I can’t believe my timing! I wrote my piece “Two Separate Topics” yesterday and finished it by saying “they don’t need us, we need them” and that I would elaborate on it. Lo and behold, Zero Hedge posted an article, Russia Holds “De-Dollarization Meeting”: China, Iran Willing To Drop USD From Bilateral Trade. Russia announced publicly late yesterday that they plan to “de dollarize” their trade! Yes I know who cares because Russia is an economic basket case that has a very small slice of global trade right? Wrong!
Next Tuesday, Vladimir Putin will meet with Chinese President Xi Jinping, I believe that the odds are quite high that an energy deal will be announced where Russia will supply China with oil and gas and that infrastructure (pipelines) will also be built to the express exclusion of the dollar. Please understand that this is not a deal where a few million barrels of oil are sent and then get settled for, no, this will be a very long term partnership which is why the infrastructure will be built.
My intent was to explain that China has imported 1,000’s of tons of gold over the last several years and that they (even though their system is very highly leveraged just as ours) have prepared themselves for what is coming. “What is coming” is that China will have just as many massive defaults as the U.S. will …but with a “small difference.” I believe that China will mark gold up to an arbitrary number of let’s say $10,000 per ounce which will do a number of things. First, this will make China’s holdings worth much much more which can and will be used as collateral to steady their debt markets. This collateral will serve to re liquefy the banks AND back their currency should they wish to (I believe they do).
Another added “benefit” is that this will expose the fact that the West no longer has any gold. The dollar will go into a spiral because not just “one lunatic” like Saddam Hussein is proposing to no longer use dollars. No, we are talking about 2 major oil producers and our largest trading partner who may just be the largest economy in the world having eclipsed us. Another little tidbit is that these 3 taken together were for years the absolute arch enemy of the U.S. and now they are forming a unified triad where Russia and Iran can say, “Hey, you told us not to use dollars anymore, we’re just doing what you’ve told us to do.” Talk about forming “policy” without looking 5 seconds into the future, our sanctions would be the definition of this.
So we sanction Russia, tell them that they are “shut out” of the SWIFT clearing system, freeze some assets and cannot use dollars, Russia has responded with trump card after trump card. Examples would be them telling us, “OK, fine, we will no longer launch your satellites for you.” I did not even realize that this was the case; we no longer have the ability to launch our own satellites and must rely on Russia to get them up and into orbit. What’s up with this? They also have told us that the space station is now “off limits,” JFK must be rolling around in his grave thinking “so much for winning the space race.”
This announcement of “de dollarization” is huge news and I believe a precursor to further tightening of the screws on the U.S. Iran being a part of this I can understand but China? China holds some $3+ trillion of dollar assets, why are they willing to impair these assets? The answer of course is that they already realized that these assets were impaired long term and headed for the quadriplegic category anyways, they have also bled out and hedged dollars in advance preparation. Another VERY interesting piece of news this morning is that Saudi Arabia has invited the Iranian foreign minister to Riyadh for talks Saudi foreign minister says has invited Iran’s Zarif to visit, really? I thought that Saudi Arabia wanted Iran bombed off the face of the Earth? I thought that Iran was a direct OPEC competitor that had totally different views based on religion?
So why would Saudi Arabia want to begin talks with their arch enemy? Simple, because mommy and daddy told them to. China and Russia have aligned and obviously taken Iran along under their wing. If Saudi Arabia wants to be in this family… then they must “make nice” or they are on their own. People, please put this, and all of the timing together. Russia has announced this “triad” of “de dollarators” for a lack of a better term. China and Russia have the highest level talks scheduled for May 20th and we know what is being discussed and most probably announced. We also know that Saudi Arabia has been none too pleased with the U.S. for quite some time and now plan to have talks with Iran. I see this as Saudi Arabia choosing sides. “Choosing sides” as in abandoning the losing side!
You see, the only reason that the dollar has survived this long is because of the artificial demand created by and sustained by the Saudis only accepting dollars for their oil. They are not foolish; they surely know that were they to accept any other currency for their oil, the dollar would be collapsed within two weeks or maybe in as many hours. They may have contemplated this in the past but always feared “GI Joe” paying them a visit …until now. They surely know that they sit in a position where they can either go down with the U.S. and their dollars OR they can switch sides and be a part of the winning team. Please understand that this is not like an athlete moving from one abysmal team to an elite team, no, this is like an athlete moving to a team whose checks will clear for the next season from one that very well may be defunct.
As for the title of this piece, it is very true. “They” don’t need us and each deal and alliance that gets signed and announced is further proof. “We” absolutely need them. Where would the U.S. be had China not sopped up over $3 trillion worth of dollars? Would the very strange “Belgium buyer” have needed to step up years earlier? Think about it, if you and I know that the “Belgium buyer” has to be some sort of Fed or ECB proxy, do you think that the Chinese, Russians and Saudis are so dense that they don’t “get it?” No, they know, we know, you know, everyone knows. This is not even a 2+2 equation; it is much simpler than that. This is a 1+1 equation (Russia and China) that is so simple and is “growing” with each new deal and each new announcement of new team members.
The only ones who still don’t get it for the large part are the American people. Once Saudi Arabia announces that they will accept other currencies for oil (or God forbid that they will no longer accept dollars), the American people will finally get it. They will “get it” right in the pocketbook which apparently is the only way to get American attention. I would give great odds that within 2 weeks of any Saudi “change of teams” that the dollar will become an international pariah. I also think it highly likely that the “rest of the plan” will come into effect which will be large orders of gold and silver which will not (because they cannot be) be filled. My guess is that $20-$25 billion “dollars” are all that are needed to blow the entire Western financial system to pieces should they be presented for metal. The number is more than likely far less than this …but $25 billion won’t even buy an international ham sandwich in today’s world.
May 20th is the date folks. Any numbers of announcements after that date can and I believe will finally devastate the U.S. dollar.
Bill, It seems all these ‘parts’ are now blending into an anti-dollar policy as you have stated. If Saudia Arabia rejects the petro-dollar(completely?) we’re going to be in deep do-do. God help us if the U.S. goes to war over this. But is it even possible to go to war being that we are bankrupt? I hope that would prevent us from doing so.
I hope not.
Even if it isn’t rejected completely by Saudi Arabia, “we’re” screwed. Once the example is set, most will jump ship.
correct Jo.
We are toast.
yes, correct.
At what point in that end game scenario, do the actual gold holdings of the US and the West come to light? I would contend that even if China moves to back the Yuan with their newly replenished gold stockpile, the US and West will still attempt to say: fine, we back our currencies with our gold holdings as well (even though at this point we know that the holdings are actually just a pile of paper claims on those holdings). There would have to be an audit of those holdings, which the Fed has been able to stave off for half a century. Would China say, we know they have no gold because we have theirs? And the West will say, no they don’t. How do you see this actually coming to pass, as any attempts to shed light on the real Western gold holdings will be met with the same obstruction they’ve been using for decades.
this is a very good question. The Chinese can do math and they know the situation. If we were to “say” we have the gold but refuse an audit, the Chinese could just then say that all trade needed to be settled in actual gold. The price could be jacked high enough to facilitate trade, once settlement is not made then the Chinese can simply say “see, you simply don’t have it to deliver”. This is a very good question but the Chinese are an ingenious and very intelligent people, they will have a solution.
Good riddance to the parasites and psychopaths that run our government. The American people are quite different — kind, generous, respectful, loving, etc. — from the American government.
I feel for the people around the world who have been on the receiving end from our evil government. I look forward to the blossoming of America again once this evil appendage falls.
Yes, the transition will be painful. But, only pain will awaken brainwashed Americans from the purposeful slumber induced by decades of lies from corrupted historians, economists, physicians, journalists, clergy, etc.
I agree.
Thanks for your response; excellent point, Bill. They can just say, alright, then pay us in your gold. Okay, so then thinking this through, what’s the next step? You’re the US and you’ve just claimed you have gold without having any and have been called on it. I would think they would still try to salvage their system at that point, so that then makes me think that they would go 1 of 2 routes: confiscation or nationalization of the remaining miners in the US. Confiscation would call too much attention from public outcry, and honestly, how much does the US populace really have left after years of “we buy your gold” shops have drained them. So that makes me think a stealth nationalization. Which could be done by bankrupting the miners (an effort I think is already underway) via continued gold price suppression and then taking over the “assets” (mines) through tax seizure. Or does the Chinese backing of gold preclude this and make all non-backed currencies shoot higher in the interim. That’s the part I’m still trying to figure.
where would you sell your gold or silver if you were a mine? To the highest bidder right? Also, this is why if you own mines, they must be geographically well diversified.
Bill,
This has got to be one of if not THE most important article that you have ever written. You have put the American people on notice – let’s hope that this gets the attention that it deserves.
Thanks for all you do to help the rest of us to connect the dots!!
I hope so too but I think it’s already after midnight.
” Iran being a part of this I can understand but China? China holds some $3+ trillion of dollar assets, why are they willing to impair these assets? ”
Regarding China or any other players action seemingly odd actions and some of the comments expressing distress at the turn of events let us reflect on this;
Was the disclosure or recognition of Enron’s mess the problem or the creation of the mess ? Was Madoff admitting to fraud the problem or the fraud itself the problem ? If the latter remember the issue existed prior to the disclosure.
Now think if you are senior management of a banking institution and hold a lot of garbage loans with manure as collateral if you are smart you would know it. Not withstanding non-recognition of the true value of the said loans you know you are playing for time and looking at the least painful exit or resolution.
Surely the West if weighing its options too just as China et al are weighing theirs.
A lot of what we see is posturing and hopefully the world will evolve to a better state – This is likely so long as the powers that be on all sides are not caught up in dogma and also act in their true fiduciary capacity.
…and there you have it. Do U.S. politicians act in “their true fiduciary responsibility”? …I didn’t think so.
Are politicians not drawn broadly from the larger population pool ? If this is so, even giving some allowance for a hierarchical bias, I would think the issue is deeper than just a currency fix. Perhaps more a matter of having to tune the broader paradigm. I think looking at solutions only from a narrow silo- perspective will only lead to a perpetuating continuum of issues.
Maybe it is time to look at Bhutan’s frame work of Gross Domestic Happiness rather than Gross National Product.
this of course would be nice but unfortunately the U.S. is already past midnight and the chimes are ringing for anyone willing to hear them.
Nah – I mean humanity as a whole – not just one country needs a different or more broader paradigm. Otherwise we all chase our tail.
Unless there is a technological miracle energy especially the marginal “energy return on energy invested” equation is starting to prove the laws of thermodynamics. viz there can be no perpetual motion machine ( no perpetual growth ).
Till then at least the US is getting something for a future promise – it is human to put the pedal to the metal so long as someone thinks they are ok swapping real stuff for our electronic digits.
Think about it someone bought Manhattan for some trinkets.
The seller had no conception of private property so they thought they were getting the better end of the bargain. The buyers though it was a cheap price.
Similarly if the Middle east think that the digits are worth something for their oil (which they are getting gratis from nature) or the Chinese under price their labor for electronic iou’s who gets the better end of the deal ? So long as the perception that everybody is making out can be maintained you bet the buyer is going to put the metal to the pedal.
What you are saying is the perception is cracking – but someday or the other that is has to play out. Till then who gained – in our analogy the native who sold the land of Manhattan which just existed but got the trinkets he thought were of value to him (and from a purely emotional satisfaction or tribal prestige maybe truly so) or the buyer who got untitled land that his particular form of law made valuable through operation of his paradigm.
I think the present situation has a parallel. We will only know who gained after things play out.
In most situations both sides are going to have to give some ground from their respective ideal situations.
It is best not to be locked into adversarial mindsets and for both to realize there is no perpetual growth machine but the answer is not get into a bruising race to the bottom. Rather the inevitable answer will be to examine our paradigm. The choice is the road we take in getting there – wisely or by paucity of choice after we have tried everything else wasted a lot of effort.
right, this will go on until someone decides that they no longer want to get nothing for something.
@Vj
I believe the Fed’s bond buying program (QE1, 2, 3, etc)
has been more to vacuum up the bond dumping of China and
other heavily invested nations. The payoff for China, etc is that they are buying OUR Gold at discount prices! The likely
makeup of the Bond Buying is 60-40, with the larger percentage being to cover “dumped bonds” and the lesser to issue new digital-dollar$ for this so-called “liquidity” which is so “successful”.
Just my opinion, but it explains a lot of this mess.
maybe so.
@underRG
Yes that is possible but by that stage not many options were there right.
All the players are playing the hand they currently hold – why it came to be is another question and maybe more a matter of paradigm being needed to be looked at.
Even if what you say is factual and we examine it more narrowly than global or societal paradigms refer my analogy of the purchase of Manhattan. Who gained and who lost in the score thus far – the Chinese worker who sold his sweat cheaply or the west which got goods for electronic baubles ?
The real life fact is that the Chinese worker had no choice at that stage of the game and in the long run the west has also paid a huge toll in all the grim costs that the rust belt personifies. The indirect costs represented by the human spirit getting beaten by the squeeze of the melt down thus far are not trifling.
So I think both sides will find that the situation is undesirable and most choice render the future untenable unless aspirations are differently tuned. So one way or the other we humans have to in the aggregate make deeper examination of the paradigm.
yes I agree but the examination will come after TSHTF.
PS: Good Article, Bill H!
I like this site, they actually hold Bix Weir in high esteem…
Thanks
Great analysis. Another small factor is the now fully operational Russia/China railway with trains that now run as far as Duisburg in Germany. Only 3×50 containers a week at the moment but it has the potential for critical, too heavy for airfreight, loads to bypass possible sea choke points.
Perhaps, given the already strong commercial links between Germany and both Russia and China, Germany won’t want to be left out of the new power block? There is not a lot of love of the USA there, given NSA’s activities and their (now sold?) gold reserves.
Germany will do what is best for Germany.
Good point, but keep in mind that the whole Europe with Germany in front are countries with partial sovereignty. I like to say colonies. That’s the result of ww2 and cold war. That’s the reason why rehypocated gold is cared by FED and not by European countries itself. Today in phase of power shifting Europe tries to renew its focus eastward (historical strong French and German ties to Russia which were broken by ww2). Situation is really precarious because US as a beast in the corner has no problem to pull Europe into war and destabilize Russia and little bit China. It is easy to balkanize Europe. Russia knows European approach and welcomes it. Those proclaimed sanctions are just headlines but not reality. Germany walks on thin edge and is aware of possible suicide. A very smooth and long slide towards east is needed otherwise Europe is in flames and US prolongs its hegemony.
At the end keep in mind, we have got here IMF. Despite the fact that Russia is not included in SDR basket, cooperation with IMF show us strong relationship (loans during 90 and Putins request (around 2010) for wider use of SDR).
have nice day and wish you best
Bill,
Great article as usual. In reading all the comments above, I just think we are all going to go through much pain for many years.
As I am in my 60’s I don’t think I will ever see the USA in the great condition it use to be in the rest of my life.
I feel we are being lied to on a daily basis and that we will never be told the truth, as we will have to figure out the truth on our own.
My grandfather did not trust the banks during the Great Depression and now I see why. I think the bail-ins are going to catch a bunch of Americans by surprise.
I gave up 3 years ago trying to educate my family as they just don’t ever see this dream ending.
Please post some more paintings from your wife and pictures of your smart horse so some of us can try to see something pleasant.
By the way I think your horse is smarter that Congress !!!
if only we could give Congressmen carrots to get the desired results…
Wow Bill. First time visiting your site saw your article posted on the burning platform. Holy crap though what an excellent perspective and the big picture is put together so well. Thanks for sharing.
Talk about forming “policy” without looking 5 seconds into the future, our sanctions would be the definition of this. – I thought this exactly about all the morons yelling sanctions.
thanks Nate, please follow us daily and you are welcome to go back into the archives if you liked what you read. Feel free to pass our links on to friends and family.
So, if the dollar loses value, what’s a good hedge? I’m already overweight gold and real estate. I’m thinking of buying Swiss Francs and Euros. Good idea? Or more gold?
under the current conditions I do not believe that you can be “overweight” precious metals. I would add silver to your portfolio if you have none and more if you already do. In my opinion, silver will be the big winner.
Dear Mr. Holter,
I have been following this developing East/West situation for some time in the contexts of energy, geopolitical power and precious metals. Your article today actually gave me intellectual goosebumps it is so precisely correct. Exceptionally well done. Thank you.
Thank you for the wonderful compliment.
Dear Mr. Holter,
It is my understanding from another very savvy analyst that, despite what is announced regarding payments from the Chinese to the Russians, the first payments at least will be in US Treasuries which Russia will use for the economy, budget purposes and purchases of gold. It makes sense and would be a win-win for both sides of the transaction while still getting the advantage of the announced breakaway from the US $. And, of course, they could switch to yuan any time they chose to do so. Comment?
it could very well be but when all is said and done those Treasuries will be liquidated and “spent”.
My name is Jen Psaki and you may know me from such movies like Idiocracy. I did not have a main role as I was told that all actors are not actually stupid… but I did not understand why. Anyway, back to the article.
We, at the White House – and when I say we I refer to Mr and Ms President, Mr McCain (or McAbel?), Mr Kerry (or Cherry?) – distance ourselves from this article. It is totally untrue, and we have hard evidence that this is another fomenting action from Russia for which we’ll announce soon another sanction. We already threatened Belorussia with our 6th fleet – don’t know why everyone laughed when I mentioned that – but we know for a fact that Putin is very very afraid of us.
I read somewhere that Russia just signed some treaty for gas. That is a lie as Russia is an isolated country and no one will sign anything against our will.
Dedolora..dedolira… anyway, no one can hurt our dollar as we are the greatest nation in the world. Thank you for listening
you are welcome…I think?
“They don’t need us – We need them”? Huh. Putin said something similar, but in reverse. He said: “Russia does not need Minorities. Minorities need Russia.” Here is the full text of his speech before the Duma: (You know something is terribly wrong, when the Southern Border of the U.S. is left wide open, and Putin begins sounding like U.S. Presidents of LONG AGO)
“In Russia live Russians. Any minority, from anywhere, if it wants to live in Russia, to work and eat in Russia, should speak Russian, and should respect the Russian laws. If they prefer Shari’ya Law, then we advise them to go to those places where that’s the state law. Russia does not need minorities. Minorities need Russia, and we will not grant them special privileges, or try to change our laws to fit their desires, no matter how loud they yell ‘discrimination’. We better learn from the suicides of America, England, Holland and France, if we are to survive as a nation. The Russian customs and traditions are not compatible with the lack of culture or the primitive ways of most minorities. When this honorable legislative body thinks of creating new laws, it should have in mind the national interest first, observing that the minorities are not Russians.” — Vladimir Putin, the Russian president, addressing the Duma February 4th, 2013. The politicians in the Duma gave Putin a standing ovation for 5+ minutes! (Source: http://www.whatreallyhappened.com)
“A Nation of Laws, and not of men.” – John Adams