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Note #2: I was invited on to chat with Peter Quinones about the Republican debate, the courage of Trump, the Tucker interview and many other things. For those missing the sound of me droning on each Friday, you can get your fix here.

Imagine one morning you wake up to the news that the dollar has lost twenty percent of its value against the other major currencies. Throughout the day, the dollar continues to fall as governments and banks dump dollars and treasuries. By midafternoon, the news is all about emergency meetings in Washington between the White House, Congressional leaders, and the Federal Reserve. The dollar has lost half its value and treasuries are now flooding the secondary market.

By that evening the public is starting to understand what the collapse of the dollar will mean for them, so they have shut down the internet in an effort to buy gold and silver from online dealers. The next day, retail gold and silver dealers, pawn shops and coin brokers are all closed. There are rumors of jewelry shops being looted as people look for anything of intrinsic value. By the second day of the crisis, all businesses have closed as state and local government declares martial law.

This is the dream scenario of the goldbugs and doomsday types that you find lurking around websites sponsored by precious metal dealers. Since Nixon closed the gold window, these people have been predicting the demise of the dollar. Peter Schiff has made himself rich telling people the dollar is about to collapse. The reason these predictions have not happened is this will never happen. This sort of collapse is simply not possible in the modern age.

The main reason this cannot happen is the rest of the world holds trillions in treasuries and dollars in their reserves. About seventy percent of what the world has on its balance sheets is denominated in dollars. Of course, the world’s most important and most traded commodity is energy and it is traded in dollars. There can be no collapse in the dollar like this because there is a buyer for every dollar. As soon as anyone starts to dump dollars, someone is right there to buy them.

That does not mean the dollar is a permanent feature of global commerce or that it can never lose value. The dollar rises and falls like other currencies because currencies are valued relative to one another. It just means that the dollar will disappear only after a long process by which it is replaced by something else. That process will take a long time and it will happen in fits and starts. In fact, the process has already begun and yet there is no panic in the currency markets.

One part of the process is the BRICS summit last week, where Argentina, Ethiopia, Iran, Saudi Arabia, Egypt, and the United Arab Emirates were added to Brazil, Russia, India, China, and South Africa. What started out as a handy way for traders to identify emerging economies is now a loose confederation of countries promising to cooperate with one another on global matters. Most importantly, they are working to trade with one another in their home currencies, not dollars.

This is not a small thing. These countries are some of the biggest economies in the world and they have a lot of people. About 40% of the world’s population are in this group of eleven countries. Most importantly, they control about eighty percent of the world’s energy supply. If they decide to trade energy products in something other than dollars, a slow-motion version of the scenario at the start of this post will begin to take shape as the dollar loses its primary benefit.

The way things have worked for the last fifty years is you needed dollars and dollar equivalents to trade energy on global markets. The reason for that is the big oil producers only accepted dollars for payments. The Saudis led the way on this back in the 1970’s when they agreed to use only dollars in exchange for security guarantees from Washington, as well as technology assistance. If you want to buy oil it means first getting the dollars you need to buy it.

This has had an interesting effect on the dollar. Because there has always been excess demand for dollars somewhere in the world, Washington has been able to create as many dollars as it needs to maintain the domestic economy and operate a global military empire, without inflation. Since the U.S. treasury is the best collateral on earth, it has meant unlimited low interest borrowing for American governments and for global corporations doing business in dollars.

Ultra-low borrowing rates are the result of a complex form of seigniorage. This is the difference between the cost of creating money and the value of the money, Put another way, it is the profit from having the monopoly on the currency. In the old days, the king took a profit from minting coins. Since everyone in his realm had to transact using coins with his face on them, everyone had to buy his coins in order to do business with him or anyone in his realm.

In this age, the profit Washington gets from having the world’s reserve currency comes in the form of low borrowing rates and low inflation. This in turn has allowed the domestic economy to grow, despite massive borrowing. In fact, it is borrowing that has inflated the economy over the last decades. In a weird way, borrowing has become the business of America because those treasury bills are used throughout the global economy to facilitate commerce.

That is about to change, and it is already changing. When the Russians decided to accept only rubles for payment, they did so to defend their economy against the sanctions imposed by the West. When it worked and the ruble stabilized, it showed the world that there can be life after the dollar. The world needs Russia oil, gas, agricultural products and increasingly its manufactured goods. If they demand rubles as payment, then it means the world needs rubles too.

This is why BRICS is moving from a label to an organization. If the Russians can do this, then the other countries can do this as well. The West is even more dependent on China and India than they are on Russia. Brazil is a massive exporter of energy products and agricultural products. The plan by Western environmentalist to shut down all domestic farming cannot happen unless the West can make itself dependent on food imports from countries like Brazil.

By adding these six new countries, BRICS is laying the groundwork for an alternative currency to be used for international settlement. Given the makeup of the group, this will most likely start with energy. The Saudis will be the first to accept Chinese and Indian currency for payment. The Russians are already doing this with regards to oil exports to these two countries. Once the Saudis take this step, the dollar will be joined by the yuan and rupee as petro-currencies.

What this means for King Dollar is not much right now. Demand for dollars has already been declining, which is why inflation has been high the last two years. According to the Fed, inflation remains a problem and they will continue to hike interest rates in order to achieve their target goal of two percent. In other words, as the demand for dollars declines globally, the Federal Reserve will have to reduce the supply of dollars, which means borrowing rates will keep rising.

It is important to keep in mind that the countries involved in BRICS do not want the dollar to collapse or even sharply decline. The entire world economy depends on the dollar, including their own economies. What they are aiming for is a slow transition away from dollars that lets them lead the way in de-dollarization. The dollar and its goofy little brother the euro will remain major currencies in the end, just working next to other major currencies in international trade.

The big question is whether Western leaders understand what is happening and what is about to happen to their economies. In a multipolar world with multiple currencies, each currency is judged by the underlying economy, not through the clever legerdemain of Wall Street bankers. An economy that does not make things or possess natural resources is not going to have a strong currency. This does not bode well for Western economies based on services.

Then you have the elephant in the room. The global American Empire is facing a choice over the next decades. Do we fund the old age of the swelling retired class or do we spend money on the war machine. In the Republican debate, all but one was in favor of slashing Social Security to fund Ukraine. Given the racial makeup of the retired class, you can be sure the Democrats are onboard with that as well. It is not hard to see where this is heading over the next decade.

On the other end, rising interest rates mean the young will be shut out of the housing market in most of the country. New car prices have gone up 30% over the last three years and that is before the higher cost of borrowing. In other words, it will not just be old people made poorer by this process. The young, diverse, and technically deficient will also be made poorer. The cost of politicians celebrating their generosity to foreigners is about to rise as the dollar falls.

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