Trump Will Be the One to End the Reserve Dollar

Economics, Premium POM19 Comments

Leveraging America’s Gold Reserves to Create a Monetary Transformation

Longtime reader Stefan Brunotte asked the following questions back on June 21:

With the switch towards the RMB commencing, what time frame do you see for the depegging of the RMB to the USD? What do you believe has to happen before the Chinese are ready to take the full leap?”

We will use Mr. Brunette’s questions as the springboard for this article.

The obvious answer I have based on the title of this post is that China will not have to take action.  It is possible that the Trump Administration will end the international reserve status of the dollar as a method of protecting America’s domestic economy from outside influence.  That is how it could be sold.

The same externalized logic was used in Nixon’s statements back in 1971 when he closed the dollar/gold window and said that “America will not be held hostage by outside influences”, or something along those lines.

Each interest rate increase will strengthen the dollar and create dollar demand which will in turn cause a domestic slowdown in exports and job creation.  Outside the country a strengthening dollar will put further downward pressure on emerging markets like China as capital outflows increase.

China might not be able to take the first action upon further analysis.  The amount of USD denominated debt they hold puts them in a corner.  A full and fast implementation of the SDR system with use of substitution accounts could eliminate this problem for Beijing, but this is unlikely as America would put up obstacles to a full implementation.

There will be a use for the SDR regarding sovereign debt, capital flows and reducing foreign exchange reserve accumulation, but the next moves are likely to involve the US Treasury taking action to remove the dollars reserve status.

The benefits of the US taking this action based on their decision and on their schedule will be huge.  It gives them control over the process and transition of the dollars role.  It will assist it setting them up for further monetary negotiations from a position of strength as the rest of the world scrambles to address to the new reality.

There is talk of Trump supporting the dollar with some form of gold standard which would strengthen their position.  Contrary to the theories of the alternative media, America still has the largest gold reserves in the world and can leverage those reserves to fundamentally change how the international monetary system functions.

It would force other nations to adapt and would even force the IMF to add gold to the SDR composition, which in turn would assist in the exchange of other nations USD reserves for SDR quotas through the substitution account process.

The timing of this action by Trump and gang will align with the geopolitical strategies which are unfolding to manipulate and gain influence over and around the Eurasian continent.  It will catch markets by surprise and will be the spark that starts exchange rate arrangement discussions.

America will even demand that China has to strengthen the RMB under new arrangements to assist in the rebalancing of the monetary system.  Where most think that it is the rest of the world which will take action against America, it will be America that takes action against the rest of the world.  It is a complete script reversal from what we have been anticipating.

Am I correct?  We’ll see one way or another, but it does make a weird sort of sense and fits a pattern of American dominance.  – JC

This article is copyrighted by POM Media©2017. As Premium content permission is not given to be copied and re-posted.

JC Collins can be contacted at jcollins@philosophyofmetrics.com

 

19 Comments on “Trump Will Be the One to End the Reserve Dollar”

  1. Thank you Mr Collins ?? I couldn’t have asked for a better answer to my question!
    The scenario that you describe makes sense and it would really be in line with the American dominance that they cherish so dearly.
    I’m just hoping and waiting for this to happen so they neighboring countries to china can peg their currencies towards the RMB. My dong are ready and waiting for this shift.
    Thanks again!

    1. In a roundabout way. You can feel the momentum building that in that direction. They’ve even seeded the concept by dropping random statements about the dollar being overvalued.

    1. A reason not to invest in them.
      People think that cryptocurrencies will give us more freedom and detachment from the banks.
      No they wont, that´s a false idea.
      They are totally under the guise and control of Central Banks.

      So I suggest not to fall into the trap.

  2. If, on Monday, President Trump declares “an end to the dollar reserve status,” are there practical legal actions that would accompany his order, and does he have the unilateral authority to invoke them? Foreign CB’s will still be holding dollars the next day. Banks and investors abroad will still have U.S. Treasury debt among their largest asset classes. FX clearing houses will still take dollar pair trades. Companies around the globe may still agree to trade in whatever currency they choose. What does it actually mean for Trump to make such a declaration?

    1. It will “talk down” the dollar more and lead to some devaluation. It will also start the shift of a broader transformation, such as nations taking another look at the exchange arrangement they hold with the dollar, and what alternatives are available.

  3. I did notice that Janet Yellen said that she didn’t see that there would ever be another financial crisis like 2008 in her/our lifetime. Either she is completely blind or knows something most people don’t.

  4. “They’ve even seeded the concept by dropping random statements about the dollar being overvalued.”

    “U.S. dollar drops sharply after Trump calls it ‘too strong'”

    http://money.cnn.com/2017/04/12/news/economy/us-dollar-donald-trump-wsj/index.html

    “Trump says ‘strong dollar’ may be too strong for its own good”

    http://www.marketwatch.com/story/trump-comes-around-to-the-sound-of-the-phrase-strong-dollar-2017-04-12

    “The US Dollar Is Now Overvalued Against Almost Every Currency In The World”

    The US Dollar Is Now Overvalued Against Almost Every Currency In The World

    Awe heck here’s a bunch of them…

    https://www.google.com/search?q=trump+on+the+dollar+being+overvalued&oq=trump+on+the+dollar+being+overvalued&aqs=chrome..69i57.7055j0j7&sourceid=chrome&ie=UTF-8

  5. Great insight! I have been waiting for Trump to make this move. Seems the only logical path to resolve the ultimate international trade conundrum.

  6. JC,
    Well, I can see Trump doing something like de-pegging the USD against foreign currencies as you suggest. He does like to sell it to the American public as doing something good for America to produce jobs, increase exports, etc. If the markets continue to sell off as they are doing now, I think this strengthens your case especially with earnings season just around the corner. I anticipate a run-up in markets until then. And, then a fall. If Trump really wants to create jobs, improve our balance of trade WITHOUT PROTECTIONISM, keep political control, etc., while the Fed increases interest rates, then yes…you’re thesis could be spot-on. The USD needs to be de-valued as you have continually suggested. If not by natural means, then forcing it to happen could be the way. And, if Trump plays this trump card, he could look like a real hero as well. And, politically that would be yuuuuge!

  7. My sin of greed is exposing itself here. Where’s the investment, generally? I find this whole thing fascinating considering all the distractions going on.

  8. I do not have the firm grip on all the high minded magcik or wonderment of the wizardry that goes into this witches brew of high finance, I do know it take as one of many components, eye of newt.

    But what I do know is how to sell. The best salesman in me is screaming that the end of the reserve status will never, ever, be sold as the end of anything. No, no, no it will be sold as the beginning of other nations i.e China, etc, standing up and paying their fair share, in line with the pre-sale of NATO and soon the UN having to stand up and pay their fair share. The sale never even begins until you get the first no and never closes until you overcome another hundred plus NO’s.

    I think your correct JC, this sale will be, made but not with anything as crass as a declaration of the end. No, no, no it will be made a with what I used to call finesse. In other words when it closes it will appear the the rest of the world, including China, etc, will be begging us to devalue our dollar and please allow them to share in our reserve status.

    They hired the worlds best salesman, sit back and watch him work.
    PTM

  9. As the Fed raises rates the foreign capital will flee to the US equity market where Armstrong says stocks could come close to doubling from here. There are too many talking heads predicting a crash in the market. Now equities doubling would create a scenario where good ole boy Trump wants to prevent the bubble swelling further and popping so then declares time for dollar devaluation. Thoughts JC?

    1. I would suggest that it is not an either or scenario. Increasing interest rates will have a dual effect on the stock market. As an example, yes, capital inflows will increase and some of that will end up in stocks. But alternatively, increasing interest rates will have a negative impact on debt heavy companies with low assets and margins. Some of these companies will fail in an increasing rate environment. Rate increases will also make the cost of money expensive for the regular consumer. This will slow consumer spending which will also have a negative affect on some companies who depend heavily on the average person to buy their products on credit and lease. Broad statements about supporting either a collapse or a doubling of stocks are an indicator that someone doesn’t truly understand the complexity of economics and financial systems.

      The clear pattern which we should be focused on is the affect increasing interest rates will have on American exports. This will be the point which will force action on the part of the Trump Treasury. At the same time American consumers will taper their spending because of increasing rates, those increasing rates will also taper exports of those same American goods to foreign consumers. Interestingly enough, there can also be a case made that some foreign capital may shy away from American markets for the same reasons – namely domestic consumption and exports will both slow. This capital could begin to move towards Chinese markets as they open more to foreign investment. It’s a balance which the Chinese are playing carefully.

      Stocks will reflect the changing environment as some companies fail and new ones rise to take their place. Investment may shift from industry to industry to balance and reduce risk, while capitalizing on new and emerging opportunities. The stock market will adapt, even if it dropped by 40%. How much excess liquidity needs to bleed from the system? Hard to say, maybe not much, if it can find a new home elsewhere. I hope this is a good answer to your question.

  10. This lady (Lynette Zang) seems to know what she is talking about regarding the New Currency reserve, Currency reset, Gold price rise and everything in relation to a new world currency. Very interesting indeed

    She suggests Gold and silver be better than money as long as the government does not confiscate them! Most fascinating is what she discusses as the end of the currency cycle for every currency in history and how and why they can not continue forever. I recall how the European currencies and people’s bank account were digitally converted and their account credited with the new Euro instead of each national currencies. It was a smooth operation but the people were complaining of being short changed and how prices were systematically increased by around 10 percent! The new currency will be introduced in more or less fashion it seems.

    https://www.youtube.com/watch?v=KrdWIb7FYiU&t=834s

  11. Thanks JC. Consumer spending is already making new lows ( look at the new car inventory) maybe because there isnt any confidence in the system right now. But have Trump shake off this democratic temper tantrum and implement something positive while the rates are,raised and foreign capital comes in and consumers will borrow and institutions will borrow if they they think they can get double investing in a market breaking out to the upside.

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