A popular narrative among libertarians, gold bugs, doomsday types and other pessimists involves the end of the dollar. Because of the structural flaws in fiat money, the abuse of the dollar’s reserve status, excessive money printing, the prettiness of gold or other factors, the world will one day decide that it no longer wants to use dollars and the dollar will collapse. Peter Schiff has built a media career using a combination of these causes to predict the end of the dollar.
There is an old joke about the market pessimists having predicted ten of the last three market crashes that applies here. The people predicting the end of the dollar, or the petrodollar as many prefer, have been making this prediction since Nixon closed the gold window fifty years ago. All of the predications have turned out to be wrong, but that has had no impact on the dollar pessimists. It turns out that there is good money to be made in being wrong about the dollar.
There are a number of reasons why the dollar remains the global currency, despite the abuse of it by the Global American Empire. This post on Revolver by an anonymous former U.S. Treasury official covers some of the major ones. The simple elevator speech on why the dollar remains the reserve currency is that the major powers of the global economy prefer it for now. China, Russia, India and the OPEC cartel continue to use the dollar as they work on the coming alternative.
That last bit is an important part of understanding what will come in the next decade with regards to global currency. The unipolar world controlled by Washington is slowly slipping away, being replaced by a multipolar world. For ideological and practical reasons, Washington is fighting this with all of its might. It is a losing fight as a unipolar world was an accident of 20th century history. It turns out that Samuel Huntington was right and Francis Fukuyama was wrong.
The great challenge of this age, it turns out, is that the emerging civilization centers of the world are emerging into the unipolar world. On the one hand, they need to remake the world order to reflect this new reality. On the other hand, they still depend in significant ways on the old structures from the unipolar order. They cannot overthrow the old order without incurring significant costs. Of course, there is the Global America Empire, which stands athwart history yelling “stop!”
In this regard, the dollar is a symbol of the current crisis, because it is the symbol, the primary tool, of the old unipolar order. Just as removing the dollar as the reserve currency would bring about significant economic costs, removing America as the center of the global order brings serious risks. Not the least of those risks is an increasingly unstable political class armed with nuclear weapons. Joe Biden prattling on about nuclear war does not inspire confidence.
The result is the emerging new power centers are becoming extremely cautious as they proceed down the path toward a multipolar world. China could take Taiwan by force if it chose, but that brings risks it is unwilling to assume. It is not just the cost of war, which would be significant, but also the cost of victory. The sight of an American carrier, on fire, sinking into the Pacific could collapse the American empire. That would take the dollar with it and everything that counts on it.
Similarly, the Russians could have hit back at the West over the economic sanctions, but instead it has simply chosen to avoid them. The reality is, every European country is looking for ways around the sanctions. These workarounds are costly and they are hollowing out their economies, but they are the better than alternative. For Russia, the sanction regime is mostly a nuisance, but it buys time as they and the other emerging global power centers build their infrastructure.
In a way, we are seeing a real world example of what Joseph Tainter described in his book, The Collapse of Complex Societies. Collapse is only possible if there is no supporting structures surrounding the society. The Western Roman Empire collapsed because there was nothing around it. It was a complex society in isolation, as what surrounded it was a collection of tribal societies. America, in contrast, is deeply connected to the other complex societies.
Instead of collapse, what we are seeing is a controlled demolition. The Russians, for example, would welcome the return of rational governance in Europe, they would prefer to avoid radical change. An economic crisis could easily trigger a political crisis and unleash sudden political change. The last two times this happened have not been good for Russia. The first time brought Napoleon to Moscow. Of course, the last time it brought Hitler to Stalingrad.
China, India, the OPEC countries and even Brazil have similar concerns with what lies between the present order and the multipolar order that is coming. The Global American Empire, including its control of the global reserve currency, is an obstacle that lies between now and then, but it is a problem that must be carefully managed. The efforts by Washington provoke a crises in Asia and Europe are viewed as an effort to derail the transition from a unipolar world to a multipolar world.
This brings us back to the dollar. If the world avoids catastrophe, then it will avoid the sudden uncontrolled collapse of the dollar. Instead it will be a slow transition to a world of multiple trusted currencies that rely on separate financial systems. Those currencies will be linked to the only true global commodity, which is energy. The relative strength of each currency will reflect the trust and accuracy of the corresponding financial systems that make transacting in the currency possible.
What this means is the petrodollar will slowly become the petro. All the large global currencies, including the dollar, will be pegged to the supply of energy, plus or minus the relative trust of the political systems of the issuing society. Again, this assumes the world avoids catastrophe. If a controlled demolition of the Global American Empire proves impossible, then all of those off-grid living videos you watched will suddenly and explosively come in handy.
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