Currency Wars: Five More Years

  • Pride goeth before the fall? (USD)
  • Surprise: Which Jim Rickards’ book is selling best?
  • Every one of us could be “collateral damage”
  • U.S. livestock gets the baby-formula treatment
  • The 5 provokes a crapstorm (the draft).


What’s that biblical saying that pride goeth before a great fall?

Bloomberg

“The dollar’s international role, whether for trade, investment or use as a global reserve currency, remains quite strong, with nothing on the horizon likely to rival it,” according to a blogpost by three economists who just published a research paper for the Federal Reserve Bank of New York.

“No currency replicates the characteristics of the U.S. dollar as a store of value, unit of account and medium of exchange,” they wrote. “Moreover, U.S. assets are viewed to be safe and liquid and have withstood the effects of global shocks.”

Hold that thought…

Our macroeconomics maven Jim Rickards has published six books since 2011 — a seventh is due this fall — and it might surprise you which one is selling the best right now.

It’s the oldest one — Currency Wars, published in 2011.

“Currency wars,” he wrote in that volume, “are fought globally in all major financial centers at once, 24 hours per day, by bankers, traders, politicians and automated systems — and the fate of economies and their affected citizens hang in the balance.”

Read the first two chapters of Currency Wars and you’ll immediately understand why it’s enjoying a revival more than a decade after it first came off the presses.

The book opens with the Pentagon’s first-ever “financial war game,” held at the Warfare Analysis Laboratory in Laurel, Maryland.

The atmosphere was tense — not least because the event was held in January 2009. Outside the strategy room, the global financial crisis still raged. The banking system was in shambles and the U.S. stock market was still weeks away from finding a bottom.

We won’t give too much away here; suffice it to say Team Russia announced it would accept only gold in exchange for its oil and gas — no dollars. Then Team China made its own move to “tighten the noose around the U.S. dollar’s neck.”

As it happened, on the second and final day of the war game, Russia’s Vladimir Putin declared of the dollar — to be clear, this happened in the real world — “The one reserve currency has become a danger to the world economy: That is now obvious to everybody.”

Today, Russia doesn’t demand gold as payment for energy… but it does take only rubles for payment from countries it labels “unfriendly.” Close enough.

Much of what happened in between the 2009 war game and the present moment has been chronicled along the way in our virtual pages…

By 2014, Putin’s top economic aide Sergei Glazyev was already talking about “the end of the domination of the United States in the global financial system” — while Russian and Chinese officials convened the first of many meetings to discuss “de-dollarization.”

By 2019, Putin himself declared, “For some reason, the U.S. began to use dollar settlements as a tool for political struggle, imposing restrictions on the use of the dollars. They began to bite the hand that feeds them… They’re destroying the dollar with their own hands.”

And here in 2022, only a few days ago, the BRICS nations took a crucial step toward the pursuit of an alternative to the dollar as global reserve currency. “Putin signaled the new reserve currency would be based on a basket of currencies from the group’s members: Brazil, Russia, India, China and South Africa,” reported Business Insider. China’s President Xi Jinping is all on board, complaining that dollar-based sanctions are “weaponizing” the global economy.

Much more about this latest development in tomorrow’s 5…

As Jim laid out in the book, the present currency war began in 2010… and marks the third such conflict in a century…

Currency War I (1921–1936): It begins with Germany’s epic devaluation of the mark. Soon, everyone is devaluing. By 1933, FDR devalued the dollar against gold, from $20.67 an ounce to $35. The war ends in 1936 with a three-way truce between the United States, Britain and France. Alas, Germany was not a party to the agreement, and a shooting war was underway by 1939.

Currency War II (1967–1987): It begins with Great Britain devaluing the pound against the dollar. Soon the dollar is under pressure, and in 1971, Nixon cuts the dollar’s last tie to gold — sending the greenback on a roller coaster ride for the next 16 years. The Plaza Accord of 1985 and the Louvre Accord of 1987 lead to a new equilibrium.

Currency War III (2010–present): It begins with President Obama announcing plans to double U.S. exports in five years. The only way to make that happen is to cheapen the currency. Months later, Brazil’s finance minister declares, “We’re in the midst of an international currency war, a general weakening of currency.”

“The traditional and fastest way to increase exports had always been to cheapen the currency,” Jim explained in Currency Wars.

And everyone around the world in 2010 knew it. Cheapening the currency makes your exports less expensive for foreign buyers.

As it happens, Obama’s National Export Initiative — the act that started this dirty snowball rolling downhill — fell way short of its goals. Instead of doubling by 2015, U.S. exports grew only 50%.

Fast-forward to the present and America is logging record-high trade deficits — despite the tariffs Donald Trump imposed in 2018 and that Joe Biden has mostly left in place.

Given how the two previous currency wars lasted 1520 years, it’s safe to say the current one won’t be over until roughly 20252030. So call it five more years, give or take.

Before it’s all over, every one of us could be “collateral damage” — especially after the shot fired by Biden four months ago.

“Your life savings and freedoms are at immediate risk,” Jim says in a recent video that’s generating an overwhelming response. It’s old hat by now to Jim’s Strategic Intelligence subscribers, but if you’re not yet acquainted with the threat… best watch his presentation right away.

After a late-day rally yesterday, the U.S. stock market is back in retreat.

At last check, all the major indexes are down between a quarter and a half-percent. The Dow sits at 30,827… the S&P 500 at 3,818… and the Nasdaq a shade below 11,300.

Bond yields are moving back up, the 10-year Treasury note approaching 2.9%. But the 2-year note is a tad higher, meaning the yield curve remains inverted and a recession is still in view.

Crude is off another $2.75, below $97 a barrel for the first time since late April.

Gold is getting whacked again, down to $1,736. At least silver is holding the line on $19 for now. Bitcoin is back above $20,000 and Ethereum over $1,100.

No economic numbers of consequence today, but this afternoon the Federal Reserve will release the heavily-massaged-for-public-consumption “minutes” from its June meeting. We’ll address any market fallout tomorrow.

“Livestock Producers Report Being Just Days Away From Running out of Feed Due to Shipping Rail Issues,” says a headline at Farm Journal.

The Establishment media have lost interest in supply-chain snags — evidently it’s no longer “the current thing” — which is what makes reading the trade press so alarming now.

Feed for livestock is alarmingly scarce in California and the Southwest, thanks to snarled rail traffic. The problem with the rails is a shrunken workforce — already 25% below optimal levels before the pandemic hit, according to the National Grain and Feed Association.

Foster Farms — the biggest chicken producer in the western U.S. — is urging federal regulators to issue an emergency order to Union Pacific, commanding the railroad to prioritize corn shipments for dairy cattle, chicken and turkeys.

”The point has been reached when millions of chickens will be killed and other livestock will suffer because of UP’s service failures,” Foster Farms wrote in a request to the Surface Transportation Board.

And if rail workers follow through on the threat of a strike? Hoo boy…

[Ed. note: Remember we mentioned Jim Rickards’ seventh book is due this fall? It’s all about the supply-chain fiasco. Sold Out, it’s called.]

Clearly we touched a nerve yesterday when we broached the possibility of the draft coming back.

Our inbox was stuffed. Reader replies pasted into a document take up nine pages. We’ll share the best of the bunch today and tomorrow…

“A draft should never happen again unless the homeland is actually threatened,” says one.

“There is NO WAY short of an invasion of our homeland that I would support my 18-year-old being drafted,” says another.

“Draft over my dead body. My son will get a Panamanian residency just in case,” says a third

“No draft without a clear, concise plan to accomplish an agreed-upon goal and ratified by Congress,” adds a fourth. “Everyone signs on the dotted line. No war without declaring war — no policing actions like Vietnam through Afghanistan.”

“I remember when Tricky Dick pulled the draft thingy on us,” a reader recalls of the 1969 draft lottery — the first since 1942.

“I was draft age and when the lottery balls popped up. My birthday was No. 3. I was in seminary at the time so it never impacted me.

“Would I go if drafted? Yes. But as I look back on Vietnam now, it was a dirty war with no good U.S. purpose. My friends were drafted and some paid the ultimate price.

“If Biden pulls the draft thingy now, this generation will lose its mind.”

“We don’t need draftees. We need people who want to serve,” says our next entry.

“I have had the ‘joy’ of being an Army drill sergeant. I found the worst, most difficult trainee was the one who was forced to join. Ninety percent of my frustration and problems were the trainee who did not have any desire to serve.

“When talking to drill sergeants from the ’60s and ’70s at the VA, the drafted were the biggest challenge. They interfered with training and refused to do more than the minimum.”

“The draft is a great idea for many reasons,” reads a counterpoint — “not the least is too many young men with no direction, too much time on their hands, no sense of direction or responsibility, etc.”

“Love the idea,” concurs another. “Include women. We will have an opportunity to actually get millennials and Z-ers away from the boring and useless life they have living at home until they reach 50 and then living off the inheritance of their dead parents.

“I can envision it now — having a drill sergeant come into a barracks of 75 of them and yelling, ‘Get up, you lazy morons, it’s 5:30 a.m. and time to march.’”

The 5: Seriously?

Look, your early-wave X-er editor shares your frustrations with younger generations — or at least the stereotype of younger generations.

But it seems as if some of our readers wish to engage in a certain amount of — ummm, revenge? — for these generations’ perceived collective sins. Sorry, we have no desire to upend and reorder and regiment their lives, however “boring and useless” they might be…

As for the military’s troubles with recruiting, a couple other threads run through our mailbag — separate from frustration with Washington’s “forever wars.”

“This woke-PC bunch of cranks has made their bed and now they can sleep in it,” says a reader, who was not alone in this sentiment.

And one fellow — a third-generation Navy veteran with three sons who’ve also served — wrote at length about the impact of vaccine mandates. (Sorry, we have to severely truncate your note to stay within our 5 Mins.)

“Despite the fact that there are ethical reasons and actual laws against requiring anyone to be forced to take an experimental medical treatment, the upper leadership of our armed services are doing exactly this to the service members who are locked into a very strict contract.

“My son who is currently serving has been put under the most draconian restrictions imaginable due to his objection to these shots. He is not allowed to travel anywhere except the base, or his apartment, and all his shopping is to be done on base. If he violates any of these restrictions, he is required to self-quarantine for up to two weeks on his return from even an authorized trip to visit another state, like for instance, to visit his parents.

“If they disapprove his application for an exemption to this illegal shot, they have threatened to discharge him under other than honorable conditions and send him a bill for all the training he has received in his time in service.

“I love my country and my sons do too, but what these people are doing is inconceivably evil and corrupt. The people, like us, who are most motivated to serve their country for the love of freedom are the very people they are excluding and refusing to accept.”

The 5: Thanks to everyone for your feedback. More tomorrow…

One final unrelated item from a reader: “Has Trudeau in Canada been told about these Dutch farmers?”

The 5: Wouldn’t surprise us if Trudeau’s been burning up a secure transatlantic line with the Dutch prime minister.

“Dutch police fired shots at tractor-riding farmers who were protesting against plans to cut nitrogen emissions on Tuesday evening in northern Netherlands,” according to Politico’s European outlet.

“Police said they were responding to a ‘threatening situation’ when the farmers, who were attempting to push past a blockade to get onto a highway in the province of Friesland, started to drive their tractors into officers and their vehicles.”

No one was hurt. Three people were arrested.

Seems like a big deal, but from U.S. corporate media… it’s crickets. Chirp-chirp…

Best regards,

Dave Gonigam
The 5 Min. Forecast

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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