According to Gromen, the writing has been on the wall for decades but only in the past couple of years has the culmination of our economic trajectory been made clear.

“What Janet Yellen’s telling you, what Jake Sullivan [National Security Adviser Jake Sullivan] is telling you, what the Department of Defense is telling you is that it’s a national security interest to get out of the Treasury export business and to get into the stuff export business again,” Gromen said. “But we can’t do that without a much weaker dollar, and the arbiter of that is going to be the price of gold. You’re seeing U.S. Treasury Secretary Janet Yellen throw 40 years of economic orthodoxy in the trash.”

His projections, which have been among the most accurate as they pertain to the Treasury, precious metals, and cryptocurrencies, paint a dark picture for the dollar but a rosy one for those whose wealth is backed to some extent by physical gold and silver.

Jonathan Rose, CEO of Genesis Gold Group, reacted to the price projections Gromen is on record as targeting. Specifically, Rose believes Gromen may be correct with his price target of $7,000-$15,000 per ounce.

“We’ve seen some ‘pie in the sky’ projections lately that have gold and silver going up tenfold, but I’m hesitant to believe in such incredible gains,” Rose said. “Luke’s targets of 2x to 5x are not only realistic but could very well be spot on, especially if BRICS nations continue their push to replace the U.S. Dollar.”

Genesis Gold Group, a faith-driven company, specializes in helping Americans protect their wealth and retirement with physical precious metals. Their free, definitive gold guide is being widely distributed, especially to those who are at or near retirement age.

Gromen believes the dollar system is dying but does not believe it’s going to be completely usurped by BRICS’ machinations. He believes the U.S. Dollar will remain the world reserve currency but that it will get re-priced in the near future.

This puts physical precious metals in a strong position, according to Rose.

“Whether the U.S. Dollar gets devalued or if it gets replaced altogether, most economists agree the logical way to store wealth is with gold and silver,” he said. “We want to help Americans protect their money today but more importantly we want them ready for the long-term.”

Receive the definitive gold guide from Genesis Gold Group and see if they can help you find the financial “safe haven” of physical precious metals.

The Treasury Department put fresh sanctions on Russia on Wednesday to stem the flow of money and goods that can fuel the country’s war against Ukraine, leading Russia to announce an immediate suspension of dollar trades on the Moscow Stock Exchange, according to Reuters. Russia’s continued pullback from the dollar is just the latest example of U.S. adversaries growing opposition to the current world reserve currency, and if the dollar is ever widely abandoned around the world, it could usher in huge levels of inflation and force the U.S. to deal with its mounting national debt, according to experts who spoke to the DCNF.

“If the Biden administration were intentionally trying to destroy the dollar, I’m not sure what they’d do differently,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF. “His spendthrift agenda has resulted in the dollar losing one-fifth of its value in less than four years, and his international policies have done even more harm by eroding the dollar’s reserve currency status. By freezing and then eventually stealing dollars owned by foreigners, Biden sent a clear message to the world that the dollar is no longer a safe asset.”

The Biden administration’s weaponization of the financial system against Russia has been particularly pronounced since the country launched its invasion of Ukraine in 2022, with the U.S. and its allies removing many Russian banks from the worldwide financial messaging system SWIFT and freezing hundreds of billions in Russian foreign reserves.

“A Rubicon was crossed in the form of policy choices made in the immediate aftermath of the Russian invasion of Ukraine in early 2022,” Peter Earle, economist at the American Institute for Economic Research, told the DCNF. “Those decisions included seizing hundreds of billions of dollars worth of Russian FX reserves (Russian holdings of US dollars) and ejecting most major Russian financial institutions out of the SWIFT messaging system.”

“In taking those actions, Russia was effectively kicked out of the U.S. dollar system,” Earle continued. “It was a turning point as it has put adversaries — and allies — of the United States on notice that the dollar, which has for seventy years been the default currency for international trade and settlement, can be weaponized, and thus that dependence upon the dollar comes with a heretofore unconsidered risk.”

The US, under Biden, has also continued to impose harsh sanctions on Iran in connection with the funding of terrorism. The Biden administration used $6 billion in seized assets in August 2023 as leverage for the exchange of five American prisoners.

Saudi Arabia became a full participant in Project mBridge, an effort dominated by China to create a central bank digital currency that could replace the dollar in the exchange of oil on the world stage, according to Reuters. The addition of Saudi Arabia to the program puts the project in the “minimum viable product” stage for wider use.

“Russia’s suspension of trading in dollars on the Moscow exchange is just the latest domino to fall, and it won’t be the last,” Antoni told the DCNF. “As de-dollarization snowballs, foreigners won’t want dollars anymore, and they’ll start exchanging the currency for American goods and services. It’s no exaggeration to say that this will mean 70 years’ worth of trade deficits pouring back to our shores.”

Further de-dollarization, depending on the speed at which it occurs, could cause another surge of inflation, which has already wreaked havoc on the finances of average Americans under Biden, with prices rising 19.3% since January 2021. Inflation has failed to fall below 3% since it peaked under Biden at 9% in June 2022, most recently measuring 3.3% in May.

“If you think the last three years have had bad inflation, just wait until those trillions of dollars currently held by foreigners come home and start bidding up prices,” Antoni continued. “It will embolden our adversaries and impoverish Americans. We’re in the opening stages, and it’s unclear if there’s enough time to stop it.”

A group of countries posing themselves as an alternative to the U.S. and its’ allies in the G7, including Brazil, Russia, India, China and South Africa (BRICS), have expressed their opposition to the dollar as the global reserve currency. In June, Russia announced that it had begun the development of a payment platform that will allow BRICS countries to bypass the dollar, providing countries that fear the weaponization of the currency by the U.S. another avenue for foreign exchange, according to Business Insider.

“The dollar’s status as the dominant international reserve currency affords the US what Valery Giscard d’Estaing famously called an exorbitant privilege,” Desmond Lachman, a senior fellow at the American Enterprise Institute, told the DCNF. “By that, he meant that the US government could finance its budget deficit at relatively low interest rates by having the Fed print dollars that foreigners would hold. It also allowed the country to live beyond its means by consistently importing more goods and services than it exported. This is something that the US should not want to lose.”

The U.S. trade deficit widened to around $74.6 billion in April, the largest loss since October 2022. The federal government currently holds around $34.7 trillion in debt as of June 12, up from around $27.8 trillion when Biden first took office, according to the Treasury Department.

The Left is FURIOUS About Viral Joe Biden Wandering Video pic.twitter.com/witRcpoA0b

— DC Shorts (@theDCshorts) June 14, 2024

“If foreigners start selling dollars, we could have a dollar crisis in the sense that the dollar would get into a downward spiral,” Lachman told the DCNF. “That would be bad news for consumers in that it would tend to fuel inflation by substantially increasing our import costs.

“It would also lead to higher interest rates,” Lachman continued. “I do not expect that this will happen soon since the currencies of the dollar’s main competitors (the Euro, the Chinese renminbi, and the Japanese yen) all have serious problems of their own.”

The share of U.S. dollars in foreign exchange reserves has been gradually declining for the past several years, falling from over 70% in 2000 down to close to 55% in recent years, according to the International Monetary Fund.

“Global use of the dollar has been a major source of demand for US government securities — Treasury bills, bonds, and notes, as well as Agency paper,” Earle told the DCNF. “Falling demand for dollars would, in short order, translate to falling demand for those government issues, which would both restrict the amount of debt that could be sold and result in higher yields on the outstanding debt.

“With less of a market for US debt and presumably no less of an appetite for government spending, taxes would have to rise and/or inflation to be used to make ends meet,” Earle continued. “Both of those mean higher costs of living and consequently a declining quality of life.”

The White House did not respond to a request to comment from the DCNF.

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Readers ask me why the government would be interested in eroding the purchasing power of the currency they issue. It is remarkably simple.

Monetary inflation is the equivalent of an implicit default. It is a manifestation of the lack of solvency and credibility of the currency issuer.

Governments know that they can disguise their fiscal imbalances through the gradual reduction of the purchasing power of the currency and with this policy, they achieve two things: Inflation is a hidden transfer of wealth from deposit savers and real wages to the government; it is a disguised tax. Additionally, the government expropriates wealth from the private sector, making the productive part of the economy assume the default of the currency issuer by imposing the utilization of its currency by law as well as forcing economic agents to purchase its bonds via regulation. The entire financial system’s regulation is built on the false premise that the lowest-risk asset is the sovereign bond. This forces banks to accumulate currency—sovereign bonds—and regulation incentivizes state intervention and crowding out of the private sector by forcing through regulation to use zero to little capital to finance government entities and the public sector.

Once we understand that inflation is a policy and that it is an implicit default of the issuer, we can comprehend why the traditional sixty-forty portfolio does not work.

Currency is debt and sovereign bonds are currency. When governments have exhausted their fiscal space, the crowding-out effect of the state on credit adds to the rising taxation levels to cripple the potential of the productive economy, the private sector, in favor of constantly rising government unfunded liabilities.

Economists warn of rising debt, which is correct, but we sometimes ignore the impact on currency purchasing power of unfunded liabilities. The United States’s debt is enormous at $34 trillion, and the public deficit is intolerable at nearly $2 trillion per year, but that is a drop in the bucket compared with the unfunded liabilities that will cripple the economy and erode the currency in the future.

The estimated unfunded Social Security and Medicare liability is $175.3 trillion (Financial Report of the United States Government, February 2024). Yes, that is 6.4 times the GDP of the United States. If you think that will be financed with taxes “on the rich,” you have a problem with mathematics.

The situation in the United States is not an exception. In countries like Spain, unfunded public pension liabilities exceed 500% of GDP. In the European Union, according to Eurostat, the average is close to 200% of GDP. And that is only unfunded pension liabilities. Eurostat does not analyze unfunded entitlement program liabilities.

This means that governments will continue to use the “tax the rich” false narrative to increase taxation on the middle class and impose the most regressive tax of all, inflation.

It is not a coincidence that central banks want to implement digital currencies as quickly as possible. Central Bank Digital currencies are surveillance disguised as money and a means of eliminating the limitations of the inflationary policies of the current quantitative easing programs. Central bankers are increasingly frustrated because the transmission mechanisms of monetary policy are not fully under their control. By eliminating the banking channel and thus the inflation backstop of credit demand, central banks and governments can try to eliminate the competition of independent forms of money through coercion and debase the currency at will to maintain and increase the size of the state in the economy.

Gold vs. bonds shows this perfectly. Gold has risen 89% in the past five years, compared to 85% for the S&P 500 and a disappointing 0.7% for the US aggregate bond index (as of May 17, 2024, according to Bloomberg).

Financial assets are reflecting the evidence of currency destruction. Equities and gold soar; bonds do nothing. It is the picture of governments using the fiat currency to disguise the credit solvency of the issuer.

Considering all this, gold is not expensive at all. It is exceedingly cheap. Central banks and policymakers know that there will be only one way to square the public accounts with trillions of dollars of unfunded liabilities. Repay those obligations with a worthless currency. Staying in cash is dangerous; accumulating government bonds is reckless; but rejecting gold is denying the reality of money.

However, capital immobility hindered trade among countries. Since encouraging free trade was one of the initial goals of the system, it was undermined by capital immobility, leading to the collapse of the Bretton Woods system.

The Burning Platform‘s economic and political writer Brandon Smith recently warned: “Think of world reserve status as a ‘deal with the devil.’ You get the fame, fortune, trophy dates and a sweet car for a while. Then one day the devil comes to collect and when he does, he’s going to take everything, including your soul. Unfortunately, I suspect collection time is coming soon for the United States.”

According to him, the Department of the Treasury understands that there is constant demand for dollars overseas as a means to more easily import and export goods. The petrodollar monopoly made the U.S. dollar essential for trading oil globally for decades. Of course, the central bank of the U.S. has been able to create fiat currency from thin air to a far higher degree than any other central bank on the planet while avoiding the immediate effects of hyperinflation, he added.

As a result, the cash ended up in the coffers of foreign central banks, international banks and investment firms. Sometimes it is held as a hedge or bought and sold to adjust the exchange rates of local currencies. As much as 60 percent of all U.S. currency and 25 percent of the national debt is owned outside America.

The current problem is that the Fed is overprinting dollars that it stows currency, but it has time constraints. Eventually the effects of overprinting “come home to roost.” And it may take a brand-new Bretton Woods-like system that removes the dollar as the global reserve currency and replaces it with a new digital basket system like the IMF’s Special Drawing Rights (SDR) currency.

Lately, international banks are already expressing a shift from a dollar-based financial world to using a central bank digital currency (CBDC)-focused system built on unified ledgers. This will place the IMF as the middleman controlling the flow of digital transactions. (Related: IMF “working hard” on new global CBDC platform to replace dollar and other national currencies.)

“We could end up in a world where we have connected entities to some degree, but some entities and some countries that are excluded. And as a global and multilateral institution, we’re sort of aiming to provide a basic connectivity, a basic set of rules and governance that is truly multilateral and inclusive,” the IMF noted in a discussion on centralized ledgers in 2023.

Former White House economist says BRICS could swing an “economic wrecking ball” at dollar dominance

Thanks to BRICS, a bloc comprising Brazil, Russia, India, China, South Africa and, as of 2024, new members Egypt, Ethiopia, Iran and the United Arab Emirates, an economic wrecking ball could be swung to break dollar hegemony, especially since the bloc has been gaining more influence and growing its size.

This was according to former White House economist Joe Sullivan. In a recent op-ed for Foreign Policy, he pointed to mounting fears that BRICS nations could create a currency to rival the U.S. dollar in international trade. Though BRICS officials have said there is no such rival currency in the works, the group could pose a threat to the greenback based on its growing influence, Sullivan warned.

Now that Egypt, Ethiopia and Saudi Arabia already joined BRICS, they could influence over 12 percent of all global trade. That’s because those three countries surround the Suez Canal, a key passage for goods to flow into international markets.

The economist further said that BRICS has major sway in commodities markets. Saudi Arabia, Iran, and the United Arab Emirates are among the world’s top exporters of fossil fuels. Brazil, China, and Russia, meanwhile, are major exporters of precious metals.

Saudi Arabia’s joining could give BRICS a major advantage. The Middle Eastern nation owns over $100 billion in U.S. Treasury bonds, which has helped bring BRICS’ total holdings in the Treasury over $1 trillion, Sullivan further stated.

“The BRICS+ nations do not need to wait until a shared trade currency meets the technical conditions typical of global reserve currency before they swing their newly enlarged economic wrecking ball at the dollar,” he added.

Sound off about this article on the Economic Collapse Substack.

DollarDemise.com has more stories on the death of the dollar. Watch the video where Andy Schectman talks about economic Armageddon, forced CBDC and BRICS. This video is from Sarah Westall’s channel on Brighteon.com.

More related stories:

• IMF says SEIZURE of frozen Russian assets must have sufficient legal support.
• IMF hints that countries will soon be able to repay debt using Chinese YUAN currency.
• Move over USD: Argentina uses Chinese yuan to settle IMF debt.
• IMF unleashes Unicoin, a new global CBDC intended to enslave the entire planet under a one world digital currency.

Sources include:

• CorporateFinanceInstitute.com
• TheBurningPlatform.com
• Expose-News.com
• Markets.BusinessInsider.com
• Brighteon.com

“Yes, it’s a good thing for stackers when the prices of gold and silver go up in dollars,” he told “Liberty and Finance” host Elijah K. Johnson on Dec. 5. “But the other way we need to look at it … is that the dollar is going down versus gold and silver in the long term.”

Inneco cited Venezuela as an example of this. The South American country’s fiat currency, the bolivar, became worthless when the gold trading faltered. “I think the same thing is [going to] happen to the dollar and all the other fiat currencies vis-a-vis gold and silver,” he added.

Meanwhile, Johnson remarked that people were seeing a new intra-day high for gold prices, surging above the $2,150 mark. Innecco said some friends told him about this development, but he advised them not to get too excited and to just stay level headed.

Innecco, a financial markets and macroeconomic analyst, said he had seen gold rise to $2,130 before going down to around $2,070 – its all-time high from 2020. Days before, it closed at $2,072, just above the 2020 spot price.

Johnson’s guest commented that while the price of gold fluctuates, its value hasn’t changed. In contrast, fiat currency changes because the central bank issues too much of it.

Greenback lost 98% of its value versus gold in 1971

Innecco also recounted how the dollar lost 98 percent of its value versus gold back in 1971, when former U.S. President Richard Nixon closed the gold window that year. He added that some people will trade gold for fiat money, something he called a completely different game.

Johnson meanwhile remarked that the volatility in the gold market has caused worry among people. In response, Innecco said key technical levels being breached in the last few years is the reason.

He also shared that based on a report about the Sharpe ratio of certain investments, gold was third on the list. In contrast, cryptocurrency was way low on the ranking. According to Investopedia, the Sharpe ratio “compares the return of an investment with the risk.”

“It’s actually a very, very stable if you want to call it investment. I think the top two were like long and short hedge fund portfolios or stuff that was really hedged,” said Inneco.

The analyst also warned that putting gold with the banks in exchange for fiat currency is a bad idea since it won’t be even legally owned by someone, essentially making it an unsecured loan. He also advised against having a lot of money in the bank, given the multiple bank failures that happened in March. According to Innecco, the latest Federal Deposit Insurance Corporation (FDIC) numbers weren’t very good when it came to the unrealized losses on securities.

He ultimately asked viewers whether they want to finance the current administration in the U.S. or the U.K., which has allowed migrants in. Keeping fiat currency in the bank means people are indirectly financing their own collapse.

Head over to GoldReport.news for more stories about gold and its link to fiat currency. Watch Mario Innecco discuss why the dollar is in trouble with the rising gold prices below.

This video is from the Liberty and Finance channel on Brighteon.com.

More related stories:

• Gold Newsletter: 2023 will be a bearish year for stocks and bonds, but a bullish one for precious metals.
• Gold price jumps to 8-month high, eventually settles above $1,900 level.
• Israel-Palestine war causes GOLD PRICES to RALLY as demand for safe haven investment increases amid chaos.
• The Health Ranger denounces DISHONEST and UNRELIABLE fiat currency banking system.
• Federal Reserve to print another $2 trillion in fake fiat funny money to bail out financial terrorists, further devaluing dollar.

Sources include:

• Brighteon.om
• FederalReserveHistory.org
• Investopedia.com

… all eyes were on Jerome Powell today to see if the Fed chair would say something to stem the surging stock market tide following the month which saw the biggest easing in financial conditions on record, equivalent to nearly 4 rate cuts.

We got the answer shortly after 11am ET, when after what seemed to be otherwise balanced remarks with a dose of hawkish comments…

“It would be premature to conclude with confidence that we have  achieved a sufficiently restrictive stance, or to speculate on when  policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so.”

… offset by some clearly dovish statements…

“The strong actions we have taken have moved our policy rate well into restrictive territory, meaning that tight monetary policy is putting downward pressure on economic activity and inflation. Monetary policy is thought to affect economic conditions with a lag, and the full effects of our tightening have likely not yet been felt.”

… and generally sounding rather optimistic while answering student questions, saying that the US is on the path to 2% inflation without large job losses – i.e., a soft landing – which helped the market to convince itself that Powell had just given the green light for a continued market meltup (thanks to the blackout period, there will be no more Fed comments until the Dec 13 FOMC) as Bloomberg put it…

“Powell points to how the Fed’s past tightening moves will continue to have an impact on the economy — the full impact hasn’t been felt yet. If anybody thought the Fed wasn’t finished raising rates, his prepared remarks today sure put a fork in it. They are done.”

…. and what happened next was a violent repricing in easing odds, with March rate cut odds hitting a lifetime high of 80%, effectively doubling overnight and up from 10% just 5 days ago…

… which then immediately cascaded across assets and sent everything exploding higher, led by stocks which surged above 4,600 for the first time since the July FOMC (aka the “final rate hike”)…

… and one look below the surface reveals that this was indeed the QE trade: the Nasdaq barely rose while meme stonks and most shorted names exploded higher.

And yet, this eruption in the most shorted/hated names means that hedge funds actually had a catastrophic day: and indeed, looking at the HF VIP (most long) less most shorted basket pair trade we see a whopping 5% drop as many hedge funds were stopped out and margin called.

Putting today’s plunge in contact, this was the worst day for hedge funds since June 2021 and the second worst day since the covid crash!

Next, looking at the bond market, here too everything jumped but especially 2-Year TSYs, whose yields tumbled a whopping 12bps to 4.56%…

… and on course for the biggest weekly slide since the regional banking crisis in March, down almost 40bps.

Yet neither stocks, nor bonds, had quite as much fun as either “digital gold”, with Bitcoin briefly hitting a fresh 2023 high, briefly surging to $39,000 before easing back with Ether rising to $2100 …

… but the biggest winner by far from today’s market conclusion that a renewed dollar destruction is on deck, was gold which briefly rose above its all time high of $2,075…

… and that’s just the start: now that a new record is in the history books, a frenzy of gold calls was bought, both for futures and the biggest ETF tied to the metal, and as shown in the chart below, the buildup of open interest between $2,000 and $2,500 has been relentless over the past week on growing optimism that rates are primed to decline. Next up for gold? $2500 or higher.

Yet not everyone had a great day: the dollar predictably tumbled, extending it losses for a third straight week, the longest streak since June, and comes after the dollar saw its worst month in a year this November.

One dollar pair trade where the convexity is especially high is USDJPY, which after soaring for much of the past year suddenly finds itself in a Wile E Coyote moment, trading just below the 100DMA. Should the selling persist, we may see the pair quickly tumble down to 140, or lower.

To be sure, not all the moves made sense: as Bloomberg noted, bonds have a better reason to rally than stocks, which have to factor in the growth concerns that underpin Powell’s remarks. Evidence is gathering that the economy is slowing and stocks will have to reconcile that with their bullish rate views. Today’s ISM Manufacturing data is case in point that the stagflationary slowing that started in October — and Bloomberg Economics says it’s observing typical early signs of recession — extended last month.

The ISM commentary was generally downbeat, equally split between companies hiring and others reducing their labor forces “a first since such comments have been tracked” according to Bloomberg.

But it gets worse: the latest update to the Atlanta GDPNOW tracker slipped to 1.2% from 1.8% yesterday and over 2% just last week.

And after diverging for much of the year, all three regional Feds that do GDP nowcasts have converged on 2% –  a far cry from the “5.2%” GDP print the Biden department of seasonal adjustments goalseeked last month.

Bottom line: the onus is now on the payrolls report next week to further guide markets into next year. The continued rise in ongoing jobless claims pose a risk that unemployment could rise further. But so far, this isn’t a consensus view, with economists projecting the unemployment rate to stay unchanged at 3.9% (and more see a 3.8% rate than 4%).

And while that may only add more fuel to the rate-cut speculation, at some point the softening in economic data will have to be squared with its impact on profits. As a reminder, while much of the interval between the last rate hike and the first rate cut is favorable for risk assets, the weeks right before the cut usually send stocks anywhere between 10% and 30% lower as the market realizes just why the Fed is panicking.

However, judging by today’s action, we still have some time before that particular rude awakening kicks in.

You know how most laws passed by Congress have some fancy name– like the “Inflation Reduction Act” or the “USA PATRIOT Act” or some such nonsense?

Well, on November 7, 1973, US Senator James Fulbright introduced a very short bill– it was only ONE page– that didn’t even have a name. But Fulbright’s unnamed bill ended up being one of the most important pieces of legislation in US history.

By the time Fulbright introduced his bill, it had been two years since the legendary “Nixon Shock” of 1971. That was when US President Richard Nixon implemented wage and price controls, and canceled the US dollar’s convertibility into gold.

Nixon famously promised the American public that there wouldn’t be any negative consequences from his actions. Yet inflation hit 3% the following year, in 1972. Then 4.7% in 1973. Then 11.2% in 1974.

Simultaneously, gold prices around the world were surging… from $35/ounce before the Nixon Shock, to more than $170 in 1974.

But individual Americans weren’t allowed to benefit from those gains thanks to a forty year old executive order that had been signed in 1933 by then President Franklin Roosevelt.

Roosevelt’s Executive Order 6102 criminalized the private ownership of more than $100 worth of gold in the United States. Roosevelt also gave Americans just 25 days to turn over their gold to the Federal Reserve… or else face up to ten years in prison.

Naturally, plenty of Americans were outraged, and a number of lawsuits were filed claiming that Roosevelt’s order was unconstitutional.

Roosevelt was rightfully worried that the Supreme Court would overturn his order. And at a certain point he considered packing the court, i.e. appointing several sympathetic judges to the Supreme Court to ensure his victory. He also considered issuing another order which would make it illegal to sue the federal government.

Fortunately for Roosevelt, however, he didn’t have to implement any of those actions; the Supreme Court very narrowly ruled in his favor, and his Executive Order stood as law of the land for four decades… until Senator Fulbright’s no-name law was finally passed on August 14, 1974.

It went into effect the following year, and Americans were suddenly free once again to exchange their rapidly-depreciating US dollars for gold.

Unsurprisingly, gold prices started rising dramatically in the second half of the decade… from about $180 in 1975, to a whopping $850 in January 1980.

And the declining dollar was just one reason for gold’s popularity; remember, the United States suffered a deluge of troubles during the 1970s and early 1980s.

The world found out that the US President was a criminal during the Watergate scandal of 1974. Then there was the humiliating US withdrawal from Vietnam in 1975, complete with a helicopter evacuation of the American embassy in Saigon.

Iran seized 52 US citizens in 1979 and held them hostage for more than a year. Inflation raged, peaking at 13.6%. The economy stagnated and fell into recession. Troubles in the Middle East (including conflict with Israel) led to energy shortages and rising fuel prices.

Civil unrest and ‘mostly peaceful’ protests were a constant problem in the 70s and 80s. Meanwhile, criminals rampaged across American cities, and the murder rate soared. Major cities like New York, LA, and Chicago became synonymous with violent crime.

The world stopped making sense. And gold became a safe haven from that chaos.

There’s an old saying (originally a Danish proverb) suggesting that if history doesn’t repeat, it certainly rhymes. And I think it’s obvious that we’re facing many of the same challenges today.

There are major problems in the Middle East. Energy is becoming scarce (especially in Europe). The US military suffered a humiliating withdrawal from Afghanistan. Civil unrest and crime rates are totally unacceptable. Inflation continues to rage. And the President, a.k.a. “the Big Guy” appears suspicious A.F.

Just like in the 1970s, gold represents a safe haven from this chaos. And even though it’s hovering at a near-record around $2,000, I think that there is still a long way for gold to rise.

The US national debt is now $33.7 trillion; that’s up more than HALF A TRILLION just in the month of October.

The people in charge have absolutely zero fiscal restraint. Zero responsibility. Zero sense of how destructive their actions are. They spend money and go deeper into debt as if there will never be any consequences, ever, until the end of time. They’re disgustingly ignorant, and dangerous.

The truth is that there are serious consequences to all of this debt. And we don’t have to guess what they are.

The Congressional Budget Office is already projecting that, by 2031, the US government will spend 100% of its tax revenue just on mandatory entitlements (like Social Security) and interest on the debt.

This means that, after 2031, the funding for literally everything else in government– from the US military to the light bill at the White House– will have to be funded by more debt.

That’s only 7 years away.

Then, two years later in 2033, Social Security’s primary trust fund will run out of money; this will cost the government an additional $1 trillion in additional spending each year to keep the program running. Naturally they’ll have to borrow that money too.

Eventually the national debt will become so large that simply paying interest each year will consume more than 100% of tax revenue.

The Federal Reserve will most likely attempt to bail out government by creating trillions upon trillions of dollars. But just as we saw over the past few years, such actions will most likely result in much higher inflation.

Disgusted with their financial circumstance, voters across America will likely turn to Socialist politicians who blame all the problems on the evils of capitalism, rather than their own incompetence. And with a majority of leftists running the country, they’ll only make things worse.

I also anticipate more conflict in the world, thanks in large part to the continued decline of America’s stature and reputation for strength.

It’s also quite likely that the US dollar could lose its royal status as the world’s dominant reserve currency by the end of the decade.

I don’t necessarily believe that the dollar will simply vanish from global trade. But it won’t be “King” dollar anymore. Perhaps more like “Earl” or “Viscount” dollar, alongside other currencies and exchange mechanisms– including gold.

In fact we could easily see central banks around the world ditching their US dollars and loading up on gold as part of a new, de-dollarized global financial system.

This could potentially trigger trillions of dollars worth of capital inflows into the gold market, causing a surge in gold prices.

And these are just some of the reasons why gold could still have a long, long way to rise from here.

Bear in mind that I’m not thinking about the gold price next month, or even next year. I think long-term, and my views on gold are based on trends that will likely continue to unfold over the next decade.

I’m not a ‘gold bug’. I don’t have a fanatical view about anything other than my own children. I’m not a gold speculator either.

But it’s obvious to me that in an upside down world where there are such obvious long-term threats to the US dollar, it makes sense to look for real stores of value.

And that’s why $2,000 gold could just be the beginning of a much bigger story.

With G7 national finances spiraling out of control, debt traps are being sprung on all of them, with the sole exception of Germany.

Malinvestments of the last fifty years are being exposed by the rise in interest rates, increases which are driven by a combination of declining faith in the value of major currencies and contracting bank credit. The rise in interest rates is becoming unstoppable.

Do not be surprised to see a US Government deficit exceeding $3 trillion this fiscal year, half of which will be interest payments. And in the run-up to a presidential election, there’s every sign of deficit spending increasing even further.

We now face America and her allies being dragged into another expensive conflict in the Middle East, likely to drive oil and natural gas prices higher; far higher if Iran becomes a target. With the Muslim world united against Western imperialism more than ever before, do not discount the closure of Hormuz, and even Suez, with unimaginable consequences for energy prices.

The era of interest rate suppression is over. G7 central banks are all deeply in negative equity, in other words technically bankrupt, a situation which can only be addressed by issuing yet more unproductive credit. These are the institutions tasked with ensuring the integrity of the entire system of bank credit.

This is not a good background for a dollar-based global credit system that is staring into the black hole of its own extinction.

The end for the dollar is nigh

There are a number of events coming together that suggest we are about to undergo a major upheaval in world economic, financial, and monetary affairs. It’s like one of those bush fires, which you fight in front of you, only to find that suddenly the flames are behind you as well, then on your right and your left. It becomes so hot that things are spontaneously combusting all around you and there is no escape. This is the condition currently faced by central bankers.

Just when interest rates have risen to a peak, they seem to be rising again. Surely, investors argue, the firefighting central banks must lower rates to save debtors, to save the banks, and to save themselves. But they do not control interest rates. They are being set by debt traps and over-leveraged banks trying to control lending risk. Accelerating demand for credit to pay higher interest rates is meeting a growing reluctance to lend. And to top it all, an alliance of Russia, the Saudis, and Iran are deploying control of the global oil supply, with the intention of forcing prices higher. Energy is the lifeblood of any economy. The last thing the West needs is another war in the Middle East. And now we look like having that as well.

The history of the dollar as the world’s reserve currency has been one of struggling from crisis to crisis on a worsening trend. Recent history saw the credit bubble of the nineties ending with the dot-com madness and its collapse, followed by what was commonly termed the Great Financial Crisis of 2008—2009. Given our current predicament, that description seems like mere hyperbole, because we now face an even greater crisis. Is it possible to kick the tin can down the road once again?

It seems unlikely, even allowing for the past experience of successful statist rescues from financial crises: somehow, the authorities have always been able to calm a crisis. But this time, the Global South, the nations standing to one side of all this but finding their currencies badly damaged by unfavorable comparisons with a failing dollar, a dollar forced into higher interest rates in a world that knows of nowhere else to go — this non-financial world is on the edge of abandoning American hegemony for a new model emerging from Asia.

The transition from the global status quo is bound to be a difficult affair. That the US Government is ensnared in a debt trap and is being forced to borrow exponentially increasing amounts just to pay the interest on its mountainous debt is not the fault of other nations. But many of them in turn are being forced to pay even higher interest rates, irrespective of their budgetary positions, and irrespective of their balance of trade. Yet their currencies continue to weaken even against a declining dollar.

The lesson for all of them is to not listen to the mathematical economists spouting Keynesian and monetary theories. The Russians with a trade surplus and a debt-to-GDP ratio of under 20% even when it is at war compare extremely well statistically with the US Government. If it wasn’t Russia, we would rate its financial condition highly. But the rouble still collapses, forcing Russia’s central bank to raise its short-term interest rate to 15%. The reason is simply that no one trusts roubles, but they still believe in the dollar as a safe haven.

However, there is every sign that the 52-year era of the purely fiat dollar is ending. Some foreign governments appear to be liquidating their US Treasury holdings to protect their own currencies. Japan, which is fighting to keep its yen from further collapse, has been selling recently, as has China (though for her there may be political reasons as well). The knock-on effects of the dollar’s debt trap are vividly apparent in weakness for the yen, yuan, rupee, and euro whose charts against the dollar are shown below. The effect of the dollar’s strength on lesser currencies is even worse.

Everyone assumes that the Fed must and will end this madness, not least because of the consequences for overindebted American businesses, the banks, and the Treasury itself. But what if the Fed is powerless, what if the situation is escalating beyond its control, and what if by reducing its funds rate the dollar would simply weaken pushing up consumer prices? And what if the Treasury finds funding the Government’s massive borrowing difficult even at higher interest rates?

Suddenly, that appears to be increasingly likely. The global south, which is the new name for those either in the Asian hegemons’ camp or considering joining it will need to find an alternative to being compared unfavourably in the foreign exchange markets with a failing dollar. The pressure for a whole new monetary system for the emerging nations is increasing.

In the past, currency boards linking a failing currency firmly to the dollar have been an effective solution. The problem for all currencies not formally tied to the dollar is that they will always be secondary forms of fiat. There is only one answer, and that is to abandon the dollar and return to tried and trusted gold standards.

Gold is real legal money internationally, whose value is constant over time. The world is learning the hard way that it is unattached credit which is unstable. And as the US sinks deeper into its debt trap a fiat currency credit crisis is just beginning.

In this article, we look at the major moving parts that are leading to the end of the entire fiat currency system. It is not just the dollar in crisis. By following the same monetary and economic policies, the Eurozone, Japan, and the UK are in similar difficulties, not to mention a host of other advanced nations.

The US Government’s debt trap

Last May, the Congressional Budget Office forecast a budget deficit of $1.5 trillion for fiscal 2023, which ended last September, including net interest payments on government debt of $663bn. The St Louis Fed’s chart below shows that the interest element was wildly underestimated. The outturn was actually $981bn, 48% higher than the CBO expected.

In its debt interest forecast, the CBO estimated the net interest rate to be 2.7%. At the time the forecast was published, the 3-month T-bill rate was over 5%, but the yield curve was deeply negative, with the 10-year US Treasury note yielding 3.7%. In the current fiscal year, the CBO estimated the interest cost to average 2.9%. But with the current year’s deficit likely to be considerably higher, and $7.6 trillion of maturing US Treasury debt required to be refinanced at current and potentially higher rates, official estimates of interest costs are far too low. In fact, the CBO didn’t expect interest costs to exceed 3% until fiscal 2030.

More realistic estimates will emphasize the debt trap danger. The deficit outturn was officially stated as $1.69 trillion, to which a further $300bn must be added back because when President Biden’s proposal to pay off student loans was rejected by the Supreme Court, the money “saved” was simply added back as a reduction in expenditure. A truer figure for the 2023 deficit was $2 trillion.

Nevertheless, at $981bn debt interest was approaching half the total deficit. The deficit for the current fiscal year commences with interest on $33.5 trillion of which $26.3 trillion is in public hands, and the average interest rate is not going to be the CBO’s estimate of 2.9%. Already, we see the cost of funding the $7.6 trillion of debt being refunded this year plus the $1 trillion of existing interest costs having risen to over 5%, adding an extra $200bn on interest costs alone.

To this must be added additional interest costs for the underlying budget deficit this year. There is no knowing how high this will be. But allowance for the consequences of higher interest rates must be made, which are essentially recessionary. Much has been made of recent figures showing US GDP growing persistently, with the third quarter outturn up 4.9%, leading to the Fed’s tight monetary policy being justified. But there are fundamental errors in this way of thinking which radically affects the budget outcome.

If we look at raw GDP figures, we see that in the 2023 fiscal year, GDP increased by just under $1.9 trillion. Including the student loan accounting trick, this is remarkably close to the $2 trillion budget deficit. While we cannot equate the two numbers absolutely, particularly when nearly half the deficit is interest expense, we should not ignore the fact that some of this interest enters the real economy, there are additional deficits from state governments, and that the rest of the deficit contributes almost entirely to GDP.

Therefore, instead of nominal GDP increasing 7.5%, private sector GDP probably increased hardly at all. But the rate of CPI inflation for the fiscal year was recorded at 3.6%, or according to Shadowstats.com based on the original 1980-based calculation method about 12% — take your pick. We can therefore say that despite the bullish growth headlines and allowing for CPI inflation, the US is already in recession.

This is the background to the US Government’s revenue income and expenditure prospects for fiscal 2024, confirmed by business surveys and anecdotal evidence. Already, we can see that estimates of tax revenue will fall short because profits decline in a recession and unemployment rises (with respect to unemployment, government statistics are notoriously unreliable and can be safely disregarded). While tax revenue declines, mandated welfare and other costs increase. Taking the last fiscal year’s ex-interest deficit of about $1.1 trillion as our base, the current year’s deficit will be significantly more due to the recessionary consequences of higher interest rates. And President Biden is trying to get a revised version of student loan relief past the courts, emblematic of yet more increases in government spending. After all, the current fiscal year is the last in the Presidential election cycle when traditionally electors are bribed with extra government spending.

Let’s pencil in a reduction of revenue by $500bn and an increase in outgoings of a similar amount to increase the deficit ex-interest by about $1 trillion to $2 trillion.

The interest bill is already growing exponentially. We can see that the funding requirement for new debt will be $2 trillion in excess spending, plus at least another $1.3 trillion of interest (allowing for the $7.6 trillion of debt to be refinanced), totaling over $3.3 trillion in total. Clearly, it won’t take much more of a credit squeeze and the increasing likelihood of a buyers’ strike to push the interest bill to over $1.5 trillion.

Higher interest rates are accelerating the debt trap

I have recently written about why in a world of fiat currencies interest rates do not represent “the cost of credit” except perhaps to borrowers. It is more about what a depositor thinks the purchasing power of the currency will be at the end of a loan period, plus something for counterparty risk, and plus another something for the temporary loss of the use of the depositor’s funds, the last of which is known as time preference. Unless the Fed understands this (and there’s not much evidence that this is so) then interest rate policy is fatally misguided.

There are two categories of lenders to consider — domestic who are generally captive, and foreign who are not. The reasons foreigners hold dollars and dollar assets are to do with trade settlement requirements, including the purchase of commodities which are nearly always priced and valued in dollars, and investment. On both these grounds, their requirements are changing, probably for the worse. Higher interest rates are hitting global production, leading to less demand for trade dollars, and at some stage higher interest rates will lead to portfolio losses and widespread portfolio liquidation of dollar assets by foreign investors.

Foreign interests in dollars are split as shown in the following table.

Other than the short-term debt of $7.293 trillion, the rest of these financial assets are highly interest rate sensitive, equities acutely so which is the largest investment category. The next chart shows the valuation gap that has already opened up between rising bond yields and equities represented by the S&P 500 Index (arrowed).

The chart shows the tight negative correlation between the yield on the long bond (right-hand scale) and the S&P 500 Index (left-hand scale) by inverting the yield. Since the Lehman crisis, the falling bond yield has led the S&P higher, to an extreme divergence in July 2020. Since then, the divergence has reversed spectacularly, indicating that the S&P is now wildly overvalued relative to bond yields and a sharp fall in equities is almost certain. On this basis, a target for the S&P (currently 4,120) of between 500 and 1000 can be justified if this valuation gap is to close and if the long bond yield remains at current levels or higher.

If, as seems very likely, US bond yields rise from here, US equities are due for a significant crash. In that event, with financial asset values falling there can be little doubt that foreign investors will be reducing their exposure dramatically. Some of this reduction is likely to lead to higher short-term balances in banks and T-bills. But it is hard to envisage foreign liquidation of US assets not leading to dollar selling. Some of this liquidity is bound to return to its currencies of origin because, from an accounting point of view, that is always the risk-free option. But some of it is bound to go into physical gold because that is the risk-free international money.

Why interest rates will rise from here and the consequences

The valuation gap between bonds and equities is not unique to the US, being in common with other financial jurisdictions as well. That it exists indicates investors are discounting lower interest rates in time. But what if this is wrong, and interest rates are headed higher still?

In the introduction, I mentioned the alliance between Russia, Saudi Arabia, and Iran, who with the Gulf Cooperation Council dominate global oil and gas supplies. These nations have an interest in ensuring that oil’s value, priced in declining dollars, is maintained in real terms. Furthermore, Russia sees energy prices as an economic weapon useful for putting pressure on European NATO members with a view to splitting them off from American control. And now we face a new flashpoint between Israel and Hamas, which is likely to spread to a conflict involving America and Iran, which could lead to the closure of the Straits of Hormuz, and possibly Suez as well.

For now, markets appear to be complacent in the face of these factors. But as the situation evolves this is unlikely to last, and oil and gas prices could rise significantly as these risks grow.

European energy stocks are insufficient to see Europe through the winter, and the US’s strategic reserves are depleted. There is no better time for this OPEC+ cartel to force prices higher, and by recently cutting the supply of 1.3 million barrels of oil per day that is precisely what the Saudis and Russia are doing. Heating oil and diesel prices are likely to rise strongly as well, if only because Russia has stopped exporting these distillates. The relevance of diesel is that over 95% of all European distribution logistics are delivered by diesel power, increasing the production and delivery costs of all consumer goods.

Consumer prices are what the central banks watch when setting interest rates. And due to energy factors, the outlook is for rising consumer and wholesale prices to accelerate again. Additionally, commercial banks’ balance sheets are highly leveraged, and they have been caught with bond investment values declining while funding costs have risen above their yields. They find that commercial property loans and lending to businesses are threatened by higher interest rates and recessionary conditions. In the current interest rate environment, there are very few buyers for these assets if banks are forced into liquidating collateral against loans.  Consequently, they are reducing bank lending and de-risking their balance sheets where they can.

This is why irrespective of central bank policy, the shortage of credit is driving borrowing rates higher, and the cost of novating maturing debt is rising, if the credit is actually available — which increasingly is rarely the case. It is an old-fashioned credit crunch, not really seen since the 1970s. And it has only just started.

These conditions are very different from the long decline in interest rates from the 1980s, and the subsequent period when they sat at or below the zero bound. The world of fiat currencies has become destabilized, not by the detachment from gold and the market’s adjustment to it as was the case in the 1970s, but by extreme interest rate suppression, inflationary excesses, unproductive debt creation, and massive government debt overhangs. Debt-to-GDP ratios of the G7 group of countries in 2022 averaged 128%. This list was headed by Japan at 260.1%, followed by Italy at 144%, the US at 121.3%, France at 111.8%, Canada at 107.4%, the UK at 101.9%, and Germany at 61.8%. The conditions of currency instability of the 1970s with their higher interest rates have returned, giving rise to an overriding question: how are these budget deficits going to continue to be financed?

US deficits were financed since the early 1980s against a long-term trend of declining bond yields, so every participant in bond auctions began to know that in time bond values would always improve, even if the short-term outlook was uncertain. That is no longer the case.

While it would be a mistake to ignore the skills with which the authorities and the primary dealers manage debt auctions, with a trend of rising rates there will be times when auctions are bound to fail. In the 1970s, this happened several times in the UK, primarily because the UK Treasury effectively managed the debt management office through its control of the Bank of England and Treasury officials didn’t understand markets. Nevertheless, we saw gilt issues with coupons of 15% and over. Imagine what similar funding rates would do to government finances today, with the G7 debt ratio averaging 128% last year.

Relatively quickly, some governments are bound to run into severe funding difficulties, which can only be resolved by overtly inflationary means.

The entire G7 banking system is broken

A further problem arising from the excesses of the past is that the entire banking system from central banks downwards is in dire straits. Central banks that implemented QE did so in conjunction with interest rate suppression. The subsequent rise in interest rates has led to substantial mark-to-market losses, wiping out their equity many times over when realistically accounted for. Central banks claim that this is not relevant because they intend to hold their investments to maturity. However, in any rescue of commercial banks, their technical bankruptcy could become an impediment, undermining faith in their currencies.

As the reserve currency for the entire global fiat currency system, the dollar and all bank credit based upon it is likely to be the epicenter of a global banking crisis. If other currencies weaken or fail, there could be a temporary capital flight towards the dollar before a wider financial contagion takes over. But if the dollar fails first, all the rest fail as well.

The condition of the US banking system is therefore fundamental to the global economy. But there are now signs that not only is US bank credit no longer growing but it is contracting sharply.

The chart above is the sum of all commercial bank deposits plus reverse repurchase agreements at the Fed. While the latter are technically not in public circulation, they have been an alternative form of deposits for large money market funds that otherwise would be reflected in bank deposits. Recently, having soared from nothing to a high of $2,334.3 billion last September, reverse repos subsequently declined by $1,250 billion. Subtracting this change from bank deposits shows the truer contraction of bank credit to be $1,918 billion, which is a 9.4% decline from the high point earlier this year.

This contraction of credit in the banking system is likely due to reverse repo funds switching into Treasury bills, short-term government debt deemed to be the safest form of investment. It is wholly consistent with bank and shadow bank credit being de-risked.

The situation facing the other major fiat currencies differs mainly in the details. It is a sad fact that Basel III regulations have addressed balance sheet liquidity problems but failed to contain excessive expansion of bank credit relative to shareholders’ capital. Consequently, regulators in the Eurozone and Japan have tolerated asset-to-equity ratios of over twenty times for their global systemically important banks, when in the past ratios of twelve to fifteen times were deemed to be dangerously high. The contraction of bank credit is therefore likely to be more catastrophic in these jurisdictions than in the US, where ratios for major commercial banks are commonly less than twelve times.

Estimating balance sheet ratios does not tell the whole story. There are off-balance sheet factors as well, principally liabilities in regulated and over-the-counter derivative markets, which for the G-SIBs are larger than their entire balance sheets combined. According to the Bank for International Settlements, open interest in regulated futures totaled $37 trillion in June 2023, and in December last year, the notional value of OTC derivatives stood at an additional $630 trillion, giving us a total of $667 trillion. Banks, insurance companies, and pension funds are the counterparties in these transactions, and the failure of a significant counterparty acting in these markets could threaten the entire Western financial system.

The big picture is of an asset bubble which has come to an end. And by any standards, this one was the largest in recorded history.

Geopolitics and gold’s renaissance

The fiat currency problem is likely to be made more immediate by a new factor of nearly four billion people rapidly industrializing under the leadership of China and Russia. The evidence strongly suggests that these two hegemons see monetary matters similarly to the author of this article and that they are now ready to protect themselves from an impending collapse of their western enemies’ currencies.

China and Russia have accumulated significant quantities of gold, and by gold mine output is the world’s largest by far. The prospect of the Asian hegemons returning to gold standards is bound to draw attention by contrast to the weaknesses and fallacies behind fiat currencies.

For those of us under the yoke of fiat credit detached from any corporeal values, there is only one escape from a banking system that is now imploding. And that is to possess legal money as much as possible, which by both longstanding law and human habit is gold in bar and coin form. Physical silver is the money for smaller purchases. That is why Goldmoney was founded over twenty years ago, with the objective of providing a safe haven from a monetary system that was eventually bound to collapse. That moment now appears to have arrived.

The likelihood of a dollar collapse is being enhanced by the string of failed US foreign policies. Iraq, Syria, and Afghanistan are on the list, with other ventures, such as the collapse of Libya creating refugee havoc for Europe. It appears that Ukraine is a lost cause as well. And now, the Western alliance is swinging behind Israel in her attempt to root out Hamas from Gaza.

Any objective analysis indicates that US involvement is very likely to bring Hezbollah into the conflict, which involves Syria and Iran. There are US assets in Syria, which would then become a target for Iran, and Iran can easily block the Straits of Hormuz, choking off 20% of the world oil supply, and 18% of LNG. In that event, energy prices would obviously spike far higher, sharply pushing up G7 interest rates. Rational analysis suggests that this possibility would ensure that America and her NATO partners should back off and attempt a diplomatic solution.

The evidence is to the contrary, with America and Britain sending aircraft carriers into the Eastern Mediterranean, and Russian Mig fighters patrolling the Black Sea in striking distance of the Western alliance’s carriers.

What has changed is Muslim unity, fused together even more by Israel’s collateral damage against Palestinian citizens. Both Sunni and Shia Muslims, representing two billion people are now united against the Western alliance and its culture. The US’s policy of divide and rule is no longer appropriate.

US foreign policy is in tatters. If it presses ahead to reassert its dominance over the Middle East by getting involved militarily, the US will lack the support of former regional partners, and inevitably the threat to oil supplies will divide her NATO partners. If she decides not to get involved, that will confirm to the Middle East and the Global South that her days as the global hegemon are over.

Either way the prospects for King Dollar are not good. In a war scenario, there may be a temporary flight to the dollar before the implications for interest rates and financial asset values are better understood. If the US backs off, there may be a temporary relief rally in financial assets, but the message for the dollar is it is over-owned, and with the decline of US power, it should be sold on the foreign exchanges for gold.

Chinese investors sold $21.2 billion in US assets in August alone – primarily US Treasury bonds. Meanwhile, the Chinese government has been buying gold at a steady pace.

Writing at FXEmpire, analyst Vladimir Zernov said there are two dynamics driving the Chinese to sell US assets. The first is an effort to boost the yuan.

China’s currency has struggled against the dollar of late due to softness in the Chinese economy and recently hit multi-year lows. Selling dollar-denominated assets for yuan boosts the local currency at the expense of the dollar. Zernov said, “Selling dollar-denominated assets to provide support to yuan makes perfect sense.”

The second potential reason to sell US dollar-denominated assets is for further de-dollarization. In other words, the Chinese may be trying to minimize their exposure to the US currency for economic and geopolitical reasons.

From an economic standpoint, the Chinese have to be keenly aware of the US government’s budget problem. The US ran a $1.7 trillion deficit in fiscal 2023 and has a national debt north of $33.5 trillion. Why would any country want to be exposed to that kind of risk?

Furthermore, the US has a long history of using the dollar’s position as the reserve currency as a foreign policy hammer. By minimizing dependence on the greenback, countries can blunt America’s ability to control their foreign policy decisions.

This is why many countries are trying to minimize their exposure to the dollar. Confidence in the greenback continues to erode thanks to the profligate borrowing, spending, and money creation by the US government, while America’s use of the dollar as a foreign policy weapon also makes many countries wary of relying solely on dollars.

Zernov said that if China is trying to shift some of its money away from the US-controlled, dollar-dominated global financial system, there aren’t many options other than gold.

Gold is one of the few markets that has sufficient liquidity to absorb billions of dollars of China’s funds.”

The Chinese central bank has been on a gold-buying spree. As of the end of August, the People’s Bank of China had bought gold for 10 straight months and ranked as the largest central bank gold buyer this year. The Chinese central bank has increased its official reserves by 166 tons since the beginning of the year and 217 tons since it resumed official purchases last November. As of the end of August, the People’s Bank of China officially held 2,165 tons of gold, making up 4% of its total reserves.

China has a history of adding to reserves and then going silent. The People’s Bank of China accumulated 1,448 tons of gold between 2002 and 2019, and then reported nothing for more than two years before resuming reporting last fall. Many speculate that the Chinese continued to add gold to its holdings off the books during those silent years.

In fact, there has always been speculation that China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

Last year, there were large unreported increases in central bank gold holdings.  Central banks that often fail to report purchases include China and Russia. Many analysts believe China is the mystery buyer stockpiling gold to minimize exposure to the dollar.

Zernov pointed out that the Chinese tend to move slowly and it remains to be seen if the recent selloff in dollar-denominated assets translates to even more gold demand.

We will see whether the country decided to boost its gold holdings sometime in the first half of the next year. Any signs showing China decided to increase its gold reserves will be bullish for gold and may send its price toward new highs.”

The prevailing attitude is that the US government can borrow and spend indefinitely. After all, it hasn’t caused a problem so far. But a long fuse can burn for a long time before it finally reaches the powder keg.

I don’t know how long we have before the debt bomb explodes, but I do know we get closer and closer every day. And sadly, very few people care enough to address the problem. The recent government shutdown drama is a case in point.

A stopgap spending deal swept the shutdown threat out of the headlines, but it’s still there lurking in the shadows of the halls of Congress. If lawmakers don’t figure something out by Nov. 17, the government will be forced to shut down.

There isn’t much talk about a shutdown right now, but when people do discuss the possibility, they almost always focus on the mythical crisis that shuttering the federal government might cause. That sidesteps the real problem — out of control government spending.

Conventional wisdom is that Congress needs to do whatever it takes to avoid a shutdown. If that means maintaining spending at current levels or even increasing spending, so be it. The handful of intransigent members of Congress who want to hold out for spending cuts are always cast as the bad guys in this kabuki theater.  As economist Daniel Lacalle put it in a recent article published by Mises Wire, “The narrative seems to be that governments and the public sector should never have to implement responsible budget decisions, and spending must continue indefinitely.”

But the whole government shutdown charade is merely the symptom of a much deeper problem. The US government is over $33 trillion in debt. In fact, the Biden administration managed to add half a trillion dollars to the debt in just 20 days.

It’s hard to overstate just how bad the US government’s fiscal situation has become. We have a trifecta of surging debt, massive deficits, and declining federal revenue, and the federal government’s spending addiction is at the root of the problem. Lacalle summed it up this way.

The problem in the United States is not the government shutdown but the irresponsible and reckless deficit spending that administrations continue to impose regardless of economic conditions.”

In August alone, the Biden administration spent over $527 billion. In fact, the federal government has been spending an average of half a trillion dollars every single month.

And there is no end in sight. There is no political will to substantially cut spending. Meanwhile, the federal government is always looking for new reasons to spend even more money. With war raging in the Middle East, there is already a proposal to send aid to Israel and possibly add more aid to Ukraine to that deal.

As Peter Schiff said in a recent podcast, the US can’t afford peace, much less war. Lacalle summarizes the current fiscal condition of the United States government. It’s not a pretty picture.

In the Biden administration’s own projections, the accumulated deficit between 2023 and 2032 would be over 14 trillion US dollars, assuming that there would be no recession or employment decline. Public debt has risen above 33 trillion US dollars, and the budget deficit in a period of growth and strong job creation is over 1.7 trillion US dollars. As of August 2023, it costs $808 billion to maintain the debt, which is 15% of the total federal spending, according to the U.S. Treasury. Interest rates are rising at the same time as the government rejects all budget constraints. This is a monetary timebomb.”

And as Lacalle pointed out, the government keeps spending no matter what’s happening in the economy. According to government people and their academic support staff, there is never a good time to cut spending.

When the economy grows and there is almost full employment, governments announce more spending because it is ‘time to borrow,’ as Krugman wrote. When the economy is in recession, governments say that they need to spend even more to save the economy. In the process, government size in the economy increases, and record tax receipts are fully consumed in no time because expenditures always exceed revenues.”

The constant borrowing and spending is fueled by the myth that borrowing doesn’t really matter, and the rise in popularity of Modern Monetary Theory (MMT) put that myth on steroids.

MMTrs claim that spending doesn’t matter. As Lacalle notes, they even go as far as to claim that the world could “run out of dollars” if the federal government took significant steps to rein in deficit spending causing a “monetary meltdown.”

It is so ludicrous that it should not even have to be discussed. The world does not run out of dollars if the United States government cuts its imbalances. Global dollar liquidity is a result of central bank swaps between monetary institutions. There is no such thing as a global dollar liquidity crisis because of a United States surplus, as we saw when it happened in 2001. Furthermore, the idea that the dollar supply is created only by government deficit spending is insane. This distorted view of the economy places government debt at the center of growth instead of private investment. It tries to convince you that a deficit is always positive and that the only creation of currency must come from unproductive spending, not from productive investment credit growth. Obviously, it is wrong.”

But no matter how loudly contrarians sound the warning, people in the mainstream continue to shrug their shoulders at the mounting debt and ever-growing deficits. They seem to believe that since it hasn’t mattered yet, it won’t matter ever.

The dollar’s status as the global reserve currency enables the US government to get away with a lot. As Lacalle explains, global demand for dollars is still high. The dollar index (DXY) is rising because the monetary imbalances of other nations are larger than the United States’ challenges.

This has lulled Americans into a false sense of security. A lot of Americans, including most in positions of power, seem to think the US can do whatever it wants when it comes to borrowing and spending.

Lacalle makes a sobering point — “All empires believe that their currency will be eternally demanded, until it stops. ”

When confidence in the currency collapses, the impact is sudden and unsurmountable. Global citizens may start to accept other independent currencies or gold-backed securities, and the myth of eternal U.S. debt demand vanishes. Unfortunately, governments are always willing to push the limits of fiscal responsibility because another administration will face the problem. The United States’ rising debt and deficit irresponsibility means more taxes, less growth, and more inflation in the future. Government debt is not a gift of reserves for the private sector; it is a burden of economic problems for future generations. Sound money can only come from fiscal responsibility. Currently, we have none.”

The bottom line is the dollar is not invincible. The fuse is burning.