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Forget Russia Dumping U.S. Treasuries … Here’s the REAL Economic Threat

George Washington's picture




 

Russia threatened to dump its U.S. treasuries if America imposed sanctions regarding Russia’s action in the Crimea.

Zero Hedge argues that Russia has already done so.

But veteran investor Jim Sinclair argues that Russia has a much scarier financial attack which Russia can use against the U.S.

Specifically, Sinclair says that if Russia accepts payment for oil and gas in any currency other than the dollar – whether it’s gold, the Euro, the Ruble, the Rupee, or anything else – then the U.S. petrodollar system will collapse:

Indeed, one of the main pillars for U.S. power is the petrodollar, and the U.S. is desperate for the dollar to maintain reserve status.  Some wise commentators have argued that recent U.S. wars have really been about keeping the rest of the world on the petrodollar standard.

The theory is that – after Nixon took the U.S. off the gold standard, which had made the dollar the world’s reserve currency – America salvaged that role by adopting the petrodollar.   Specifically, the U.S. and Saudi Arabia agreed that all oil and gas would be priced in dollars, so the rest of the world had to use dollars for most transactions.

But Reuters notes that Russia may be mere months away from signing a bilateral trade deal with China, where China would buy huge quantities of Russian oil and gas.

Zero Hedge argues:

Add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China’s largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As we noted last year:

The average life expectancy for a fiat currency is less than 40 years.

 

But what about “reserve currencies”, like the U.S. dollar?

 

JP Morgan noted last year that “reserve currencies” have a limited shelf-life:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/10/Reserve%20Currency%20Status.png

 

As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns.  It won’t happen tomorrow, or next week … but the end of the dollar’s rein is coming nonetheless, and China and many other countries are calling for a new reserve currency.

 

Remember, China is entering into more and more major deals with other countries to settle trades in Yuans, instead of dollars.  This includes the European Union (the world’s largest economy) [and also Russia].

 

And China is quietly becoming a gold superpower

Given that China has surpassed the U.S. as the world’s largest importer of oil, Saudi Arabia is moving away from the U.S. … and towards China. (Some even argue that the world will switch from the petrodollar to the petroYUAN. We’re not convinced that will happen.)

In any event, a switch to pricing petroleum in anything other than dollars exclusively – whether a single alternative currency, gold, or even a mix of currencies or commodities – would spell the end of the dollar as the world’s reserve currency.

For that reason, Sinclair – no fan of either Russia or Putin – urges American leaders to back away from an economic confrontation with Russia, arguing that the U.S. would be the loser.

 

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Sat, 03/22/2014 - 22:01 | 4581463 mkkby
mkkby's picture

So now when you take delivery of gold futures you get a box car full of rocks.  Or a shovel and told to mine it yourself.

Fri, 03/21/2014 - 20:55 | 4579174 essence
essence's picture

Back up the claim? you ask. Why I imagine it would by the method they favor .... force.

Just as an aside, the most pithy observation I've come across this year was the remark .... "the U.S. dollar is backed by death". Keep that in mind when questioning authority.

Specifically though, in reference to this claim I read today, I believe the specifics from the guy who had this epiphany was that a two tier system of bitcoin for currency, pseudo-gold backed claims  for wealth storage  --- would be implemented.   Sorta like  fofoa meets the mark of the beast in an orwellian nightmare.

Anyway, I'm just putting this up to encourage novel thinking.
I'll add however, that the originator of this theory lives not to far from Washington DC and thus can be considered a victim of stockholm syndrome.

Fri, 03/21/2014 - 20:10 | 4579035 Reaper
Reaper's picture

The Dear Leader has trouble understanding intended consequences.   Unintended consequences are above his pay and intellect grade.  Why should Russia, China, India or Iran please the Dear Leader?   Or any where else?    The world's messiah became the world's laughing stock.

Sat, 03/22/2014 - 12:08 | 4580328 scraping_by
scraping_by's picture

Barry's first move is always a headfake. A big statement that sounds reasonable, then the serious people take over behind the scenes and do what they wanted.

Even though the ECB wanted another nation state to loot, they really haven't got a second act after someone calls them on their shit.

The weak targets are now in North Africa (Lybia, Egypt, etc.). Look for an expansion South now that East is blocked.

Fri, 03/21/2014 - 20:06 | 4579024 Lumberjack
Lumberjack's picture

Seems that Russia has a say in the ISS (among other things), which is presently a bit old and rumor has it that it could be deorbited in 2016. China has their own gig and who knows what India may have to offer among others. On the energy front, I see it game over here. I see the oil/gas and fisheries resource bullshit plays you all are paying for, and to top if off the progressive movement has absolutely destroyed any real progress that could have ever been made. 

 

 

Sat, 03/22/2014 - 00:05 | 4579607 Anusocracy
Anusocracy's picture

The ISS is too valuable to waste.

It should be towed to Mars, put in orbit, and gently landed on Deimos or Phobos.

Add some additional equipment, tow an ice bearing asteroid to it, and use it as a base in the 2020s.

Sat, 03/22/2014 - 13:54 | 4580540 Stuck on Zero
Stuck on Zero's picture

I say sell the ISS to Hilton or Sheraton and open it for stays.

 

Fri, 03/21/2014 - 23:49 | 4579583 Matt
Matt's picture

Would the ISS fall in one piece, or would it get split into smaller chunks? That is a pretty massive structure to be dropping "somewhere in the ocean".

Sat, 03/22/2014 - 08:45 | 4579953 Oldrepublic
Oldrepublic's picture

The US will pay Russia   $71 million each time a US astronaut gets

to the ISS starting in 2016

Fri, 03/21/2014 - 19:57 | 4578996 shovelhead
shovelhead's picture

Things will get real when Putin officially unfriends Obama on FB.

Jets will scramble.

Fri, 03/21/2014 - 21:11 | 4579210 SpanishGoop
SpanishGoop's picture

That's why FB doesn't have a dislike button.

 

Fri, 03/21/2014 - 20:37 | 4579117 George Washington
George Washington's picture

They've already gotten real ...

Sat, 03/22/2014 - 08:13 | 4579920 sunnyside
sunnyside's picture

Holy cow.  That's just as provocative as putting missles in Cuba.  It's on.  Putin just got served.

Fri, 03/21/2014 - 19:46 | 4578961 ptolemy_newit
ptolemy_newit's picture

again:

Putin’s sanction list will be real players, not politicos!

How about ousting business leaders and leaving their investments in automotive and consumer goods.

Map for investment in Russia 2012

http://www.ey.com/Publication/vwLUAssets/Positioned_for_growth/$FILE/Positioned_for_growth.pdf

http://www.ey.com/Publication/vwLUAssets/2013-Russia-attractiveness-survey-Eng/$FILE/2013-Russia-attractiveness-survey-Eng.pdf

 

The real pain will be like in China, when the technology has been transferd enough and the expats are asked to leave For Gm this is real soon.

Fri, 03/21/2014 - 19:45 | 4578957 Freddie
Freddie's picture

Saw soimething on Free Republic which I am done reading.  It is a MIC type place with lots of ex-Vets easily falling for the evil Putin MSM line.  They linked to a story on Heritage Foundation now run by Jim DeMint.  Another MSM blog post NeoCon crap with referneces to Huff Po and Red Shield Reuters News.  I guess forget Heritage Foundation cause almost everything is pro Neo Con now.

It would be nice if some of the public knew that Putin has a nuke for the dollar and has been holding off.  I think this is all by design by the Neocons and MIC.

Sat, 03/22/2014 - 00:02 | 4579601 Dickweed Wang
Dickweed Wang's picture

Today Putin said that Russia would not enact any more (useless) "sanctions" against the US and EU.  That tells me he is going to pursue "other options" just like accepting anything BUT US dollars in payment for Russian oil and gas.  Also, in May Russia and China are going to sign a bi-lateral trade deal that does not involve USD in any way.  The assholes in Washington and Brussels couldn't have been stupid enough to not have seen this coming . . .

 

 

Sat, 03/22/2014 - 12:09 | 4580337 Muddy1
Muddy1's picture

Hey Dick,

Do you wonder why they are waiting until May?  Why not do it now and get things rolling?

 

Maybe a signing ceremony on May 1??????  That'll be significant.

Sat, 03/22/2014 - 09:19 | 4579949 Drifter
Drifter's picture

"The assholes in Washington and Brussels couldn't have been stupid enough to not have seen this coming . . ."

BRICS moving away from USD has been in the planning stages quite a while because it requires (a) lots of gold accumulation for a gold-backed currency, (b) a new international trade payments system outside the US controlled SWIFT system, and (c) firming up of other nations' intentions to join in (Iran for example).

Appears they might be close to launching it now, need a good political reason to kick it off, and sanctions against Russia might just be it.  While said sanctions are meaningless in a practical sense, they have great political value Putin will use.

Yes it will mean demise of USD as reserve currency and Euro also (secondary "reserve" currency), so I'm confident Washington and Brussels are fully aware of it. 

It could be why US sanctions against Russia are so pathetically weak and EU is staying out of it.  US is trying to save face without triggering the launch of the new BRICS system, at least postpone it a while longer, but they know they're at the end of the road for USD and Euro.

Btw, when new BRICS system takes off, Germany will quickly exit the EU and launch their own currency, leaving ECB with trillions of worthless sovereign debt on their books.  ECB goes bust and Euro dies with it.  Just that fast.

Sat, 03/22/2014 - 14:10 | 4580554 tip e. canoe
tip e. canoe's picture

case in point, a picture says a thousand words:

http://rt.com/op-edge/russia-switches-to-brics-sanctions-357/

still, never forget that the acronym BRIC was coined by a GoldSachs Man.

Sat, 03/22/2014 - 10:36 | 4580132 Winston Churchill
Winston Churchill's picture

Putin will not let a good crisis go to waste.

This has been coming since the US used SWIFT as a weapon against Iran.A strategic

blunder of the first order.

Germany has a long history of doing deals with Russia at the expense of europe, so

a Russia/china/Germany axis would not surprise any student of history.Thats why

US forces remained in Germany long after their raison d'etre.

Sat, 03/22/2014 - 12:43 | 4580409 Kayman
Kayman's picture

.A strategic blunder of the first order.

SWIFT in Iran

Invading Iraq

Financing Muslim countries (that hate the West) by buying their oil

Not leaving a "buffer" zone between Nato and Russia

Saving criminal bankers at the expense of the working poor.

Turning a productive manufacturing nation into a Walmart nation

Turning the world's largest creditor nation into the world's largest debtor nation

Thinking "yer either with us or yer agin us" is effective foreign policy

Sat, 03/22/2014 - 07:31 | 4579897 Bollixed
Bollixed's picture

Actually, those egomaniacs are so lost in thier own hubris they probably didn't see this coming. I think one of the mistakes a lot of reasonable people make is giving too much credit to these buffoons.

It isn't due to wisdom that they hold thier seats of power. It's cronyism that put them there. Their standing in 'the club' is all that was required to allow them their dominion over the masses.

Job number one for these vile people is to keep the incestuous circle of power intact and yet their inability to see beyond their own noses will be their eventual downfall. So it's quite possible the assholes in Washington and Brussels are stupid enough to not have seen this coming.

Sat, 03/22/2014 - 11:04 | 4580214 Carl Popper
Carl Popper's picture

Virtue and luck got the USA where it is now, but luck eventually runs out and virtue dies as wealth increases.

It is the natural cycle of all republics.

Fri, 03/21/2014 - 19:42 | 4578952 Johnny Cocknballs
Johnny Cocknballs's picture

Dear Jim:

No shit.

Love, 

People who read the news

Fri, 03/21/2014 - 19:50 | 4578971 Freddie
Freddie's picture

JC:  Unless people are reading ZH and a few other web sites - they have no clue.  Operation Mockingbird media is running evil Putin and someone suggested the missing plane BS false flag was to distract the pubic from Obama getting his ass kicked by Putin.

It is full on 24x7 spin and lies to the public.

Fri, 03/21/2014 - 23:41 | 4579562 kchrisc
kchrisc's picture

I don't know about the rest, but I have much preferred the plane diversion to their typical "trial of the century," or "what is the young stupid starlet done now" drivel.

I don't even read the articles, and I know more about Lindsay Lohan and Miley Cyrus than I would like.

 

"I might just tune-in for a trial involving treason."

Fri, 03/21/2014 - 21:33 | 4579257 Johnny Cocknballs
Johnny Cocknballs's picture

Freddie:  solid point.

Fri, 03/21/2014 - 19:40 | 4578949 SpanishGoop
SpanishGoop's picture

China and Lussia no use dollal anymole, solly.

 

Sat, 03/22/2014 - 12:05 | 4580327 Muddy1
Muddy1's picture

Make that, solly Chawlee

Fri, 03/21/2014 - 19:53 | 4578980 Dr. Sandi
Dr. Sandi's picture

Great Japanese accent. Do you have a Chinese or Russian one too?

Fri, 03/21/2014 - 20:18 | 4579061 SpanishGoop
SpanishGoop's picture

What do you mean by "accent" ?

Are you making fun over my speech impairment.

 

Fri, 03/21/2014 - 19:38 | 4578941 Jumbotron
Jumbotron's picture

The politicians and the military won't back down.  But the banksters are cheering this along.  Because the REAL rulers of the world....the banksters...WANT a collapse of the U.S. and the dollar (including American banksters).  Thus to grease the wheels of a total electonic, credit based system.  Bankers version of Total Situational Awareness.

"No one can buy or sell without the Mark"

Fri, 03/21/2014 - 19:52 | 4578977 Dr. Sandi
Dr. Sandi's picture

Have faith, after the Euro bombs, the Mark will be back. Deutschemark, that is.

Fri, 03/21/2014 - 20:43 | 4579138 TahoeBilly2012
TahoeBilly2012's picture

Recent wars in Mid East ALSO destabilize "strongmen"/military threats to Israel and ALSO takedown POWERFUL NATION STATES worldwide. There is a lot to chew on with the "recent wars". Is Ukraine the real battle ground or is the West simply trying to cause a putsch in Russia itself? Or China itself? Or Iran itself, which takes you back to my 2 other points on the "recent wars". I understand the defense of the petro dollar, but I have read some ultimate plans of the planners and it's world hedgemony with police state twist.

Fri, 03/21/2014 - 19:34 | 4578926 Duc888
Duc888's picture

 

 

Awesome.  Maybe Bankstersz will have to do some real world accounting.  We sure could use some deflation about now.  Tell me again why a loaf of bread cost 5 cents in 1920.  What's it cost now?  How's the Feds 2% inflation (thievery) a year worked out for us?

Sat, 03/22/2014 - 12:11 | 4580340 RafterManFMJ
RafterManFMJ's picture

Stockpile those nickels; someday a nickel nickel may buy a load of bread, just like a silver quarter can today.

*the 1942-45 Nickel was 35% silver and has a melt value of 1.14 according to coinflation.com

So, perhaps 2 of these nickels would buy a loaf of bead. How 'bout that?

Sat, 03/22/2014 - 05:22 | 4579802 cossack55
cossack55's picture

All that toxic GMO shit is expensive.  In 1920 they were using wheat.

Sat, 03/22/2014 - 09:22 | 4580004 BurningFuld
BurningFuld's picture

It's some kind of long stranded plastic polymer now right?

Fri, 03/21/2014 - 19:29 | 4578922 hockeypuck777
hockeypuck777's picture

For that reason, Sinclair – no fan of either Russia or Putin – urges American leaders to back away from an economic confrontation with Russia, arguing that the U.S. would be the loser.

They won't. Assholes.

Fri, 03/21/2014 - 23:03 | 4579474 Patriot Eke
Patriot Eke's picture

Why would they?  The economic war is coming to an end, and we all know what comes next.  To them everything is going according to plan.  The motto is order through chaos after all.

Fri, 03/21/2014 - 19:43 | 4578933 DavidPierre
DavidPierre's picture

Mr. Jim Sinclair ... one of the intelligent old-timers in the gold world.

Best listen ... or be very sorry!

 

1. What will the conflict in the Ukraine do to all investments?

2. What will the potential conflict in Iran do to all investments?

3. What will the conflict in Syria do to all investments?

4. What would a major conflict in Israel do to all investments?

5. What would happen if the U.S. banks have a bail-in like we have seen in other countries? This is where they take a percentage of your account with no liability.

6. What would happen if the U.S. took control of all 401(k)s and IRAs?

7. What would happen to the price of gold if China and Russia start a gold-backed currency?

 

Fri, 03/21/2014 - 20:25 | 4579077 Uncle Remus
Uncle Remus's picture

Yeah bay-bee.

Fri, 03/21/2014 - 21:46 | 4579283 BC6
BC6's picture

Spain had a nice run!

Sat, 03/22/2014 - 05:03 | 4579793 Boxed Merlot
Boxed Merlot's picture

Spain had a nice run!...

 

 

True enough.  It was the foundational currency in use at the time of the first US colonization and the pieces of eight were embedded in our vernacular, (2 bits), ever since.  I find it interesting the US growth / armed conflicts with ourselves centered around the times of the then advanced countries fighting for their own brand of currency to be considered the world's "reserve".  Same as ever.  The demise of the dollar will become a footnote too.  Too bad it's being forced into early retirement by such obviously evil and corrupt leadership.

jmo.

Fri, 03/21/2014 - 23:07 | 4579482 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

They got all that nice gold from those savages. Nice ol' boost for the GDP.

Sat, 03/22/2014 - 07:40 | 4579907 negative rates
negative rates's picture

And during the switch, currency rates also swap roles, which leads to a dollar gets a dime.

Sat, 03/22/2014 - 11:56 | 4580309 Muddy1
Muddy1's picture

So is now the time to trade dollars for Yuan?  In anticipation of the dollar being good for ass wipe, and the Yuan being a strong reserve currency in the future?  Recently the Yuan has suffered a decline, maybe now is the time to buy.  Interesting all the articles about the decline of the dollar, buying PM's, yet noone wants to stick their neck out and recommend a currency to trade for now?????  Maybe Soros knows, what is he doing?

Sat, 03/22/2014 - 12:49 | 4580394 Soul Glow
Soul Glow's picture

The money masters knew when they took the US off of the gold standard and went fiat there would come a day to trade horses.  They have planned for this moment since when they closed the gold window.  They may have various thoughts on how to do it, but they are relatively all the same - expand China's trading ability and use some form of gold backed currency.

George Soros has some ideas.

Soros on China/Reserve Currency/IMF:

https://www.youtube.com/watch?v=qu18lMrFvoc

Sat, 03/22/2014 - 18:32 | 4580998 Lore
Lore's picture

It's important to get past the simplistic One-Or-The-Other, My-Way-Or-The-Highway, Bend-Over-And-Let-Me-Fuck-You approach.  CENTRISM is the #1 enemy of world peace.  The only way to stop the Collectivist Psychopaths from suckering another generation into their factory war agenda is by resisting any and all attempts to impose CENTRISM, most particularly through enforcement of the CENTRAL BANK DEBT ENSLAVEMENT FRANCHISE. THAT IS THE ENEMY. THAT IS WHAT NEEDS TO END.  MARKETS MUST BE ALLOWED TO WORK AGAIN.  When markets are in balance, the world is in balance.

STRATEGIC MILITARY ADVISORS WITH A CONSCIENCE, TAKE NOTE!  SAVE THE WORLD.  SAY 'NO' TO CONTROL FREAKS.  Anybody who gives the order to launch missiles should be LOCKED UP.

COLLABORATION IS KEY.  LET THE RUSSIANS HAVE THEIR SYSTEM, LET THE CHINESE HAVE THEIR SYSTEM, LET ANYBODY ELSE WHO WANTS THEIR OWN SYSTEM HAVE THEIR OWN.  Anybody who doesn't like how somebody on the other side of the planet chooses to trade their resources can GO FUCK THEMSELVES.  And any banking psychopath who tries to turn this into another opportunity to liquidate people and nations, tell them to GO FUCK THEMSELVES.

The transition will be difficult, but future generatIOns will thank you for stopping this EVIL.

Sat, 03/22/2014 - 19:15 | 4581077 boogerbently
boogerbently's picture

China, Russia, and others (esp. in the Middle East) have been circumventing the "world reserve currency" for years.

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