The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan” – Zero Hedge
What worries me most about this Zero Hedge headline is that most Americans have no idea what this means, not to mention the impact on the value of the U.S. Dollar. If they knew… they’d be buying tangibles with cash and not new cars and luxury items on credit. Historic times we live in.
In the news we read:
“In the first barometer of global condemnation of Russia’s annexation of Crimea, Ukraine and its Western backers persuaded a large majority of countries in the United Nations General Assembly on Thursday to dismiss the annexation as illegal, even as Russia sought to rally world support for the idea of self-determination.” – United Nations General Assembly Vote Isolates Russia – NYTimes.com.
Instead of rambling on like so many about right & wrong and who we think is more at fault over this Ukraine thing – lets cut to the chase.
Nations around the world are lining up and taking sides on what could turn into a huge global economic split. Pictured below is a quick yet incomplete look at how the world is splitting apart.
I think we can assume that the BRICS are siding with Russia. The BRICS are the rising economic world power, a reality that must really threaten western leaders.
I may be jumping ahead, but if the BRICS chose to stand together and pick some other currency, like the Chinese Yuan, as the preferred currency for international trade, the US Dollar would loose its status as the sole world reserve currency.
What would the loss of the US Dollar’s dominance mean to main street America?
Technically speaking it would mean that a big chunk of the world would stop demanding dollars. Lower demand of anything results in lower value. When a currency looses value quickly we experience it as rising prices on consumables like food, fuel, and services. If it happens incredibly fast we call it hyperinflation.
Will we see more inflation if the world splits economically in two?
There’s no way to tell because so much reality is papered over by the central banks and government stimulus.
What worries me is that the world leaders seem hell-bent on taking us there. They will blame each other for the mess – when they are all to blame – and the people will end up footing the bill or worse.
So in the mean time I pray they stand down and find some other way to resolve these differences – and buckle up for a rough ride just in case cool heads don’t prevail.
Just to recap, the Federal Reserve is now pumping cash into the money supply at a rate of $40,000,000,000 a month (that’s forty billion) and buying mortgage-backed securities with the fresh cash. These are derivatives (bets) on home mortgage packages.
So in other words these potentially toxic assets (underwater mortgages) are being bought up by the Fed to strengthen the value of mortgages. In other words if the mortgage derivative market collapsed it would likely collapse the value of homes. You might also think of it as the powers-that-be directly protecting and extending our current way of life.
But pumping cash into the U.S. Dollar is the definition of inflation, which can also be described as devaluing the dollar. Understanding this is as simple as understanding supply and demand… the more rare a desirable thing the more it’s value increases. So as the money supply increases the more the buying power of each dollar decreases.
So while the dollar declines the Yuan appears to climb in value, improving the prospects of the Chinese currency becoming a de facto reserve currency. This would crush the U.S. Economy.
China’s yuan climbed Friday to its highest level against the U.S. dollar since the currency was revaluated in July of 2005, buoyed by the U.S. Federal Reserve’s recent QE3 program as well as data this week showing that the People’s Bank of China injected a record amount of cash into the financial system, according to analysts. – MarketWatch.
So on one hand, Washington D.C. is seemingly trying to protect the world’s reserve currency status of the U.S. Dollar by attacking any nation (next up, Iran) that trades for oil with something other than the petrodollar – and on the other hand they print U.S. Dollars wildly, forcing the value of the Dollar down and weakening it’s desirability as a reserve currency.
Why? I don’t now. I won’t go there.
What I do know is that these policies are doing two things that can’t be obscured.
- We’re being led to war with Iran and possibly China and/or Russia. Yes a world war.
- The U.S. Dollar is at risk of becoming worthless. Why? Paper (fiat) currencies are only valuable because people agree they have value and use them for trade for things that have real value like commodities (food, water, shelter, security, etc). If people (or markets) decided that a currency has low or no value then the commodities themselves would likely become the new preferred form of trade. Gold and silver would also rise in value exponentially in this scenario.
Since I have no idea why the powers-that-be would risk these two things, I simply have to assume that these outcomes are not only on-the-table but increasing in risk daily as the war drums beat in Washington D.C. and the Fed’s presses roll.