The Dollars Weakens by the Day…
When you’re a pig and you own a house made of brick, you don’t really care that the Big Bad Wolf is outside huffing and puffing belligerently.
Short-sighted, to be sure.
I mean, you’re a pig. To the entire world, you’re bacon on the hoof and everyone wants a piece of you, except maybe vegans. They’re all just waiting for their shot.
Now, at this point in today’s dispatch we’re going to replace “pig” with “U.S. dollar.” Because what’s becoming increasingly clear is that the dollar’s bacon is cooked.
In the latest installment of “Yet more countries are abandoning the buck,” news has emerged in recent days that India and Egypt are working on an initiative by which the two countries aim to no longer use the dollar to facilitate trade between their economies. They will, instead, trade in local currencies—the rupee and the Egyptian pound.
Lots of countries are pursuing this trend these days. Almost all of them are part of what I called the BRICS+ 6 block—the original quintet of Brazil, Russia, India, Chian South Africa, plus the six new entrants that joined this year: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.
When you live in the U.S. and your news is primarily driven by U.S. news outlets that are sourcing their information primarily from U.S. analysts, you’re quite likely to see this issue through the prism of Western thinking. And Western thinking is nothing if not proof that winners write the history books, even if the history they write is wrong, or at least myopic in its assumption that the West Knows Best.
However, when you have traveled the world as extensively as I have, and when you’ve lived in places that see life from a decidedly non-U.S. frame of reference, you understand that what Americans accept as fact is very often fiction.
Or at the very least, wishful thinking.
The English politician and writer Lord Acton once wrote, “Power tends to corrupt, and absolute power corrupts absolutely.” To that I will humbly add that absolute power blinds one to realities that are inconvenient.
And this is the inconvenient reality Americans are not getting from their American news outlets: The deal that India and Egypt are fashioning is not picayune. It is, as Pink Floyd might croon, another brick in the wall.
That wall is the wall an increasing number of countries are building to separate their economies from U.S. dollar dominance.
Frankly, they’re tired of the dollar dictating global finance. They’re tired of the Federal Reserve dictating, even obliquely, global interest rate policy. And yes, the Fed does do that. Because when you’re in charge of the currency the world relies on to buy and sell goods, your interest rate decisions impact other countries out of necessity. So, other countries have to respond to what you do, even if responding is not in the best interest of local economies.
The Fed’s—and the U.S.’s—absolute power over the fortunes of other economies has corrupted them absolutely…
Across the post-war years of the last half of the 20th century, the global dollar served a useful purpose as a financial anchor. But that purpose has waned over the last couple decades, particularly given that the last two major financial downdrafts globally were precipitated by America’s bursting housing bubble in 2007, and the Fed’s bat-outta-hell fight against inflation starting in 2021.
Central banks and economic ministers around the world are simply tired of it all.
And, so, they want to cut the ties that bind. They want greater freedom to dictate the path their own economies take. They want to strengthen demand for their own currencies rather than support the U.S. artificially, which in turns helps Americans live at a standard higher than much of the rest of the world—which sticks in the craw of a lot of non-American people.
Sure, the Egypt/India deal, should it come together, is small beer, relatively speaking.
So, too, is the deal between India and Ethiopia to trade in local currencies.
Same with the deal between India and the UAE to now price oil in rupees.
And with the deal between China and Brazil to trade directly in yuan and Brazilian reals.
But you know what? Death by a thousand paper cuts is death, nonetheless.
It just comes slower.
But it still arrives.
That’s the point here.
With every announced deal between two countries to abandon the dollar, demand for the dollar weakens a little more.
At some point, even a persistent drip of water wears away the largest of stone.
That day will come for the dollar.
For the American media and the U.S. analysts they quote, that’s a laughable statement.
To much of the rest of the world, it’s a shoulder-shrug statement meaning, “Yeah, we know that—what’s your point?”
My point for Americans is that I hope you prepare for that day. The economic impacts on America will be profound, and American families will feel the brunt of it.
Living in America and earning dollars limits part of your financial options.
But you do have options, nonetheless.
The best among them is to pack part of your portfolio with non-dollar assets such as foreign stocks, foreign currencies (primarily the Swiss franc but also the Singapore dollar), and foreign real estate that generates rental income in local currency.
This isn’t a “rush to do this now” recommendation.
Water takes time to erode the stone, so you have some time. Probably till some point after 2027-2028, which is when I expect we’re going to witness a helluva financial crisis in the West, propelled by American debt.
But the pace of the water wearing at the stone is increasing, and demand for the dollar (and particularly U.S. Treasury paper) is noticeably decreasing globally.
The brick house is weakening.
And I smell bacon.
