Welcome to our latest edition of The Daily Cut Friday mailbag.
We’re doing something very different this week…
Looking through the Legacy Research email inboxes, one note stood out from all the rest. It’s a desperate plea for guidance from a fellow reader named Rochelle.
And I’m willing to bet she’s not the only one who’s concerned…
So today – instead of answering a bunch of different questions – Dan Denning tackles this one controversial issue…
Reader question: What will happen if the International Monetary Fund offers a new world currency (SDRs) and the dollar is no longer the world’s standard? What will happen to my $800,000+ retirement account, Social Security, Medicare? Supposedly, there are documents that prove it will happen by December 31st!
My husband won’t buy gold or believe the worst will happen because the IMF now has “The Donald” to blame for it! Get back to me immediately. This is a bigger crisis than anything I’ve heard so far.
– Rochelle C. (Legacy Research member)
Dan’s answer: Well, there’s a lot going on here.
But let me get to the immediate point: Our sources don’t tell us there is an imminent plan to replace the U.S. dollar as the world’s reserve currency with a reserve currency issued by the International Monetary Fund.
You shouldn’t make any financial decisions with long-term repercussions hastily, or without fully understanding what’s going on with the dollar. So what is going on?
There are three things going on, in terms of urgency. And in the long term, they don’t bode well for the value of the dollar. Which means diversifying your assets/savings into other forms (gold, bitcoin, other currencies) does make sense. Here’s our take.
Tom Dyson warned us of this months ago when he talked about trouble in the plumbing of the financial system. It turned into the “repo madness” Bill Bonner wrote about.
The U.S. government is borrowing so much money from banks (when the Treasury Department issues new bonds) that it’s sucking all the dollars out of the overnight markets. There is not enough money left over for Wall Street and banks.
PLUS… there is $12.8 trillion in global dollar liabilities issued by banks outside control of the Fed.
To keep it simple, this is demand for dollars the Fed can’t control. Non-U.S. banks that have issued debt in dollars have to pay it back… in dollars… soon! But there aren’t enough to go around.
Those two factors – huge U.S. deficits at home and huge dollar-denominated debts abroad – mean it’s almost inevitable that the Federal Reserve will print trillions of new dollars to pump into the system.
In fact, it’s already begun. This is the long-term threat to the dollar. And it’s why you need to make other plans now.
When the Bretton Woods currency system ended in 1973, it removed gold as the backing of the U.S. dollar. Since then, the world has been “pure fiat” instead of “pure gold,” with the U.S. dollar as the world’s reserve currency (nothing else comes close to replacing it at the moment).
But that setup was doomed from the start…
A Belgian-American economist named Robert Triffin pointed out that running the world’s reserve currency and managing your currency in the national interest would eventually become mutually exclusive. A world reserve currency must be stable and strong. And it means the country issuing the reserve currency will run huge trade deficits, which is exactly what’s been going on in the United States for 40 years.
Enter President Trump. He wants to reverse those trade deficits and change the trade policies that have shipped American manufacturing jobs to places like China and Mexico.
To do that, he needs trade wars and a weaker dollar. That’s why he bashes Fed Chairman Jerome Powell on Twitter to cut rates. Trump points out that everyone else in the world is cutting rates and making their currencies cheaper to improve their terms of trade. Everyone but the U.S.
So Trump is at odds with the people in the U.S. (mostly the Deep State) who see the dollar’s reserve-currency status as a tool of U.S. imperial power. If you don’t believe me, watch Facebook’s Mark Zuckerberg’s testimony in front of the U.S. Congress last week.
Here’s California Representative Brad Sherman:
Cryptocurrency either doesn’t work, in which case investors lose a lot of money, or it does achieve its objectives perhaps and displaces the U.S. dollar or interferes with the U.S. dollar being virtually the sole reserve currency in the world.
In a nutshell, Trump sees national security being more about a strong economy than a strong U.S. dollar used to finance U.S. military power and a global empire. In the end, the Deep State may take him down for this.
But either way, the U.S. can’t lower the value of the dollar to help exports and still be the world’s reserve currency.
That’s Triffin’s Dilemma. And there’s no way out of it. Everyone in the halls of power around the world knows this. They just don’t know how it will play out.
So they’re adding gold to their reserves and trying to diversify. They’re also planning for something new. Or for all hell to break loose.
I believe this is evidence of a plan to replace the current money system with digital money backed by either government bonds or gold and eventually phase out cash and the U.S. dollar as you know it. This is the closest you’ll get to the global elite tipping their hand.
A stablecoin is backed by some other financial asset – either government bonds or gold.
It may even be “fully backed,” where each unit of digital currency is matched by one corresponding unit of reserve asset at a one-to-one ratio. This is the original 1933 Chicago Plan for “full reserve” banking that I wrote about. And it’s different than “fiat” money, in which each unit of currency is not backed by a real asset.
In any case, the IMF says that sCBDCs will end up being a better alternative than cash or other digital currencies.
Here’s what it said…
To the extent that central banks wish to offer a digital alternative to cash, they should consider sCBDC as a potentially attractive option… the world of fiat money is in flux, and innovation will transform the landscape of banking and money. You can bet your bottom dollar on it.
How soon will any of this happen?
Well, the dollar shortage crisis is happening right now. Our take is that it will be very good for gold and bad for stocks (for other reasons).
The Fed cut rates again earlier this week. And it could cut rates further at its next meeting December 18-19. But the money printing has already begun with the crisis in the repo market. Further rate cuts are just window dressing at this point.
Is there some chance the repo crisis could become like the 2008 crisis?
Well, yes. But it’s a risk that’s hard to measure.
How do you prepare? Remember what the Dutch central bank recently wrote…
If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.
There are others calling for a more centralized, global reserve currency that’s digital and beyond the management of the U.S. government.
In August, outgoing Bank of England Governor Mark Carney suggested just this… and called it… a synthetic hegemonic currency (SHC). Nothing ominous-sounding about that, is there?
Carney said:
Widespread use of the SHC in international trade and finance would imply that the currencies that compose its basket could gradually be seen as reliable reserve assets, encouraging [emerging market economies] to diversify their holdings of safe assets away from the dollar.
Now, that does sound like a plan to replace the U.S. dollar as the world’s reserve currency. And it sounds a lot like the bancor John Maynard Keynes recommended years ago, or the IMF’s Special Drawing Rights (SDRs).
Either way, there are people thinking about how to run the global economy and finance global trade with a currency other than the dollar. Trading oil… issuing debt in other currencies… settling payments… These are massive systemic and structural issues.
Don’t believe in a seamless, overnight replacement.
It’s just as likely – in fact, a lot more likely – that the whole thing collapses.
You don’t replace one complicated set of arrangements with another overnight.
That’s why gold is still the ultimate safe reserve asset. It’s what everyone wants to hold when everything else is falling apart.
Something else will eventually replace the current system. My belief is Trump will want a gold-backed digital dollar. That gives him (and not the Wall Street-owned Fed) control of the U.S. money.
And it allows the U.S. to phase out cash and the old dollar with a gold-backed greenback… the goldback!
But maybe we’re giving too much credit to all the global elites.
The current system suits their needs because it gives them wealth, power, and status.
Their real oath isn’t to the Constitution. It’s to this bogus money system. Any threat to that – including bitcoin or even the president himself – will be dealt with harshly.
Our advice is to understand that, in the long term, fiat currencies issued by debt-burdened countries with aging populations are a bad way to preserve the value of your lifetime savings.
That’s all for this week.
Have a nice weekend. And don’t forget Dan’s advice…
Diversify your assets and savings beyond U.S. dollars and dollar-denominated stocks. Look into things like gold, bitcoin, and other currencies.
Regards,
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James Wells
Director