For every action there is an equal and opposite reaction – Isaac Newton.
In this case the actions are the Trump tax reform, bonds and the petroyuan and the reactions will be the same, inflation.
Trumps new tax laws are enticing the return of large corporations to bring industry back to the United States’ shores. A speculated 5 Trillion dollars will be returning which will not just sit on the sidelines but be spent. This will cause a hyper inflation state. A big influx of cash like this will result in a major increase of price for goods, services and commodities across the board.
If the U.S. is somehow able to control this amount of inflation, they won’t be able to in 2020 when the treasury bonds come due. They last time treasury bonds came due were in 2007 and we all know what happened that following year.
Pepe Escobar wrote in his article for the Asia Times, “Last March, Russia’s central bank opened its first office in Beijing. Moscow is launching its first $1 billion yuan-denominated government bond sale. Moscow has made it very clear it is committed to a long term strategy to stop using the US dollar as their primary currency in global trade.” The decline of dollar in global trade will be the beginning of the end for the dollar and its value.
But who will stand against the almighty dollar? Nations all across the Middle East and Northern Africa saw what happened when Saddam Hussein attempted to sell crude oil in euros, or when Muammar Gaddafi tried to release a pan-African gold dinar. But now it’s China who’s entering the quarrel and the plan has always been, oil-futures trading priced in yuan that is convertible to gold. This is supposed to come into effect this year. Some believe as early as the 18th of this month. It has been in the testing phase for some time and is ready to launch. Pepe Escobar wrote This triple win (oil/yuan/gold) completely bypasses the US dollar. The era of the petro-yuan is at hand.
Pepe continued in writing, “Gold is essential in this strategy. Russia, China, India, Brazil & South Africa are all either large producers or consumers of gold – or both. Following what has been extensively discussed in their summits since the early 2010s, the BRICS are bound to focus on
trading physical gold…Major BRICS gold producers – especially the Russia-China partnership – plan to be able to exercise extra influence in setting up global gold prices.” What will that do to the gold prices if they start building them up vs. the U.S suppressing them because their markets actually trade derivatives on gold, and are supported by an insufficient supply of physical gold. ETF’s are currently leveraged out 504:1 to be exact. That ratio is unsustainable in any market.
Even JP Morgan has had to dodge glaring questions about the US Dollar being no longer fit as the worlds reserve currency. It has been that way for 5 years!!! The U.S. cannot print their way out of the next recession. Where will the equity markets go from there?
One final thought from Escobar – Russia-China have committed an unpardonable sin; they have concluded that pumping the US military budget by buying US bonds that allow the US Treasury to finance a multi-trillion dollar deficit without raising interest rates is an unsustainable proposition for the Global South. Their “threat” – under the framework of the BRICS as well as the SCO, which includes prospective members Iran and Turkey – is to increasingly settle bilateral and multilateral trade bypassing the US dollar.
It ain’t over till the fat (golden) lady sings. When the beginning of the end of the petrodollar system – established by Kissinger in tandem with the House of Saud way back in 1974 – becomes a fact on the ground, all eyes will be focused on the NSS counterpunch.