KW: Not so joyful articles of interest from Jim Rickards

Russia’s Anti-Dollar Weapons Include Gold…and Cryptocurrencies Too!

Russia’s desire to break away from the hegemony of the U.S. dollar and the dollar payment system is well-known. Russian officials have said publicly for years that they are looking for ways to diversify their reserves away from dollars. They have been building non-dollar payments systems with regional trading partners and the Chinese. Perhaps Russia’s most aggressive weapon in its war on dollars is gold. Russia has tripled its gold reserves in the past ten years, from around 600 tons to 1,800 tons. Even when oil prices and Russian reserves were collapsing in 2015, Russia continued to acquire gold. Now it appears Russia has another weapon in its anti-dollar arsenal. As reported in this article, Russia’s development bank, VEB, and several Russian state ministries are teaming up to develop blockchain technology. They want to create a fully-encrypted, distributed, inexpensive payments system that does not rely on western banks, SWIFT or the U.S. to move money around. This has nothing to do with Bitcoin, which is just another digital token. The blockchain technology (now often referred to as Distributed Ledger Technology, or DLT) is a platform that can facilitate a wide variety of transfers — possibly including a new Russian state crypto-currency backed by gold. Putin Coins anyone?

V. China and the U.S. are Heading for a Trade War and a Shooting War in North Korea

History shows that currency wars don’t remain currency wars. They turn into trade wars. From there, things get worse, and soon the trade war becomes a shooting war. The reasons for this sequence are not difficult to discern. Currency wars arise in a condition of too much debt and not enough growth. Stealing growth from trading partners by devaluing your currency seems like a cheap, easy way out of the problem. It’s not. You can devalue and get a quick pop, but soon enough your trading partners devalue too. Then you’re back where you started on a relative basis, but everyone is worse off on an absolute basis. Currency wars don’t work. Therefore, countries turn to trade wars. The logic is the same. Just slap a tariff on your trading partners and create some manufacturing jobs at home. But, the outcome of trade wars is the same as in currency wars — no one wins. Tariffs are met with retaliation and everyone is worse off. At that point, countries are desperate and shooting wars are the only way out. That does work. The destruction caused by violence creates growth opportunities and wipes out enough wealth to solve income inequality problems. We saw this sequence from 1921 (start of a currency war) to 1930 (start of the trade war) to 1936 (Japan invades China to start World War II). We’re seeing it again right now. The currency war started in 2010. The trade wars have just begun. The shooting war with North Korea comes next. This article shows how that trade war with China links directly to the shooting war with North Korea. It’s not a pleasant outlook, but there’s nothing to be gained by denial.