Over the last week the Russian Ruble has crashed nearly 40%. Due to European and American sanctions, Russia is unable to do the things economically necessary to right the ship. In step the Chinese who have a bi-lateral currency agreement with Russia, partially created to be able to help each other in currency crisis scenarios. China and Russia are also part of a larger currency bloc called BRICS. The BRICS nations are Brazil, India, China, and South Africa. These nations have come together to introduced a new currency, and to open development banks in Africa and in other parts of the world in order to encourage economic growth and trade. Incidentally, the GDP of these 5 nations is currently greater than the GDP of the G7 nations. China has the second largest economy in the World. Why am I telling you all this? Because, “What is good for the goose is good for the gander”, as my grandmother used to say. Translated, we better be ready to receive the same treatment from them in the future. Or as the Bible says, “What you sow, that shall you also reap”. (Gal 6:7b)
When the U.S. throws its weight around financially through devastating economic sanctions, it causes other nations to take notice and wonder if they are next. They begin to look for ways to secure their peoples financial future. In order to protect themselves, they begin to make plans to use a currency other than the dollar. If the U.S. cannot restrict their trade through sanctions made possible by the dollar being the reserve currency, they don’t have to worry about U.S. sanctions, and they are then free to conduct business as they please. This is exactly what the BRICS nations are working to try and do, de-dollarize the world. This would have massive economic effects on the U.S. and would put us in a position to have the same sanctions leveled against us in the future. I’m not excusing Russian incursions into the Ukraine. I’m not a Chinese sympathizer. I think the Iranian government is loony tunes. But, when you sanction a nation, restrict their trade, and cause them to have to manipulate their currency and interest rates in order to stay afloat, you are hurting not the government as much as the people. Russia is not about to change leaders. But the Russian people, in a single week, saw 40% of their wealth evaporate partly due to U.S. policy. How would you feel? Would you love America and seek to emulate her? You would not. You would think she was evil and seek to distance yourself from her. Your friends and allies would feel the same way. And that is how global sentiment is changed. Believe it or not, some of the people groups in the world that hate us have legitimate reasons. They hate us because we have done great harm to them personally. We have starved their children so that we can say we “look strong” in the eyes of some petty dictator. Has this posture worked in the past? Take Cuba for instance. 90 miles from our coast and we didn’t talk to them for nearly 50 years!? Did sanctions helped topple Fidel Castro? No, they allowed Castro to blame the U.S. for the poverty of his people. We likely prolonged his rule, and pushed him further into the arms of our then enemy, the Soviet Union. Why could we not have talked with them? Traded with them? Interacted with them? Been an example to them? I think President Obama is one of the most inept leaders our nation has ever had. But I personally support normalizing relations with Cuba. My enemies never listen to me, but with my friends, I have influence. That’s partly what friendship is, and friendship is always more profitable (not just economically) than war.
The fact is, the dollar as the world reserve currency has been a golden goose for the U.S.. We could print all the dollars we want and export them to countries like China in currency and bond swaps. We’ve been able to paper over all our economic problems and not worry about hyper-inflation because we could export those dollars. Billions of U.S. dollars are held in nations all over the world because they have to have them in order to buy oil and function as trading partners. But when we act like a globally bully, we drive the nations of the world to begin to consider safe guarding themselves from us and our financial shenanigans. I fear we are doing what the cottager did in Aesop’s Fable. We are killing the goose that lays the golden egg. We should have chosen friendship and good will. Because of our strong armed tactics there is a day coming, sooner than most Americans think, when the east will throw off the dollar as a reserve currency. China has already stopped buying our bonds. It is likely in 2015 that we will see the Chinese Yuan be included in the International Monetary Fund’s Special Drawing Rights (SDR) currency basket. It is also likely that the U.S. will lose its veto power at the IMF very soon as well. The world has grown tired of purchasing our debt, being punished by our currency manipulation, and our other financial games. Be wise and position yourself and your family accordingly my friends. The roller coaster you are seeing in the markets right now is only the beginning. Financial crisis cometh. And it is by our own hand.
The prudent sees danger and hides himself, but the simple go on and suffer for it.
For further reading on the subject of the IMF, Russia, and China’s position on a global currency and de-dollarization. Brandon Smith’s articles on the subject are indispensable.
IMF Now Ready to Slam the Door on the U.S. and the Dollar by Brandon Smith via Alt-Market blog
Or watch Jim Rickards allude to the IMF taking over the monetary system here