For years economists have warned of the time when international trade will begin decoupling from the U.S. Dollar as the world’s reserve currency. As the theory goes, the United States will face financial and economic collapse if the position of the dollar as the world’s reserve currency is undermined. In short, the U.S. can finance its massive debt because it can print its own money and nations will buy its debt. However, if the dollar was no longer the standard world currency for trade, the U.S. could not endlessly print money and sell its debt. The result would leave the U.S. with a choice between being unable to service payments on its debt or continue to print money and hyper inflate its currency to valueless. Both scenarios lead to financial and economic collapse. The U.S. would cease to exist as we know it if the theories prove true.
Until recently, these currency naysayers were slandered as alarmists or conspiracy theorists. However, their predictions have begun coming to pass at an accelerating rate. Already, the BRICS (Brazil, Russia, India, China, and South Africa) nations have formed a financial block that seeks to reduce and then remove the dollar as the standard currency for trade. Many other countries have bought into this transition to include key energy trading partners of the Gulf Cooperation Council such as Saudi Arabia, Kuwait, and the United Arab Emirates. Further, the world’s second and third largest economies (China and Japan respectively) have already dumped the dollar and began directly trading in their respective domestic currencies. Specifically, in December of 2011 China and Japan agreed to direct currency trading in an effort to explicitly limit the role of the dollar [http://www.nytimes.com/2011/12/27/business/global/china-and-japan-in-currency-agreement.html?_r=0].
As this trend away from the dollar has accelerated, even traditional “Western” allies have begun to buckle to the pressures of economic reality as the dollar continues its decline. The latest of these appears to be Australia, which just last week announced its intention to convert billions of dollars in trade with China to their own domestic currencies. In effect, now that China, Japan, and Australia are eliminating trade in the dollar, which sets the stage for effectively closing the dollar out of Asia.
Also this week, in support of the momentum away from the dollar, Brazilian Minister of Finance Guido Mantega (L) and Chinese Minister of Finance Lou Jiwei signed a memorandum of understanding between the Ministry of Finance of the Republic of Brazil and Ministry of Finance of the People’s Republic of China on Bilateral Cooperation in Macroeconomic, Fiscal and Financial Policies at the 5th BRICS Summit in Durban, March 26, 2013. The deal eliminates the dollar in about $100 billion in direct trade between the countries over the next three years and marks another milestone in the shift in international trade away from the U.S. dollar. Alarmingly, China has now replaced the U.S. as Brazil’s main trading partner with over $75 billion in annual business. Next up at the BRICS summit in Durban will be discussions to establish an international development bank to serve as a counter-balance to the World Bank and International Monetary Fund. All of this ultimately combines to decouple world markets from the dollar, which will undermine the U.S. strategically.
The fact is the world is dropping the dollar. The dollar has been all but destroyed by the policies of the Federal Reserve and massive U.S. deficit spending and debt. Regardless of what the likes of Tim Geithner or Ben Bernanke tell the American public, the rest of the world sees the US and European economies as terminally ill. The pace of decoupling will continue to accelerate as more and more trade is conducted without the dollar. This creates a catastrophic downward spiral of self-perpetuating collapse. As the dollar is weakened, more countries will stop using it, and as they stop using it, the dollar will become weaker. This trend then becomes a self-fulfilling currency disaster for the U.S.
The dire predictions of the “alarmists” are coming to pass. It still is not known if this decoupling will lead to the dollar’s disaster, but the fact that the move from the dollar was accurately predicted lends credit to the forecasters’ conclusions. Inflation has already affected every American at the grocery store and gas pump. A shopping cart of groceries now costs nearly $500 and a gallon of gas $4. Americans are at their breaking point. Sadly, this is just the beginning. It will get much worse as the value of the dollar continues to plummet and the cost of basic goods and services skyrocket. As Americans suffer and elitist bankers cash in on record profits, anger may finally boil over into the streets as it has across Europe. Any objective observer can see jobs are gone and not coming back and it’s only the elites that are getting richer while the remaining members of the middle class are bled dry with ever increasing taxes, costs, and premiums.
One does not need a crystal ball to see how this is likely to end and it isn’t pretty. Even if suddenly Congress and the President decided to act decisively, the U.S. economy and financial system is by many accounts too far gone to be salvaged without a complete collapse and restructuring. This means that greater pain for nearly all Americans waits in the near future. By pain, picture pensions robbed, savings accounts pilfered, entitlements cut, spending eliminated, services non-existent, infrastructure crumbling, and even higher unemployment…and this is the best case!
By Guiles Hendrik