USD Based World Trade System will soon End

Economics, Premium POM10 Comments

There is one undeniable fact.  The current world trading system is based on the international role of the USD.  As the primary reserve currency which is accumulated in the foreign exchange reserve accounts of central banks around the world it has been positioned for seven decades as the “must have” currency.

So when US officials begin to threaten a trade war with China, or remove China from the SWIFT international payment system, as well as suggest that the current trade system is unfair to American workers and has to be changed, those who understand the structure of that system can make some accurate educational predictions on what will come next.

These events and statements are aligned with the unfolding POM thesis as presented over the last four years.  The transformation of the international monetary framework from the USD based structure to a multilateral and multi-currency structure, which will eventually evolve into a full SDR reserve system, will require fundamental changes, such as ending the existing USD based trade system.

It’s fascinating to watch the drama unfolding based on the Trump agenda and administration.  The accuracy of the prediction that Trump would be used to sell the multilateral transformation to the American people, while re-packaging trade deals and geopolitical alliances to accommodate the monetary adjustments is undeniable at this point.

Whether its changes to NATO, the UN, exchange rates, trade deals, or geopolitical hotspots; all have been on the Trump radar since the beginning of the year.  The incremental movements and adjustments on these fronts will continue into the months and years.

Ending the trade system will require conversations around the dollar exchange rate arrangements, and the necessary changes to that regime to facilitate the trade shifts.  Right now the USD is the reserve currency and most trade agreements are engineered to support the dollar in that role.

Those promoting the dumping of dollars by China do not understand the situation.  China cannot just dump dollars.  Someone has to be on the other end to purchase those dollars.  That is where America has a stronger position.  Until a broad agreement has been hashed out about reserve accumulation, and the substitution of those reserve, there is little China can do about dollars, unless of course they can talk someone, like the EU as an example, into buying their hoard of USD.

This allows Trump and his administration to talk tough on China about everything from trade, deficits, currency manipulation, subsidizing industries, and international payment systems.  But before any real measures can be taken, there needs to be a system of substitution in place and ready to accommodate the large capital flows which will be sure to follow.

This is unlikely to happen overnight, as all sides would need to avoid shocks to the existing system.  Everyone is under pressure in different and varying ways.  But the pressure exists and needs to be deflated with a unified approach.

The selling of these approaches and policies will be sold to each nation’s population through different measures and reasons.  China will package and present the changes in a different fashion than Trump.  Making America strong again is the slogan being used over here.  Bringing jobs back through changing trade deals is easy for people to comprehend and get excited about.  Understanding the complexity of the Triffin Paradox and effects of reserve accumulation on capital flows and trade deficits is not very stimulating or politically motivating.

Feel confident in the POM thesis and each transition point.  It will never be presented in the manner we are learning it.  But the changes and patterns will be clear to see and understand.  Each passing year brings deeper and broader confirmation of everything we have been learning since January of 2014.  There is no reason to think this will not continue.  – JC

 

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JC Collins can be contacted at jcollins@philosophyofmetrics.com

10 Comments on “USD Based World Trade System will soon End”

  1. I see it happening, and believe that Trump was placed in power by the PTB to accomplish the event.

    They intend for it to be his demise, as it will cause international upheaval. But whether the emotional global reactions of moneyed individuals actually drives investment TO the US, or causes a global collapse of investment, tells that tale. Trump could claim the credit if the US booms as a result.

    But the PTB have a Plan B in reserve. Maybe C, D, & E as well. Interesting times indeed!

  2. Once again, you explain the unfolding paradigm nice and clearly JC. If the Economist magazine Phoenix Rising cover (from 30 years ago) is correct that 2018 is the year for a new monetary system, can you see a Multicurrency basket (International Reserve Currency) by the end of 2018. And with China promoting its yuan oil contract being convertible into Gold, do you see gold being added to the IMF’s Special Drawing Rights in say Oct 2018. Many people predict that a sudden reset of the Gold price to $10,000 will solve a lot of the worlds debt based monetary problems (and allow China to stabilize its banking system). Your thoughts please.

    1. Having the IMF absorb sovereign debt in exchange for SDRs will also provide a solution to the world’s debt based monetary problems, at least, for a long enough horizon to count as a solution. The massive scale on which SDRs can be swapped for debt will provide a new global wave of liquidity that will spur tremendous economic activity. It’s ready, and will only require a catalyst for the world to demand such a “solution.”

      1. Actually, I see that in the “Venezuelan Invasion” article of Sept 9th, JC has commented (in response to Rossa’s comment), that the transition to the SDR system will take years if ever completed. That Venezuelan article and Rossa’s comment in it, helped me greatly. Cheers to all the great strategic thinkers here.

  3. Reuters is reporting on the US ‘confronting’ the WTO to change the current system of world trade…..

    http://www.reuters.com/article/us-trade-nafta-lighthizer/us-trade-envoy-says-wto-dispute-settlement-is-deficient-idUSKCN1BT205

    This is interesting for those of us in the UK as one of the options for Brexit, if an agreement is not reached with the EU, is to leave and trade under the WTO rules. There is already a major split in our government with the Establishment/Remain side wanting an agreement based on the EEA and the Brexiteers who support something more like the CETA (Canada and the EU) agreement.

    Hence the rumpus in our media about Boris Johnson’s ‘vision’ for the UK In the future. There is concern amongst Brexit supporters that Teresa May is leaning towards the EEA option (which is just the EU lite) and maybe why he got his opinion out in public first. He has just met Trump at the UN, so may well be fully on board with what lies ahead for all of us.

    Brexit is a process and will take a lot longer than the initial 2 year phase. I’ve always said that the EU and World trade situation will not look anything like it does today when we finally leave. Countries will need to adapt or get left behind.

  4. Trump also met with Netanyahu at the UN. Sundance at CTH has been writing about Trump using economics to facilitate the potential for peace in the world’s hotspots. Mainly ignored by the MSM, when you look at how his team is assigning responsibility to various countries to ease tensions and create historic agreements between warring parties, it is clear there is more going on behind the scenes than is apparent from the headlines.

    https://theconservativetreehouse.com/2017/09/18/president-trump-and-benjamin-netanyahu-meet-at-u-n-conference-thoughts-on-bigger-picture/#more-138652

  5. Surely the multi-nationals need to turn the third world into a profit source given the dead man walking demographics of the US, Europe, Japan and soon China. De-reserving the Dollar and besmirching nationalism is likely the start of this process. The 20th century saw the eclipsing of nations by multi-nationals. Nations come and go, but the cryptocracy needs profitable multi-national corporations.

  6. I long for days gone past before the advent of video games. Just thinking what a wonderful ”Monopoly’ like board game The World Trade System would make.
    PTM

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