Anyone who has followed this blog for any length of time, will know, I am a Gold, Silver and Crypto-currency nut (not literally but figuratively). And I’ve been predicting the demise of the dollar as long, though to be honest I wasn’t really sure what the trigger would be. At least, that is, until now.
And those who have read assiduously, will know that the current Gold, Silver and other commodities prices, are possibly (probably?) manipulated by huge American Banks – like JPM, and Goldman-Sachs, Bank of America, CitiCorp, Wells Fargo, Wachovia and the other huge American corporations on behalf of the Federal Reserve, and those who own it – the six or so founding families..
Many will not know why though. They may hazard a guess, but they are likely to be wrong.
The American Dream, has become something of a nightmare in the last few decades, for those at the bottom of the economic heap, as U.S. wages have been compressed for working folk, primarily because large American corporations began outsourcing manufacturing labour to Asia – Indonesia, Malaysia, Korea, India, China, Vietnam, and the Philipines et-al, in the 1980s.
Of course, we’ve all seen China grow at rates we could only dream of in the west.
China, was courted back in the Nixon era, eventually, it got most favoured nation status, and entered into discussions with the World Trade Organisation some years ago, which has involved opening up its markets, and freeing its currency to trade on international markets – which it must do by the end of 2015.
China’s ascendancy to industrial super-power since 2000, has been rapid, and it has been growing at between 7-12% since the 1978 proclamation, by China’s ruler – Deng Xiaoping, that: “there was no virtue in being poor”.
Of course, China now has the second largest economy in the world – after the U.S., and wants a seat at the table of major economies. And the entry ticket to this select club of nations: America, Japan, Germany, Britain, France, Italy and Canada – the G7 – is a hefty one.
China, India, Russia, South-Africa and Brazil, – the BRICS – as well as other smaller economic nations make up the G20, but those meet less often, and can influence matters much less.
China, wants a place at the top table and to do that their currency has to be International, and held in the same high regard as the others, and to do that, they need to hold a similar amount of their GDP in Gold reserves as those other nations.
The Americans, claim to have a little over 8,100 tons of gold, with a $16.5 Trillion economy, and Europe has over 10,500 tons – (Germany alone reputedly has 3,700 tons) of Gold. In percentage terms, these figures represent from 2.7% – 4% of their GDP in gold reserves.
However, according to Jim Rickards, those precious metals price manipulations, are done to allow China to accumulate enough gold for when the Renminbi(YUAN), becomes part of the SDR – “The Special Drawing Right.”
It is true that China, is obliged to un-peg its currency to the dollar by the end of 2015, so maybe buying all the gold it can, is an attempt to keep the Yuan, as close to the dollar as it can, however, Jim Rickards and Jim Willie, have a slightly different take on things.
If China IS trying to match the U.S. which would suggest a similar Gold holding of 8,000 tons then why have they also been buying up Foreign Gold mining companies, and buying the Gold from artisanal miners in Africa, at the rate of circa 40 tons per month, at spot prices?
As you may well know, back in April, 2009, China last disclosed its Gold holdings, at a mere 1,054 tons, which itself was a huge increase from previously disclosed amounts. But in recent years, China was buying over 100 tons per month, though how much they bought surreptitiously we can only speculate.
China intends to be one of the top dogs at the economic table, and its long term plan has been well researched, and intricately progressed, from their 1978 early beginnings, when then China’s ruler – Deng Xiaoping, issued his now famous proclamation.
Since then, China has increased its Gold holdings, slowly at first, but with increasing rapidity, and has been involved in using its dollar reserves to divest itself of some of the $3trillion dollars in value, and $1.4 Trillion in U.S. notes and treasury bills, it has accumulated in the last 15 years by buying Gold and other tangible assets.
Saudi-Arabia has its own plans too, ever since President Barack Obama offered the hand of friendship to the Kingdom’s sworn enemy – Iran – in an effort to reduce tensions in the middle-east, which have risen partly as a result of Federal Reserve policy, where loosing the printing presses on an unsuspecting world after Long-Term Capital Management fell under in 1998, caused rapid currency inflation.
The excess currency, has bid up all kinds of goods, but as usual, mostly food and other items for those on low incomes, and that inflation contributed to problems in the middle-east, which stoked old hatreds.
The source of these problems though lead back to that day in March 1973, when King Faisal of the Kingdom of Saudi-Arabia, met with Henry Kissinger, and the Secretary of State made the King an offer he could hardly refuse.
In return for the Saudis selling their oil in U.S. dollars, and investing those dollars in U.S. Treasuries, the U.S. would protect the Saudi Kingdom from all enemies, domestic and foreign.
And so the scheme of the Petro-Dollar was born. The Saudis got their protection from the Soviets, and others who might covet their immense oil-fields. The Americans, benefited by having a strengthening dollar, due to huge demand for them, and all the other OPEC nations were obliged to follow suit, especially if they wanted a strong currency for their oil, and a share of international oil business, which they did.
But after 42 years, is that all about to come crashing down around the U.S. and our ears. The King who made that agreement with the Americans is now dead, and the Saudis, are angry at the Americans cosying up to Iran, and also at U.S. production levels due to fracking. They’ve lost their biggest customer and gained a biggest competitor.
The Saudis, had a position of importance in the world, given the number of barrels of oil that they produce – circa 9.5 million barrels per day, they were the swing producer. When the world needed extra oil, the Americans could make a phone call, and the Saudis could turn on the taps, and the price would come back down.
But, with Russian production at similar levels, and the Americans now producing almost 10 million barrels per day, things have changed.
The Saudis want to protect their market share, and they are a cheap producer. Al-Naimi, the current Saudi Oil Minister, led the Organization of Petroleum Exporting Countries to its Nov. 27 decision to keep production unchanged, ignoring pleas for a cut in the group’s output by several countries: Venezuela, Algeria and other members that depend on higher oil prices to balance their budgets, saying: “If I reduce, what happens to my market share? The price will go up, and the Russians, the Brazilians, U.S. shale oil producers will take my share,” Al-Naimi told the Middle East Economic Survey last month. “Whether it goes down to $20 a barrel, $40 a barrel, $50 a barrel, $60 a barrel, it is irrelevant.”
U.S. exploration and drilling on fracking sites has exploded in the last few years, and the price of oil, as supply has increased, has exploded to the downside from its $147 high in 2007.
When all the unprofitable oil-wells close: the fracked wells, the tar-sands, and the deep water wells, and the exploration that has been postponed or cancelled lowers production, as low oil prices are affecting many highly leveraged players, the oil supply will fall too. And as output and the price falls, the only producers left will be the low cost ones, producing at less than $40/barrel.
The Americans are not giving up though, as they use technology, and lower headcount to lower costs.
BUT, the Saudis may be about to upset the U.S.’s apple-cart. And this is behind my prediction for the dollar.
News has reached me that the Saudis are conducting secret talks with China. This may be yet another of the 24 (so-far) bi-lateral trade deals that China has made to use Yuan for trade – eschewing the dollar for international trade.
If, as I suspect, the Saudis settle their oil-deals with China in each other’s currency, it will do two things.
The first is that they get a new customer, to replace their most reliable one for the last 5 decades, and one that will pay with a currency that is set to strengthen.
But, the other thing that happens is that most, if not all, of the other OPEC members will probably follow suit. And THAT will be the end of the dollar, and the U.S. way of life that they’ve known since the end of WWII .
As the dollar falls, interest rates will have to rise in the U.S. to encourage people to hold dollars or buy treasury bonds. Derivatives linked to the currency and the U.S. economy will collapse; Banks will fail; and we’ll get the bail-ins that have been legislated for, and tested in Cyprus.
International trade will collapse, house prices will follow as foreclosures take effect, the ripples will spread to Europe.
Spain, Italy, Greece, Portugal, Ireland, U.K., France, Belgium, Austria, Poland, Ukraine, might all experience bank runs.
Even China may experience some difficulties, and money will flood like a tidal wave into the only asset class, where no-one else is liable – Precious Metals.
In less than a month, we could see Gold and Silver prices balloon, and by Christmas, those 10,000 tonnes I suspect that China now holds, may be several times their current value. Any Treasury Bills held as security against other assets as collateral, will flood to be sold, and the dollar will lose its status as the World’s reserve currency.
If this happens, by 2016, China, will be the number one economy, oil will be back over the equivalent of $100 – possibly as high as $200-300, and the world will experience “Credit Crunch 2.0 – The Meltdown”
Middle-class Americans will lose the feather bedding that the Fed has provided for all these years, and the U.S., will be technically insolvent.
Jim Willie believes events coming to America, partly as a result of the AIIB, and the Chinese domination of Trade will force a Gold backed currency using gold Trade Certificates on international trade, and that will only add to the Dollar’s woes.
This will be a back-door introduction of a Gold Standard, and when that happens, it’s game over for the dollar.
See a recent interview here:
(April 2, 2015)
Jim Willie Quotes:
“Q.E. is a lie… It’s a bail out of Wall Street, and Corporate Banking” – and the AIIB is the creation of a BRICS’ Central Bank.
AIIB Founder Members – U.K., Australia, encouraged others in the Western sphere. France, Germany etc..
Turkey – the gateway to Afghan narcotics production.
Greece & Turkey – end of the pipeline for Russian Gas.
Yuan/RMB Trade swaps – Non-dollar denominated.
Iran/China worth $150 BILLION in trade…
Final word? “Game Over for the Dollar”
In order to protect yourself, you need to do several things. But buying precious metals, silver, gold and digital currencies that no country can inflate away – crypto-currencies – will help.
If you think that this is unlikely, it is, but it is possible. And if that scares you, it should – it does me.
See the links above right.