Who Won that De-Dollarization Debate?
Authored by GoldFix,
Housekeeping: A long form side-by-side commentary was completed on this. However it increased watch time to 3.5 hours with too many interruptions. It will be broken into smaller chunks later for premium subscribers. For now, only framing comments are included.
Contents:
Intro
Video
Differences of Opinion
Dollar or De-Dollar?
Shield and Spear Paradox
Who "Won” The Debate?
Participant contact info
1- Intro:
Part of the IGWT 2024 report included a lively recorded discussion on the Global East-West Divorce currently underway and its effect on Dollar dominance World Wide. Here is that discussion with timestamped topics.
3- Differences of Opinion
From a million miles up (and grossly simplifying for now), in areas where they disagree, Louis and Brent are looking at the same situation through different types of analytical lenses.
Brent, in our opinion, is looking at the situation as it currently is (and protective moats that will keep it that way). He is emphasizing the current position of things.
Louis, on the other hand, is looking at the movement (and drivers of potential movement) of the current position.
In any good analysis— be it equity, geopolitical, or economic— both these approaches are necessary. By example, in fundamental Equity analysis, you look at where things are (i.e. Price to earnings) as well as where things are moving (i.e.- Price to Growth.)1 when looking at prospects.
Either gentleman uses both measures. One puts more emphasis on where things are, the other puts more emphasis on where things are seemingly going.
4- Dollar or De-Dollar?
Differences in empirical data and interpretive logic aside (there are plenty of those2 ); if you agree with Brent, you think Louis overestimates the ability of China/EM economies to continue moving the needle diluting dollar dominance further. If, on the other hand you agree with Louis; then you think Brent is giving too much credit to the US incumbent position to keep the needle where it currently is pointing.
What matters more; where the needle is, or where the needle is going?
If you say “where the needle is” are you genuinely taking into account where the needle came from?
And if you say “where the needle is going”, do you hold it possible for needle direction to reverse?
Everything else (to GoldFix) is a matter of if the logic used to make an argument was consistent. That, and knowledge of market economics and geopolitical realpolitik.
5- Shield and Spear Paradox
We can boil this discussion down even further without hopefully losing its essence using a physics paradox:
The irresistible force paradox (also unstoppable force paradox or shield and spear paradox), is a classic paradox that asks: What happens when an unstoppable force meets an immovable object? The immovable object and the unstoppable force are both implicitly assumed to be indestructible, or else the question would have a trivial resolution. Furthermore, it is assumed that they are two entities.
The paradox arises because it rests on two incompatible premises—that there can exist simultaneously such things as unstoppable forces and immovable objects. That cannot be true in the same universe.
Therefore: What happens when an unstoppable force (China/EM growth) meets an immovable object? (USD Dominance)?
This is possibly the whole dilemma. Either one is stoppable, or the other is movable.
How unstoppable is the China/EM force?
How immovable is The US object?
Answer that, and you may know who you agree with more.
The ultimate answer to the Paradox here lies in the people actually holding the shield and spear. Therefore one person (nation) will blink first, or there will eventually be war to test these two participants’ commitment.
6- Who "Won” The Debate?
As to who “won” the actual debate on merits even though it was *not* framed as one remains subjective. Or upgrade to Goldfix premium and we will share our rather lengthy thoughts (pictured below) soon enough.
Commentary and Analysis coming soon….
Social Media Participant Links:
Ronni Stoeferle of IGWT/Incrementum
Niko Jilch- Journalist, IGWT Contributor
Louis-Vincent Gave - of Gavekal Research
Brent Johnson- Of Santiago Fund
More here
One thing about the debate is that it is assumed one of the systems has to prevail. Why should one system prevail? Why can't they both exist in parallel?
I don't believe for a second the BRICS are seeking total domination of their system. China has never sought to be the reserve currency of the world, and within the BRICS system, it does not seek that. How do I know? Because as Russia wanted to declare a gold peg at the last BRICS summit, both China and India turned it down. They want the dollar to play it's role, but not as a weapon. The US political class thinks otherwise and this is where the problem starts.
What is clear is that the BRICS side have decided that thanks to Russia's Syrian and Ukraine campaigns, it has the military power to state and implement it's mission statement without fear. It is basically a defensive move to protect its sovereignty and independence. To succeed, it needs the military power and a certain level of critical mass from the member states. This is what is being built right now.
There are a large number of junior BRICS countries ar thinking as Russia and China did 15-20 years ago. They don't have the military power today, but Russia is promising protection in the same spirit as NATO promises to protect its allies. They realise they would be crushed if they displayed dissent without the protection of Russia and China.
For Brent and his supporters, this is very much a zero sum game and it shows in his arguments. For the BRICS, I don't believe it is a zero sum game. It is simply demanding the right to formulate one's own future and in the interests of the nation state. Today they think they can.
What a pity that for humankind, the base layer of the social structure is violence, usually wielded by the status quo. Once this element starts to shift change happens, mostly in violentl fashion and very rarely, as with the British empire, by agreement.
I recall that he almost gave up on the idea and once he had stated it publicly, the strong dollar theory started to materialise. I think assigning his theory to a catchword like "milkshake" is responsible for shaping his persona around the prediction. But it was good marketing. I would never gave known who Brent Johnson was without the milkshake analogy. I'm also not clear why you say his eurodollar theory is eroding... obviously I'm missing some detail on this.