The Great Reset Arrives: the Dollar Derailment of 2021

Covid or no, I’m back on the road. And this time, I’m writing to you from Arizona, land of blue skies and sunshine.

First things first, I visited the Grand Canyon last weekend:

Byron at Grand Canyon

Yes, it’s still there. Your editor at Grand Canyon, Ariz. BWK photo.

More importantly, though, I’ve been prospecting for mining ideas with a couple of copper and silver players.

Frequent readers know how much I like great mining ideas. The world needs minerals now, and even more into the future. Industrial use is exploding, and there aren’t enough mines and mills cranking out enough product to meet demand.

Meanwhile, the dollar is in trouble. Many decades of political mismanagement in Washington, enabled by monetary mismanagement from the Federal Reserve have finally caught up.

The future is now, and there is trouble, trouble, trouble for the dollar. It’s coming around the bend like a runaway freight train.

In fact, the first phase of the big monetary derailment is happening even as you read this.

Let’s dig in…

Actually, it’s called the “Great Reset.” That is, the dollar is being replaced. It’s derailing, to keep with the train metaphors.

Specifically, the dollar is in the process of losing its status as global reserve currency, to be replaced by… oh, just you wait! I’ll explain it in a moment.

First, look back. A while ago, I explained the origins of the modern dollar as global reserve currency. It began with the Bretton Woods Conference in July 1944, during World War II.

That strong, Bretton Woods dollar, coupled with immense military power, gave the U.S. over 75 years of world leadership and happy days at home.

But not all was well. In the 1960s, the U.S. began to squander its position as global monetary and economic leader with the expensive, fruitless Vietnam War. By the end of that decade, the bills were coming in.

In the late 1960s and early 70s, France (among others) presented massive numbers of U.S. dollars to the Treasury and asked for gold in return. The situation became a global monetary crisis.

The run on gold was so bad that on Aug. 15, 1971, President Nixon actually had to do what’s called “closing the gold window.” No more dollars for gold.

But that led to inherent instability and budding inflation of the dollar. Which in turn led to a wave of oil price increases by oil exporting countries, specifically OPEC nations. This all blew up in late 1973, during a combination of events centered on the Yom Kippur War, when several Arab nations attacked Israel.

As part of the peace process, the U.S. agreed to defend Saudi Arabia and its oil interests in return for Saudi and OPEC pricing oil in dollars, or “petrodollars.”

The dollar/petrodollar regime lasted for many decades. There were ups and downs, of course, such as the late 1970s and the Iranian Revolution. And there was plenty of inflation built into dollars over time.

But in general, the petrodollar standard prevailed through the fall of the Soviet Union in 1991, and the rise of China, 1990s thru present.

All well and good. But we are nearing the end of the line on that particular monetary track.

One issue that has long plagued the dollar as reserve currency is called Triffin’s Dilemma, named after economist Robert Triffin.

In essence, Triffin explained how the issuer of a dominant reserve currency — in this case, the U.S. — was obliged to run continuous trade deficits so that the rest of the world would have enough of that currency to engage in global trade.

In many respects, this is behind much of the deindustrialization of the U.S. over the past 50 years or so, certainly over the past three decades since the Cold War ended.

The U.S. government ran huge deficits that flooded the world with Fed-dollars. And this surfeit of dollars allowed foreign competition to undercut U.S. industry with goods that were simply cheaper to manufacture elsewhere. It killed many a U.S. business.

Those petrodollars are another reason why the U.S. economy has become so financialized. It’s easier to trade dollars than to make real things in a factory.

Indeed, Triffin’s Dilemma helps explain why U.S. culture seems to lean so hard towards the idea of globalization. Cheap money cheapens the culture.

Look at it this way…

The U.S. exports endless numbers of dollars and allows the rest of the world make stuff to export to our big box stores.

It’s hardly a recipe for maintaining a strong national, internal economy. We discussed it previously such as here and here.

And the outcome? As my colleague Jim Rickards notes, “If you run deficits long enough, you eventually go broke.” And as we’ll see in a moment that point in time is now.

Meanwhile, beginning in the 1960s, the International Monetary Fund (IMF) created a new form of currency called “Special Drawing Rights” (SDRs). The idea came about because IMF bureaucrats saw gold draining from the U.S. and wanted to create an alternative to the dollar. Just in case, so to speak.

During the inflationary 1970s, the IMF issued SDRs to a variety of nations that complained about the loss of purchasing power of their dollar holdings. But from 1981 to 2009, there were no further SDR distributions.

Then in 2009, after the Crash of 2008, the IMF issued more SDRs.

Jim Rickards calls it “testing the plumbing” of the world liquidity system. The real goal was to set up processes and procedures for shelling out the dollar-substitute lucre.

Based on the plumbing test, the system worked fine. Then on Jan. 7, 2011, the IMF even issued a master plan for replacing the dollar with SDRs. One key element of this was to set up a liquid bond market for SDRs to support the legitimacy of a truly global reserve currency. That is, set up a parallel system to U.S. Treasuries.

In many respects, it all seemed rather academic. SDRs were this poorly-understood “thing,” and those egghead IMF economists played financial games and created an alternative monetary universe for the world. Monetary Dungeons & Dragons, so to speak.

More practically, though, the 2011 SDR setup prompted both China and Russia dramatically to increase their gold holdings. Since 2011, both of these nations have scarfed-up all the monetary gold they could lay hands on… at “suppressed” prices, according to many gold-watchers.

Clearly, leadership in Beijing and Moscow saw the proverbial writing on the wall. They recognized how badly the dollar was fading, and how eventually SDRs would rise. They wanted a seat at the table, and holding large gold reserves was the buy-in.

All of this was no secret. Russian and Chinese gold policy was wide open. Jim Rickards wrote books on it. Jim and I wrote a newsletter about it for a while. Many other commentators pointed out what was perfectly obvious, that gold prices were a temporary bargain pending the looming breakdown of the dollar/petrodollar system.

Meanwhile, the 2010s went on, with the U.S. political class merrily and heedlessly walking the road to national ruin.

It was all just fine and dandy (ha!) until 2020, when the global Covid disaster knocked the stuffing out of national economies across the world.

Fiscally, the U.S. government went nuts, spending money by the carload. Trillions under President Trump. More trillions to come under President Biden. The money supply (called M1) and Fed balance sheet is heading through the roof. See here:

Fed balance sheet

What’s wrong with this picture? Courtesy 5 Minute Forecast.

Well, the world is now about to call the cards on the U.S. monetary system.

Everyone who follows these things knows that the global, dollar-centered monetary system is inherently unstable and must be reformed.

According to Jim Rickards, the IMF is planning to issue at least $500 billion of new SDRs, with some insiders lobbying for far more — into the trillions.

According to Rickards, “Over the next several years, we will see the issuance of SDRs to transnational organizations, such as the U.N. and World Bank, to be spent on climate change infrastructure and other elite pet projects outside the supervision of any democratically elected bodies. I call this the New Blueprint for Worldwide Inflation.”

Thus, the stage is set to expand the scope of SDRs. And no one knows exactly when, but “sooner rather than later” we’ll begin to see SDRs used to settle national-scale balances.

Rickards has offered examples such as balance-of-payments settlements between nations (like U.S.-China), and oil pricing. Also, look for SDRs to settle financial accounts of the world’s largest corporations, such as Exxon Mobil, Toyota and Royal Dutch Shell. Oh, and those Chinese mega-corporations too, whose names you likely don’t know because they receive zero attention in the Western business media.

The point is that we’re going to see SDR liquidity rise, while international dollar liquidity plummets. And the SDR will replace the dollar as the world’s reserve currency!

Lots of moving parts here, right? But what does this mean to you?

Okay, but can you handle the truth?

It will be the train wreck of all train wrecks.

In a world of SDR settlements for international trade, you’ll still use dollars to buy gas and groceries. But the purchasing power will plummet as the American currency reverts to a national-level of value, versus global reserve backup.

At the bottom line, everything will be way more expensive.

We see the beginnings of this already. Surely, you’ve noticed rising prices for basics at the grocery story. And there’s significant inflation in hard assets, from copper to lumber to houses and more.

We could discuss it all day, and we’ll discuss it more here at the Whiskey bar.

But for now — today! — there’s one key takeaway.

Given the planned dollar devaluation, it’s one more reason to own physical gold and silver. You should get it while you still can, protect your wealth and set yourself up to gain as the situation tightens up.

Which brings me to a company that I’ve discussed before… the Hard Assets Alliance.

I’ll say up front that St Paul Research has a financial relationship with this group. But that’s because we’ve checked it out and are impressed with the way they conduct business. It’s straight-up…

Hard Assets Alliance offers a way for you to buy gold (and silver too…) and take delivery with relatively low costs.

Or with a single click, you can buy and store your metal in your choice of five audited vaults worldwide.

This is among the easiest ways to get started with gold.

It’s also a good time to start with gold, even after the run-up in price over the past year. That’s because there’s more to come, for all the reasons I’ve described today.

Just complete the short application process to open a FREE account, and right away you’ll be able to shop for the type of gold you want.

You’ll have access to the inventory list and be able to make an informed decision.

If you’ve been sitting on the sidelines, unsure of what to do… Ok, we get that. But don’t wait for the overall situation to get worse.

And don’t expect that the U.S. government is there to protect you. Heck, the government caused the problems in the first place.

And c’mon, man… Do you really think that you will ever get a check from the government for SDRs?

No, because this is the Big Reset. It’s the derailment we’ve been awaiting.

With these ongoing measures to bulk up SDRs, the monetary wheels are leaving the rails and the situation is heading for… Who? Knows? Where?

If you don’t have any gold or silver, get some. If you have some, get some more.

To start your Hard Assets account with our partners, click here before it’s too late.

And on that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder

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