Bipolar in a Multi-polar World

Week ended March 2, 2024. interesting news items to look at this week were:

1. Bipolar in a Multi-polar World: One of the most common argument in the financial circles regarding a continuous dominance of the dollar hegemony is the TINA concept (“There Is NO Alternative”). That it would take years or may be never to have Rmb or a BRICS currency to replace the Dollar. That for the Dollar to collapse, the Rmb must rise relatively and that would not be in the slightest interest of China with a significant export sector. Whilst I am not here to debate the merits of the TINA argument, TINA is but a bipolar focus out of sync in a multi-polar world.

(i) Difference between a Currency and Money: A currency is a medium of exchange but since the default of Bretton Woods in 1971, the USD has progressively been loosing its attributes as a store of value and therefore its status as Money. (Fig. 1).

Another important milestone is the weaponization of SWIFT against Iran in 2012, countries non-allied with the US has since been cautious against US sanctions using SWIFT. 12 years on the Global South de-dollarization project is now in full swing. In a credit based Currency System, it takes confidence for the holders of the currency not to immediately cash out the promissory note (currency) on the expectation that one may be able to exchange the note for something of value. That something of value used to be petroleum because back in the 70’s oil producing countries lack both the production and consumption technologies and markets to turn crude into everyday products (oil refineries and motor industries).

Fig. 2 is a diagram depicting Net Balances between Crude Production and Consumption by Continents and Regions. North and South America is self sufficient, Europe and Asia in significant deficits and Russia and Middle East in significant surpluses. With Russia, Iran, UAE and Saudi Arabia upon confirmation to join BRICS, the use of USD as settlement currencies for oil has been reduced to US Allied countries only. We have previously discussed the Anglo Americans are desperate to supplement the lost market share in Oil Trade with attempts to boost USD usefulness in Chip Trade and AI Trade.  I will not elaborate further this very aspect here. Yet somehow, the hubris of the Western elites seemed to overlook USD by itself is not a product of desire but useful only as a settlement mechanism. Dollar sanctions against Iran has not deterred Iran from 2012 to now, nor weakened Russia from 2022 and certainly won’t work against China in the future.

(ii) Sabotage and Destabilization: No one will feel safe with their money in the bank if battle tanks appear in front of their bank. Wars, sabotage and destabilization are the main tools the Anglo Americans use to drive capital from Europe, Asia and Middle East into the US. Wars and rumors of wars continued with the NATO Alliance nonstop and even extending eastward to Asia despite Ukraine’s armed forces are now close to disintegration. The talk in the West is the Neocons want another escalation as early as May 2024. Why? Because the coffers of all Western Central Banks are empty and war is the only option (TINA). Germany is a prime example with Porsche to cease production in Germany and relocate manufacturing to US. (Fig. 3).

The Federal Reserve is only the best horse in the glue factory, the Fed is trading with a negative net-worth of $102.7 billion as reported in its Balance Sheet as at Feb 28^th 2024. (Fig. 4)

Should the carrying value of its US Treasuries and MBS Bonds be marked to market, the true extent of its insolvency is in the $ trillion mark. I am afraid JCB, ECB and BOE is in a far worse position. China, Russia, Iran and the rest of the Global South is well aware of the diabolical conditions of Western Economies and the BRICS countries are all in damage control mode. China, Russia and Iran are pressuring the Anglo Americans with an aggressive attrition approach but very measured in terms of war escalations. If the Anglo Americans do not want peace then let them bled to extinction in a controlled theatre but they cannot leave the battle field nor to have an all out pan European, ME or Asian war.

(iii) Impact on Currency Exchange Values:  As mentioned earlier, Currency is only a medium of exchange but not a store of value. In a controlled theatre of conflict, as the Western Colonialists pivot to QE, Global South will counter with their own money printing. The Global South Central Banks are all redirecting their surplus liquidity into gold. Russia and China in particular are also discouraging their citizens from speculative leveraging and to privately accumulate gold. USD is not expected to collapse overnight against other currencies but as monetary stimuli reignites, all currencies is expected to depreciate continuously against commodities, against real goods and services. Under heightened monetary inflation, only those countries with a real functioning economy will survive. Those countries with predominantly a virtual economy with newly minted money skewed only to elites will have their Bastille Day of pitchforks and guillotines. Those countries with helicopter drop of currencies for all will see ruins in hyperinflation.

(Fig. 5) records the ups and downs of currencies, oil and precious metals just before the 2008 Global Financial Crisis to this weekend. The relative performance against USD are Gold (+125.79%), Oil (+85.76%), Silver (+34.77%), Swiss Franc (+24.91%), CNY(+0.24%), Euro (-25.12%), JPY (-28.1%), GBP (-34.16%). This pattern will continue with one proviso: when the starter pistol of the final Fed QE Pivot is fired, the race for Bretton Woods II will determine who survives. Last December, Powell already prep the market for a Pivot to start in 2024. This Weekend,  Fed Governor Christopher Waller quietly hinted the Fed will switch its $2.4 trillion MBS to the short end of Treasuries which will have an effect of lowering bond yields. (Fig. 6). On Your Marks! Ready! Set!……..

Luke 21:13  But it will turn out for you as an occasion for testimony. 14  Therefore settle it in your hearts not to meditate beforehand on what you will answer; 15  for I will give you a mouth and wisdom which all your adversaries will not be able to contradict or resist. 16  You will be betrayed even by parents and brothers, relatives and friends; and they will put some of you to death. 17  And you will be hated by all for My name's sake. 18  But not a hair of your head shall be lost. 19  By your patience possess your souls.