liberals.’
Instead, the perps are the corrupt ‘influencers’ (we highlighted the two presidential scions – Chelsea Clinton and Hunter Biden yesterday) using their power to feather their own nests… and push their own pet projects.
You might think that a democracy would undertake programs designed to help the majority of its citizens. But the vast majority of people detest inflation; they do not benefit from it. Nor is there any real mystery about what causes it. The Fed ‘printed’ ten times as much new money, over the last 13 years, as it did from its founding in 1913 up until 2008. And it has kept interest rates below zero, adjusted for inflation, for almost that entire period, too.
Of course, you could go through the entire federal budget. Line by line, you would see huge spending programs designed to reward the few at the expense of the many. The deciders… their friends… their colleagues and clients, all benefit. One way or another… everybody else pays.
But now, Vladimir Putin has taken a swipe at the ‘democratic alliance’ and its money. The Chinese are watching carefully. What will happen next?
Joel’s Note: On the subject of bonds, we'll note that Bill and Dan completely eliminated them from their strategy over a year ago. In the recently revised 'Strategy Report' – available to paying subscribers – Dan showed why bonds have no place in our asset allocation strategy for 2022 and beyond.
That leaves you with stocks, cash, real assets, and crypto currencies? Which asset class is the best inflation hedge? Where can you put your cash to work safely when inflation is running close to 10%? New readers can find the 'Strategy Report' in the Research Reports section of our website (along with Tom Dyson's Gold Report and our Trade of the Decade).
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Originally published on Bonner Private Research.