Countries Are Teaming Up To Take Down The U.S. Dollar

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June 23, 2015 12:44pm NYSE:GDX NYSE:GLD

dollar etfMoney Morning Staff: In the early 20th century, Jacob Schiff of investment house Kuhn, Loeb & Co. in New York asked his London associate Sir Ernest Cassel how to ensure the Dominican Republic wouldn’t renege on its debts.


Cassel’s response: “Your marines and ours.”

This conversation highlights the worrying relationship between U.S. bankers and international financiers with the U.S. government and military. It was one of many instances explored in author Ron Chernow’s history of J.P. Morgan.

And while these stories may seem like apocryphal retellings of darker episodes in U.S. financial history, one characterized by predatory trusts and robber barons, we haven’t changed much since.

The dollar is a weapon. One that is backed by U.S. military might.

That has been shown to be the case throughout U.S. military history with Iraq, Iran, Russia, and any other number of U.S. adversaries that the U.S. Treasury seeks to cripple by shutting them out of international markets and financing.

But the U.S.’s financial foes aren’t taking it anymore.

They want to bring an end to this financial weaponization of the dollar.

And in doing so, they are going to do whatever it takes to both diminish the dollar’s role as a reserve currency and introduce a new international payments system to settle global transactions…

Countries Team Up to Take Down the U.S. Dollar

You see, when the dollar reigns supreme, countries like China and Russia unwittingly find themselves paying for U.S. military expansion.

Russia and China receive payments for their goods in dollars when they export to the United States. They can either choose to let those foreign currency reserves sit at their account at the U.S. Federal Reserve, or they can buy U.S. Treasury bonds, which are denominated in U.S. dollars, and earn some interest. And with rates as low as they are, even those returns are becoming paltry.

And what do these countries get for financing the U.S. deficits?

“When the U.S. payments deficit pumps dollars into foreign economies, these banks have little option except to buy U.S. Treasury bills and bonds,” Michael Hudson, distinguished research professor of economics at the University of Missouri-Kansas City, wrote in his 2010 book, The Bubble and Beyond.

With that influx of dollars, “the Treasury spends on financing a hostile military build-up to encircle the major dollar recyclers – China, Japan, and Arab OPEC oil producers. These governments are forced to recycle dollar inflows in a way that funds U.S. military policies in which they have no say in formulating.”

It’s this unavoidable financing of U.S. military adventurism that prompted the so-called “dollar-recyclers” to unite in a front to dethrone King Dollar.

We see it with organizations like the Shanghai Cooperation Organisation, made up of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.

The 2009 summit in Yekaterinburg, Russia, between these six nations – which also invited noted dollar adversary Iran as well – was telling, as Hudson further recounted in his book. They had come together to discuss mutual aid.

U.S. meddling was to be absent in the administration of this aid – as was the dollar.

And it was just a month before that at a G-20 summit, former Russian president Dmitry Medvedev called on India and China to join his nation in an “increasingly multi-polar world” – a world without the dollar as the reserve currency.

Dollar hegemony, backed by U.S. military might, has been the cornerstone of the global financial order ever since the candid talks between those two powerful investment bankers took place in the early 1900s.

And more than a century later, the enemies of the United States are pushing back.

“A lot of U.S. debt is owned by foreigners. Who owns it?” Jim Rickards, the Financial Threat and Asymmetric Warfare Advisor for both the Pentagon and CIA, told Money Morning in an interview.

“China, Russia, other countries – countries that are not necessarily our friends.”

He added, “They can dump it when they want to. Well, guess what, that’s actually what’s been going on.”

Since November 2013, when China held its largest holdings of U.S. debt, they have shed about $53.3 billion worth of U.S. Treasuries – about 4% – to $1.26 trillion. Russia has dumped $109.2 billion in U.S. debt to cut back its holdings to $66.5 billion – more than 60% – since that number peaked in July 2010.

We’re seeing an attack on our U.S. Treasury in a global attempt to thwart the dollar’s supremacy in international markets. The damage is going to rattle the financial system and could wipe out as much as $100 trillion in wealth across the world.

Rickards has been one of the louder voices in the financial community warning of the dollar’s demise for years.

Money MorningWritten By The Money Morning Staff

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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