Weekly Market Update by Retirement Lifestyle Advocates
On these pages each week, I often comment on Federal Reserve policy and the effect that it will have on the economy and the markets.
The current tightening policy of the Fed, required as a result of the prior easy money policies of the Fed in order to contain inflation, is now the primary culprit of the accelerating de-dollarization movement that is taking place globally.
Aggressive US sanctions against some countries globally are simply adding gas to the de-dollarization fire as countries look to establish a permanent alternative to the US Dollar.
While the all-important question relating to de-dollarization remains when the proverbial tipping point is reached, it’s fair to say that day is approaching much more quickly than we could have imagined just a few short years ago.
This from Brazilian journalist, Pepe Escobar (Source: https://sputnikglobe.com/20230503/pepe-escobar-global-de-dollarization-nearing-crossroads-moment-1110062907.html):
De-dollarization is heading for a breakthrough due to rising global discontent with US 'casino capitalism', Pepe Escobar, geopolitical analyst and veteran journalist, told Sputnik News.
"It's a gigantic snowball all over the world. We cannot even keep up with it,” Pepe Escobar said in an interview with the New Rules podcast. “It's very important what is going to be discussed at the BRICS summit in South Africa. This will probably be the crossroads moment where things are going to then go."
Escobar explained that a growing number of countries in the Global South were doing the math and concluding that the US dollar was not a safe bet. The combination of aggressive US sanctions policy and reckless government spending has dramatically reduced the greenback’s international appeal.
“If you want to analyze the patterns these past two decades, you need to understand the fact that, if you are rich in commodities and if you are a productive capitalist nation and you decide to issue a currency, it will be internationally respected because people will know it's based on facts, actual provenance, actual wealth,” he said. “That’s contrary to the system that we have now, which I have been calling it ‘casino capitalism’ for years. It's futures, it's bets, it's suppositions. It may go right or wrong. If you lose, you lose it all. The house mostly always wins because the house is the one who prints the currency. It's backed by nothing, literally, by a country that owes $30 trillion [in national debt] now and it will never be able to repay it."
To make matters even worse, the US Federal Reserve’s aggressive interest rate hikes have made borrowing in dollars expensive for almost everyone in the world. Prior to the Fed's move, Kristalina Georgieva, managing director of the International Monetary Fund, warned in January 2022 that the US raising interest rates could backfire on the global economy and especially on countries with higher levels of dollar-denominated debt.
The ongoing US banking crisis threatens to further destabilize international financial markets. No country in the world wants to "catch a cold" when the US economy "sneezes," as memories of the 2008 financial crisis linger.
"They say, 'look, why do we have to be subjected to this kind of arrangement?' And of course, before, as we all know, it was ‘the Empire of bases’, over 800 military bases all over the world, 'the power of the financial markets', 'the power of soft culture', 'the power of cancel culture', but the Global South is not intimidated anymore. I think this is the first [time] in this new millennium. We never had this before in the past two and a half centuries, at least," Escobar said.
In January 2023, BRICS – an acronym for Brazil, Russia, India, China, and South Africa – made a splash by announcing that it may soon explore the possibility of creating its own currency to by-pass the US dollar. The idea was articulated on both sides of the Atlantic: Russian Foreign Minister Sergey Lavrov touched upon the plan during a presser after his meeting with Angolan President Joao Lourenco on January 25.
On the other side of the pond, President of Brazil Luiz Inacio Lula da Silva discussed the issue of the creation of a common currency for BRICS and the countries of Mercosur, a South American trade bloc, during his meeting with his Argentine counterpart Alberto Fernandez.
“Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries? Who decided that the dollar was the (trade) currency after the end of the gold parity?” Lula said during an April visit to the Shanghai-based New Development Bank.
According to Escobar, the formation and development of three organizations, namely BRICS, the Shanghai Cooperation Organization (SCO) and the Eurasian Economic Union predetermined the end of the greenback-centered world order. BRICS members are now discussing designing an alternative currency; similar discussions are being held in the Eurasian Economic Union; they should start coordinating and then this will spill over to the SCO, the writer projected.
The trend has already been engulfing other blocs, Escobar continued, referring to the Association of Southeast Asian Nations (ASEAN). On March 28, ASEAN finance ministers and central bank governors held a meeting in Indonesia to discuss how to move to settlements in local currencies by further enhancing an ASEAN cross-border digital payment system.
Initially, the agreement on such transactions was reached between Indonesia, Malaysia, Singapore, the Philippines, and Thailand in November 2022. The association is seeking to reduce dependence not only on the US dollar, but also on euros, yens, and British pounds in financial transactions.
"We have something that was absolutely unbelievable two months ago," Escobar emphasized.
De-dollarization has been discussed for decades. For instance, Mikhail Khazin, a Russian economist and publicist, who served in the Working Center for Economic Reforms under the Boris Yeltsin government in the 1990s, and his co-author Andrey Kobyakov predicted the demise of the US dollar dominance roughly 20 years ago in their book titled "The Decline of the Dollar Empire and the End of Pax Americana." While the idea has been in the air for quite a while, why is it that this phenomenon has only now started to gain critical mass?
"We can even establish a date for it," responded Escobar. "February last year, with that freezing, confiscation, stealing of Russian foreign reserves. And the Global South as practically as a whole started asking themselves from Latin America to Africa to South East Asia, ‘if they can do this with a nuclear superpower, they can do it with any one of us snapping their fingers’. So that's why the coordination inside these multilateral organizations and in other forums picked up astronomic speed."
To illustrate his point, the journalist referred to the swift development of BRICS with a staggering 19 countries currently on the list to join the organization. Among them the strongest candidates are Iran, Argentina, Algeria, as well as the United Arab Emirates, Turkiye, Egypt, Kazakhstan, and Indonesia, as per the geopolitical analyst.
"So these are all strong middle rank powers from anywhere," Escobar said. "And they're going to start discussing the now notorious BRICS alternative currency. So they have to speed up this conversation and let's hope that they are going to start discussing it in conjunction with the Eurasian Economic Union, which is much more advanced, and the Shanghai Cooperation Organization."
Escobar believes that nothing short of a breakthrough in this respect could occur as early as next year.
Brazil and China have already dropped the dollar in trade between the two countries. So have Argentina and China.
China and France recently settled a natural gas trade in Yuan (the Chinese currency). (Source: https://www.firstpost.com/explainers/dollar-dumped-how-the-first-china-uae-gas-deal-in-yuan-is-a-big-blow-to-us-12423192.html).
The move around the world away from the US Dollar continues to accelerate.
If you have not yet diversified your portfolio so that some of your assets are not in US Dollars, it’s time to take a closer look. For many retirees and aspiring retirees, up to 20% of one’s portfolio in hard assets like gold and silver may be prudent.
The radio program this week features an interview with Mr. Michael Pento, the host of the popular podcast, “Midweek Reality Check”.
I get Michael’s take on where the current banking troubles end up, as well as his forecast for inflation.
We also chat about the coming storm in commercial real estate (which Warren Buffet’s partner, Charlie Munger, commented on this week also) and the contracting M2 money supply.
You can listen to the interview with Michael Pento now by clicking on the "Podcast" tab at the top of this page.
“I was educated once. It took me years to get over it.”