I have not posted anything here for some time simply because there were no major events likely to lead to major monetary system change taking place. Now, with military conflict underway and the world watching to see if this will be resolved without further escalation, it's reasonable to ask if this situation could be the trigger for major monetary system change. I'll offer some thoughts on that here.
My answer right now would be it is too early to tell. We need to see if this military conflict is resolved without further escalation or not. The trend right now is towards increasing escalation with both sides making moves to ramp up pressure on the other side. If that trend continues, we certainly could arrive at a place where the current global financial and monetary system is destabilized. Below I'll bullet point some things I plan to watch over the coming weeks/months.
- Does limited military conflict expand beyond borders into broader scale military conflict? (not yet)
- Is the oil and gas supplied into global markets by Russia cutoff by sanctions? (so far it's not)
- Does a monetary system alliance emerge between Russia and China to bypass the US dollar? (not yet)
- If so, how does that impact the global reserve currency status of the dollar? (nothing so far on this)
- Are important strategic commodities needed in the East and West cutoff from each other? (not yet)
- Will gold emerge from all this as a more prominent factor in the financial system? (not yet)
- Is the world trending to more "global monetary cooperation" or "competing monetary systems"? (an East vs. West trend seems in place right now rather than global cooperation)
- Is what is happening a simple military conflict or are there deeper chess moves being made?
Please note that despite all the dramatic events taking place right now, I still really have no final answers to the questions listed above yet. That is why I say it's too early to tell if these events are the start of major monetary system change or not. It may take weeks/months to see the answers to these questions emerge, but these are the things I would suggest to monitor over time.
One other comment. War is horrible. I hope the conflict now underway is resolved as soon as possible with the least possible loss of life and hardship on the regular citizen who always bears the worst brunt of war. The prayer here is for military conflict to cease as soon as possible with the best possible future outcome for all the regular citizens (on both sides) who suffer most in the midst of war. While trying to understand the monetary and financial implications of events is important to do, it pales in comparison to the loss of innocent human life and suffering that comes with war.
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Update as of 4-18-2022:
Nothing major in terms of an update to report as a change from anything below as the war in the Ukraine just continues to drag on for now with no clear end of the conflict in sight. So things are still pretty much the same in terms of economic impact on the monetary system. Jim Rickards did do another pretty in depth interview to update things from his point of view which you can find here. Jim is a good source because for the most part he tries to offer objective analysis based on the latest information and he adjusts things as new information comes in as best he can. But no one really knows where all is going for sure and what the full impact long term is going to be. The easiest observation to make is one that Jim goes into this most recent interview --- It is most likely the the period of "globalization" we have had for some time is coming to an end and we probably are entering a new world where there are at least two and maybe more competing power blocs that now are more concerned about being able to be independent from the other bloc(s) (for survival) and far less motivated to move forward with "global cooperation". The weaponization of the monetary system has probably destroyed any trust left that people can count on not having their assets confiscated if they behave in a manner not acceptable to those in control of the monetary system. Once that kind of trust is lost, it can take a long time to ever restore.
Update as of 3-8-2022 on the bullet point list above:
- Does limited military conflict expand beyond borders into broader scale military conflict? (not yet, but war by proxy creeps closer)
- Is the oil and gas supplied into global markets by Russia cutoff by sanctions? (Yes - US,UK, but not the EU)
- Does a monetary system alliance emerge between Russia and China to bypass the US dollar? (not yet, but some media speculation about it out there)
- If so, how does that impact the global reserve currency status of the dollar? (nothing so far on this, most assume long term impact)
- Are important strategic commodities needed in the East and West cutoff from each other? (Russia says it is making a list and will release it later)
- Will gold emerge from all this as a more prominent factor in the financial system? (not yet, but price has reacted upwards -one source advises me that gold cannot be linked to any currency below $15,000 per ounce if anyone tries to do that)
- Is the world trending to more "global monetary cooperation" or "competing monetary systems"? (an East vs. West trend seems in place right now rather than global cooperation)
- Is what is happening a simple military conflict or are there deeper chess moves being made? (the indications are that this is a deeper chess game beyond just this initial military action by Russia)
Still too early to tell if all this results in actual major monetary system change. I am advised by an expert that all this will result in calls for such change, but no one knows where that will go yet.
Added note 3-12-22: For those interested in Jim Rickards take on all this, you can find that in this recent interview.
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Update as of 4-4-2022:
There is a lot of debate/discussion going on all over the world in regards to the recent decision by Russia to demand payment for natural gas in either rubles or gold. Also, the recent decision by Russia to pay 5,000 rubles per gram of gold to banks willing to sell gold to them at that price point.
Questions being asked are:
-Is Russia in essence putting gold back into play in global trade?
-Is this just an effort to bypass US/EU sanctions or is it the start of an effort to try and destabilize the US dollar?
-Will Russia actually formally back the ruble with gold?
-Will China formally back the Yuan with gold?
-How will the US dollar react to all this over time?
-Who will win the apparent Currency War? (interestingly predicted by Jim Rickards a decade ago in Chapters 1 & 2 of his book - Currency Wars.
I don't have answers to these questions. I can offer some comments I have seen and gotten from a variety of experts around the world for those who may be interested.
-one expert told me they do not think the US dollar will quickly or easily be destabilized, but these moves do indicate efforts towards that end. This expert did also say that if Russia and or China were to use gold backing for currency, that would be a very significant event. This recent article (from someone else- Charles Hugh Smith) kind of lays out this point of view.
-others believe these events increase the chances of not only the US dollar, but all western fiat currencies losing trust and confidence. Here are a couple of different articles taking that view:
While I cannot answer my list of questions above, I can offer a few observations that seem factual to me at this point in time:
-any movement towards some kind of global monetary system or cooperative global currency appears to be dead for now. The world seems currently to be breaking down into at least two competing spheres of influence with currencies and commodities being weaponized by both sides.
-gold has emerged out of the shadows as one of weapons in play now. We know both Russia and China have been stockpiling huge gold reserves for years. There are official estimates which are substantial, but also many rumors/reports of much larger reserves than are officially being reported. It is pretty clear that we are now seeing why that took place as having national fiat reserves blocked from use by sanctions shows everyone that "the global monetary system", such as it is, cannot be trusted to honor its normal rules once things break down.
-it appears very likely that we are seeing the start of a long and bitter currency war that will leave all kinds of wreckage in its path. Both sides likely suffer significantly and, as usual, the regular people just trying to live normal lives and earn a living will suffer the most.
-distrust of both government and all kinds of "establishment" institutions seems to be at the highest point I can recall in my lifetime, making it all the harder for those in power to unite people towards any sort of common goals.
I will just continue to monitor events and provide an update if I see something important to update. But really, this blog has pretty much covered all this for years and the information already presented here is totally relevant to current events as best I can tell.
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