Trump vs. the Dollar Part 1: Exorbitant Credit
Friday, 11/15/2024 19:44
Plus ça change for the almighty Dollar...
IF I GOT a dollar every time someone said the US Dollar was doomed, I'd have a lot of dollars,
writes Adrian Ash at BullionVault.
Far more dollars, in fact, than if I'd bet the kids and the mortgage on a Dollar Crash actually happening...
...and even more dollars than if I'd got $1 every time someone told me
silver prices were about to hit the moon. Which is a lot!
But that doesn't mean the Dollar will rule forever. Money is always and everywhere a political thing, and politics change. Just very, very slowly.
I mean, it's taken 8 decades for the USA's government debt to reach and beat the post-WW2 peak above 120% of the nation's annual economic output.
Only this time, we aren't coming out of a world war. And in New Year 2025, we'll have new people running America, courtesy of Donald Trump's big comeback.
"What the United States owes to foreign countries it pays – at least in part – with Dollars that it can simply issue if it chooses to."
So said
French President Charles de Gaulle almost 6 decades ago, back when Washington still backed its Dollars with gold (but not enough of it) and US debt totalled less than half of America's GDP.
"This unilateral facility undermines the idea that the Dollar is an impartial and international trade medium. It is in fact a credit instrument reserved for one state only."
Plus ça change! you might think...
...especially if you listen to
Vladimir Putin moaning from the Kremlin about Washington's Dollar dominance and how he's going to overthrow it with a little help from his emerging-market friends.
"International relations have entered the era of global, fundamental changes when
a new world order is being formed, reflecting the diversity of the whole planet," said Russia's war-loving President-forever at last month's BRICS summit of non-Western nations.
"This natural process is irreversible" – and overthrowing the Dollar's dominance is a big part of that switch. Or it would be, if it was actually happening.
Yes, the Dollar's dominance of central-bank reserves worldwide has fallen so far this century.
But
the decline has NOT accelerated since Russia invaded Ukraine and Moscow got whacked by sanctions, not according to detailed analysis published by the International Monetary Fund. Nor has it been anywhere near as dramatic as
the rush for the exits of the late 1970s-to-early-80s.
Moreover, other Western currencies have taken up the slack. China's Yuan accounts for less than 1/4 of the Dollar's drop (nobody wants Rubles). On top of that,
the strength of the Dollar on the currency market just goes to show that private capital still wants greenbacks over anything else, even if sovereign reserve managers continue trimming the USD's share of their stash.
That's why the almighty Dollar still accounts for the bulk of all international payments...
...almost 3-in-5 by value outside of the 20-nation single currency Eurozone...
...plus
54% of all foreign trade invoices worldwide, despite the USA accounting for less than half that much as a share of global economic activity, half again as an export destination, and very nearly half again as an exporter itself.
Even where the Dollar has lost ground, the advancing currencies are very much from 'the West' rather than 'the Rest'. Together with the Big Four (USD, Euros, UK Pounds and Japanese Yen) the growth in Aussie Dollars, Canadian Loonies, South Korean Won, Singaporean Dollar and Nordic currencies means that 'the West' accounts for more than 90% of central-bank reserves all told. And 'the West' very much means US political control.
"The SWIFT payment system can be used as
a tool in attempts to suppress one of the states in the world," spits Kremlin spokesman Dmitry Peskov says. And he should know.
But reality is, a challenger system, using a single currency for the BRICS to trade with each other, simply "isn't possible" right now, Peskov also admits.
Besides, the Dollar as 'credit' works both ways. Because while the seller gets the money, the buyer has to borrow it. The debtor then has to pay interest on what they owe...
...paying interest to the seller in the case of vendor-financing like the USA gets, effectively, from China.
For America's total national debt today, it's now paying more on interest payments than it's spending on its military. Over 1/5th of that drain goes to paying foreign investors and governments.
Smart choice? Any choice at all?
"I've made a fortune by using debt. If things don't work out I renegotiate the debt. I mean, that's a smart thing, not a stupid thing."
So said Donald Trump to CBS in 2016, back when he still thought he needed to talk to CBS to win an election and before the Democrats were caught out for
hawking Chinese-made goods almost as much as he does.
"I'm the king of debt. I'm great with debt. Nobody knows debt better than me."
And now the King is back.
More to come in Part 2 here...
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