Volume 11, Issue 21
A check on reality tells a different story.
The world has experienced two great resets in history. One, the fall of the Roman Empire. And two, the end of World War II. There have been several regional resets that were historically impactful yet, were not universal worldwide in cultural restructuring. The Reformation, regional wars, the rise of communism, the emergence of China, and the fall of the Soviet Union are examples.
The fall of Rome and the rise of America influenced every citizen in every culture of the known world. The consummation of such events can be both good and bad.
The Roman Empire did in one context advance world order. Hedonism preceded Rome’s collapse. It resulted in one hundred years of societal disorder and the rise of war lords leading to the Dark Ages.
Kingdom autocracy preceded World War II. The end of the world conflict resulted in the rise of the United States. American leadership led to societal order, the protection of the world’s sea lanes, securing worldwide trade, the rule of international law, and the opportunity for sovereign nations to choose democracy, free enterprise, and national determination without oppression from totalitarian states.
The American era is now at a crossroads.
In the 79 years since the Bretton Woods Conference which, by agreement, established the U.S. dollar as the world’s reserve currency, all sovereign nations have relied upon dollars for investment and trade. As globalization expanded, sovereign debt, especially among developing nations, primarily became denominated in dollars. International corporations operating in multiple locations rely upon the dollar for a bridge to local currencies.
Undoing world debt to be serviced in any other currency but the dollar is, in reality, a metaphor of the Gordian Knot.
There is little dispute that several countries are desirous of getting out from under the politics of doing business in dollars. However, wishing for something and actually taking action to achieve it are two different things.
Brazil’s plan to establish a commodities-backed currency faces many challenges. Commodities, unlike gold and precious metals, are subject to price disruptions that are not driven by economics. Droughts, floods, and extreme weather can cause crop shortages and supply disruptions. Many commodities are perishable. Demand for consumption is part of the price formula. Any currency based even on a basket of commodities would present a risk of uncontrolled price fluctuations.
The Chinese yuan is designed to support a command communist system. State planning produces price distortions, missed consumer demand projections, and, therefore, shortages and surpluses in the system that impedes GDP (Gross Domestic Product). The Chinese yuan is inflated in value in direct relation to unreported failed national projects.
For Brazil to introduce a commodities-backed currency merged into an economic system, based on the exclusivity of the yuan as the primary reserve currency, would be like two kites tied together in a hurricane, untethered to the ground. It would be impossible to know, at any given time, the pricing of products, services, or financing.
Oil is over 90% of Russia’s exports. Purchases in dollars are critical to their national economy. Russian aggression, horrific in scope, can only be financed in dollars.
China is attempting to address the pricing disparity of all goods and services by guaranteeing the purchase of Chinese goods in yuans calculated in a dollar exchange rate good for five years. China imports more than 50% of its energy and food. Developing an alliance of nations into a controlled trading zone is not sustainable. In fact, it would not last for five years before agreements would be necessary for delivery of food and energy from the west priced in dollars.
Saudi Arabia is the only country in the world that could, for a short period of time, play economically in China’s fantasy zone. Oil is a commodity that is consumed, can be stored, is in world demand, can be distributed through an established distribution system, and can be used for financing. The government structure is a royal dynasty. Policy decisions are centralized. Maintaining societal needs is institutionalized. The kingdom could sell up to one-third of its oil to China in return for guaranteed purchases of manufactured products. The remaining two-thirds could be sold through normal channels to the west for dollars, allowing unrestricted use for investments and other critical national needs. Further, Saudi Arabia could reverse roles on China by demanding that China invest in Saudi Arabia and transfer technology.
However, Saudi Arabia is also in need of protection from hostile nations in their region. Since World War II, they have totally relied upon the United States. Switching out F-16 fighter jets for Chinese J-20s is operationally problematic. It takes time to train pilots, establish support facilities, and structure parts maintenance supply systems.
The chances that a series of unstable and unpredictable currencies can replace the dollar as the world’s primary reserve currency, resulting in new national security alliances, restructuring of debt, allowing for the purchase of critical needs on a worldwide basis, is de minimis. This reset is not impossible, but if attempted, would not be realized without economic turbulence.
All of the above having been said, the United States itself needs a check on reality. America cannot continue to print and borrow money forever without accountability. Its ongoing deficits are an abuse of the privilege of managing the world’s reserve currency and a major contributor to world inflation. U.S. disregard for other nations’ challenges to orchestrate economic policy is irresponsible and selfishness unchecked.
The current debt ceiling debacle is archetypical of the currency contempt. The deficits are not being cut. Increased spending is arguably being trimmed over 10 years. Bloomberg states that the debt ceiling deal agreed to by President Biden and Speaker McCarthy barely dents the CBO’s (Congressional Budget Office) 10-year projections of $20 trillion of added debt.
Everybody knows the deal is a pre-election year maneuver. Elected officials hope the public will either pay no attention or have no care.
To paraphrase Mark Twain, the reports of the dollar's death are greatly exaggerated. It is dependent upon the American people to hold their elected officials accountable to the truth. Everyone in their life has had a nurturing adult prophesy the words of wisdom, “money does not grow on trees.”
With great authority comes great responsibility. Without discipline and respect in obligation to others…
America may accelerate the next great reset for good or bad.
My name is Marc Nuttle and this is what I believe.
What do you believe?