Weekly Part 1: How (Likely) Dollar Death Actually Happens
What the US will do to stop it
Housekeeping: This elaborates on the mechanisms and road maps for dollar death as posted in Wednesday’s TD on Gold: How The Dollar Dies. If you read that one start at the section entitled “How the Dollar Dies” below. An excerpt will also be published in ZH Monday.
Also: Attached Reports from GS (nice trader recap), BOA (Hartnett), TD, DB ( First cut coming) and TS Lombard (China Chips). and more.
*Note: Nobody is mentioning Gold except JPM in dismissive fashion (at bottom)*
Weekly Part 1: How Dollar Death Actually Happens
SECTIONS:
1-INTRO
2-SECULAR TRENDS ARE NOW MACRO TRENDS
3-HOW THE DOLLAR DIES
4-SUPPLY DEMAND ECONOMICS
5-THE USD ECOSYSTEM
6-CONVENIENCE NOT WORTH THE RISK ANYMORE
7-SANCTIONS ONE TIME TOO MANY
8-MANIFESTATIONS OF COMING COLLAPSE**
9-GEO-ECONOMICS: WHY THE WEST THINKS IT WILL WIN**
10-HOW THE WEST HOPES TO TAKE DOWN CHINA**
11-HOW WE GOT HERE**
12-THIS IS THE END
13- FINAL WORD ON THE PATH FORWARD
INTRO
While reviewing a Gold report by TD Bank's Senior Commodity strategist Daniel Ghali last night, the opening line (subtitle of this post) was of a much bigger picture and secular importance than the Gold market on which it was to be reporting.
It was kind of shocking to see that in a macro Gold report frankly. It went on to say in context
The West is losing control over commodity pricing mechanisms. This slowburning theme has significant implications for pricing, inflation, currencies and geopolitics over the coming decade. Over the coming trading sessions, however, the theme is still relevant and argues against fading the apparent overvaluation observed across several commodities markets.
It describes secular changes now serving as tailwinds for the pricing of Gold, Silver, and commodities in general. That paragraph is about the demise of the Dollar as the sole global reserve currency. It is also reminding us about a world physically divided and how that division will manifest in the food we eat, the cars we drive, and the prices we pay; something discussed here several times.
SECULAR TRENDS ARE NOW MACRO TRENDS
Why bring this up today? Macro analysts are picking up on this trend now. That means it is on their radar and what is slowburning to them, is heating up from where we sit. Put another way: slowburning yes, but flames are being fanned now by people like Ghali and Hartnett. Expect growing awareness to follow and prices to reflect as much as awareness makes its way through the new top- down model.
Pic From The New Top down model
What these analysts, (BOAs Hartnett and Daniel Ghali today) are noting is the dollar’s troubled status due to commodity demand and thus pricing power moving eastward.They are now seeing it manifest in their macro analysis.
Starting with the Ukraine war (Covid actually) our world divided with the East taking its commodity collateral back while the West took its Finances back . That was the beginning of global monetary multipolarity.
HOW THE DOLLAR DIES
The following concepts, if they interest you, were most recently discussed with Tom Luongo in detail on his podcast a couple weeks ago. Podcast Episode #135 – Vince Lanci and How We Return to Gold-Backed Money. Tom and I did a plumbing run-through of how the dollar is in fact dying.
Here then, is the actual path to the end of dollar dominance in practical terms as laid out in that podcast in 4 clear steps. This is happening right now for all the world to see. It is how the concepts Zoltan Pozsar so frequently talks about actually manifest.
These are the grass root flows that create demand for the new BRICS financial plumbing being built that will accelerate dollar death:
Commodity exchanges do best in the regions of demand, not supply- That demand growth is eastward now.
As demand moves east, so do delivery points for goods- Physical trade dictates exchange delivery locations
As delivery points move east, local exchanges in the East get more volumes- Business moves to where the money is- banks and dealers open shop on SHFE, ICEX, DGCX
As volumes grow, local demand wants the commodity settled in the local dominant currency.- First a dollar/Yuan swap, then a Yuan or some other currency settled contract to satisfy local buyers
Don’t let anyone tell you otherwise. If the customer is always right, and the customer is in China, then the customer will ask for change in Yuan, not dollars. And Western banks will give it to him. This is inevitable now. It will not be pretty for either side. But war never is; and this is macroeconomic war.
SUPPLY DEMAND ECONOMICS
All of this is tied to one simple macroeconomic rule: Supply satisfies demand. While it seems that Western politicians have forgotten how that works, global markets and businesses have not.
For an economy to grow, it needs industrial commodities. That demand for those commodities pulls supply from where they are to where they are needed. Intermediators (Brokers/traders/exchanges,etc) set up shop to: accommodate that new business, familiarize themselves with local laws and customs, and get closer to the money flow. It is all about getting close to the money ultimately.
One service provided by these intermediaries is currency exchange for the customer's convenience. Exchanges eventually accommodate these flows in the local currency in the absence of global trade agreements. This is one result of mercantilism applied.
Why hasn’t this “local currency thing happened already?” is a fair question you may ask.