Authored by James Rickards via Daily Reckoning,
Almost 10 years ago, I sat in a secure conference room at the Pentagon and explained to a group of U.S. national security officials from the military, CIA, Treasury and other agencies that the overuse of the U.S. dollar in financial warfare would eventually drive countries away from using dollars in international transactions for fear that they could become the next target of U.S. displeasure.
I said to the military and intelligence community, “I don’t think other countries can destroy the dollar, but we can do it ourselves. We are our own worst enemy.”
We, of course, meaning the United States. We’re destroying the dollar with the sanctions (and through other misguided policies). The U.S. is doing more to destroy the dollar than our enemies.
Some took note, some ignored the warning and one Treasury official slammed the table and said, “The dollar has been the global reserve currency, it is the global reserve currency now and it always will be the global reserve currency!”
Well, a lot has changed over the past 10 years — and especially over the past (roughly) two years.
The More Things Change…
But still many government officials and senior intelligence community members are stuck in this type of thinking.
Earlier this year, I taught a seminar at the U.S. Army War College on financial warfare.
I explained that U.S. financial sanctions would not have a material impact on Russia, that Russia would not change its behavior in Ukraine based on the sanctions and that the U.S. would suffer more from its own sanctions than Russia because adversaries and neutral countries would create alternative payment platforms that did not use dollars.
I naturally encountered skepticism from the class (that’s OK; the purpose of a seminar is to engender competing views).
But events of the past year have proved my forecast in every respect.
I Told You So
The Russian economy is predicted to grow this year, despite all the sanctions. Russian oil exports, for example, are higher than ever.
Russia’s also buying high-tech goods from China, including some military hardware and other manufactured goods. China’s buying Russian oil and natural gas, in addition to agricultural output and weapons.
That’s a big two-way trade, and the dollar isn’t being used. Russia’s paying yuan, and China’s paying rubles.
Meanwhile, nations around the world are trying to eliminate or reduce their dependence on the dollar out of fear that the U.S. could use Russia-style sanctions against them if the U.S. disapproves of their conduct.
None of the sanctions would be effective or even possible without the use of the dollar and the dollar payments system.
Not Even Janet Yellen Can Deny It
The failure of U.S. dollar-based sanctions has become too obvious to ignore. The failure is so obvious that even Janet Yellen has admitted that sanctions are not working.
She said, “There is a risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar. Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative.”
One could say that realizing the dangers 10 years too late is still better late than never.
The issue is whether it’s already too late to undo the damage. Once new trading currencies and new payment channels are put in place (which is happening quickly), there’s little incentive to go back to a dollar system where the U.S. can threaten your economy.
Many others have pointed out the same weaknesses in the weaponization of the dollar. It seems the only parties who don’t see the danger to the dollar are the Wall Street cheerleaders and top U.S. government officials.
Which brings me to the recently elected speaker of the House, Mike Johnson…
The Good
After several weeks of seeming chaos in October, the House of Representatives finally elected a new speaker of the House, Mike Johnson.
Johnson is a mild-mannered conservative and relatively new member from Louisiana. Johnson is a brilliant constitutional scholar.
He got off to a good start by separating financial support for Israel from support for Ukraine. Both bills will probably pass, but by separating them, Johnson avoided the trap of having to vote for Ukraine in order to support Israel. Many members support the latter but oppose the former and now they can make their voices heard with separate votes.
So far, so good.
The Bad
Now Johnson has committed a blunder so egregious that it could rock the global financial system and cause a financial panic.
Unfortunately, Johnson’s lack of experience in international monetary affairs has left him blind to the dangers.
Right now, the U.S. holds about $300 billion of Russian assets that were frozen after the Ukraine war broke out in February 2022. Most of those assets came from the Central Bank of Russia and consist of U.S. Treasury securities.
Technically, those assets have not been converted to U.S. ownership; they have merely been frozen and still belong to Russia even though Russia cannot use them. Now Johnson wants to convert those assets to U.S. ownership and use the proceeds to pay for the war in Ukraine.
Johnson said, “It would be pure poetry to fund the Ukrainian war effort with Russian assets.” It would be pure stupidity is more like it.
Default!
Such an action would amount to a default on U.S. government debt since the securities were legally owned by Russia.
Nations around the world would take note and accelerate their dumping of Treasury securities and their flight from the U.S. dollar. This would increase interest rates in the U.S. and hurt everyone from homebuyers to everyday consumers.
It would make U.S. debt permanently more difficult to sell and less desirable to hold. It would introduce a new risk premium on U.S. debt over and above the existing inflation premium.
At its worst, it could trigger a dollar panic and full-scale flight from the dollar. Johnson is playing with fire and has no idea what he is doing.
Let’s hope he receives some sound advice before he goes too far.
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Those that desire the dollar destroyed are not the politicians doing the destroying. It is the ones that control those crooked politicians. CBDC is the goal, politicians just enable it.
Johnson is a brilliant constitutional scholar
You would believe a SNOPES video?
Johnson is just the latest bible thumper who enjoys stealing. Phoney bastard.
Sounds like a plan.
Good chuckle
Revolution is upon us. Destroy credibility of the governing entity. COVID and the elections. Media. Afghanistan. Strangle production of goods and services at home, borrow the difference and allow inflation to run. Now use dollar denominated contracts to force other nations to obey, essentially escheat any money held within the dollar system if the adversary will not bend.
If all wars are banker’s wars certainly a great way to destroy relations between nations would be for our banking/government to simply steal large amounts of other banker/government’s money. Why can’t I untangle bankers from governments? Central banks both national and notionally private do that entangling.
Act the bully and show weak. Ukraine. Afghanistan. Syria. Iraq. Taiwan yet to come.
Open the borders and allow millions of fighting age males to enter without regard to provenance. Subsidize, for a time, those invaders. Allow crime at the street level to run wild without deterrence.
Disarm the mal-educated and divided population (this is the last sticking point here in the US, the rest of the west has done so). Persuade the children they don’t even know whether they’re boys or girls, emphasize feminine passivity and demonize active masculinity.
Stealing contracted money ensures our debt is beginning to wash back onto our shores at a moment when we produce little of what is needed at prices higher than others do.
We are not being destroyed by a foreign power but by a foreign ideal implanted within our government/education/banking/economic system.
None of this is accidental or ‘stupid’, we’re in the revolution whether we like it or not.
Yes- we are in the revolution but only one side is revoluting.
It’s the jews!
I seem to remember a White House spokesman already saying about a year ago, that the US had already appropriated the funds and planned on spending them on whatever it wished.
Pure theft. U.S. and Russia not even at war with each other- offically that is. If Rusia attacked the U.S. perhaps U.S. would be in the right to take the funds. We have done all the attacking.
The market is already toast. Those that are in the world of finance are still making money off their clients and will do so until it absolutely collapses just as they did in ’09.
You simply dont have a yield curve like what we see without heavy intervention from an inside source. Bonds dont increase in price when a credit rating is downgraded. You never see a flat ‘curve’ on a 5y to 30 yr bond curve. That’s insane saying there is no reflection for a 20 year time maturity.
You dont see a ‘strong’ dollar, and no index change, when its foreign usage has dropped from 85%+ to around 50% of trade transactions abroad.
The whole thing is junk and the banks/govt are doing the same thing they did when the housing crisis happened and they never revalued any of the derivatives only this time it is simply manipulating data…
Can you submit an article expanding on this please?
No, I don’t think so. Markets run on emotion and positve emotions are sky high right now. One thing you can be sure of, markets will revert to the mean. If too far one way then they will over correct the other way first.
Wait for it.
Positive emotions are sky high right now?
Smell like shit to me. Good thing we not step in it!
Not sure if this is just fear pron to sell newsletters or for real. After all , its all just paper in the end , right ?
I hope you’re not a gambler, for YOUR sake, Anon.
The American people are apocalyptically stupid. They put complete morons in charge of running the country. Why would you vote for a politician that has never shown their ability to manage a business in the private sector?
Most politicians have never even had a real job, much less proven they can run a complicated economy.
If you owned a business, and were looking to hire a CFO or even a mid level manager, would you hire someone with no experience in business? Well here is a bit of reality folks, government has to manage finances the same as a business, and the worse it does it, the more money it needs to steal from you. The next time you vote for someone ask yourself what qualifications this assclown has to spend your money.
It’s by design my friend. Fiat is a ponzi. They have to print and spend more and more money- they don’t really care how it’s spent as long as it is. The new money keeps the ponzi going – but the ponzi always ends in a crash when there are no more suckers. Biggest suckers in this ponzi are foreign governments but it seems they are starting to get a clue and bailing.
Fiat in itself is not a Ponzi. So long as the money supply is held in line with the production of goods and services, Fiat does not create inflation. It is only when credit is allowed to run out of control that Fiat becomes a problem. Between WW2 and the 1970’s, the US economy was stable and became very prosperous because credit was controlled and not abused.
The problem of credit abuse began in the 1970’s with the availability of credit cards to the working class population. That was the cause of inflation, and result of the ability of the average person to float loans to themselves at will. Every person with a credit card then became a bank, creating money out of thin air to loan to themselves.
It is the interest on a loan that creates inflation. It is the interest that increases the costs of goods and services beyond their normal price.
Take away everyone’s credit card, and inflation would go to 0% almost immediately.
Before you can fix a problem, you have to actually understand what the problem is…..