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Commodities Killed The Dollar

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by VBL
Tuesday, Mar 21, 2023 - 16:15

Weekly Part 1: How Dollar Death Actually Happens

SECTIONS:
  1. INTRO
  2. SECULAR TRENDS ARE NOW MACRO TRENDS
  3. HOW THE DOLLAR DIES
  4. SUPPLY DEMAND ECONOMICS
  5. THE USD ECOSYSTEM
  6. CONVENIENCE NOT WORTH THE RISK ANYMORE
  7. SANCTIONS ONE TIME TOO MANY
  8. MANIFESTATIONS OF COMING COLLAPSE**
  9. GEO-ECONOMICS: WHY THE WEST THINKS IT WILL WIN**
  10. HOW THE WEST HOPES TO TAKE DOWN CHINA**
  11. HOW WE GOT HERE**
  12. THIS HAS BEEN A LONG TIME COMING
  13. FINAL WORD ON THE PATH FORWARD

 

3- HOW THE DOLLAR DIES

Authored by Goldfix

The following concepts were most recently discussed with Tom Luongo in detail on his podcast a couple weeks ago. Podcast Episode #135 – How We Return to Gold-Backed Money. Tom and I did a plumbing run-through of how the dollar is in fact dying.

These are the grass root flows that create demand for the new BRICS financial plumbing being built that will accelerate dollar death:

  1. Commodity exchanges do best in the regions of demand, not supply- That demand growth is eastward now.
  2. As demand moves east, so do delivery points for goods- Physical trade dictates exchange delivery locations
  3. As delivery points move east, local exchanges in the East get more volumes-  Business moves to where the money is- banks and dealers open shop on SHFE, ICEX, DGCX
  4. As volumes grow, local demand wants the commodity settled in the local dominant currency.- First a dollar/Yuan swap, then a Yuan or some other currency settled contract to satisfy  local buyers

Don’t let anyone tell you otherwise. If the customer is always right, and the customer is in China, then the customer will ask for change in Yuan, not dollars. And Western banks will give it to him. This is inevitable now. It will not be pretty for either side. But war never is; and this is macroeconomic war.

 

4- SUPPLY DEMAND ECONOMICS

All of this is tied to one simple macroeconomic rule: Supply satisfies demand. While it seems that Western politicians have forgotten how that works, global markets and businesses have not.

SUPPLY MUST ADJUST TO DEMAND FOR INDISPENSABLE ECONOMIC GOODS

For an economy to grow, it needs industrial commodities. That demand for those commodities pulls supply from where they are to where they are needed. Intermediators (Brokers/traders/exchanges,etc) set up shop to: accommodate that new business, familiarize themselves with local laws and customs, and get closer to the money flow. It is all about getting close to the money ultimately.

One service provided by these intermediaries is currency exchange for the customer's convenience. Exchanges eventually accommodate these flows in the local currency in the absence of global trade agreements. This is one result of mercantilism applied.

Why hasn’t this “local currency thing happened already?” is a fair question you may ask. Continues...

 

7- SANCTIONS ONE TIME TOO MANY

The West, even if justified (or perhaps baited by Russia), used sanctions one time too many. No BRICS country that could afford to, would trade its own monetary sovereignty (via reserve confiscation by the West) for the convenience of free Swift ATM access.

Frozen, then confiscated…

So, the BRICS assessed the situation correctly--and having planned for this contingency with trade deals already set up going back to 2016, Gold already being accumulated as a bridge to their own international trade, local exchanges already set up and ready as turnkey solutions-- they pulled the trigger.

Also: it did not help that Iran survived and even defied US sanctions for over a decade. We also truly think the West was baited and fell for it.

 

8- MANIFESTATIONS OF COMING COLLAPSE

Some things that will come about as a result of all this: Trade multipolarity begets monetary multipolarity1- it is happening right now and will further reinforce/cement the new trade multipolarity in ecosystem form

 
  1. The East will use a fiat (like the Yuan) implicitly/explicitly backed by Gold and solidified via oil trade for trade amongst its partners for a while. - it already is. CBDC is next. Lining gold to domestic CBDC could be a killer of gold repression better than Zoltan’s 1 “grams for barrels” concept. Who would the US blame???

  2. The West will seek ways to repress the East economically using its financial incumbency for as long as it lasts- That means Oil and Gold must drop in US dollar terms, WTI must be come a bigger global export competing in price with the BRICS oil (that is already happening) to hamper their economic growth, and rehypothecation will continue under government protection.

  3. To the extent that fails, domestic financial repression2 follows- YCC, taxes raised, overt attempts to slow domestic/global goods demand. Orchestrating deflation one sector at a time perhaps. A deconstruction of capitalism one industry at a time, under the guise of national protectionism perhaps?

  4. Geopolitical machinations will get hairy- countries will take sides on USD based risk depending on their indebtedness, skirmishes will happen, the West will push back against Chinese colonialism, incite democratic rebellion and we will seek to actively hamper industrial progress in the East (chips, industrial innovation etc)

  5. The West will actively push for alternative energy even more not just to weaken BRICS power, but to centralize domestic energy creation- No domestic oil use, all electricity generated by Gov't subsidized, owned utilities (windmills etc). Doesn't have to work 100% just long enough to weaken the East

  6. Money will be spent on creating true economically scalable alternatives like Fusion/Chips etc.- further hampering the East industrially as we would become lower cost economies if successful. (by the way, if this happened industrially to scale overnight, oil would crash and take all the brics with it)

The west believes it can win this battle because of the economic drivers in the east. It all starts at the ideological level. Western innovation and arrogance go hand in hand.

Here’s a quick digression on the West’s perceived differences between itself and the East.... Continues...

 

12- THIS HAS BEEN A LONG TIME COMING

For the past 20 years industrial commodity and Gold demand have both moved eastward. Then commodity firms moved their salesmen, offices, and storage vaults east to accommodate growing business demand. JPM, UBS and DB among others and commodity trading firms did this 10 years ago.

Vaults, refineries, storage and processing plants have gone east. When is the last time we built a refinery here? Covid, the war, and US sanctions have merely accelerated this trend. Covid was a catalyst of well planned tipping points.

 

13- FINAL WORD ON THE PATH FORWARD

Whether we win or lose (both sides lose in a war of attrition) , the Dollar will not remain the only game in town monetarily. But “they” will not announce it. The “Reserve Currency” label and academic pundit hand-wringing will catch up to these realities as outlined above years from now.

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