Wait, What???

How Could There Be a Dollar Shortage? Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Wait, What??? - Inflation is soaring but the dollar is the strongest in 20 years… - How could there be a dollar shortage when the Fed created so much money?… - Then Jim Rickards shows you the great dollar paradox, and what will solve it… Recommended Link [Biden Orders Americans to Turn In Their Dollars?]( [Read more here...]( Thanks to President Biden’s Executive Order 14067, a former advisor to the CIA and Pentagon predicts the 3rd Great Dollar Quake has begun. The first was Roosevelt confiscating private gold in 1934. The second was Nixon abandoning the gold standard in 1971. Now, Biden’s plan could pave the way for “retiring” the US dollar. Your dollars could soon be confiscated – or made worthless. See how to save your investment and retirement accounts. [Click Here To Learn How]( Annapolis, Maryland July 6, 2022 [Brian Maher]Dear Reader, Inflation gallops to four-decade extremes. And the dollar under inflation is a sawdust asset, a wasting asset, rotting and rotting away. And yet — and yet — today’s dollar packs fantastic oomph. Just this week the United States dollar index turned in a 20-year high. Notes Jim Rickards: The evidence for dollar strength is unambiguous. The dollar index (DXY) has gone from 92.21 to 105.12 in the past year, a 14% gain. That 14% gain is roughly the inverse of the losses in gold, oil, the euro, yen and the Bloomberg Commodity Index. (Stocks and crypto have done worse). Much of the explanation for “lower prices” may be no more than a reflection of the strong dollar. And so we ask: How can the dollar be at once so strong… and so weak? Yet the question we must first ask is strong or weak compared with what? A man stands six feet in height. Many consider him tall. Yet he is short by the standards of the National Basketball Association. So with the dollar. The dollar may be “short” by your standards. You are reminded, presently, of its diminished stature with each visit to the filling station. Yet if the remainder of the world’s currencies are shorter yet… the dollar is “tall” by default. It becomes a sort of galligantus, a titan, a behemoth — as it is today — despite all justice, despite all the angels and saints. Capital goes where it is treated best, runs an old economic maxim. Today, that means capital is fleeing for the dollar. And the dollar rises with rising demand — at the expense of the currency chasing after it. The Wall Street Journal: A flight to the U.S. dollar pushed currencies around the world to their lowest levels in years, as economic prospects in Europe and elsewhere darkened under the cloud of soaring energy prices… Undergirding the dollar’s strength is a Federal Reserve that is seen by markets as more determined than other central banks to raise interest rates to snuff out inflation… Could the global demand for dollars be such… that there may even be a dollar shortage? The question is very nearly preposterous. As well ask if the Pacific Ocean is suffering a water shortage or if the Sahara Desert is suffering a sand shortage. Indeed, as well ask if hell is suffering a coal shortage. After all — you say — the Federal Reserve inflated its balance sheet to $9 trillion these past two years. Never in history has the central bank carried on at such a dizzied and delirious gait. How could a dollar shortage possibly exist? Have another guess, says Jim Rickards. A dollar shortage is no phantom: Why is the dollar so strong? The answer is there is a global dollar shortage bordering on the global liquidity crisis going on behind the curtain. How could there be a dollar shortage when there’s $9 trillion of base money floating around? The answer is that that amount is trivial compared with the leverage on bank balance sheets. You’re talking about hundreds of trillions of dollars on bank balance sheets, of leveraged positions, all of which is based on collateral. That collateral takes the form of United States Treasury bonds. These are of course denominated in dollars. A foreign bank must therefore acquire dollars before it can acquire these dollar-denominated securities. On this rising demand the dollar rises. Yet what if demand is so great supply cannot meet it? What if there is a shortage of Treasury bills? Jim: What if there’s a shortage of Treasury bills? Well, there is. There aren’t enough bills to go around. The banks are desperate for that collateral. If you’re a foreign bank and you want to buy Treasury bills, which you do for collateral, you need dollars to get them. So you have to take your own currency, buy dollars and then buy the bill. That’s what’s driving the demand for dollars. That’s just making the dollar stronger. It’s completely artificial; it’s completely unsustainable. But there’s a mad scramble behind the scenes for dollars to buy high-quality dollar collateral, specifically Treasury bills to support leverage on balance sheets… The scramble for collateral also speaks to weaker economic growth, fears of default, decreasing creditworthiness of borrowers and fear of a global liquidity crisis. We're not there yet, but we're getting close with no relief in sight. Here is Jim’s grim conclusion, the sting in the tail: Banks could start to fail. There could be a run on some of these banks. This could be a replay of 2008, but worse. So the good news is we have an answer; the bad news is it’s not a very pretty picture in terms of where it could happen next. Below, Jim shows you the great dollar paradox at work in today’s world — and what will resolve it. Read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: Thanks to Joe Biden’s [Executive Order 14067…]( Jim Rickards predicts the [Third Great Dollar Earthquake]( has started. These currency upheavals happen about every 40 years, as Jim explains. The first was Roosevelt confiscating private gold in 1934. The second was Nixon abandoning the gold standard in 1971. Now Biden’s plan could pave the way for “retiring” the U.S. dollar… and replacing it with [THIS.]( Amid the turmoil, there will be many losers. Will you be among them? [>>Click here to see how to win instead.]( Recommended Link [Stunning New Prediction for 2022]( You’re going to want to see this — America’s #1 futurist just came out with a stunning new prediction for what could happen in 2022. And surprise, it’s got nothing to do with Trump. Or trade wars. Or the ongoing gyrations on Wall Street. In fact, this could be your one chance to ignore all that upsetting “fake news”… and get back to the business of getting exceedingly rich instead. [Click Here Now]( The Daily Reckoning Presents: Why is the dollar so darn strong when it should be crashing?… ****************************** The Great Dollar Paradox By Jim Rickards [Jim Rickards]The greatest paradox in foreign exchange markets today is the U.S. dollar (USD). U.S. fiscal responsibility is in ruins. In the past two years, the U.S. has spent like a drunken sailor. The U.S. debt-to-GDP ratio now stands at about 125%, comparable to Lebanon, Italy and Greece, among the most profligate countries in the world. Meanwhile, U.S. growth is slowing, and the economy is probably in a recession already (we won’t know until the official second-quarter numbers are released later this month). The Atlanta Fed GDPNow forecasting tool is now showing projected 2Q annualized growth of negative 2.1%. Consumer confidence has also fallen to record lows recently. So the U.S. is experiencing soaring debt, reckless money printing, slowing growth and soaring inflation. That sounds like a recipe for full-scale flight from the U.S. dollar. But that’s not happening. The dollar has been getting progressively stronger. And as mentioned above, the U.S. dollar index (DXY) set a 20-year high this week. So how does the dollar soar in the face of fiscal and monetary failure and slowing growth? The Dollar Isn’t Just a National Currency The answer is that the U.S. dollar is more than just a national currency. It is the global reserve currency. It is used worldwide for trade, investment and payments, and it is created outside the U.S. in the form of eurodollars by U.S. and foreign banks operating in London, Frankfurt and Tokyo, among other money centers. The eurodollar market relies on dollar-denominated securities such as U.S. Treasury bills and notes for collateral in leveraged transactions. In short, the dollar has a life of its own independent of the Federal Reserve, the White House and the U.S. Congress. It’s the lifeblood of the international monetary system regardless of whether U.S. policymakers are reckless in fiscal and monetary policy or not. Banks need dollars to buy Treasury bills to pledge as collateral and keep the system afloat whether U.S. domestic policies are sound or not. How will the paradox of profligate fiscal and monetary policy by the U.S. and increased demand for U.S. dollars by international banks be resolved? In the short run, the paradox will not be resolved. I expect continued record deficits from the U.S. Congress and continued demand for dollars by highly leveraged international banks. Still, that condition is non-sustainable. Possible remedies include a new dose of fiscal responsibility in Congress (unlikely before 2023 if ever), direct Treasury intervention in foreign exchange markets to weaken the dollar (unlikely until it’s too late) or a global financial crisis that leads to major reforms in the international monetary system, possibly including a new Bretton Woods-style agreement. That kind of collapse followed by reform is the most likely outcome. It’ll happen because policymakers will have no other choice. Long Overdue for a New Monetary System My research has led me to one conclusion — we’re going to see the collapse of the international monetary system. When I say that, I specifically mean a collapse in confidence in paper currencies around the world. It’s not just the death of the dollar or the demise of the euro. It’s a collapse in confidence of all paper currencies. Over the past century, monetary systems have changed about every 30–40 years on average. The existing monetary system is 50 years old, so the world is long overdue for a new monetary system. When confidence is lost, central banks may have to revert to gold either as a benchmark or an actual gold standard to restore confidence. That wouldn’t be by choice. No central banker would ever willingly choose to go back on a gold standard. Recommended Link [Federal Ruling does WHAT?]( [Read more here...]( The Federal Government just passed an obscure new ruling. It could change your life in ways you’ve never thought possible. And help some Americans make a small fortune in the process. [Click Here To See How]( But in a scenario where there’s a total loss of confidence, they’ll likely have to go back to some form of a gold standard. Few remember that Nixon explicitly said that the suspension of gold convertibility by trading partners was being done “temporarily.” I spoke to two members of the Nixon administration, Paul Volcker and Kenneth Dam, who were with the president at Camp David the weekend the suspension was announced. They both confirmed to me that the intention was for the suspension to be temporary. The plan was to convene a new international monetary conference, devalue the dollar against gold and other currencies — primarily the Deutsche mark, Swiss franc and the Japanese yen — and then return to the gold standard at the new exchange rates. The first part did happen. There was an international monetary conference in Washington, D.C., in December 1971. The dollar was devalued against gold (from $35.00 per ounce to $42.22 per ounce in stages) and other major currencies by about 10–17%, depending on the currency. Yet the second part never happened. There was never a return to a gold standard. While countries were negotiating the new official exchange rates, they also moved to floating exchange rates on international currency markets. The cat was out of the bag. Why Do Central Banks Cling to a “Barbarous Relic”? We’ve been living with floating exchange rates ever since. The creation of the euro in 1999 was a way to end currency wars among the European nations, but the EUR/USD currency wars continue. The temporary closing of the gold window by Nixon has become permanent, though it was only intended to be temporary… Still, gold is always lurking in the background. I consider gold a form of money rather than a commodity. Central banks and finance ministries around the world still hold over 35,000 metric tonnes of gold in their vaults, about 17.5% of all the aboveground gold in the world. Why would they hold onto all that gold if gold were just a barbarous relic? At the recent meeting of the BRICS nations (Brazil, Russia, India, China and South Africa), the BRICs began to consider the formation of a new international reserve currency. This was clearly in reaction to the West’s economic sanctions aimed at Russia as a result of its invasion of Ukraine. The BRICS realize that as long as they are dependent on dollars for holding assets or purchasing global commodities, they will be under the thumb of those who control the dollar payments systems, which is basically the U.S. with some help from big European and Japanese banks. The BRICS also know that while Russia is the current target of sanctions, the other members could easily be next. If China turns up the pressure on Taiwan or India does not go along with the Russia sanctions, then they could soon be subject to dollar-based sanctions also. The only way to escape the sanctions is to escape the dollar. None of the BRICS currencies is safe enough or has large liquid bond markets based on their currencies to step into the role of the dollar. But a new currency in digital form backed by a basket of commodities or gold could provide a satisfactory substitute. Looking at the price of gold in any major currency tells you as much about the strength or weakness of that currency as any cross rate. Gold still has a powerful role to play in the international monetary system with or without a gold standard. The timing of any financial crisis is always uncertain, but the probability of an eventual crisis is high. New signs of liquidity stress are emerging every day. No investor should be surprised if the crisis happens sooner rather than later. Regards, Jim Rickards for The Daily Reckoning P.S. I believe President Biden [plans to retire the U.S. dollar]( we know. I realize that sounds conspiratorial. But it’s already underway. On March 9, Biden signed [Executive Order 14067]( which could pave the way for the new U.S. currency I call Biden Bucks. It would replace the traditional dollar with a digital “spyware” currency. Your dollars could be confiscated — or made worthless if you say the wrong things or act the wrong way. AOC tweeted her support for it. [>>Click here to see how to protect your investment and retirement accounts from Biden Bucks.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. 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