In my article Deflation in the Casino, I argued that the 1973 petrodollar replacement for the Bretton Woods agreement--making oil the basis for the $US-- has run its course now that the diminished oil-export nation surplus liquidity is insufficient to provide liquidity to service the massive global debt. The loss of this increment of $US liquidity flow is crucial. The abandonment of the BW gold standard in 1971 marked the beginning of the end of the American century. The adoption of the petrodollar system and the emergence of industrial China after 150 years of western imperialist domination delayed the finale of the American century as China accumulated several trillion in $US denominated paper. The US dollar enjoyed a ¨dirty float¨: no nation could afford to operate without otherwise unredeemable $US reserves (Bernanke´s global savings glut?) that would allow them to transact international trade in that one reserve currency. In this casino the US was the house and no one could turn in their chips for anything but more of the same debauched chips.
On October 1 the Chinese yuan became an IMF Special Drawing Rights currency. In spite of China´s economic and banking excesses, note that China has
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no external debt
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massive industrial capacity
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the most gold production and steadily increasing gold reserves
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a One Belt One Road colossal intercontinental infrastructure project
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a strategic military-industrial-raw material partner in Russia
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a new swift (international payments transfer) system: the CIPS, swap arrangements around the world
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new infrastructure development and foreign exchange emergency lending banks
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the sixth most used trading currency
This could be China´s century. A monetary reset will upset all international geopolitical relations.
The world monetary system needs a governor on the creation of money-as-debt because excessive money-as debt creation has debauched currencies. Gold, the traditional governor on the global monetary system, has been deemed to be an anachronism largely because it has been more than a generation since any currency was redeemable in gold. The major decision makers have been schooled in a fiat system and have no experience with any other system and no incentives to curb monetary excesses. It´s the only system they know. In hindsight, those countries that increase their physical gold reserves will be deemed to have made obvious choices in an environment ripe for a reset, but now look anachronistic.
When will the reset occur and when will gold be reintegrated into the global monetary system? Not before nations begin steadily reducing the US dollar component of their national monetary reserves--now approximately 60%-- well below 60% and not before the proportion of world trade conducted in the US dollar--now approximately 43%-- falls significantly below 40% of the total amount of currencies used in trade. When these trends are irreversible, economic confidence in the current fiat system will erode because capital flows to where its owners deem it is safest. Loss of that confidence will trigger the reset.
For more of this type of analysis, check out my blog Inquiramus.
