- “Operation Sandman”: Fact or fiction?
- “De-dollarization” is all the rage in 2023
- A world of worry for Western elites
- Nord Stream update: Don’t ask, don’t tell!
- Monkeying with the price of gold… SPR… And more!
Wait a minute — we have only days remaining until an engineered total collapse of the U.S. dollar?
In recent days, “Operation Sandman” has become a thing online. “When this decision is triggered,” says one post, “the dollar and all dollar-denominated assets will plunge to near-ZERO literally overnight.”
Near as we can tell, the Sandman scenario was first spun about a year ago by Steve Quayle, a longtime internet and talk-radio crank. (Among his book titles: Giants: Master Builders of Prehistoric and Ancient Civilizations.)
If you’re a longtime reader, you know we have no problem with “conspiracy theories”… but we also have no patience for conspiracy fantasies.
Still, the timing is interesting. Even in the most respectable Establishment circles, “de-dollarization” and the end of the dollar’s reserve-currency status are all the rage in 2023.
About time: This e-letter has been on the case since the spring of 2014 — when Russian and Chinese ministers used that word to describe the topic of a meeting they’d convened. Later that year, the two countries struck a natural gas deal that by most accounts was priced in rubles and yuan — not dollars.
By one estimate in 2018, Washington was applying sanctions and other measures of economic warfare to one out of every 10 countries — a group comprising more than a quarter of the globe’s population. Surely at some point, the leaders of those countries would start to push back — with uncertain financial consequences for everyday Americans.
For a long time, Paradigm Press executive publisher Matt Insley blanched whenever I took on the topic. Too squishy, too abstract — and he had a point. But in recent weeks, even he’s been sounding off on the issue in our editorial team’s internal e-chat.
Out of nowhere, the March 21 summit between China’s Xi Jinping and Russia’s Vladimir Putin seems to have put the financial fear of God into the Western power elite.
That, and Saudi Arabia’s previous announcement that it would sell oil to China and take payment in yuan — not dollars.
All of this at a time when “concerns are afoot that [last] month’s U.S. banking turmoil, inflation and [a] looming debt ceiling battle [are] making dollar-based assets less attractive,” writes Gillian Tett, chair of the Financial Times editorial board and card-carrying member of the Establishment.
Also wringing his hands is CNN pundit Fareed Zakaria…
Nor do the flag-waving chest thumpers on Fox want to be left out…
While the trend has been taking shape for nearly a decade, Washington crossed a Rubicon in its weaponization of the dollar last year after Russia invaded Ukraine — freezing all of the Russian central bank’s dollar-denominated assets.
Now the blowback is inevitable — and irreversible.
But what does it mean for the dollar to lose its “reserve currency” status anyway?
Sounds ominous, right? It suggests a loss of global prestige. Time was when the Dutch guilder was the globe’s reserve currency… and then the French franc… and finally the British pound. Britain ruled a quarter of the world’s landmass in the 1920s… but had to give up nearly all of its empire by the late 1940s.
As Paradigm macro maven Jim Rickards frequently reminds us, the pound’s loss of reserve currency status took three decades — from the outbreak of World War I in 1914 to the Bretton Woods agreement of 1944.
So the dollar’s loss of reserve currency status will advance likewise. It’s a process, not an event.
Sandman rumors notwithstanding, “The dollar’s role as a reserve currency is not in immediate jeopardy, although it will diminish in the long run,” says Jim Rickards. “But there are numerous efforts to replace the dollar as a payment currency.”
That’s an important distinction. “A reserve currency refers to the unit of denomination of securities held in reserve by countries,” Jim explains. “It’s something like your savings account, but it’s controlled by the treasury or finance ministry of each country. These reserves are not actual currency deposits. They’re securities such as U.S. Treasury notes or German government notes (Bunds). They are denominated in dollars or euros, but they are securities, not cash.
“That’s the key. If you don’t have a large liquid government securities market with a good rule of law, then you can’t qualify as a reserve currency. The U.S. Treasury market is the only market in the world large enough to absorb the savings of major trading powers such as China, Japan and Taiwan, so the dollar is the leading reserve currency. That won’t change soon.”
But an alternative payment currency? That’s different — and much more doable in a short time frame.
“It’s the unit of account for paying for imports and exports, but it’s really just a way of keeping score,” Jim goes on. “Periodically, the trading partners settle the score with a transfer of assets that can include commodities, dollars, euros or gold.
“It’s much easier to launch a new payment currency than a new reserve currency because you don’t need a large securities market. You just need a reliable ledger system and willing partners.”
The BRICS nations — Brazil, Russia, India, China, South Africa — are working on just such a plan, announced last Friday by the deputy chair of Russia’s legislature. Expect the leaders of those nations to move forward at their next summit in South Africa in August. They might also admit several new members including Argentina and Iran. Significantly, Saudi Arabia has also expressed interest in joining.
That’s not at all a Sandman scenario… but it does pose a threat to the dollar as you know it.
So what can you, should you, do about it?
“As payments move from dollars to other currencies,” says Jim, “the exchange value of the dollar should decline, and the exchange values of the other currencies (mostly the euro) should go up. This means that the dollar prices of commodities will go up as the exchange value of the dollar goes down.
“This is basically inflationary. Still, inflation can be a good thing if you’re the owner of hard assets including gold. The U.S. dollar values of those assets should rise.
“While gold and silver are money substitutes (or actual money), this does not mean that the commodity price inflation will be limited to gold and silver. We’ll see it in: gold, silver, oil, natural gas, water, copper, strategic metals, agricultural produce, farmland and other commodity assets. Mining stocks are definitely in the mix.”
Those are your best defenses as the dollar’s payment currency status comes under assault… and its reserve currency status gradually erodes.
These hard assets were the winners of the 1970s… of the 2000s… and probably again for the duration of the 2020s. By the way, if you haven’t seen Jim’s case for $15,000 gold, you might want to give it a look right here.
As it happens, gold has decisively punched its way through the $2,000 barrier today.
At last check, the Midas metal is up $36 to $2,020 — the highest in a year. Silver is only 13 cents away from $25.
There’s no obvious catalyst for the buying. A few minor economic data points out today have pushed the dollar index down slightly to 101.6 — close to a two-month low. But that’s about all we see.
Often a weaker dollar is a tailwind for the stock market… but not today. At last check, the Nasdaq is down about a sixth of a percent, still above 12,000. The S&P 500 is down three-quarters of a percent, slipping below 4,100. And the Dow is off 0.8% to 33,321.
Still, Paradigm trading pro Alan Knuckman points out the market remains near the upper end of its trading range going back to last fall. “If the market can break out of this range that we’ve been in for five months, we would see the S&P at 4,600 — which is another 10–15% above where we are now,” Alan told Neil Cavuto yesterday on Fox Business. Earnings season, starting in two weeks, might well be the impetus.
Crude is down slightly, but still above $80. And speaking of energy…
New developments in the Nord Stream saga: A code of silence has descended over Western officials about who carried out the attack on the gas pipelines in the Baltic Sea last September.
The Washington Post published a story yesterday casting doubt on a sketchy New York Times report last month pinning the blame on Ukrainian special forces that are somehow not connected with the Ukrainian government.
Deep in the Post story was this revealing passage: “For all the intrigue around who bombed the pipeline, some Western officials are not so eager to find out.
“At gatherings of European and NATO policymakers, officials have settled into a rhythm, said one senior European diplomat: ‘Don’t talk about Nord Stream.’ Leaders see little benefit from digging too deeply and finding an uncomfortable answer, the diplomat said, echoing sentiments of several peers in other countries who said they would rather not have to deal with the possibility that Ukraine or allies were involved.”
“Or allies” — heh. As Jim Rickards asserted in January, it was the Biden administration that ordered the attack. Jim was sticking his neck out there, but in February the legendary investigative reporter Seymour Hersh published a bombshell report packed with detail, backing up Jim’s bold claim.
“Don’t talk about Nord Stream!” Hilarious, huh?
For some reason, your editor’s peculiar mind wanders to the “Don’t mention the war!” episode of Fawlty Towers…
“It seems that gold is being manipulated to stay under $2,000 an ounce,” says a reader’s email that came in before this morning’s pop. “It’s been like this for quite a while.
“If the price is being manipulated, who is likely manipulating things and how much money does it take to suppress the price at $2,000 if the more realistic price is $3,000–5,000 or higher as Jim Rickards and others have mentioned?
“Thanks again for your commentary and all of your readers who bring up such great and thoughtful points!”
The 5: Here’s the shortest explanation of how gold manipulation works. Central banks lease gold bars to commercial banks… which then proceed to sell the bars to private buyers in Asia. The bars, meanwhile, never leave the vault. (Too costly and complicated to transport.)
There’s a longer explanation in this edition of The 5 from 2019, with plenty of input from Jim Rickards. One update: JPMorgan Chase’s share of all the precious metals derivatives contracts held by banks has risen from 45% to 53%.
One last reader comment after yesterday’s edition: “Dave, I nominate you for the best use of a strikethrough EVER!”
The 5: I suppose I should point out to — umm — sensitive readers that I’m not singling out the Biden administration for monkeying with the Strategic Petroleum Reserve.
“The SPR has been regularly toyed with to affect oil prices over the years, and its impact has at times been substantial,” oil-industry journalist Jim Norman wrote in his 2008 book The Oil Card. Reagan, Clinton, both Bushes — they all did it. Nothing new, really…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Whoa, the de-dollarization rumor mill is getting out of control. Here’s a much-followed precious metals blogger who fell for a totally fake “news” item.
To be clear, the White House press secretary did not say that. But the fact someone would go to the trouble of putting that garbage out there? Says a lot about the zeitgeist right now…
