The US dollar is going to suffer death by a thousand financial cuts
Saudi Arabia has said it for decades. SA takes gold now.
That’s what happens when you start to back away from Bretton Woods.
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Drifting back to gold:
…and looking to be very popular:
The US greenback isn’t as good as gold now
They actually have been saying this for more than 20 years. But there is no technical reason why Saudi Arabia couldn’t do this right now. The reasons are practical. Let’s say Saudi Arabia sells oil to China and receives renminbi in return. Now Saudi wants to buy wheat from Canada, who wants to buy sugar from Brazil, who in turn wants to buy auto parts from Mexico. That whole transaction is a whole lot easier and less risky if everything is conducted in dollars. So Saudi needs dollars to transact with the rest of the world, and so does everybody else.
Could you substitute renminbi for dollar in that paragraph? Sure, but everybody is already using dollars. It is a self-reinforcing loop. Everyone uses dollars because everyone uses dollars.
Another problem is that whatever the world’s reserve currency is, there has to be enough of it in circulation to be the world’s reserve currency. The USD is by far the world’s most traded currency. The Euro is a distance second, and the renminbi is pretty far down the ladder.
Yet another problem is the need to store money. Nobody wants to store money in China. Even the Chinese don’t want to store money in China. The USD’s closest competitor is the Euro. But there isn’t really a Euro bond market. There is a German bond market, a Spanish bond market, Italian bond market, and so on, and none of them are large enough to service the world.
Could the dollar ever be replaced? Sure! The dollar replaced the pound, something else can replace the dollar. But that day is far in the future.
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The EUR is the only replacement.
But if you own EUR and want USD it is a nothing much transaction between them. Both are in all the central banks. Both are the global reserve currencies. Neither is better than the other.
SA can take EURs no sink off my nose. It would make no difference in the value of the USD. The two are interchangeable.
Not quite. There needs to be a huge amount of money to keep the wheels of the global economy lubricated. Corporations and central banks need a great big liquid bond market denominated in the world’s reserve currency. But there is no central Euro bond market. The German bond market and the Greek bond market act differently. That’s fine for some things, but not for a reserve currency.
The EU bond market is just getting going. People and institutions working in EUR can work in US paper. That is not a problem. The central banks globally hold a lot of EUR. The difference might be in daily trading in third world markets. The dollar is widely used.
google result
As of December 2021, the amount of outstanding EU bonds had grown to €215 billion in total. The first SURE bonds were issued in October 2020, while the first NGEU bonds were issued in June 2021. By December 2021 SURE and NGEU-related bonds accounted for three-quarters of all outstanding EU bonds. By 2028 NGEU volumes are foreseen to reach €800 billion, more than twelve times the level in December 2021. Including the approved funding for other smaller programmes, the total available amount of EU bonds is set to exceed €1 trillion by 2028. This amount corresponds to approximately 43% of Germany’s public debt in 2020 and approximately 65% of Spain’s.
separate search result
The dollar is in green, the euro in blue, the mark in yellow and the franc in violet. The RMB starts in 2016. The yen is in black. Sterling is in red. Baby blue is Other.
Probably quite a way off, but who knows?
US dollars are being dumped for gold, something that has been going on for months. There has been a’mystery buyer’ buying tons of gold over the past few months:
One month ago, we sparked a frenzy across precious metals circles when we reported
that a “mystery” buyer had bought some 300 tons of gold, roughly three quarters of what would be a record 399 tons of central bank gold purchases in the third quarter.
I’ve been swopping my fiat for precious metals for some time and intend continuing doing so.
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Nelson? Lamar? Bill? Is that you?!
For those who don’t know what I’m talking about, you can choose to learn from history or repeat it. I suggest you learn. Or you can learn by repeating it. Either way, you WILL learn.
If those 3 names don’t do it, just hunt up their last name. (
for those that get it.)
Research on your own time. I’m not going to hold your hand, just point you in the right direction.
–Peter
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Speaking of…
Everybody knows dollars. You know dollars, you’ve been using them your whole life, and they’re pretty much the same as they were when you first started. Inflated away some, for sure, but generally what you could buy with dollars a couple decades ago you can buy with dollars, inflation adjusted today.
You know what’s more volatile than dollars? Well, yes, crypto, obviously. You know what else? Gold. Yes, gold, if you could spend it, has been up and down in value rather wildly over time.
And historically the purchasing power of gold has been highly unstable. Here’s a chart from Macrotrends of the real price of gold — the price divided by the Consumer Price Index — since 1970:
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“Are traditional pet rocks making a comeback?”
No. Today, they are “new AND improved !!”.
It’s much more likely that a state is purchasing metals in large quantity right now rather than an individual trying to corner the market. Maybe it has something to do with purchases of Russian oil products? But I suppose anything is possible.
Does that really make a difference to us peons who don’t have tens of billions of dollars to spend buying gold or silver or tulip bulbs? Either way, there’s an elephant in the room buying up stuff, which raises the price.
That elephant will stop buying at some point. If that happens before the market is cornered, the price will fall. If it happens after it’s cornered, the elephant sets the price. With enough of the commodity in their hands, if they stop selling, the lack of supply will drive up the price. That might help their friends who want to sell. Or they can sell a little bit at that high price. If they want to crater the price, they can list a bunch of their stuff for sale and the price will fall. Handy when a not-friend needs to unload their bit of “stuff”.
In any case, while this is going on, you’re just along for the ride. Market prices are distorted in some way or another while the attempt is in process, while the attempt is failing and unwinding, and while the market is cornered. You can no longer analyze the market with traditional tools to try to figure out where the market is going. You have to figure out what the elephant is doing or going to do next.
–Peter
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It only matters if the prices go up but incomes do not go up to keep somewhat even.
That’s why I posted the first chart, because it is relativistic between the CPI and the price of gold. If you did a chart simply against “dollars vs gold” it wouldn’t tell you much, because you don’t know what the purchasing power of each is in those time period. The chart I posted tells you exactly that.
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