Global Currency
Mark: One thing we haven’t chatted about is currency flows. The US is currently the global reserve currency. How does being that currency play in? How do monetary policy and currency flows play into the coming disorder and what does that look like?
Peter: That’s another answer that has evolved over the last five years. A short version is today, it’s honestly the US dollar or nothing. There can really only be one global currency, but that doesn’t mean that there can’t be multiple hard currencies. What we’ve seen is that the Eurozone has been unable to adapt itself to the changing realities. When you’ve got a demography that is aging into mass retirement and the incapacity of the EU to federalize, this currency is only stable in the very specific geopolitical environment in which it was born in that environment is now ending.
That was before the Germans last week said that Bundesbank is unlikely to be participating in any monetary policy long-term. By long-term, I mean three months from now, is when the ban is supposed to kick in. That’s going to get fully lively very, very quickly. Anyway, the Euro has been the only other competitor to the US dollar for 25 years now and it is now dying. The next biggest currency in terms of global usage is the pound and the Brexit situation I mean… we’re in the fourth freaking year of this now and they still haven’t figured it out.
No one is using the pound as a store of value and it’ll take the Brits at least a generation to be able to regenerate the trust that they had 10 years ago. That assumes that everything starts going right. Honestly, nothing looks like it’s going to go right, because later this year, the Brits are going to realize that they’re not going to have a deal with the EU at all. If they’re going to have a deal with the United Kingdom, they’re going to have to cave in on everything that the US wants them to cave in on, just like the Canadians and the Koreans and the Japanese had to do.
At the end of this year, the United Kingdom is no longer a global economy. It is a subsidiary economy to whoever it decides to throw itself at the feet of. That means they no longer are a financial center among other things. That’s the end of the pound.
The Japanese and the Chinese, now both of them actually have more money in circulation than the United States, even with the recent monetization. That’s because the Enron model of economic development. The Chinese decided they wanted to rule the world. A couple years ago, they started to open up their current account. They started to liberalize their trading system. In less than six months, over a trillion dollars of US equivalent in cash fled the country. The Chinese slammed that back down, realized that not only does the government not trust their own economy, but the people don’t trust their own economy and any opportunity to get money out of the system is taken. They went back into lockdown. They’re out of the equation.
The Japanese tried the same thing in the 1980s. Had exactly the same result, so they’re not interested. Next currency down is Canada. Canadians run a relatively tight ship, but we have discovered recently that the Canadian social welfare model is basically paid for by financial transfers from wealthy Ontarians who are in their 50s and early 60s, moving into mass retirement and the oil province of Alberta.
Well, this is the decade that the majority of Ontarians move into mass retirement, so that money’s gone. Right now, oil prices in Alberta are below $10. This is not an economic system that is stable. This is not an economic system that will survive in its current form, which means the Canadian dollar is no longer in the running. The next one down is the Australian dollar. Australia is the most politically unified, functional economy in the world with hard currency after the United States. 22 million people, or I think that’s where we are right now.
After them, Sweden, Denmark, New Zealand. That’s it. That’s all the world’s hard currencies. It’s just the US dollar here. As the global system breaks down, the US dollar will become more important. Not less. The important things you want if you want a global currency is that it has to be big, has to be liquid, has to be easily exchangeable, and day-to-day fluctuations in its value have to not bother the people who use the currency. US dollar is the only option.
