Bitcoin & Geopolitics - Week 4

What is at stake in Ukraine is the exorbitant privilege of the dollar. A defeat will result in the decomposition of the US Empire.

Ukraine, new cemetery of empire?

The world has been unipolar since the fall of the Berlin Wall, when the United States emerged as an unrivaled superpower. Then came globalization and the triumph of the dollar.

Three short decades later, the world has changed a lot and the war in Ukraine seems to sound the death knell for this unchallenged hegemony. Or exactly the opposite of the expected effect, namely to isolate and ruin Russia.

“Russia is isolated, Russia is isolated”, repeat in chorus the newspapers which receive the heard media doxa directly from the Élysée. In fact, the votes of the United Nations show that 75% of the world does not follow the West. In other words, the operation to demonize Russia does not work.

We are heading for a split in the G20 with the G7 camp on one side and the BRICS supported by the non-aligned on the other, which can only lead to an overhaul of the international monetary system.

Signs of dedollarization are piling up as the imbalance in the US trade balance widens. The United States has indeed posted a cumulative trade deficit of more than 15,000 billion dollars since 1975. Colossal…

The 2022 deficit was a record with a hole of 650 billion. That’s as much as Poland’s GDP…

Nations are tired of funding Americans for free while watching the value of their dollar reserves melt like snow in the sun because of runaway inflation in the United States.

Who is sulking the dollar?

While the yuan only accounted for 19% of trade settlements between China and Russia in 2021, we now account for more than 50%.

The Chinese yuan is the most traded foreign currency on the Moscow Stock Exchange. The go daily dollar volumes fell from 80% to 40% over the past year. Conversely, the share of the yuan rose from less than 1% to 45%.

India also buys many Russian commodities in rupees as well as UAE dirhams.

China went even further by asking GCC countries to make full use of the Shanghai Petroleum and Natural Gas Exchange so that it can buy its oil and gas in yuan.

Saudi Finance Minister Mohammed Al-Jadaan said a few weeks later in Davos that there is no “no problem discussing how we settle our trade agreements, whether in dollars, euros or Saudi riyals”.

This statement is a thunderclap for the dollar since OPEC has exclusively accepted the dollar since 1975. Knowing that oil is the blood of any industrialized economy. It is quite simply the most traded bulk commodity by sea.

And with the expansion of the BRICS beyond Brazil, Russia, India, South Africa and China, the de-dollarization of trade flows is expected to increase further. Brazil and Argentina have just teamed up to “reducing dependence on the US dollar”.

Credit Suisse

The trend towards dedollarization has not escaped Zoltan Pozsar, a pundit at Credit Suisse. The latter declared in the FT that the “great power conflict threatens exorbitant dollar privilege” :

“Chinese, Russian and Saudi trade balance surpluses are at record highs. Yet these surpluses are no longer, for the most part, recycled US government debt which offers negative real returns due to inflation. »

Instead, Credit Suisse sees an increase in demand for gold in China. Russia, which has seen its trade surplus jump by 86% in 2022 ($227 billion), will not invest a penny in US debt either.

Saudi Arabia invests for its part in mining companies specializing in the extraction of the metals necessary for the energy transition. Not to mention the “geopolitical investments such as financing the new Silk Roads and helping allies and neighbors in need, such as Turkey, Egypt or Pakistan”, says Zoltan Pozsar.

In short, less dollar-denominated trade will reduce the amount invested in US Treasuries. In this scenario, “the exorbitant privilege of the dollar as an international reserve currency could be called into question”.

Stated even more clearly, the dollar’s exchange rate will fall until the US trade balance returns to equilibrium. Americans will have to tighten their belts.

Ceiling on dollar-backed debt

The debt of the United States has just reached 31,400 billion dollars, that is to say the symbolic legal limit already raised 78 times since 1960…

“The US Debt is Growing Regardless of the Government in Place »

But who invests in US debt? Apart from the Fed, the US debt is detained almost equally between domestic and foreign investors. Of which 870 billion dollars held by China, down from 1300 billion in 2013.

China no longer invests in US debt. What could be more normal when you know that the FED has bought back 6,000 billion dollars of US debt since 2008. This is so much money created ex nihilo which dilute the value of the dollars held by the rest of the world.

The gargantuan debt of the United States annoys. Bloomberg reported on Monday a sharp criticism from Zambia where the Chinese Embassy criticized the United States for its “catastrophic debt problem”.

Imagine that paying interest on the US debt alone currently costs more than $700 billion a year. That’s as much as the US Defense budget. Knowing that the government does not pay interest on the 6,000 billion bought by the FED.

What will happen if the United States rolls over all its debt with a key rate of 4.50% instead of 0.25% as has been the case since 2008? It’s very simple, the payment of interest will then exceed 2000 billion dollars per year. So much money that will obviously have to be borrowed in a crazy headlong rush.

This is why nations are losing interest in a dollar backed by a Ponzian debt that has gone exponentially. The world is actively looking for a solution to replace the dollar by refusing to see it before their eyes.

Bitcoin is poised to become the next international reserve currency. It is debt-free, uncensorable, limited to 21 million units, and stateless. It’s time for the world to face the facts. Bitcoin !

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