The primary causa proxima for runaway inflation in America would be the repatriation of U.S. dollars from abroad. In particular, this would involve the discontinuance of petrodollars as a reserve currency. This would also involve direct goods trade as well. Russia, China and other dollar-bond holders in truth financed the U.S. wars that were aimed at them by buying U.S. debt. When the foreign reserve status of the U.S. dollar erodes, those dollars flow back into the domestic United States and incinerate price stability, causing substantial bursts of inflation.
Therefore, the following question needs to be asked: What indications are there that the world, or at least a large part of the world, is turning its back on the U.S. dollar?
The arrival of Trump’s wild men and the overuse and abuse of sanctions and aggressive warfare has spurred critical steps and reactions.
Just last week and as relations between the U.S. and Russia continue to melt, Putin ordered an end to trade in U.S. dollars at Russian seaports.
China, Russia and India have cut deals in which they’ve agreed to accept each others’ currencies for bi-lateral trade.
At the Sept. 5 annual BRICS Summit in Xiamen, China, Russian President Putin made a simple and very clear statement of the Russian view of the present economic world. He stated:
“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”
The Shanghai Cooperation Organization (SCO) is completing the working architecture of a new monetary alternative to a dollar world. In addition to founding members China and Russia, the SCO full members include Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and, most recently, India and Pakistan. This is a population of well over 3 billion people, some 42% of the entire world population, coming together in a coherent, planned de-dollarization
China is the world’s largest oil importer. That country is now preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan.
Trump on his end on Sept. 3 threatened to “cut off trade with China, if that country maintained trade with North Korea.” Just this threat alone should engender a flood of dollars back into the U.S. Note that Russia and China’s response immediately following this threat was, in essence, “bastante.”
Iran and South Korea just signed banking cooperation to bypass the dollar.
Switching to another petrodollar trade partner, Venezuela is going to implement a new system of international payments and will create a basket of currencies to free them from the dollar, Maduro said. He hinted further that the South American country would look to using the yuan instead, among other currencies.
“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.
A clear signal that something deadly serious is afoot would be the abolition of the Saudi riyal’s peg to the U.S. dollar.
The Federal Reserve Cry-Wolf Hacks Are a Sight to Behold
Meanwhile, back on the Yellen “Cry Wolf” farm, the Fed heads are all over the map about inflation. Clearly there is no discussion about excess dollar repatriation at all. If this came on their radar screen soon enough, they would have to act decisively to drain dollars from the U.S. domestic economy.
What appears to be unfolding is an attempt to sound credible and tough without doing much. To that end, hawk Dudley stated, “Inflation’s coming soon.”
Then Janet “Cry Wolf” Yellen openly admitted that the Fed does not “fully understand” inflation. Just yesterday she admitted that the Fed was “wrong” about employment and inflation, stating, “The FOMC’s understanding of the forces driving inflation is imperfect.” Trying to sound credible, she then suggested, “The Fed “should also be wary of moving too gradually (on monetary policy).”
And now the Cleveland Fed’s Median CPI measure has broken above 3.0%. Yellen chimes in, “It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.” I have no idea what planet she is even talking about?
QE unwind begins October 1. The vote was unanimous. Even cannot-spot-bubbles Neel Kashkari voted for it.
Here’s the schedule:
- Oct – Dec 2017: $10 billion a month.
- Jan – Mar 2018: $20 billion a month.
- Apr – Jun 2018: $30 billion a month.
- Jul – Sep 2018: $40 billion a month.
- From Oct 2018 forward $50 billion a month.
So $300 billion over the next 12 months- then $600 billion the year following.
As of this morning the “market” is pricing the odds at 78% for a measly interest rate increase way out on Dec. 13. Meanwhile, it is uncertain who Trump will pick to replace Yellen in January. A lot can happen on the de-dollarization front between now and then.
The Fed has let the inflation genie out of the bottle even before the impact of de-dollarization. Yellen and her cohorts are now frantically trying to invent excuses for when inflation rips through the financial system.