Rickards Warns "Cracks In The Dollar Are Getting Larger"

Tyler Durden's picture

Authored by James Rickards via The Daily Reckoning,

Many readers are familiar with the original petrodollar deal the U.S made with Saudi Arabia.

It was set up by Henry Kissinger and Saudi princes in 1974 to prop up the U.S. dollar. At the time, confidence in the dollar was on shaky ground because President Nixon had ended gold convertibility of dollars in 1971.

Saudi Arabia was receiving dollars for their oil shipments, but they could no longer convert the dollars to gold at a guaranteed price directly with the U.S. Treasury. The Saudis were secretly dumping dollars and buying gold on the London market. This was putting pressure on the bullion banks receiving the dollar.

Confidence in the dollar began to crack. Henry Kissinger and Treasury Secretary William Simon worked out a plan. If the Saudis would price oil in dollars, U.S. banks would hold the dollar deposits for the Saudis.

These dollars would be “recycled” to developing economy borrowers, who in turn would buy manufactured goods from the U.S. and Europe. This would help the global economy and help the U.S. maintain price stability. The Saudis would get more customers and a stable dollar, and the U.S. would force the world to accept dollars because everyone would need the dollars to buy oil.

Behind this “deal” was a not so subtle threat to invade Saudi Arabia and take the oil by force.

I personally discussed these invasion plans in the White House with Kissinger’s deputy, Helmut Sonnenfeldt, at the time. The petrodollar plan worked brilliantly and the invasion never happened.

Now, 43 years later, the wheels are coming off. The world is losing confidence in the dollar again. China just announced that any oil-exporter that accepts yuan for oil can convert the oil to gold on the Shanghai Gold Exchange and hedge the hard currency value of the gold on the Shanghai Futures Exchange.

The deal has several parts, which together spell dollar doom.

The first part is that China will buy oil from Russia and Iran in exchange for yuan.

The yuan is not a major reserve currency, so it’s not an especially attractive asset for Russia or Iran to hold. China solves that problem by offering to convert yuan into gold on a spot basis on the Shanghai Gold Exchange.

This straight-through processing of oil-to-yuan-to-gold eliminates the role of the dollar.

Russia was the first country to agree to accept yuan. The rest of the BRICS nations (Brazil, India and South Africa) endorsed China’s plan at the BRICS summit in China earlier this month.

Now Venezuela has also now signed on to the plan. Russia is #2 and Venezuela is #7 on the list of the ten largest oil exporters in the world. Others will follow quickly. What can we take away from this?

This marks the beginning of the end of the petrodollar system that Henry Kissinger worked out with Saudi Arabia in 1974, after Nixon abandoned gold.

Of course, leading reserve currencies do die — but not necessarily overnight. The process can persist over many years.

For example, the U.S. dollar replaced the UK pound sterling as the leading reserve currency in the 20th century. That process was completed at the Bretton Woods conference in 1944, but it began thirty years earlier in 1914 at the outbreak of World War I.

That’s when gold began to flow from the UK to New York to pay for badly needed war materials and agricultural exports.

The UK also took massive loans from New York bankers organized by Jack Morgan, head of the Morgan bank at the time. The 1920s and 1930s witnessed a long, slow decline in sterling as it devalued against gold in 1931, and devalued again against the dollar in 1936.

The dollar is losing its leading reserve currency status now, but there’s no single announcement or crucial event, just a long, slow process of marginalization. I mentioned that Russia and Venezuela are now pricing oil in yuan instead of dollars. But Russia has taken its “de-dollarization” plans one step further.

Russia has now banned dollar payments at its seaports. Although these seaport facilities are mostly state-owned, many payments, like those for fuel and tariffs, were still conducted in dollars. Not anymore.

This is just one of many stories from around the world showing how the dollar is being pushed out of international trade and payments to be replaced by yuan, rubles, euros or gold in this case.

I believe gold is ultimately heading to $10,000 an ounce, or higher.

Now, people often ask me, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the Federal Reserve?”

It’s not made up. I don’t throw it out there to get headlines, et cetera.

It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. There’s always enough gold, you just have to get the price right.

I’m not saying that we will have a gold standard. I’m saying if you have anything like a gold standard, it will be critical to get the price right.

The analytical question is, you can have a gold standard if you get the price right; what is the non-deflationary price? What price would gold have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply?

The answer is, $10,000 an ounce.

I use a 40% backing of the M1 money supply. Some people argue for 100% backing. Historically, it’s been as low as 20%, so 40% is my number. If you take the global M1 of the major economies, times 40%, and divide that by the amount of official gold in the world, the answer is approximately $10,000 an ounce.

There’s no mystery here. It’s not a made-up number. The math is eighth grade math, it’s not calculus.

That’s where I get the $10,000 figure. It is also worth noting that you don’t have to have a gold standard, but if you do, this will be the price.

The now impending question is, are we going to have a gold standard?

That’s a function of collapse of confidence in central bank money, which is already being seen. It’s happened three times before, in 1914, 1939 and 1971. Let us not forget that in 1977, the United States issued treasury bonds denominated in Swiss francs, because no other country wanted dollars.

The United States treasury then borrowed in Swiss francs, because people didn’t want dollars, at least at an interest rate that the treasury was willing to pay.

That’s how bad things were, and this type of crisis happens every 30 or 40 years. Again, we can look to history and see what happened in 1998. Wall Street bailed out a hedge fund to save the world. What happened in 2008? The central banks bailed out Wall Street to save the world.

What’s going to happen in 2018?

We don’t know for sure.

But eventually a tipping point will be reached where the dollar collapse suddenly accelerates as happened to sterling in 1931. Investors should acquire gold and other hard assets before that happens.

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Deep In Vocal Euphoria's picture

Waiting with excitement..........Taste of your own medicine as the U.S dollar coming back to the USA.

The bully american will suffer to death as the U.S dollar lying in the street....not worth a fucking thing.

alt-center's picture

I'm gonna take a long shot here... but I guess you're not an American?

stacking12321's picture

interestingly enough, if we do rickards' same calculation, but using bitcoin instead of gold, we get:

same M1 money supply

but BTC (16 million) is 362 times rarer than gold ounces in the world (5.8 billion oz)

hence, using rickards' calculation yields a BTC price of $10,000 x 362 = $3,620,000 per BTC

Greenspazm's picture

So you believe that rarity alone confers value?

 

stacking12321's picture

I do not.

But, thanks for asking.

mtl4's picture

Rickards sometimes has some good points but the dollar going to a slow demise is not likely one of them.  It's a strong dollar, not a weak one that will kill it off as a reserve currency.  The USD will likely rally hard in the future and it's that rise that will force the change towards something else.

old naughty's picture

somehow i think your thought line is more believable.

Federalist Papers's picture
Federalist Papers (not verified) Golden Phoenix Sep 29, 2017 3:49 AM

Oh no.... Mr. Bill!

new game's picture

oh no, treasuries galore. moar paper backed by the weapons purchased by the scam. it is working for now, but the buyers are tired of being pointed at with these lethal weapons...

FEDbuster's picture

Ask Sadam Hussein or Muammar Gaddafi how their rejection of the Petro Dollar worked out for them.  Of course Russia and China are big guys who will be much harder to bully.

Golden Phoenix's picture

My guess would be Alcoholican.

BobEore's picture

I'm guessing you're new here - or haven't been paying much attention to the emerging dynamic on these pages over the last 36 months or so.

That's the only way you could 'miss' the fact that the dudes with the biggest hate-on for the $ are Merikans. "Self-hating jew" syndrome ain't got nuthin on these critters!

 

And a good proportion of them 'hold gold' - or think they do - with the expectation that what's bad for the $ will be excelllent for them.

Poignant. How little they know of the ways and means by which the $power destroys its' enemies and eliminates opposition to its' monopolies.

 

Rickards has finally written a comprehensible description of what might happen in the near future... leaving out, of course, all description of the main players and the inevitable impact of their plans upon the very folks who are holding their breath, hoping it all comes off, just as the kabbalist klass has planned.

 

Death Wish - the Final Sequel.... brought to you by your local alt-media psyop in collaboration with the folks who hate Merikans & Merika EVEN MOAR than Merikans now hate themselves.Pity.

07564111's picture

LoL

On A Long Enough Timeline The Survival Rate For Everyone Drops To Zero.

secretargentman's picture

Nice. Did you make that up on your own?

Blue Steel 309's picture

This cant be true because the 7 year just sold offf the chain. EVERYTHING IS AWESOMEW@! dduhh. WTF.

MasterControl's picture

Probably not.  And too stupid to realize that the effect will be far reaching.

 

Adullam's picture

To be honest, the dollar isn't "worth" anything now. At least not intrinsically. It's only value is in it being a mutually agreed upon medium for exchange of goods and services of real value. The instant either side of that 'mutual agreement' changes it's mind, the dollar goes to its intrinsic value of 0.

kochevnik's picture

The dollar is NEVER worth anything.  Is a debt.  To say it is worth something is like a gangster buying rims for his low rider with a loan, acting like a millionaire

It is a LIABILITY.  At best it is zero when the loan is paid. It only worth something to a banker making that load without consideration (fraud), and you are not that banker

FEDbuster's picture

Funny thing is it used to be worth something, just under 1 Troy oz of silver = $1 and 1 Troy oz of gold = $20..  Of course the gold dollar ended with Roosevelt and Nixon, and the silver dollar ended with Johnson. 

lincolnsteffens's picture

@ kochevnik

Finally a short educated post that says it all. + 1000   Using US$ or any other fiat currency is no different than using an I O U or gambling marker for an exchange of goods or services. If you don't understand the Federal Reserve System and the legal concept of "without consideration" you will never understand the scam that exempts this fraud for which people or businesses would be prosecuted.

A bank gives you a "loan" of $s that have no intrinsic value and you have to return what they lent you plus your extra labor needed to pay the bank interest. In other words, the bank lends you something with a negative (debt) value in exchange for your (positive) hard labor. This is the concept of receiving "No Consideration" in exchange for something of value. AKA fraud, cheat, scam, deception,

Internet-is-Beast's picture

I thought the dollar was going to collapse on September 23. Now I don't know whom (caught my error!) to believe!

Adullam's picture

Sept 23rd. Right. But those crafty prognosticators didn't mention which year, did they?

Greenspazm's picture

No, it's been postponed until January 2018. Ricktards wrote a letter to Trump to say so.

Anyone remember "Pastor Lindsey Williams" an his "elite friends" who were annually predicting the death of the dolllar for January 2011, 2012, 2013, 2014 and 2015?

Intelligence_Insulter's picture

U.S. will have to unleash 9/11 2.0.  They will make history full retard times x.  Whatever it takes.  

. . . _ _ _ . . .'s picture

...and 5'll get you 10 that it will have been the NorKs.

bidaskspread's picture

Alternative for exchange? 

Gordon_Gekko's picture

Yeah, spot on Mr. Rickards, except one thing. You assume there's gonna be a steady state "transition". You haven't taken into account the panic amongst the world population to acquire Gold when SHTF. Price will likely rocket multiples of $10k.

And, as shitcoin mania has already shown us, the higher it goes, the more frenzied will be the buying amongst the public - not just speculation, but moreso because, unlike the multiple boatloads of shitcoins floating around, there is NO SUBSTITUTE FOR GOLD (except Silver to an extent) when it comes to money.

Let the games begin!

menchivist's picture

dont count on gold being the fall back currency.  but for now trade the ranges as shep[wave has been giving them https://www.facebook.com/permalink.php?story_fbid=10155108125820326&id=166578775325

Greenspazm's picture

Crapwave is more useless than pigeon shit on a bucket seat.

Federalist Papers's picture
Federalist Papers (not verified) Greenspazm Sep 29, 2017 3:48 AM

actually if you bothered to look at their past calls like that link shows you will see that they are probably the only analyst getting the markets right. YES GOLD TOO!

RSDallas's picture

Yes and then Goldman, Soros and the too big to fail crooks crash everything and the parties over. Back to the worthless paper!

Juggernaut x2's picture

There are a lot of Puerto Ricans that wish they had a stack of Mean Green right now.

kochevnik's picture

Everyone wants the credit crack, because they are addicted to debt and war. It is the way of the deadbeat

RSDallas's picture

Deadbeat? Those crooks are making billions, trillions with their war games.

Obsidian Samctum's picture

Rickard is a mindless goldturd. He thinks the dollar is doom when its raining outside.

Atomizer's picture

It's raining bond/treasury selloff under petrodollar recycling system. Better buy up the market to save your portfolio. 

Atomizer's picture

It's raining bond/treasury selloff under petrodollar recycling system. Better buy up the market to save your portfolio. 

 

Just looked up your account, your a 12 week sand nigger working as a central planner. Fuck off cunt. 

Obsidian Samctum's picture

And you're just an insecure liitle bitch made punk who is mad because he cant find his dick.

Atomizer's picture
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Obsidian Samctum's picture

the fuck kinda stupid ass logic you dumbass twats running around here. You link time of membership and use that as an argument? Lmao

1 Alabama's picture

No one said people at the internet insane asylum had to act rationally, its formulatic to them, like gvt corruption, senority rules, even when you have a senority moment

Atomizer's picture

We will hunt you down curry eating fucknob. The hedgefund scam won't work. Be aware. 

Obsidian Samctum

Obsidian Samctum's picture

You want my address then bitch? Mohterfucker you dont have to hunt, I'll tell you where the fuck I am pussy, whats up?

Miffed Microbiologist's picture

Um.... please use commas in your rant for better effectiveness.

Miffed

CARONTE-RAPTOR's picture

There are people willing to pay $ 5000 or maybe more for a currency(bitcoin) that does not exist. Gold, can have that quality. Just as in the middle ages, the need for banks to avoid travel with money on dangerous roads, an ethereal gold-backed currency, can be the solution to the problem!

kochevnik's picture

Maths do not exist?  I remember people like you who slept in school

Redneck Makin-tosh's picture

Its right there on the motto. God is lover. Paranoid hatred not so much.

menchivist's picture

I do not think this article is unrealistic.  It may be a little early but world traders are already beginning to see that the US Dollar is about to crumble some day not too far away.  I do not think anyone knows what the worldwide currency willbe maybe Bitcoin. who knows.  For now just make the most amoounts of money you can. 

Your analyst Shepwave has been doing a accuracy job of predicting markets in stock, oil and golds.  So I would just stick with the winners.  Not goldman. https://www.facebook.com/permalink.php?story_fbid=10155108125820326&id=166578775325