De-dollarization Proceeds Apace

People who say, “It can’t happen” can only do so while ignoring China. May 24, 2024 [WEBSITE]( | [UNSUBSCRIBE]( De-dollarization Proceeds Apace SEAN RING Dear Reader, “You need a deep bond market to abandon the USD!” Or so goes the argument. But if the BRICS have found another way? Let’s examine these charts to see if the BRICS are moving towards a new currency or just trading without the dollar as an intermediary currency. Chinese Gentlemen Prefer Bonds First, let’s look at China’s USD bond holdings: Next up, from Raoul Pal, a hedge fund manager and writer of Global Macro Investor: I posted these the other day but I'm still not sure people yet understand them... and they are the MOST important charts in all of macro/crypto.... Aging population = lower GDP growth Lower GDP = higher debt to service the aging population. With high debt and low growth, the Fed needs to create liquidity to service the debt = debasement Demographics are destiny until the robots + AI scale (2030+), thus debt up, liquidity up = number go up. It really is that simple with a longer-term time horizon. This is The Everything Code at a very high level. Here are the accompanying charts. I’ll talk you through them. Source: Raoul Pal, Global Macro Investor In the above chart, the Fed’s balance sheet (black) is plotted against US Government Debt as a percentage of GDP. They track almost exactly. The Fed’s buying power is required to service the aging population (baby boomers). But the Fed’s debt service is the very definition of currency debasement. Source: Raoul Pal, Global Macro Investor If you invert the debt-to-GDP chart, it tracks with the falling US Labor Force Participation Rate. That’s “the number of people in the labor force as a percentage of the civilian noninstitutional population that is either working or actively looking for work.” A higher participation rate is preferred, but that’s difficult with an aging population. Now square all that will the school of thought that says, “China can never give up the dollar because of its deep bond market.” [The "X" Chip]( This AI microchip is so powerful…. It’s powering NVIDIA’s success… And the future of AI itself… Which will send the current Wealth Window into OVERDRIVE… Positioning one stock for a 10,000% run in the coming years. [Watch this video for the full details.]( [Click Here To Learn More]( You Need the US Bond Market… Or Do You? The above makes sense until you realize no one wants to buy into a four-year bear market in Treasuries. Credit: LinkedIn, Charles-Henry Monchau Christian Gerlach, a portfolio manager, had this to write on LinkedIn: Renminbi dominance over the US dollar will not be possible under normal circumstances. Only an exceptional scenario will do. It is a common misconception to think that authoritarian China can achieve global currency dominance through economic might and trade influence alone. Historically, this is not how leading currency status is achieved. The truth is that only a fundamental undoing of the current geopolitical order could enable Beijing to impose currency dominance, albeit at an enormous cost. Here's why: The crucial factor for achieving currency dominance is the depth of a currency's financial markets. The dominant global currency does not necessarily have to be issued by the country with the largest GDP or share in international trade. For instance, at the turn of the 20th century, the US had surpassed the entire British empire in economic size, yet US firms preferred to issue bonds in sterling. A country aiming for currency dominance needs a vast and homogeneous pool of safe, government-backed securities. Over the past 400 years, all the dominant currencies emerged through such a pool: the Dutch florin, the British pound sterling, and the US dollar. From this perspective, China's debt markets still face significant hurdles. Beijing needs more liquidity, security, and size to effectively challenge the US dollar's status. The possibility of overcoming these obstacles via peaceful means is minimal. So, will today's situation never change? History has shown that military conflict is often essential for transitioning from one collapsing currency liquidity pool to a new, deeper one. The shifts from the Dutch florin to the pound and from the pound to the dollar were both triggered by war. After 1945, the US acquired the largest pool of safe government debt globally, paving the way for dollar dominance. Therefore, military conflict is critical because it is the ultimate harbinger of default risk. Time and time again, the only series of events that destroyed a dominant currency's debt liquidity pool and gave rise to a new one had nothing to do with peaceful economics - quite the opposite. It’s hard to argue with history. But what if Beijing found another way to trade without its renminbi (or yuan) becoming the world’s reserve currency? Exploring Alternatives to the US Dollar for BRICS Trade As the global economic landscape evolves, the BRICS countries—Brazil, Russia, India, China, and South Africa—are exploring ways to reduce their reliance on the US dollar for trade. While the idea of creating an alternative currency has been discussed, several other strategies these nations can employ to achieve this goal. Bilateral and Multilateral Currency Swaps One effective approach is establishing bilateral and multilateral currency swaps. These agreements allow BRICS countries to exchange their currencies directly, bypassing the need for the US dollar. By setting up swap lines, central banks can facilitate the exchange of local currencies, promoting smoother trade relations. Local Currency Trade Encouraging and facilitating trade agreements that enable payments in local currencies is another viable option. This approach requires robust financial systems, mutual trust, and mechanisms to manage currency risk and volatility. By trading in their own currencies, BRICS nations would strengthen their economic ties while reducing dollar dependency. Gold and Commodity-Backed Payments Utilizing gold or other commodities as a medium of exchange can provide an alternative to dollar-based transactions. This method involves agreeing on commodity prices and using them to settle international trade balances. While it may seem old-fashioned, commodity-backed payments can offer stability and trust in uncertain times. Regional Payment Systems Developing and utilizing regional payment systems is a strategic move for BRICS countries. China's Cross-Border Interbank Payment System (CIPS) and Russia's System for Transfer of Financial Messages (SPFS) are examples of platforms that can be used to settle international payments without the need for the US dollar or SWIFT. These systems enhance financial sovereignty and reduce exposure to dollar-related risks. Digital Currencies and Blockchain The adoption of digital currencies, including central bank digital currencies (CBDCs), presents a modern solution. Digital currencies can facilitate direct currency exchanges and reduce dependency on the US dollar. Blockchain technology, with its secure and transparent transaction capabilities, offers an innovative way to conduct international trade in local currencies. Barter Trade In certain scenarios, countries might resort to barter trade, where goods and services are exchanged directly without using any currency. Although less efficient and more complex, barter trade would serve as a practical means to avoid the US dollar in specific circumstances. Diversifying Reserve Currencies Another strategic measure is diversifying foreign exchange reserves to include a mix of other major currencies such as the euro, yen, and yuan. By doing so, BRICS countries could support trade in these currencies and reduce their reliance on the US dollar. Wrap Up Implementing these strategies requires significant coordination, trust, and infrastructure development among BRICS countries—there’s no guarantee of any of that. Overcoming legal, regulatory, and market challenges is essential to creating a reliable and efficient alternative to dollar-based trade. As BRICS nations continue to innovate and collaborate, the global economic order will witness a shift towards a more diversified and resilient trading system. Have a wonderful, long weekend! All the best, Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( Rate this email Like Dislike Thanks for rating this content! Looks like something went wrong. Please try to rate again. In Case You Missed It… Yellen’s Billion Dollar Hypocrisy SEAN RING If you’ve read the Rude for any time, you already know how much I hate taxes. I wrote a piece titled “[A Global Minimum Corporate Tax is Evil]( just under two years ago. It was evil then. It’s evil now. I wince when I think of the US backing it. But now, the US won’t back the same type of tax on billionaires. To be perfectly clear, I’m against both. However, it makes no sense for Janet Yellen to support a global minimum corporate tax and oppose a global minimum billionaires tax. In recent years, the concept of a global minimum tax has gained significant traction, with prominent figures such as Yellen advocating its implementation. Yellen's push for a worldwide minimum tax on corporations marked a pivotal moment in international tax policy. However, the U.S. has notably refrained from supporting a similar tax on billionaires, exposing a glaring hypocrisy in its approach to global taxation. Let’s review the corporate version. The Corporate Global Minimum Tax The idea of a global minimum tax for corporations isn't entirely new. It stems from long-standing concerns about multinational companies' tax avoidance. For decades, these companies have used legislative loopholes in national tax systems, shifting profits to low-tax jurisdictions and (smartly) eroding the tax bases of their home countries. This practice, known as profit shifting, has been a thorn in the side of policymakers worldwide. In response, the Organization for Economic Cooperation and Development (OECD) spearheaded efforts to address these issues through the Base Erosion and Profit Shifting (BEPS) project, initiated in 2013. The project aimed to reform international tax rules and ensure that profits are taxed where economic activities generating the profits are performed, and where value is created. Janet Yellen's endorsement of a global minimum corporate tax in 2021 was a significant milestone, if you can call it that. She argued that a minimum corporate tax rate would level the playing field, preventing a "race to the bottom" where countries continuously slash corporate tax rates to attract investment. Yellen's proposal received widespread support, culminating in an agreement among 136 countries to implement a global minimum corporate tax rate of 15%. The Hypocrisy: No Billionaires' Tax While the U.S. has been a vocal advocate for a global minimum tax on corporations, it has shown a glaring reluctance to endorse a similar tax on billionaires. This discrepancy throws into sharp relief questions about the consistency and fairness of its tax policy stance. The idea of a global minimum tax on billionaires, akin to the corporate tax, is predicated on similar ideas. Wealthy individuals smartly employ sophisticated tax planning strategies to minimize their tax liabilities, including using offshore accounts and other tax havens. This leads to significant disparities in tax burdens between the ultra-rich and ordinary citizens, exacerbating income inequality. Critics argue that a global minimum tax on billionaires would help address these disparities, ensuring that the wealthiest individuals contribute their fair share to society, whatever that means. If they really wanted to be fair, they’d acknowledge the rich pay far more in taxes than the middle and lower classes. Despite this, the U.S. has refrained from supporting such measures, reflecting a double standard in its approach to tax policy. [Never use this word on your when shopping on your phone (FBI could be watching)]( [This report]( sent a chill down my spine. Turns out, as part of their Jan. 6th investigation, the Feds are flagging Americans who typed these ordinary words as part of their banking transactions... m*** t**** s**** And they’re doing it without a warrant. [Watch my unredacted video about what I think is coming next right here](. It’s about to get much worse. A Federal citizen surveillance program is underway. [See what you can do HERE](. [Click Here To Learn More]( A History of Soaking the Rich The notion of taxing the wealthy is not new. Throughout history, various forms of wealth taxes have been proposed and implemented, often with mixed results. One of the earliest examples of a wealth tax can be traced back to the Roman Empire, where Emperor Augustus imposed a 5% inheritance tax to fund military pensions. In more recent history, several European countries have experimented with wealth taxes. France, for instance, implemented a wealth tax in 1982, which was repealed in 2017 due to concerns about capital flight and economic competitiveness. In the United States, the concept of a wealth tax gained prominence with proposals from politicians like Senator Elizabeth Warren and Senator Bernie Sanders, or as I like to call them, Dumb and Dumber. Warren's plan, unveiled during her 2020 presidential campaign, called for a 2% annual tax on wealth above $50 million, with an additional 1% on wealth over $1 billion. Sanders' proposal went even further, suggesting a progressive wealth tax starting at 1% for wealth above $32 million and rising to 8% for wealth over $10 billion. Despite their theoretical appeal to political hucksters, wealth taxes face significant challenges in practice. Critics argue such taxes are difficult to administer, lead to capital flight, and discourage investment and economic growth. Additionally, the wealthy possess the resources to exploit loopholes and minimize their tax liabilities, undermining the effectiveness of these taxes. Why These Taxes Are a Bad Idea There are several reasons these taxes are idiotic. - Administrative Complexity: Implementing a global minimum tax, whether on corporations or individuals, is daunting. It requires unprecedented levels of international cooperation and coordination, which is in short supply nowadays. Ensuring compliance and enforcing such taxes across different jurisdictions adds another layer of complexity. - Economic Distortion: Taxing wealth or corporate profits at a global level distorts economic behavior. Corporations engage in more aggressive tax planning or relocate their operations to jurisdictions with more favorable tax regimes. Similarly, wealthy individuals move their assets to avoid higher taxes, leading to capital flight and potential economic instability. - Competitiveness: Countries often compete to attract investment and talent. A global minimum tax undermines this competition, stifling innovation and economic growth. While the intention is to prevent a race to the bottom, it creates a race to mediocrity, where countries are less incentivized to offer attractive tax policies to businesses and individuals. - Inequity: One of the fundamental criticisms of a global minimum tax is that it disproportionately affects certain countries. Developing nations find it challenging to comply with and enforce such taxes, depriving them of a way to attract capital. Wrap-Up Janet Yellen's advocacy for a global minimum corporate tax is poor. However, the U.S.'s reluctance to support a similar tax on billionaires exposes a glaring hypocrisy in its tax policy stance. While both taxes aim to address income inequality and ensure fair contributions, they don’t work. Ultimately, the debate over global minimum taxes reflects broader questions about fairness, economic efficiency, and international cooperation. Better yet, just lower our goddamn taxes! All the best, Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. 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