The turmoil of Europe hit the headlines over the weekend and the American stock market this week. To put things in the simplest possible terms, several European nations have too much debt, their governments are spending too much, and the social-welfare state is failing. But that is over there. It surely couldn’t happen here. Our politicians and officials assure us that the dollar is strong. After all, the dollar is the reserve currency of the world. And, of course our Treasury debt will never be downgraded (oops…they mean it won’t be downgraded again).
Let’s be very clear. The dollar is at risk and we are on the same course as Greece. It is simply a matter of time unless we change course quickly. So, what would be the signs to watch for?
First, watch for any move to unseat the dollar from reserve currency status in the oil trade. Oh, actually that is already underway (http://www.cnbc.com/id/47333004). Here are excerpts from a powerful recent article that explains what is happening and why (http://www.freedomsphoenix.com/Article/110505-2012-04-25-so-long-us-dollar.htm):
There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency. For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets. This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar’s valuation. Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars. The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon.
The dominance of the dollar gave the United States incredible power and influence around the world… but the times they are a-changing. As the world’s emerging economies gain ever more prominence, the US is losing hold of its position as the world’s superpower. Many on the long list of nations that dislike America are pondering ways to reduce American influence in their affairs. Ditching the dollar is a very good start. In fact, they are doing more than pondering. Over the past few years China and other emerging powers such as Russia have been quietly making agreements to move away from the US dollar in international trade. Several major oil-producing nations have begun selling oil in currencies other than the dollar, and both the United Nations and the International Monetary Fund (IMF) have issued reports arguing for the need to create a new global reserve currency independent of the dollar.
The supremacy of the dollar is not nearly as solid as most Americans believe it to be. More generally, the United States is not the global superpower it once was. These trends are very much connected, as demonstrated by the world’s response to US sanctions against Iran. US allies, including much of Europe and parts of Asia, fell into line quickly, reducing imports of Iranian oil. But a good number of Iran’s clients do not feel the need to toe America’s party line, and Iran certainly doesn’t feel any need to take orders from the US. Some countries have objected to America’s sanctions on Iran vocally, adamantly refusing to be ordered around. Others are being more discreet, choosing instead to simply trade with Iran through avenues that get around the sanctions.
It’s ironic. The United States fashioned its Iranian sanctions assuming that oil trades occur in US dollars. That assumption – an echo of the more general assumption that the US dollar will continue to dominate international trade – has given countries unfriendly to the US a great reason to continue their moves away from the dollar: if they don’t trade in dollars, America’s dollar-centric policies carry no weight! It’s a classic backfire: sanctions intended in part to illustrate the US’s continued world supremacy are in fact encouraging countries disillusioned with that very notion to continue their moves away from the US currency, a slow but steady trend that will eat away at its economic power until there is little left . . .
When that happens, the tide will have truly turned against the dollar, as it was an agreement between President Nixon and King Faisal of Saudi Arabia in 1973 that originally created the petrodollar system. Nixon asked Faisal to accept only US dollars as payment for oil and to invest any excess profits in US Treasury bonds, notes, and bills. In exchange, Nixon pledged to protect Saudi oilfields from the Soviet Union and other potential aggressors, such as Iran and Iraq. That agreement created the foundation for an incredibly strong US dollar. All of the world’s oil money started to flow through the US Federal Reserve, creating ever-growing demand for both US dollars and US debt. Every oil-importing nation in the world started converting its surplus funds into US dollars to be able to buy oil. Oil-exporting countries started spending their cash on Treasury securities. And slowly but surely the petrodollar system spread beyond oil to encompass almost every facet of global trade.
The value of the US dollar is based on this role as the conduit for global trade. If that role vanishes, much of the value in the dollar will evaporate. Massive inflation, high interest rates, and substantial increases in the cost of food, clothing, and gasoline will make the 2008 recession look like nothing more than a bump in the road. This will be a crater. The government will be unable to finance its debts. The house of cards, built on the assumption that the world would rely on US dollars forever, will come tumbling down.
It is a scary proposition, but don’t bury your head in the sand because countries around the world are already starting to ditch the dollar. Russia and China are leading the charge. More than a year ago, the two nations made good on talks to move away from the dollar and have been using rubles and renminbi to trade with each other since. A few months ago the second-largest economy on earth – China – and the third-largest economy on the planet – Japan – followed suit, striking a deal to promote the use of their own currencies when trading with each other. The deal will allow firms to convert Chinese and Japanese currencies into each other directly, instead of using US dollars as the intermediary as has been the requirement for years. China is now discussing a similar plan with South Korea.
Similarly, a new agreement among the BRICS nations (Brazil, Russia, India, China, and South Africa) promotes the use of their national currencies when trading, instead of using the US dollar. China is also pursuing bilateral trades with Malaysia using the renminbi and ringgit. And Russia and Iran have agreed to use rubles as a means of currency in their trades. Then there’s the entire continent of Africa. In 2009 China became Africa’s largest trading partner, eclipsing the United States, and now China is working to expand the use of Chinese currency in Africa instead of US dollars. Standard Bank, Africa’s largest financial institution, predicts that $100 billion worth of trade between China and Africa will be settled in renminbi by 2015. That’s more than the total bilateral trade between China and Africa in 2010. The idea of moving away from the dollar is also finding support from major international agencies. The United Nations Conference on Trade and Development has stated that “the current system of currencies and capital rules that binds the world economy is not working properly and was largely responsible for the financial and economic crises.” The statement continued, saying “the dollar should be replaced with a global currency.” The International Monetary Fund agrees, recently arguing that the dollar should cede its role as global reserve currency to an international currency, which is in effect a basket of national currencies. There is also a host of countries that have started using their own currencies to complete oil trades, a move that strikes right at the heart of US-dollar dominance. China and the United Arab Emirates have agreed to ditch the dollar and use their own currencies in oil transactions. The Chinese National Bank says this agreement is worth roughly $5.5 billion annually. India is buying oil from Iran with gold and rupees. China and Iran are working on a barter system to exchange Iranian oil for Chinese imported products . . .
The mainstream media is avoiding all discussion of the demise of the US dollar as the world’s reserve currency. Even fewer people are talking about how sanctions based on Iran’s supposed need to use the US dollar to sell its oil leave loopholes wide enough for VLCCs to sail right through. Without acknowledging the elephant in the room, articles about Iranian tankers turning off their transponders or India using gold to buy Iranian oil invariably sound like plot developments in a spy thriller. Much more useful would be to convey the real message: The world doesn’t need to revolve around US dollars anymore and the longer the US tries to pretend that the dollar is still and will remain dominant, the more often its international actions will backfire.
We couldn’t have said it better. And that is just the beginning of the problems we will face in this ongoing economic war unless we wake up quickly! The warnings are growing more dire by the day. We have already been told that George Soros is predicting riots. Now, Jim Rogers (his former business partner) is sharing similar thoughts:
Speaking with the Wall Street Journal on Friday, commodities trader Jim Rogers of Rogers Holdings said riots such as the ones witnessed in Greece and reported as widespread in China will hit the United States and again in Europe as the next leg down in the financial crisis takes shape (after the election, he speculates in previous interviews). “I’m more worried about those kind of problems [rioting] in the U.S. and Europe; this is where social unrest is going to be worse,” Rogers told the Journal. “I would suspect that, when economic conditions get worse here and get worse in Europe, we’re going to see . . . you’ve seen governments fail in Europe; you’ve seen countries fail in Europe. I suspect you’re going to see more of it [rioting], yes. “We saw it in London; we’ve seen it in several countries in Europe in the last year or two. Yes, I expect to see it here, too. If you don’t, look out your window”
Some are even reporting that the U.S. Government is aware and preparing for widespread riots caused by a coming economic attack that we have characterized as Phase Three:
In a riveting interview on TruNews Radio, Wednesday, private investigator Doug Hagmann said high-level, reliable sources told him the U.S. Department of Homeland Security (DHS) is preparing for “massive civil war” in America. “Folks, we’re getting ready for one massive economic collapse,” Hagmann told TruNews host Rick Wiles. “We have problems . . . The federal government is preparing for civil uprising,” he added, “so every time you hear about troop movements, every time you hear about movements of military equipment, the militarization of the police, the buying of the ammunition, all of this is . . . they (DHS) are preparing for a massive uprising.”
Hagmann goes on to say that his sources tell him the concerns of the DHS stem from a collapse of the U.S. dollar and the hyperinflation a collapse in the value of the world’s primary reserve currency implies to a nation of 311 million Americans, who, for the significant portion of the population, is armed. Uprisings in Greece is, indeed, a problem, but an uprising of armed Americans becomes a matter of serious national security, a point addressed in a recent report by the Pentagon and highlighted as a vulnerability and threat to the U.S. during war-game exercises at the Department of Defense last year, according to one of the DoD’s war-game participants, Jim Rickards, author of Currency Wars: The Making of the Next Global Crisis. Through his sources, Hagmann confirmed Rickards’ ongoing thesis of a fear of a U.S. dollar collapse at the hands of the Chinese (U.S. treasury bond holders of approximately $1 trillion) and, possibly, the Russians (threatening to launch a gold-backed ruble as an attractive alternative to the U.S. dollar) in retaliation for aggressive U.S. foreign policy initiatives against China’s and Russia’s strategic allies Iran and Syria.
We have been warning at length that a Phase Three attack was planned. We devoted two chapters in the book, Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why it Can Happen Again, to explaining Phase Three and how to prepare for it. We even outlined how our nation could act to avert it. We remain hopeful and optimistic but time is short. To solve our problems we must return to the truth and values that made America great. We will close with some thoughts from Peter Grandich in a recent article that concludes with the one true solution:
Peter Grandich, market commentator and editor of the internationally-followed “Grandich Letter” at www.Grandich.com, posted a strong warning to readers today about the United States’ grave financial condition, predicting a dire fiscal picture for our children and grandchildren. In the forecast, which coincides with his daughter’s twentieth birthday, Grandich says, “The greatest blessing in my life, my daughter Tara, is 20 years old today. While witnessing her birth through today has brought only joy, during this period I’ve also watched my country spiral downward economically, socially and spiritually. Both sides of the political aisle are responsible, and nowhere is that more true than in the grave financial condition we find ourselves in as a nation.”
He states, “I have no cabins in West Virginia nor dry food to sell…and I can assure you that what I’m about to state is not good for business. My wonderful daughter, and the sons and daughters (and grandchildren, too) of those who read this, are going to pay an enormous price for decades of over indulgences and total mismanagement by government and individuals. Better days for these generations cannot and will not be possible without severe economic and social pain.” Grandich predicts, “What we have witnessed in Greece and elsewhere is coming to the shores of America…make no mistake about it, the die has been cast and all the political rhetoric and rare actual good political deeds can’t prevent the inevitable.”
He adds, “The fact is America is bankrupt financially (and well on its way to socially, politically and spiritually, if not there already). The saddest point of this fact is virtually all Americans either don’t grasp it or if they do, hope it’s only a bad dream and they shall wake up and all shall be well again. While there have been a few brave politicians who have been willing to tell it like it is and even fewer Wall Street types, the ignorance of the nation is not surprising when you look at how other people in countries now already well into the nightmare also lived in denial.” He references what he calls “class warfare” that he sees coming to the U.S., which will pit the 55-and-over generation against younger citizens. He also notes the importance of how we are quickly approaching a time when over 50 percent of all Americans will be working for the government, so making any great sweeping changes will be nearly impossible . . .
He sums up his calamitous conjecture with the statement, “America’s only real hope is to do what our Founding Fathers did and return Almighty God back to His rightful place as the true leader of this once great country. No other solution is doable.”
To be fair, that is the basis for our hope as well. We concluded the book Secret Weapon with the same awareness. This is also our Prayer for America.