Russia is going to preside over the BRICS starting in January and will push for a gold-backed currency that will be a global game-changer.
Russia To Preside Over BRICS
November 30 (King World News) – Alasdair Macleod: Followers of the great geopolitical game will be familiar with the expansion of joint Chinese and Russian interests throughout Asia, spreading through a growing BRICS membership into Africa, Central, and South America. They have already secured Saudi Arabia as an outright ally, for which the western alliance with its anti-fossil fuel policies has itself to blame.
Other members of the Gulf Cooperation Council are sitting on the fence, as are the majority of non-aligned nations, either because they fear US reprisals, or they are indebted in dollars. But their abandoning of the western alliance is only a matter of time, whose idea of economic cooperation is to give paltry aid handouts much of which lines political pockets, creating lasting public resentment. It compares unfavourably with the infrastructure building and commercial cooperation offered by China.
Russia To Push For Gold-Backed Currency
Fence-sitting by non-aligned nations could change very soon. In January, Russia takes over the presidency of BRICS. So far, Russia has failed to get a gold-backed trade settlement currency on the BRICS agenda, with pushback from India and China. But we should assume that Russia will not abandon her trade currency objective. For now, there is a broad agreement between members to accept each other’s currencies, which can only be a stopgap. We can expect Russia, in whose hands these currencies are entirely worthless, to redouble her efforts to promote a gold-backed trade credit system. Furthermore, there are good arguments in favour of Russia putting the rouble onto a gold standard, which done properly would lead to a substantial decline in rouble interest rates while its purchasing power is maintained.
All this is very bad news for the dollar…
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Another Record US Trade Deficit
No one is talking about the US trade deficit in the current fiscal year, but it is likely to be another record, bringing with it new rounds of trade sanctions and protectionism.
While there has been much attention given to the US budget deficit in the last month, very little has been given to the likely trade deficit in this new fiscal year. This is a bad omission, because the evidence is that a budget deficit, before adjusting for variations in savings drives the trade deficit. This is known as the twin deficit hypothesis.
Doubt has been thrown on this phenomenon by some economists recently, which is addressed in this article. Not only is the budget deficit leading the trade deficit higher, but with savings turning negative the pull exerted by the former on the latter is increasing. Furthermore, in the run up to the presidential election, the process of withdrawing manufacturing lines from abroad and promoting domestic US production with increasing subsidies and trade protection is likely to intensify. And if President Trump is re-elected, we can expect a move towards complete autarky. The extent to which the twin deficit phenomenon is suppressed by these moves will result in an accelerating rate of price inflation.
BIS Warns Regarding US Dilemma
Therefore, any attempt to suppress the comparative advantage of foreign trade to the American people will reduce the dollar’s purchasing power. And at a time when the world is falling into a deepening recession, foreign ownership of dollars will become increasingly surplus to requirements for the purposes of settling trade. The Bank for International Settlements estimated in mid-2022 that there were $85 trillion in outstanding dollar credits in FX and currency swaps and forwards. These credits must be added to the US Treasury’s TIC estimates of a further $33 trillion of onshore credits in the US financial system, as well as a further estimate of $10 trillion in eurobonds. With the dollar’s trade weighted index having rallied since mid-2022, the BIS estimates are almost certainly conservative for today.
If, as seems very likely, US policy is to suppress imports, this $128 trillion mountain of dollar credit is bound to contract, potentially collapsing the dollar in short order. Either significantly higher interest rates or the Fed’s inflationary response, or a combination of both, will do for the rest.
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