BRICS – Dennis Tubbergen

More on De-Dollarization

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.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com. Our webinars, podcasts, and newsletters can be found there.

Have You Heard of Unicoin?

It’s as unsettling as it is interesting.

As I have been observing from time to time in “Portfolio Watch”, there are currency changes taking place around the world.

As I noted last week, citing an article from Michael Maharrey, the move away from the US Dollar worldwide is accelerating, with China and Brazil the most recent countries to execute a trade agreement that bypasses the US Dollar in bilateral trade. The agreement has the two countries using their own currencies rather than the US Dollar.

Saudi Arabia has already announced that the country would entertain using currencies other than the US Dollar for the country’s oil sales.

This past week, currency changes continued. The International Monetary Fund announced a new digital currency called “The Universal Monetary Unit”. This from Michael Snyder (Source: http://theeconomiccollapseblog.com/the-imf-has-just-unveiled-a-new-global-currency-known-as-the-universal-monetary-unit-that-is-supposed-to-revolutionize-the-world-economy/):

A new global currency just launched, but 99 percent of the global population has no idea what just happened. The “Universal Monetary Unit”, also known as “Unicoin”, is an “international central bank digital currency” that has been designed to work in conjunction with all existing national currencies. This should set off alarm bells for all of us, because the widespread adoption of a new “global currency” would be a giant step forward for the globalist agenda. The IMF did not create this new currency, but it was unveiled at a major IMF gathering earlier this week…

Today, at the International Monetary Fund (IMF) Spring Meetings 2023, the Digital Currency Monetary Authority (DCMA) announced their official launch of an international central bank digital currency (CBDC) that strengthens the monetary sovereignty of participating central banks and complies with the recent crypto assets policy recommendations proposed by the IMF.

Universal Monetary Unit (UMU), symbolized as ANSI Character, Ü, is legally a money commodity, can transact in any legal tender settlement currency, and functions like a CBDC to enforce banking regulations and to protect the financial integrity of the international banking system.

As the press release quoted above indicates, this new “Universal Monetary Unit” was created by the Digital Currency Monetary Authority.

So who in the world is the Digital Currency Monetary Authority?

Honestly, I had no idea until I started doing research for this article.

The press release says that the organization consists of “sovereign states, central banks, commercial and retail banks, and other financial institutions”…

The DCMA is a world leader in the advocacy of digital currency and monetary policy innovations for governments and central banks. Membership within the DCMA consists of sovereign states, central banks, commercial and retail banks, and other financial institutions.

Basically, it sounds like a secretive cabal of international banks and national governments is conspiring to push this new currency down our throats.

We are being told that the “Universal Monetary Unit” is “‘Crypto 2.0”, and those that created it are hoping that it will be widely adopted by “all constituencies in a global economy”…

The DCMA introduces Universal Monetary Unit as Crypto 2.0 because it innovates a new wave of cryptographic technologies for realizing a digital currency public monetary system with a widespread adoption framework encompassing use cases for all constituencies in a global economy.

I don’t know about you, but this sounds super shady to me.

Of course, the Digital Currency Monetary Authority is not the only one that has been working on a new digital currency.

The UK has also been working on one.

The same is true for the European Union.

And would it surprise anyone that the Biden administration is touting the potential benefits of a “digital form of the U.S. dollar”? The following comes from the official White House website…

A United States central bank digital currency (CBDC) would be a digital form of the U.S. dollar. While the U.S. has not yet decided whether it will pursue a CBDC, the U.S. has been closely examining the implications of, and options for, issuing a CBDC. If the U.S. pursued a CBDC, there could be many possible benefits, such as facilitating efficient and low-cost transactions, fostering greater access to the financial system, boosting economic growth, and supporting the continued centrality of the U.S. within the international financial system.

I don’t think that it is a coincidence that governments all over the Western world are simultaneously developing CBDCs.

And the IMF has actually already put together an extensive handbook “to assist central banks and governments throughout the world in their CBDC rollouts”…

The International Monetary Fund (IMF) is putting together a Central Bank Digital Currency (CBDC) handbook to assist central banks and governments throughout the world in their CBDC rollouts.

Published publicly on April 10, the “IMF Approach to Central Bank Digital Currency Capacity Development” report outlines the IMF’s multi-year strategy for aiding CBDC rollouts, including the development of a living “CBDC Handbook” for monetary authorities to follow.

A lot of people out there will cheer when these digital currencies are introduced.

But it is imperative to understand that once everyone is using them, your financial privacy will be almost totally gone.

Authorities will be able to track virtually everything that you buy and sell, and I am sure that they won’t hesitate to use that information against you.

Needless to say, the potential for tyranny in such a system is off the charts.

Can you imagine a world in which you are restricted from buying meat for a while because you have already used your “carbon credits” for the month?

Your “financial privileges” could potentially be restricted at any time at the whim of a government bureaucrat, and if you are a big enough troublemaker, you could be “de-platformed” from the system permanently.

Of course, in order for such a system to have real teeth, cash and other forms of payment will need to be phased out, and that is precisely what is happening right now in Europe. The following comes from the official website of the European Parliament…

To restrict transactions in cash and crypto assets, MEPs want to cap payments that can be accepted by persons providing goods or services. They set limits up to €7000 for cash payments and €1000 for crypto-asset transfers, where the customer cannot be identified.

Ultimately, they will just keep lowering the limits until the use of cash is almost completely eliminated.

Everyone will be slowly but surely forced on to the new digital system, and it will be a system that they control with an iron fist.

And most people will willingly go along with it. These days, most people are just scraping by from month to month, and one recent survey found that 70 percent of all Americans are “financially stressed” at this point.

Most Americans simply do not care that these new digital currencies could open a door for great tyranny.

They just want to be able to pay the bills and take care of their families, and if our politicians tell them that this new system is good for the economy, they will be all for it.

But those of us that are awake know that more globalism doesn’t lead anywhere good.

More Evidence the US Dollar is Dying?

The move away from the US Dollar around the globe continues to accelerate, as confirmed by a brief review of the headlines from the past week.

This is from Michael Maharrey (Source: https://schiffgold.com/key-gold-news/china-brazil-trade-deal-ditches-the-dollar/):

More bad news for the dollar.

Last week, China and Brazil announced a trade deal in their own currencies, completely bypassing the dollar.

This represents another small shift away from dollar dominance.

Under the new deal, Brazil and China will carry out trade directly exchanging yuan for reais and vice versa instead of first converting to dollars.

In a statement, the Brazilian Trade and Investment Promotion Agency (ApexBrasil) said the agreement would “reduce costs” and ” promote even greater bilateral trade and facilitate investment.”

Brazil ranks as the largest Latin American economy, and China is its biggest trade partner. Trade between China and Brazil amounts to some $150 billion per year. China overtook the US as Brazil’s number-one trading partner in 2009.

China also has dollarless trade agreements with Russia, Pakistan and Saudi Arabia.

This is the latest blow to dollar hegemony. Earlier this year, Saudi Arabia Finance Minister Mohammed Al-Jadaan said the country is open to discussing trade in currencies other than the US dollar. This could mark the beginning of the end of petrodollar exclusivity. And in March, Reuters reported that recent oil deals between India and Russia have been settled in currencies other than dollars.

We are still a long way from the dollar losing its status as the world reserve currency, but its dominance is clearly eroding.

And this from Matthew Piepenberg (Source: https://goldswitzerland.com/golden-question-is-the-petrodollar-the-next-thing-to-break/)

As I’ve presented elsewhere, history (borrowing from Mark Twain) may not repeat itself, but it certainly rhymes.

And toward this end, Rutherglen and Gromen have shown the poetry of rhyming patterns in the context of the ever-changing petrodollar politics, which, modestly, we too foresaw over a year ago.

As we warned from literally day-1 of the western sanctions against Putin, the end result would be disastrous for the West in general and the USD in particular.

And nowhere was this US Dollar prognosis truer than with regard to the petrodollar—i.e., those good ol’ days when nearly every oil purchase was linked to the USD.

However, and as Gromen and Rutherglen suggest, that oil-USD linkage was never a sure thing in the 70’s, and will be even less of a sure thing in the years ahead.

And this, folks, will have a massive impact on gold in the years ahead.

How so?

Let’s dig in.

Although still in diapers when Nixon closed the gold window in 71, and still watching Saturday morning cartoons when gold soared from $175/ounce in 1975 to over $800/ounce less than five years later…

… I am at least old enough now to glean a few historical lessons and patterns which may point toward similar and rising gold valuations tomorrow.

Gold, as Gromen and Rutherglen remind, was ripping in the late 70’s largely because it was not yet a foregone conclusion that oil would be pegged to USDs.

In that bygone era of disco, ABBA, wide neckties and checkered suits, neither OPEC nor Europe was against the idea of settling oil transactions in gold rather than USTs.

This was because those very same USTs (thanks to Nixon’s welch) were not very well…loved, trusted or valued in the 70’s.

(See where I’m going [rhyming] with this?)

Fortunately, Paul Volcker was able to seduce the oil nations into trusting Uncle Sam’s fiat money by cranking (and I do mean cranking) interest rates to the moon to restore faith in the UST and hence give OPEC the confidence to sell oil in dollars rather than settle in gold.

Specifically, Volcker took rates to 15+%, a move which placed real rates on that all-important 10Y UST at +8%.

Such hawkish policy was thus a game changer for making the petrodollar a reality and hence the USD the world’s reserve energy asset (and bully) for a generation to come.

Unfortunately, and thanks to Uncle Sam’s embarrassing bar tab (i.e., debt levels), those days, and those USDs and USTs, have fallen from grace, and hence are slowly falling off the radar of OPEC.

For this, we can also thank an openly cornered Powell’s so-called war on inflation, which has, among so many other backfired fiascos, led to a slow and steady process of de-dollarization and declining faith in that oh-so-important global IOU, otherwise known as the UST.

The Oil Nations Aren’t Stupid

The OPEC folks know that Uncle Sam’s IOU’s aren’t what they used to be.

Unlike Volcker, however, Powell can’t get the 10Y UST to an 8% real (i.e., inflation-adjusted) rate.

Even his so-called “hawkish” nominal rates of 5% have crushed credit markets, Treasuries and nearly everything else in its path.

And if Powell even dreamed of pushing rates to 15%, ala Volcker to seduce OPEC, he would literally murder the entire US economy with a double-digit rate hike against a $31T public debt pile.

In short, there is simply no way to compare Volcker’s options in the 70’s to Powell’s debt reality in 2023.

This means the Fed can’t do what will be needed this time around to prevent OPEC from looking outside the USD or UST and hence inside the gold markets as a primary asset to settle its energy transactions.

The days of the mighty petrodollar, as I warned (in two languages) over a year ago here, here, and here, are slowly but steadily coming to an end.

Think about that for a second.

Or better yet, look at it for a second—with kudos again to Gromen and Rutherglen.

Piepenberg makes the same argument that I have been making – the Fed will HAVE to pivot. It’s either that or destroy the economy. I make this statement understanding that there are some very bright analysts who disagree.

But, the emerging economic and geo-political conditions indicate that there can be no other outcome in my view.

Are the Saudis Ready to Ditch the Dollar?

For several years now, I have been writing about the ultimate consequences of the considerable devaluation of the US Dollar.

Over the past couple of years or so, every American has felt the effects of this dollar devaluation first-hand as consumer price inflation has driven the price of nearly every necessity higher.

But now, even more serious consequences may be on the horizon.

Ever since the 1970’s, when the US Dollar became a fiat currency, the dollar has retained its status as the world’s reserve currency due to the agreement put in place with Saudi Arabia in the early 1970’s. This agreement had the United States offering Saudi Arabia military protection in exchange for the kingdom pricing oil exports in US Dollars. It was this agreement that established the petro-dollar as any country around the world that wished to purchase oil from Saudi Arabia had to inventory US Dollars in order to do so.

That agreement has served the US well for about 50 years. However, over the past few years, there are ever increasing signs that much of the rest of the world is seeking US Dollar alternatives.

This past week, another major move was made away from the US Dollar as Saudi Arabia publicly announced the kingdom was actively looking to price its oil exports in currencies other than US Dollars. This from “The Gateway Pundit” (Source: https://www.thegatewaypundit.com/2023/01/another-biden-catastrophe-saudi-arabia-announces-readiness-trade-currencies-us-dollar-another-blow-us-economy/):

Saudi officials announced this week they are ready to to trade in currencies other than the US dollar in a huge blow to the American economy.

Saudi Arabia announced the move following a December meeting with China’s President Xi Jinping. The kingdom is ready to trade in yuan instead of the dollar in trade exchanges.

Saudi Arabia has also announced its intention to join the BRICS alliance.

Russia Today reported:

Saudi Arabia is ready to discuss trading in currencies other than the US dollar, according to the Kingdom’s finance minister Mohammed Al-Jadaan, as cited by Bloomberg.

Al-Jadaan’s comments come a month after China’s President Xi Jinping said that Beijing is ready to make energy purchases in yuan instead of the US dollar in trade exchanges with members of the Gulf Cooperation Council (GCC). China’s leader highlighted the necessity of the shift while speaking at a Chinese-Arab summit hosted by Saudi Arabia earlier this week.

“There are no issues with discussing how we settle our trade arrangements, whether it is in US dollar, in euro or in Saudi riyal,” Al-Jadaan said on Tuesday during an interview with Bloomberg in Davos, Switzerland.

The oil-rich kingdom is seeking to deepen its ties with vital trade partners, including China. The readiness for talks on the issue expressed by Riyadh may signal that the world’s biggest oil exporter is open to diversifying away from the US dollar after decades of pricing crude exports in the US currency. The riyal, the Saudi national currency, has been pegged to the greenback, too.

This is simply HUGE news and provides yet another reason for Americans who aspire to a comfortable retirement to diversify out of US Dollars. (One of the best ways to do this, in my view, for many investors is to consider adding precious metals to one’s portfolio.)

While I don’t know the time frame (nor does anyone else in my opinion), I believe that ultimately the US Dollar will lose its status as the world’s reserve currency. Admittedly, this opinion is at odds with the opinions of some very bright guest experts that I interview on my radio program, but in my view, the US Dollar’s devaluation will continue, and the rest of the world will increasingly and urgently look for alternatives.

“Quoth the Raven” is an interesting opinion column. Here are some comments on this recent development involving Saudi Arabia from that column (Source: https://quoththeraven.substack.com/p/saudi-arabia-just-killed-the-petrodollar):

Put simply, I believe there is a historic divide in the making between the BRICS nations, led by Russia and China, and the West, led by the United States.

I was one of the few outlets last summer to even report on the fact that Russia and China openly announced a “new global reserve currency” (announced in July 2022, predicted by me in February 2022). And of course, Russia and China can’t do it on their own: they are working with nations like Saudi Arabia and India to help put their plans into practice.

Crucial to dethroning the U.S. dollar would be the removal of its use for buying and selling oil – a system that has been in place since the 1970s when the U.S. promised security for the Saudi Kingdom in exchange for the petrodollar system that underpins the dollar’s strength as global reserve currency. It’s a topic that I discussed at length back in September with Andy Schectman on this podcast.

Andy told me back in September 2022: “The dollar hegemony is right about ready to break when you realize that Saudi Arabia is about to join the BRIC nations. Do you think Biden is going to fly there to ask for more oil? He went there to beg them not to join BRIC.”

“The dollar was made reserve currency only because of our protection of the Saudi kingdom,” Andy continued. He then noted astutely that Saudi Arabia had signed new protection agreements with Russia. “All of the Eastern European countries that have repatriated their gold. They’re all part of the EU but they all trade their own currency. They’re all going to break away from the Western system,” he added.

And now it looks like Andy was right: it appears Saudi Arabia has just issued a death knell to the exclusivity of the petrodollar as we once knew it – the first of several dominoes that needs to fall before the U.S. is exposed financially as an emperor with no clothes.

As I have discussed here previously, the BRICS nations (I’ve added an ‘S’ to the BRIC reference to include the country of South Africa) are now developing their own currency, likely commodity-backed, to use in trade. This latest development involving Saudi Arabia may have the Saudi’s looking to use a different currency in oil trade, perhaps this BRICS currency that is being developed.

While this move away from the US Dollar was likely going to happen anyway at some point, recent US policy decisions have motivated the Saudi’s to move more quickly away from the US Dollar. This from “Times of India” (Source: https://timesofindia.indiatimes.com/readersblog/blogthoughts/saudi-arabia-the-foundation-of-brics-currency-47508/):

BRICS is an alliance of the world’s five major developing economies: Brazil, Russia, India, China and South Africa, most people underestimate it since it includes emerging economies as opposed to established economies in the G7. These five countries account for 41 percent of the world’s population and have a combined GDP of over 24.4 trillion U.S dollars. They also have a substantial military capability and an increasing political influence in the global sphere, and by teaming together, this group commands a voice for itself in the global sphere, for example, it helps them to have wiser worries about emerging economies whenever the West implements policies that are explicitly beneficial to itself, and a famous example of this is the carbon tax. The European Union routinely complains about the carbon emissions created by the Indian and Chinese steel industries. Because their industries are adopting to clean energy, they are now going to apply a carbon tax, so that when Indian and Chinese steel enter the global marketplace in 2030, Indian products will be taxed penalties precisely because of more carbon emission than these developed countries. However, developed nations have generated so much carbon during their development phase that they are primarily responsible for climate change, yet they ignore the past and now impose a tax on carbon emission, when developing countries needs economic fuel to thrive.

Saudi Arabia is one of the most powerful nations in the world, and it has always been the closest ally of the United States of America. However, Saudi Arabia is currently involved in a cold war with the same United States, because Saudi Arabia reduced oil output by 2 million barrels a day as a result the price of oil shot off from 91 dollars a barrel to 94 dollars a barrel, this action was tremendously profitable to OPEC, but it caused mayhem in the West. Further, President Biden warned Saudi Arabia with unclear repercussions and even offered passing the No Pick Bill to challenge Saudi Arabia’s security which begin violating the Petro dollar agreement between the U.S and Saudi. So, in exchange, Saudi Prince Mohammed bin Salman made a major step that sent shivers down the spines of Americans, and that was his proposal to join members of the BRICS. Previous years data states that Saudi has started making defence deals with both China and Russia firstly, they are not overly reliant on the U.S, secondly the Biden administration wants to relax economic sanctions on Iran, Saudi Arabia’s opponent in the Middle East, and the third reason is the oil consumption of BRICS. Resulting in Saudi Arabia, the world’s top oil producer allegedly proposing to join BRICS, by which they will have the backing of China, Brazil and India as the biggest consumers of oil in the world.

If you haven’t yet embraced “Revenue Sourcing” for your planning to help you protect yourself from currency risk, now is a good time to do so.

Metals, Currency and Inflation

Precious metals, stocks, and bonds all rallied last week.

Interestingly, the rally in metals occurred after the inflation report came in cooler than expected. This from “Zero Hedge” (Source: https://www.zerohedge.com/personal-finance/core-cpi-inches-lower-40-year-highs-real-wages-tumble-19th-straight-month)

The headline CPI printed far cooler than expected at +7.7% YoY (vs 7.9% exp) and down from the +8.2% in Sept. That is the lowest since January…

The official measure of inflation, the consumer price index, is a heavily manipulated number using ‘adjustments’ like weightings, hedonic adjustments and substitution to make the reported number seem more favorable.

There are other alternative measures of inflation that are, in my view, more accurate in tracking the real inflation rate. One such measure is calculated by economist, John Williams, of www.ShadowStats.com.

This chart is from Mr. Williams’s website and compares the official inflation rate per the consumer price index with what might be considered to be the actual inflation rate, using the same methodology that was used to calculate the inflation rate pre-1980.

Notice from the chart that using the pre-1980 inflation calculation method, the inflation rate is about 16% which feels more accurate from my recent, real-world experience. Despite the disparity in calculation, the year-over-year inflation rate is declining.

Which brings us to the most important question – does this mean that the Fed is finally getting inflation under control?

Probably not in my view.

As I have stated many times previously, in order to get inflation under control, we need to have real positive interest rates. In other words, interest rates need to be higher than the inflation rate to create an incentive to save rather than spend. In 1980, then-Federal Reserve Chair, Paul Volcker, understood this as he increased interest rates to nearly 20%.

If we are generous, and round down the inflation rate to 7.5% and then compare that inflation rate to the current interest rate of 3.8% as I write this, it’s easy to see that real interest rates are still negative.

Yet, despite interest rates not being high enough to meaningfully impact inflation, the marginally higher interest rates that we are experiencing are already creating some potential problems. This from “Fox Business” (Source: https://www.foxbusiness.com/politics/next-us-debt-crisis-making-hundreds-billions-interest-payments)

The U.S. national debt keeps rising and to make matters worse, interest payments on the debt are rising at an even faster pace.

Next week, the Treasury Department will release data from the final month of fiscal year (FY) 2022, including how much the government spent to service $31 trillion in national debt, the highest it has reached in U.S. history.

According to Treasury data through August, which counts all but the final month of FY22, net interest payments on the debt totaled $471 billion. That is already much higher than the initial White House projection of $357 billion and above Treasury’s mid-year assessment of $441 billion; adding in September’s data could send the total over $500 billion.

At that level, interest on the debt is larger than the discretionary budgets of most federal departments and rivals the amount of money Congress gives to the Department of Defense each year.

Experts warn that one reason why the cost of servicing the debt was underestimated is because those estimates were made when interest rates were lower. For the last several months, the Federal Reserve has ratcheted up interest rates, which means when outstanding federal debt matures and is paid off through the issuance of new debt (or “rolled over”), that new debt is subject to higher interest payments.

Some say these rising rates is a major factor that will cause interest payments on the debt to explode higher in the next few years. The Peter G. Peterson Foundation warns that it is not just from other priorities.

For example, the foundation estimates that by next year, interest on the debt will soon cost more than all federal income support programs combined – programs such as unemployment, food stamps and child nutrition. Interest on the debt could soar to $1 trillion per year by 2032, or $3 billion each day and take up nearly one-fifth of all federal revenues in that year.

The numbers mentioned in the article are alarming enough when taken by themselves. But, when taking into account the additional spending that will occur for Social Security and Medicare and other programs, the numbers are totally and utterly unsustainable.

That’s why I believe that the Federal Reserve will ultimately ‘pivot’ and begin to pursue easy money policies once again via lower interest rates and quantitative easing.

And when they do, I believe that we will see a stagflationary environment emerge that will see higher consumer prices and lower financial asset prices. Literally the worst of both worlds.

Much of the rest of the world must agree with this assessment. While they may not be stating this outwardly and directly, they are taking actions that indicate this is the case. As the old axiom goes, you learn more by observing actions than you do by listening to words.

The BRICS countries are actively pursuing an alternative reserve currency to the US Dollar. This from “Economic Times” (Source: https://economictimes.indiatimes.com/news/economy/policy/brics-explores-creating-new-reserve-currency/articleshow/94628034.cms)

The BRICS countries are exploring establishing a new reserve currency to better serve their economic interests, according to senior Russian diplomat and BRICS points person Pavel Knyazev. It will be based on a basket of the currencies of the five-nation bloc, ET has learnt.

“The possibility and prospects of setting up a common single currency based on a basket of currencies of the BRICS countries is being discussed,” Knyazev, Russian Sou Sherpa on BRICS said during a discussion at Valdai Club in Moscow last week. Valdai is closely associated with President Vladimir Putin.
During the 14th BRICS Summit in June, Russian President Vladimir Putin announced that Brazil, Russia, India, China, and South Africa plan to issue a “new global reserve currency.”