When You See This Happen, You Know It's Game Over For The Dollar | Zero Hedge

When You See This Happen, You Know It's Game Over For The Dollar | Zero Hedge





When You See This Happen, You Know It's Game Over For The Dollar

By Tyler Durden on 07/16/2014


Exactly
70 years ago to the day, hundreds of delegates from 44 nations were
busy at work in Bretton Woods, New Hampshire creating a brand new
financial system.
World War II had just ended. Europe was in ruin.
And
since the US was simultaneously the largest economy in the world, the
primary victor in the war, and the only major power with its productive
capacity intact, it was easy to dictate terms: the dollar would dominate
the new system.
Every nation would hold dollars as the primary reserve currency, and the dollar would be redeemable for gold at $35/ounce.
Also,
global commerce would be conducted and settled in dollars, and these
settlements would clear through the US banking system.
Naturally this
created substantial demand from foreign governments who needed to begin
accumulating dollars for trade and reserves.
So through a variety of
programs, from the Marshall Plan to the IMF and World Bank, the US
began flooding the world with dollars.
Initially everything went according to plan.
But
soon the US government realized something important– foreign demand for
the dollar was so strong that they could get away with printing more
dollars than they had gold.
This allowed them to run all sorts of
deficits and spending initiatives– more war, more welfare, more waste…
all with minimal accountability.
Initially the consequences were insignificant.
Sure, the price of gold in London was a few dollars higher than in the US (they called this the ‘gold window’).
But demand for the dollar was still strong. So why bother changing?
By
1971, the situation had gotten far worse. Another decade of war,
excessive spending, trade deficits, and money printing had pushed many
foreign nations to their breaking points.
Foreign nations’ dollar
reserves far exceeded the US government’s gold holdings. And with
confidence waning, many began redeeming their dollars for gold.
Only days later, Richard Nixon put a stop to this and unilaterally terminated the US dollar’s convertibility to gold.
Think
about the magnitude of this decision: Nixon was effectively defaulting
on US obligations to the rest of the world– a complete betrayal of their
trust.
Yet despite this massive shock that reset the global
financial system, the dollar somehow managed to remain the world’s #1
reserve currency.
You’d think they would have been grateful, thanking
their lucky stars that the rest of the world gave them a second chance.
But no.
Over the past 43 years, the US has continued to print, devalue, and mismanage the dollar.
Along the way, they’ve created epic bubbles and financial shocks.
They’ve run up the biggest deficits and debt levels ever seen in the history of the world.
They’ve bickered internally to the point of shutting down government.
They’ve
passed arrogant, painful regulations and commanded the rest of the
world to comply under threats tantamount to financial homicide.
They’ve unleashed their tax and securities authorities to terrorize anyone doing business with the US.
They’ve totally ignored foreign pleas to restructure the IMF and World Bank.
They’ve slammed foreign banks with record fines simply for doing business with nations that the US doesn’t like.
They’ve waged pointless wars. They’ve spied on their allies. They’ve meddled in other nations’ affairs.
And they’ve demonstrated absolutely no willingness or ability to improve.
Simply put, other nations are done. Fed up, really. And it’s not just words.
Consider that in a matter of months, the US will be overtaken by China as the world’s largest economy.
Not to mention, the total combined GDPs of China, India, Russia, and Brazil are roughly the same as the US and EU combined.
Just
as the US was the biggest player back in 1944, China is the biggest
player today. So it seems clear that the renminbi will become a critical
component of a new financial system.
The renminbi already has
experienced rapid growth as a dollar alternative for trade; in May,
cross-border settlement surged 52% from the year prior.
Renminbi
settlement banks are being set up from London to Canada, and the central
banks of both France and Luxembourg have signed agreements for renminbi
clearing.
There have already been numerous Western companies (like McDonalds) that have issued renminbi-denominated bonds.
And
even the provincial government of British Columbia issued a renminbi
bond earlier this year. It was a whopping five times oversubscribed.
I’d
expect within the next 2-3 years we’ll start seeing trade settlement in
renminbi, even when none of the parties are in China.
Today, for example, a transaction between a Paraguayan merchant and a company in Angola will likely settle in US dollars.
Soon,
I think we’ll start seeing that transaction done in renminbi. And once
that happens, you’ll know it’s game over for the dollar.
Shortly
after, national governments in western countries will issue renminbi
bonds (perhaps Greece or Portugal will be first). And eventually, even
the US government itself.
Today, 70 years after Bretton Woods,
leaders from China, Russia, India, Brazil, South Africa, and several
other nations are hard at work in Fortaleza, Brazil creating a new
development bank that will compete against the US-controlled World Bank.
This
is a major step in an obvious trend towards a new financial system.
Every shred of objective data is SCREAMING for this to happen.
It’s a
different world. Everyone realizes it except for the US government,
which is still living in the past where they’re #1 and get to call all
the shots.
The consequences of missing this boat are enormous, and it’s going to be a rude awakening for anyone not paying attention.




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