De-Dollarization Isn’t a Fairy Tale. It’s a Goal.

Sure, it hasn’t happened yet. And it won’t happen for a while. But de-dollarization is both a process and a goal. [The Rude Awakening] April 21, 2023 [WEBSITE]( | [UNSUBSCRIBE]( De-Dollarization Isn’t a Fairy Tale. It’s a Goal. - Most Western economists dismiss de-dollarization out of hand. - The rest of the world “can’t” decouple from USD for many reasons, they say. - But we’re not talking about organic, passive moves. BRICS are aggressively trying to de-dollarize, and that makes all the difference. [Ex-CIA and Pentagon Advisor: “This is How Biden will End the Republic”]( [Click here to learn more]( Former advisor to CIA and Pentagon Jim Rickards just got his hands on a Congressional document that he believes details Biden’s plan to end the Republic. [He’s urging you to take these five steps now…]( Because if you don’t prepare, you could soon lose your life savings, god-given rights and your constitutional freedoms. [Click here now]( because we can almost guarantee this expose will be censored by Big Tech and the corrupt media. [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from a rainy, overcast Piedmont, Italy. There’s a small “war” brewing, if we can call it that, between those market watchers and economists who think de-dollarization is impossible and those who think it’s inevitable. I’m in the latter camp, but not for the usual reasons. In fact, I think the arguments against de-dollarization are perfectly cogent. It’s damn hard to detach yourself from a system that’s worked perfectly well for the last eighty years or so. That the world’s largest economy (perhaps #2 now) with the world’s largest military (perhaps #2 now) and the world’s largest consumer base (far and away #1) runs this system makes it look ridiculous to want to leave. Heck, Paradigm pays me in USD. I sure as hell don’t want it to collapse! But then the USG had to do it. It had to weaponize the dollar. And that’s what will eventually cook the USD’s goose. Because what we’re looking at isn’t an organic move away from the USD. Or even a passive-aggressive “I hate your deficits” or “You print money and spend it like drunken sailors.” The argument against the dollar, and the only one BRICS needs, is this: “Eventually, you’ll turn your economic guns on me like you did to Russia.” The Global South is following BRICS because they want out of debt. And they prefer not to have as many coups as the CIA might have in store for them. As noted humanitarian Henry Kissinger once said, “To be an enemy of the United States is dangerous, but to be a friend is fatal.” In this Rude, I’ll present for and against dollarization arguments that two intelligent economists have made. Macro Alf: Against De-Dollarization Alfonso “Macro Alf” Peccatiello writes The Macro Compass on Substack. I’m a subscriber of his and think he’s extremely knowledgeable about all things macro. But in this case, I disagree with him. But not for any of the arguments he makes, which I’ll present below. His latest Substack post is titled “[The De-Dollarization Fairy Tale]( and it’s worth reading in its entirety. From the asset side, Macro Alf explains: When Brazil exports commodities in USD more than spends USD to import stuff from the outside, the country accumulates USD foreign exchange reserves. These USDs enter the domestic banking system, and ultimately the local Central Bank is responsible for managing this FX reserve buffer – that means keeping these US Dollars safe and liquid. In our monetary system, keeping money ‘’safe and liquid’’ means avoiding credit risk and investing in deep and liquid markets that guarantee a painless turnover if necessary (either via selling or repo-ing securities). The US Treasury market stands out as the global leader in this field: as big as 20+ trillion in size, liquid, and underpinned by a deep repo ecosystem it ticks all boxes. No capital controls, democratic roots, and the rule of law reinforce the case. Most importantly, an ample supply of US Treasuries (read: deficits) provides the rest of the world what they need: a safe and liquid asset where to recycle the USD proceeds from their global trades. Of course, the US Treasury market is over $20 trillion because of the immense debt the US has incurred. But that’s another story for another time. From the liability side: USD-denominated foreign debt is huge, and it makes an orderly De-Dollarization not more than a fairytale. Entities sitting outside the United States have accumulated $12 trillion of USD-denominated debt: this is because to finance global businesses that sell stuff in US Dollars…well, you need US Dollar debt. I can’t stress how important it is to understand this concept: if you want to break this system and ‘’De-Dollarize’’, you need to deleverage a $12 trillion debt system. Brazil walking away from USD-denominated trades would hamper its own organic inflows of US Dollars, and Brazilian corporates would be choked under USD scarcity as they need to repay and refinance their USD debt. When you de-leverage a debt-based system, you are either bidding up the debt denominator (the USD) or you are witnessing tectonic geopolitical events (e.g. wars) where the world order is at stake. An orderly unwind of the US Dollar is a fairytale: there is no valid alternative for a smooth transition, and de-leveraging the global USD debt-based system would be a very painful process. Yes. I like that he uses the adjective “orderly.” He’s right, an orderly unwind is highly unlikely. And an unorderly unwinding of the system would indeed be very painful. But that jibes with my point: the cost and risk of being in the dollar system are too high and countries are now happy to risk the status quo for the unknown. [Over 62 And Collect Social Security? Take Action Immediately!]( [Click here to learn more]( [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( Stephen Jen: De-Dollarization Has Already Started Stephen Jen is the CEO and co-CIO of Eurizon SLJ Capital, currency guru, and former Managing Director at Morgan Stanley. From [Kitco]( (bolds mine): The dollar's loss of its reserve currency status accelerated last year when the greenback was used against Moscow as part of the sanction package after Russia invaded Ukraine. In 2022, the USD's share as a global reserve currency fell at ten times the average pace of the past 20 years, Jen said in a report. "The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions," Jen wrote. "Exceptional actions taken by the U.S. and its allies against Russia have startled large reserve-holding countries, most of which are from the Global South." According to Jen's calculations, the greenback's share of official global reserve currencies dropped from 73% in 2001 to about 55% in 2021. And in 2022, it tumbled to 47% of total global reserves. [Here’s what I wrote about these stupid sanctions]( in March of last year. Everyone with a brain (which excludes the entirety of Washington, D.C., and the MSM) called this. Back to Jen: "It seems reasonable to speculate that the main driver of the collapse in USD's reserve status in 2022 may have reflected a panicked reaction to property rights being jeopardized. What we witnessed in 2022 was sort of a 'defund-the-global-police' moment, whereby many reserve managers in the world disagreed with the conduct of both Russia and the U.S.," the note said. "Adjusting for these price changes, the dollar, we calculate, has lost some 11 percent of its market share since 2016 and double that amount since 2008," Jen wrote. "If the financial markets outside the U.S. could thrive (growing in size and becoming ever more energetic, without being unstable), and if the opposite happens in the U.S., the dollar could very well meet its demise. This is, however, not an imminent risk, in our opinion, though the trends are heading in that direction," Jen described. Analysts who continue to ignore the de-dollarization trend are being too complacent. "If the U.S. makes more policy errors and abandons the culture of self-examination, there will likely come a time when much of the rest of the world will actively avoid using the dollar," Jen wrote. "While the Global South is unable to totally avoid using the dollar, much of it has already become unwilling to do so." I agree with Jen. De-dollarization is happening right now, but its effects will take a long time to manifest themselves. De-dollarization isn’t a moment. It’s a goal… and a process. Wrap Up I know I’ve only used two intelligent men’s arguments to illustrate the opposing sides of de-dollarization. While I agree with Macro Alf’s reasoning, I think his conclusion ignores the intention of most countries in the BRICS and Global South to move on from the US-centric economic model. I think Stephen Jen has his finger on the pulse of the market. The USD may not lose its reserve currency status for a long time. But when other countries are actively trying to remove themselves from your system, you’ve got big trouble on the horizon. With all that said, have a wonderful weekend! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… Revealing the Fraud in Our Bank System [Sean Ring] SEAN RING Good Morning Reader, Greetings from a lovely Northern Italy! First, last week’s piece on financial formulas received fantastic feedback. I’m grateful. I won’t do financial mathematics every week, but the feedback gave me a clue to dial it back a bit. So I’ll try to keep things as simple as possible so you can protect yourselves from what’s eventually coming. Good friend and colleague Doug Hill and I were on the horn the other day. Doug had the great idea to write and speak more about the bane of our financial existence — fractional reserve banking. So this week, I’m tackling that very subject, so you know what kind of fraud our entire system is. Also, it’s almost ten years ago to the day that [Godfrey Bloom made this speech on the floor of the European Parliament](. It was a watershed in terms of political honesty and it’s mostly about fractional reserve banking. (Watch it after you read this; he rants about everything I’ll explain first.) Bloom called out the entire system, from central bankers on down. It was a beautiful thing to behold. In the same spirit, I’m going to go through this system with you. It’ll help you understand how money multiplies, our bankers get rich and bankers get sloppy with deposits. But first, let’s warm up by asking ourselves a simple question… Are Basketball Players Smarter Than Hedge Fund Managers? Just over a year ago, this headline appeared in [The New York Post]( “Bucks star Giannis Antetokounmpo has money in 50 different bank accounts.” “The Greek Freak” deposited $250,000 each into 50 bank accounts. That’s $12,500,000 into 50 different accounts. Why did he do that? Because he smartly knew that every bank account at a different bank in the US is FDIC-insured up to $250,000. Of course, the billionaire hedge fund manager advising Antetokounmpo told him he wasn’t investing correctly. That he should put this money into T-bills and T-bonds. Rubbish! This is a brilliant move. Why? Antetokounmpo is worth at least $200 million. So that $12.5 million in those accounts represents only 6.25% of Antetokounmpo’s wealth. It’s guaranteed safety for the cash portion of his portfolio. The Greek Freak wasn’t concerned with a return on capital. He wanted a return of capital. And last year, T-bills weren’t earning anything anyway. Now, it’s a different story. I asked you that question first because I’m introducing what confidence trickster Edward H. Smith called the “pay-off” or “convincer.” And that is deposit insurance. Once you know how this system works, you’d never stick your cash anywhere near it… unless it was for deposit insurance. Your bank goes under because of its own stupidity? Here’s $250,000. Or in Oprah’s case, here’s $690 million. (I’m still upset about that, by the way!) As the average American has about $500 in his bank account, he never has to worry about his bank going under. The government will give him his $500 immediately, thanks to deposit insurance. But how could the system work any differently? [The 3rd and Final US Currency Earthquake Has Started]( [Click here to learn more]( 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. [Click here to see how to save your investment and retirement accounts](. [Click Here To Learn More]( How is Valet Parking Safer Than Banking? Dream with me for a moment. You drive your brand-new Ferrari Roma to a swanky hotel in Miami Beach. You and your date are both dressed to the nines and ready for a great night of dancing and mojitos. When you get to the hotel, a valet parking attendant hastily rushes out to open your door. You hand him the keys to your precious Ferrari. Not for one moment do you think you transferred the car’s ownership to this college kid. And while this college kid weeps with joy at getting to park your car, he doesn’t for a second actually think he owns your car. That’s because your car represents, legally speaking, a bailment. Bailment is a legal relationship in which a person (the bailor) transfers possession of personal property to another person (the bailee) for a specific purpose and period of time, without transferring ownership of the property. The bailee, in this case, the hotel as represented by the valet parking attendant, is responsible for taking care of the property (your Ferrari Roma) and returning it to the bailor (you) in the same condition it was received. Of course, you know all this already. Here’s the question: do you think it works the same way at your bank? In other words, do you think the $100 you just deposited five minutes ago is actually in the bank’s vault or fancy computer system? Fractional Reserve Banking If you didn’t know the answer to that last question before you read this piece, you probably figured out it’s “no.” Here’s what actually happens (if simply): 10% of your $100 deposit will be set aside as reserves as per US reserve requirements rules. Then, the remaining 90% will be loaned out to other parties. Then the $90 that was loaned out by Bank A will return somewhere, say, to Bank B. Bank B will have a $9 reserve requirement and $81 will be loaned out. Then the $81 will find its way to Bank C. Bank C will have $8.10 held in reserve, while they loan out $71.90. And so on. So you have a claim to the $100 you just deposited. But most of your deposit is elsewhere. Why is that? It’s because your $100 deposit isn’t considered a bailment. In Murray Rothbard’s masterpiece, [The Case Against the Fed]( he writes: Unfortunately, since bailment law was undeveloped in the nineteenth century, the bankers' counsel were able to swing the judicial decisions their way. The landmark decisions came in Britain in the first half of the nineteenth century, and these decisions were then taken over by the American courts. In the first important case, Carr v. Carr, in 1811, the British judge, Sir William Grant, ruled that since the money paid into a bank deposit had been paid generally, and not earmarked in a sealed bag (i.e., as a “specific deposit”) that the transaction had become a loan rather than a bailment. Five years later, in the key follow-up case of Devaynes v. Noble, one of the counsel argued correctly that “a banker is rather a bailee of his customer's fund than his debtor, … because the money in … [his] hands is rather a deposit than a debt, and may therefore be instantly demanded and taken up.” But the same Judge Grant again insisted that “money paid into a banker becomes immediately a part of his general assets; and he is merely a debtor for the amount.” In the final culminating case, Foley v. Hill and Others, decided by the House of Lords in 1848, Lord Cottenham, repeating the reasoning of the previous cases, put it lucidly if astonishingly: “The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted.” It makes “English jurisprudence” look like a sad oxymoron. Rothbard went on: The argument of Lord Cottenham and of all other apologists for fractional-reserve banking, that the banker only contracts for the amount of money, but not to keep the money on hand, ignores the fact that if all the depositors knew what was going on and exercised their claims at once, the banker could not possibly honor his commitments. In other words, honoring the contracts, and maintaining the entire system of fractional-reserve banking, requires a structure of smoke-and-mirrors, of duping the depositors into thinking that “their” money is safe, and would be honored should they wish to redeem their claims. The entire system of fractional-reserve banking, therefore, is built on deceit, a deceit connived at by the legal system. Yes. That is 100% true. And that’s why deposit insurance is so important. Knowing all this, imagine if Oprah’s wealth suddenly went poof! She would’ve gone on air and called the whole system out for what it is (though she did not, and still has not, the right to get all $690 million back). Bailments Versus Debits and Credits So let’s recap. If you give the keys to your Ferrari to a college kid at a hotel, the car is still yours. If you give your money to a college-educated adult at a bank, it’s the bank’s money… until you demand it back. That’s why we call checking accounts “demand deposits.” If you put your ATM card into the ATM and ask for, say, $50, of the $100 you deposited, the ATM can’t say, “Sorry, not now. I’ve got a headache.” That machine will spit out $50 straight away (provided it has cash loaded in). But the problems occur between the time you deposit your $100 and when you demand it back. Because that $100 isn’t a bailment. Your $100 will be booked like this: Assets Liabilities $90 Loan $100 Demand Deposit $10 Cash It’s just debits and credits now. Just ask Silly Valley Bank. Or Signature Bank. Or Debit Suisse. Better yet, ask for all your money when you next head to your bank. See what happens. Systemic Instability Let’s revisit the part where we keep 10% in reserve and 90% is loaned out. If you deposited $100, how much could be created theoretically? That’s $100/10% = $1,000. This is what we call the maximum deposit expansion multiplier, or money multiplier, for short. So if you’ve got a reserve requirement of 10%, you create 10x money. If you’ve got a 5% reserve requirement, you create 20x money. If you’ve got a 20% reserve requirement, you create 5x money. Oh, we’re playing with small numbers. What if the Fed printed $8 trillion when the reserve requirement is 10%? Yup, $80 trillion could… could… be created. But would it? No, because of all the leakages and frictions and credit risks in the system. But however much is created, it’s still a whole lot of cash. And that leads to the problems we’re having now. Too much money chasing too few goods. Inflation. Poor bank management. Silly Valley took their customer deposits and bought “risk-free” T-Bonds with them at the top of the market. They didn’t have a risk manager and the person who bought those bonds clearly didn’t understand the difference between default risk-free and price risk-free. And then, there was a bank run. That’s when everyone tries to remove their cash at once. Rothbard was right: it’s not possible under a fractional reserve banking system. This bank mess isn’t over yet. We’re in the eye of the storm now. It just seems calm. Wrap Up Fractional reserve banking… Demand deposits… Deposit insurance. It’s all part of the same racket. Will we ever get back to gold money and 100% reserves? It’s doubtful. But at least you know what’s going on with your bank money. Not many people do. And now you know why Henry Ford said this: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Have a great day ahead! If this is the sort of thing you’d like to see more of, please let me know [here](mailto:feedback@dailyreckoning.com). Or if you have any suggestions for future topics, do let me know that as well. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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