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By Alasdair Macleod
June 11, 2022
[snip]
While markets seem becalmed, financial conditions are rapidly deteriorating. Last week Jamie Dimon of JPMorgan Chase gave the clearest of signals that bank credit is beginning to contract. Russia has consolidated its rouble, which has now become the strongest currency by far. The Fed announced the previous week that its balance sheet is in negative equity. And there’s mounting evidence that we have a nascent crack-up boom.
Russia now appears to be protecting the rouble from these developments in the West, while previously she was only attacking the dollar’s hegemony. China has yet to formulate a defensive currency policy but is likely to back the renminbi with a commodity basket, at least for foreign trade. If it is taken up more widely by the members if the Shanghai Cooperation organization and the BRICS, the development of a new commodity-based super-currency in Central Asia could end the dollar’s global hegemony.
These are major developments. And finally, due to widespread interest in the subject, I examine the outlook for residential property values in the event of a collapse of Western fiat currencies.
The mechanics of an apocalypse
Against the grain of the establishment, for years I have been warning that the world faces a fiat currency collapse. The reasoning was and still is because that’s where monetary and economic policies are taking us. The only questions arising are whether the authorities around the world would realize the dangers of their inflationary and socialistic policies and change course (extremely unlikely) and in that absence in what form would the final crisis take.
History tells us that fiat currencies always fail, only to be replaced by Mankind’s sound money — metallic gold, and silver. And now that fiat currencies have seen a rapid debasement followed by soaring commodity and raw material prices, interest rates should be considerably higher. Yet, in the Eurozone and Japan they are still suppressed in negative territory. The reluctance of the ECB and the Bank of Japan to permit them to rise is palpable. Worse still, even with just the threat of a slowdown in the issuance of extra credit by the commercial banks, we suddenly face a sharp downturn in economic and financial activities.
.
.
.
Russia’s new priority is to escape from the West’s crisis
While the financial sanctions imposed on Russia have led to a tit-for-tat situation with Russia saying it will only accept payments in roubles from the “unfriendlies”, there can be little doubt that sanctions have come at an enormous cost to the imposers. In a recent interview, Putin correctly identified the West’s inflation problem:
“In a TV interview that followed his meeting with the African Union head Macky Sall in Sochi, Putin added that attempts to blame Ukraine’s turmoil for the West’s skyrocketing cost of living amount to avoiding responsibility. Almost all governments used the fiscal stimulus to help people and businesses affected by the Covid-19 lockdowns. Putin stressed that Russia did so “much more carefully and precisely,” without disrupting the macroeconomic picture or fueling inflation. In the United States, by contrast, the money supply increased by 38% – or $5.9 trillion – in less than two years, in what he referred to as the ‘unprecedented output of the printing press’.”
This is important. While the West’s monetary authorities and their governments have suppressed the connection between the unprecedented increase in currency and credit and the consequence for prices, if the quote above is correct, Putin has nailed it. In all logic, since the Russians clearly understand the destabilizing ramifications of the West’s monetary policies, it behooves them to protect themselves from the consequences. They will not want to see the rouble sink alongside western currencies.
And indeed, the policy of tying Russian energy exports to settlements in roubles divorces the rouble from the West’s mounting financial crisis. It is further confirmation that Zoltan Pozsar’s[ii] description of a Bretton Woods 3, whereby currencies are moving from a world of financial activity towards commodity backing, is correct. It’s not just a Russian response in the context of a financial war, but now it’s a protectionist move.
Russia enjoys the position of the world’s largest exporter of energy and commodities. For the West to cut itself off from Russia may be justifiable in the narrow political context of a proxy war in Ukraine, but it is madness in the economic perspective. The other nation upon which the West heavily relies, China, has yet to formulate a proper currency policy response. But the alacrity with which China began stockpiling commodities and grains following the Fed’s reduction of interest rates to the zero bound and its increase of QE to $120bn monthly in March 2020 shows she also understands the price consequences of the West’s inflationism.
.
.
.
Full article:
https://www.lewrockwell.com/2022/06/alasdair-macleod/protection-from-a-currency-collapse/
June 11, 2022
[snip]
While markets seem becalmed, financial conditions are rapidly deteriorating. Last week Jamie Dimon of JPMorgan Chase gave the clearest of signals that bank credit is beginning to contract. Russia has consolidated its rouble, which has now become the strongest currency by far. The Fed announced the previous week that its balance sheet is in negative equity. And there’s mounting evidence that we have a nascent crack-up boom.
Russia now appears to be protecting the rouble from these developments in the West, while previously she was only attacking the dollar’s hegemony. China has yet to formulate a defensive currency policy but is likely to back the renminbi with a commodity basket, at least for foreign trade. If it is taken up more widely by the members if the Shanghai Cooperation organization and the BRICS, the development of a new commodity-based super-currency in Central Asia could end the dollar’s global hegemony.
These are major developments. And finally, due to widespread interest in the subject, I examine the outlook for residential property values in the event of a collapse of Western fiat currencies.
The mechanics of an apocalypse
Against the grain of the establishment, for years I have been warning that the world faces a fiat currency collapse. The reasoning was and still is because that’s where monetary and economic policies are taking us. The only questions arising are whether the authorities around the world would realize the dangers of their inflationary and socialistic policies and change course (extremely unlikely) and in that absence in what form would the final crisis take.
History tells us that fiat currencies always fail, only to be replaced by Mankind’s sound money — metallic gold, and silver. And now that fiat currencies have seen a rapid debasement followed by soaring commodity and raw material prices, interest rates should be considerably higher. Yet, in the Eurozone and Japan they are still suppressed in negative territory. The reluctance of the ECB and the Bank of Japan to permit them to rise is palpable. Worse still, even with just the threat of a slowdown in the issuance of extra credit by the commercial banks, we suddenly face a sharp downturn in economic and financial activities.
.
.
.
Russia’s new priority is to escape from the West’s crisis
While the financial sanctions imposed on Russia have led to a tit-for-tat situation with Russia saying it will only accept payments in roubles from the “unfriendlies”, there can be little doubt that sanctions have come at an enormous cost to the imposers. In a recent interview, Putin correctly identified the West’s inflation problem:
“In a TV interview that followed his meeting with the African Union head Macky Sall in Sochi, Putin added that attempts to blame Ukraine’s turmoil for the West’s skyrocketing cost of living amount to avoiding responsibility. Almost all governments used the fiscal stimulus to help people and businesses affected by the Covid-19 lockdowns. Putin stressed that Russia did so “much more carefully and precisely,” without disrupting the macroeconomic picture or fueling inflation. In the United States, by contrast, the money supply increased by 38% – or $5.9 trillion – in less than two years, in what he referred to as the ‘unprecedented output of the printing press’.”
This is important. While the West’s monetary authorities and their governments have suppressed the connection between the unprecedented increase in currency and credit and the consequence for prices, if the quote above is correct, Putin has nailed it. In all logic, since the Russians clearly understand the destabilizing ramifications of the West’s monetary policies, it behooves them to protect themselves from the consequences. They will not want to see the rouble sink alongside western currencies.
And indeed, the policy of tying Russian energy exports to settlements in roubles divorces the rouble from the West’s mounting financial crisis. It is further confirmation that Zoltan Pozsar’s[ii] description of a Bretton Woods 3, whereby currencies are moving from a world of financial activity towards commodity backing, is correct. It’s not just a Russian response in the context of a financial war, but now it’s a protectionist move.
Russia enjoys the position of the world’s largest exporter of energy and commodities. For the West to cut itself off from Russia may be justifiable in the narrow political context of a proxy war in Ukraine, but it is madness in the economic perspective. The other nation upon which the West heavily relies, China, has yet to formulate a proper currency policy response. But the alacrity with which China began stockpiling commodities and grains following the Fed’s reduction of interest rates to the zero bound and its increase of QE to $120bn monthly in March 2020 shows she also understands the price consequences of the West’s inflationism.
.
.
.
Full article:
https://www.lewrockwell.com/2022/06/alasdair-macleod/protection-from-a-currency-collapse/
