America Loses When The Trade War Becomes A Currency War

Authored by Brandon Smith via,

There has been a longstanding narrative in economic circles that no matter what crisis occurs the U.S. dollar is essentially invincible. 

I have never been one to buy into this assumption.

Reason 1: Because I remember distinctly just before the derivatives and credit crisis in 2007/2008 the majority of mainstream economists were so certain that U.S. housing and debt markets were invincible, and they were terribly wrong. Whenever the mainstream financial media are confident of an outcome, expect the opposite to happen.

Reason 2: Because karma has a way of crushing grand illusions. When you proudly declare a Titanic “unsinkable,” nature or fate often tests that resolve and finds it wanting.

Reason 3: Because I understand that a primary goal of the internationalist, globalist, anti-sovereignty and New World Order crowd is to diminish U.S. economic performance dramatically, and this includes ending the reserve status and petro-status of the dollar in order to make way for a single global currency unit dictated by a single global economic administrator.

Mindless blind faith in the dollar (and U.S. treasury debt) seems to switch sides politically according to whose narrative it best suits.

During the Obama administration, conservatives and Republicans witnessed unprecedented fiat currency creation and dollar devaluation by the Federal Reserve and rightly drew the conclusion that this would eventually trigger a currency crisis as various systems absorb and then regurgitate all these dollars back into the U.S. We saw the biggest foreign trading partners of the U.S. launching bilateral trade agreements that cut out the dollar as the reserve currency, and we witnessed many foreign creditors questioning the viability of U.S. debt.

Only a couple of years ago, conservatives were warning of potential disaster for the dollar caused by the bailouts and unchecked stimulus programs while leftists were staunchly defending the dollar as an immortal golden goose. Today, the roles appear to be switching, as many conservatives now defend “king dollar” in the wake of a Trump presidency, and adopt numerous arguments once reserved for ignorant lefty commentators.

One question that needs to be addressed is how long the current trade war will last? Some people claim that economic hostilities will be short-lived, that foreign trading partners will quickly capitulate to the Trump administration’s demands and that any retaliation against tariffs will be meager and inconsequential. If this is the case and the trade war moves quickly, then I would agree — very little damage will be done to the U.S. economy beyond what has already been done by the Federal Reserve.

However, what if it doesn’t end quickly? What if the trade war drags on for the rest of Trump’s first term? What if it bleeds over into a second term or into the regime of a new president in 2020? This is exactly what I expect to happen, and the reason why I predict this will be the case rests on the opportunities such a drawn out trade war will provide for the globalists.

In my article World War III Will Be An Economic War, I reiterated my longstanding view that there is indeed a global war brewing between major powers, but that this war will be fought primarily with financial weapons, not nukes. I also summarized my position that this war will be engineered by globalists deliberately to provide cover for something they call the “great economic reset.”

With Trump’s cabinet currently loaded with banking elites and neoconservatives with ties to institutions like Goldman Sachs and the Council On Foreign Relations, institutions notorious for promoting one-world economic and political programs, it seems to me that the worst case scenario for the U.S. could easily be staged. If the goal is to kill the dollar’s reserve status, then the trade war will be purposely prolonged.

The next question that needs to be addressed is how is the dollar actually vulnerable to destabilization?

Pro-dollar cheerleaders will say that the dollar is in high demand, with countries like India begging the Fed to stop balance sheet cuts for fear that this will reduce the amount of dollars and dollar denominated assets in circulation in emerging markets.

I see this as a gross misinterpretation of what India and others are warning about. Interestingly, foreign central banks are now sounding an alarm many of us in the alternative economic field have been sounding for years. When India’s Reserve Bank Governor, Urjit Patel, writes about the danger of speedy balance sheet cuts by the Fed causing a liquidity crisis in global markets, this is not necessarily a declaration that India has a insatiable desire for more dollars. What it is a declaration of is the fact that the global economy is weakened by its dependency on the dollar as the primary international trade mechanism.

When I see India complaining about the frailties in dollar liquidity caused by Fed balance sheet reductions, I don’t interpret that as them saying “go king dollar!” I interpret that as India coming to the realization that they are going to have to adopt other alternatives to the dollar, and they are going to have to do this quickly.

Emerging markets and much of the world have been propped up for the better part of a decade through Federal Reserve stimulus measures, from direct bailouts to near zero interest rate loans to asset purchases to outright stock market manipulation. The dollar has become a drug easing the pain of economic downturn, and many nations are addicted.

So what happens when the drug dealer, for whatever reason, suddenly stops providing the drug? The addict is going to look elsewhere for a fix.

The Fed is NOT going to stop its balance sheet cuts, and it’s not going to stop interest rate hikes. Not with the current discussion on “inflation dangers.” This will ultimately cause declines in various markets including equities, and I believe these declines will accelerate by the end of 2018. Meaning, liquidity in foreign trade and markets will have to be facilitated by other sources, such as the International Monetary Fund’s (IMF) basket currency system, or the application of a new global cryptocurrency system, which the IMF has been avidly studying.

The IMF has even been singing the praises of cryptocurrencies recently, even depicting them as the next stage in human evolution and perpetuation the lie that cyrpto is “anonymous.”

The dollar is vulnerable to destabilization by the very institutions and elitists that created it in the first place, and these people are seeking something much bigger than king dollar. The problem is, the globalists cannot implement such a vast 'reset' in the economy without a considerable distraction. Enter Trump’s trade war...

I have been outlining the reality behind dollar weakness for quite some time. Rehashing the facts over and over again becomes tiresome but is unfortunately necessary, because there is always some new contingent of the public that falls into the trap of dollar worship. So, let’s do this one more time.

First, the dollar is NOT backed by U.S. military might. The U.S. military can barely manage its concerns in the Middle East, let alone take on nations like Russia or China in an attempt to force them to keep investing in U.S. treasury debt or retain the dollar as world reserve. If these countries drop the dollar, there is nothing the U.S. can do. Anyone who makes the dollar-by-military argument should not be taken seriously.

Second, while the dollar is in demand now, this is only because the current system has been propped up by endless Federal Reserve stimulus.  If the Fed continues to cut assets and raise interest rates, then emerging markets and others will look elsewhere for support. The dollar is only valuable to global markets so long as the Fed continues to provide a perpetual supply of liquidity. Economies are fickle, and welfare recipients are even more so. Stop giving people free goodies and they will abandon you angrily.

Major foreign economies like China and parts of Europe have been adopting bilateral trade relations for some time. Rather than intimidating these countries into capitulation, a trade war on the part of the U.S. is far more likely to drive them more closely together. Germany and China in particular have been establishing strong trade ties, and OPEC nations have been much cozier with the East. The idea that the U.S. is somehow a linchpin to the entire global economy is a lie. The world can and will organize trade avenues without us if pushed. In fact, this seems to be the plan.

The U.S. has only two major points of leverage in a trade war.

  • First, the U.S. dollar’s world reserve status, which I have already addressed as not a point of leverage at all unless the Fed continues stimulus indefinitely.

  • Second, the U.S. consumer.

U.S. consumers and corporate buyers are sitting at historically high debt levels. In fact, their debt levels are higher than they were just before the crash of 2008. As the Fed continues to raise interest rates, this debt will become unsustainable and something will have to give. For corporations, this means job cuts and wage reductions. For consumers this means cuts to household spending. U.S. consumers are only a point of leverage in a trade war so long as they continue to consume at ever expanding rates. If we suffer another crash similar to 2008, foreign creditors will see this as a lack of incentive to continue placating the U.S.

Without a massive resurrection of American manufacturing and production, we enter into a trade war with little ammunition because we remain dependent on foreign production and goods, while other nations like China can easily expand into alternative markets and retain their own production capabilities. Trump could have launched a new renaissance of production in the U.S. if he had given corporations incentive to bring manufacturing back home. Instead, he gave them a sizeable tax cut without asking for anything in return. Those tax cuts, instead of creating jobs or luring factories back to the U.S., have instead been spent where we all knew they would be spent — on stock buybacks to prop up a flailing equities market.

The longer the trade war continues, the more other countries will consider the “nuclear option” of dumping the dollar as world reserve, or dumping U.S. debt. In my view, this is exactly what the globalists want. Trump bumbles into a trade war and is blamed for a crisis in the dollar as well as a crash in stock markets, while the banking elites introduce their new world order reset as a solution. In this case, I think the worst case scenario is the intended scenario.

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Captain Nemo d… Thu, 06/14/2018 - 21:48 Permalink

the belief ... no matter what crisis occurs the U.S. dollar is essentially invincible

So it would not be true if there were a crisis that involved the destruction of the dollar? Great find!

runningman18 El Vaquero Thu, 06/14/2018 - 22:27 Permalink

You think that was a currency war?  You haven't seen anything yet...

Love how the author's point on dollar worship switching political parties is on display here in spades.  Two years ago the posters here were skeptical of the federal reserve note.  Now half of them defend it like it's their religion...because Trump.  

In reply to by El Vaquero

King of Ruperts Land cheka Fri, 06/15/2018 - 01:04 Permalink

Tariffs are OK. When tariffs are zero then globalists get the profits of trade. Trump must rip up NAFTA as it is a globalist model agreement. Raise tariffs and eliminate income tax and reduce the government. Confiscate back the ill gotten gains and one time tax wealth to zero the balance sheet. Mint gold and silver coinage and watch America prosper. It will be the roaring 20s. all over again.

In reply to by cheka

El Vaquero runningman18 Thu, 06/14/2018 - 23:09 Permalink

Defending it?  Now you're putting words in my mouth.  I'm just pointing out that we've already engaged in a currency war.  And a number of other currencies devalued as a result.  And the USD didn't die.  And that's all factually true.  The USD is going to die, but not in a currency war.  In the absence of a major war (that we don't even have to be directly involved in,) I think they're going to manage to kick the can until physics and geology says that they can't.  Which will be in the next 4 to 8 years. 

In reply to by runningman18

runningman18 El Vaquero Fri, 06/15/2018 - 00:29 Permalink

Like I said, that wasn't a currency war.  You presented the previous ten years as some kind of evidence that the article's arguments are incorrect, but didn't really elaborate.  I agree with the article.  The dollar will lose reserve status exactly because of what has happened in the past ten years combined with the trade war turning into a currency war.  Whether that takes two years or eight who knows, but why would the banksters wait eight years when they can kill it sooner and blame "the populists", i.e. people that frequent sites like ZH?   

In reply to by El Vaquero

MozartIII Captain Nemo d… Thu, 06/14/2018 - 22:09 Permalink

You can Make international loans, government to government, in what currency? USD!

You can do that with what other currencies? NONE!


Your doom porn is 4 to 5yrs to early. It was 8 to 10yrs. to early, not to long ago. Until you understand international banking & settlements. Those that happen every day, you're porn is stupid as shit. Please study international banking and finance. As well international loans and capital flows. What a fucking Maroon!!! H/T Bugs Bunny! A rabbit way ahead of his time!!!

In reply to by Captain Nemo d…

MozartIII LetThemEatRand Thu, 06/14/2018 - 22:17 Permalink

"I think I read this article before, in 2008."


You did read this before. Same shit, different porn artist. ZH loves this shit to rile up the trashes. Being that they are owned by ABC, this is expected. Befuddle  & anger everyone that you can! Gobbles learned it from the US, rinse repeat!


This history is getting hard to find, thanks to Gooble.....

In reply to by LetThemEatRand

exartizo Thu, 06/14/2018 - 22:04 Permalink

Dear Mr. Smith,

You are Full Of Shit.

Reason 1: Blah Blah Blah Bullshit. Nothing to do with the US Dollar.

Reason 2: Blah Blah Blah Bullshit Psycho Babble Bloviating Pontificating Putrefying garbage.

Reason 3: Blah Blah Blah Bullshit Paranoid Schizophrenic Delusions Of Grand Ideas And Reasons With Less Than Zero Merit.

Alliterative Emphasis Fully Intended.




tion runningman18 Thu, 06/14/2018 - 23:25 Permalink

If Brandon were President and he understood the inevitability of the trade deficit closing whether we want it to or not, I wonder what he would do? Would he meet it head on and do his best to unwind it in a controlled fashion? 

>Instead, he gave them a sizeable tax cut without asking for anything in return.

How would Brandon legally get the multinational corporations to do his bidding? Would it perpetuate an unlevel playing field tilted towards behemoth corporations?

In reply to by runningman18

runningman18 tion Fri, 06/15/2018 - 00:34 Permalink

Tax cuts for corporations in exchange for bringing manufacturing back to the US would have been a good start, instead of giving them a tax cut for nothing and then having that extra capital spent on stock buybacks, which is what Trump did.  This was mentioned in the article.  Did you read it?  

In reply to by tion

CashMcCall exartizo Thu, 06/14/2018 - 23:37 Permalink

Deam on fruitfly... Yuan Gold Backed Petro contract since March launch has captured 12% of the Global Oil market. China bought the London Metals Exchange, now trading in Yuan. For the last four years Australian coal and iron ore are traded in Yuan saving Australian miners 15% on each transaction over the US dollar. 

Saudi Arabia now trading oil in Yuan. 

You were saying... lol  you don't know squat. 

In reply to by exartizo

LittleMaestro Thu, 06/14/2018 - 22:11 Permalink

Globalists want to ruin the dollar and crash the stock market to destroy Trump and get a "grand reset". Right. That makes perfect sense. I mean, of course, why not? Because driving billions of people into poverty and misery is totally worth the payoff.

ZH used to be the best site to break business analysis days before the WSJ, fT, etc even sniffed at a story. Now ZH runs this nonsense. What happened, Tyler?

Chief Joesph Thu, 06/14/2018 - 22:36 Permalink

The dollar would have been "invincible", if the U.S. wasn't so far into debt.Before 1913, a dollar was a dollar, was a dollar, and backed by gold.  Today, the dollar isn't backed by anything except "demand", and is only worth 4 cents of a 1913 dollar.  To have the same value today, of a 1913 dollar, you need $25.41.  You people who are working minimum wage, perhaps you remember when America’s minimum wage was raised to $7.25 per hour on July 24, 2009. It’s still there.  Unlike almost all other federal benchmarks, the minimum wage is not updated for inflation.

The minimum wage reached its (inflation-adjusted) historic high in 1968, when it was raised from $1.40 to $1.60 per hour.  Adjusted for inflation using the BLS online inflation calculator that would come to $10.55 per hour in 2012 dollars. If our standard for minimum wages had kept pace with overall income growth in the American economy, it would now be $27.13 per hour.  Yes indeed! , Had the US income distribution and US standards of decency remained exactly what it was in 1968, the minimum wage would now be over $27.00 per hour today.  In other words, both the government and corporate America have punched you in the face, by devaluing your dollar, and stripping you of your minimum wage standard of living  

Fantasy Free E… Thu, 06/14/2018 - 22:38 Permalink

Almost no one understands what free markets do, who they help and who they don't. The difference between a trade war and a shooting war is the level of intensity. Both are managed by the sociopaths in charge of each country.

Free trade and free markets are hard to sell to the folks at the top. Why? With free trade, in the beginning, the poor benefit out of proportion to everyone else. The poor don't know this and they have no political power. The rich have rigged markets in their favor, so they are not interested. They do have political power. So, don't expect free trade or free markets. When trade wars start, shooting wars normally follow because no one wins a trade war.

Yen Cross Thu, 06/14/2018 - 22:59 Permalink

 Draghi Poo-poo'ed  on the coordinated C.B balancing act, because he got orders from Brussels that trade wars are coming.

   Why is all that oil parked in tankers? A cheaper euro puts pressure on U.S. exports.

  The European Union is beyond desperate. Other than cars and some good German companies, the EU is a fucking joke!

 Let'em starve, and regress by an century or two?  That might rattle some cages?

  The tail doesn't wag the Dog, Bitchez

Matteo S. Yen Cross Fri, 06/15/2018 - 02:51 Permalink

The EU does not only make cars. They also make planes and most years their sell more planes than the US. They also make mass transit, power plants, drugs, food, any kind of service except the bullshit IT devices built in China under US brands.


And most often they make it better than the US. That’s why the EU runs a trade surplus and the US bullles the European countries so they recycle their excess fake dollars to buy US crap such as poisonous food.

In reply to by Yen Cross

Colonel Klinks Ghost Thu, 06/14/2018 - 23:14 Permalink

Please wake me when the crisis really gets kicking.  I've been hearing this close to 10 years, yet here we still are.  They can kick the can far longer than anyone believes.  Just look at Japan for example.

Haitian Snackout Thu, 06/14/2018 - 23:15 Permalink

Ok kiddies, I'm only gonna splain this one more time. Those other countries run what is called a dual currency system. Their banking system has dollah and peso assets ( loans ) and dollah and peso liabilities ( deposits ). 95% of their assets ( loans ) are denoninated in dollahs and pesos. The capital reserves ( dollahs ) back the other 95 % of their loans. Ya with me? So if the dollah collapses, so does their banking system collateral. So the day the dollah goes pear shaped, so does their banking system. ( Poof ). Now get back to work you maggots...

Haitian Snackout Thu, 06/14/2018 - 23:15 Permalink

Ok kiddies, I'm only gonna splain this one more time. Those other countries run what is called a dual currency system. Their banking system has dollah and peso assets ( loans ) and dollah and peso liabilities ( deposits ). 95% of their assets ( loans ) are denoninated in dollahs and pesos. The capital reserves ( dollahs ) back the other 95 % of their loans. Ya with me? So if the dollah collapses, so does their banking system collateral. So the day the dollah goes pear shaped, so does their banking system. ( Poof ). Now get back to work you maggots...