BRICS Update – September 2023

BRICS, Currencies, Economics, Geoeconomics, Monetary Policy, Uncategorized, , , ,

We wouldn’t go as far as to call the recent BRICS summit a non-event, but the clarity many of us had been hoping for at the end of August has not yet emerged. The main feature of this year’s summit was to add additional countries – 14 members now in total with many more waiting in the wings.

Adding all of these countries at once would have been impractical – and difficult. However, it’s not the actual ‘official’ membership rolls that matter – it’s the spirit of the agreement behind the countries who have already entered – and those who will enter moving forward.

This trading / currency bloc has a largely singular purpose – to remove reliance on a weaponized US Dollar. While it’s true that many in the US and Europe don’t perceive the western financial system as a weapon, much of the rest of the world does. Our perceptions in this instance don’t matter. It is the perceptions of the growing BRICS bloc that matter. A secondary, but related, goal is to move towards multilateralism on a variety of fronts. We’re going to focus on the economic and financial aspects of this.

Simply put, these countries are tired of being told what to do. They’re tired of being told they have no self-determination. They’re tired of being sanctioned when they don’t do as the collective west wants. They’re tired of the colonialist French (just one example) taking natural resources while the people in the countries who provide these resources live in abject poverty. This is perhaps the most important takeaway of the big globalization movement in the 1990s and early 2000s – the goal was NEVER to raise the living standards in these countries, but merely to use whatever levers could be applied to get the resources from these countries for use by the ‘first world’ nations. Again, they’re tired of it. This alone is the primary fuel for the BRICS movement. They have united against a common enemy – the weaponized US Dollar, SWIFT, and the many other structures that have arisen from the USDollar’s hegemony.

Put in this particular light, it would make sense that BRICS would introduce some type of currency. We have always assumed that it would be gold-backed. Why? Another worthless paper currency isn’t going to have much appeal – if any. If there is to be a new currency regime, there must be something unique about it that provides it with the necessary credibility to function. For many years, we economists have felt gold-backing would provide that credibility.

However, the landscape has changed over the past several years and as such, we need to revisit our prior assumptions. Could the mere disdain for the USDollar and it’s financial system be enough to give even an unbacked new currency credibility? A few years ago, we’d have opined in the negative. Now? It seems possible that perhaps a backing isn’t really necessary. At least not at the outset. Countries are already cutting deals to exclude the dollar using national currencies – none of which are backed by gold or any other commodity money. The resource-rich countries might argue there’s an implied backing – extracting natural resources requires tremendous amounts of economic activity. Could that activity in and of itself be enough to provide credibility? Yes – because that’s what’s going on right now. Again, it comes down to perceptions. If these countries view national currencies as less risky than the USDollar system, then that’l how they’re going to behave.

Do the BRICS nations have enough gold to back a currency either now or in the future? Absolutely. This is some of the information we were hoping to get out of this year’s summit. What we did see is a prototype of a potential BRICS note. While the providence of the images we’ll show cannot be 100% verified at this time, the rolling out of a new currency is an event that must be chronicled and studied. What we lack at this point is the clarity of the actual mechanics of the currency. Some questions are:

Who will issue the currency?

What (if anything) will back the currency?

Will non-BRICS members be required to obtain the currency in order to trade with BRICS members? This is huge for countries like the US

If the currency eventually used is a ‘hard’ currency (with commodity backing), what will be the peg?

If the bloc decides on national currencies instead, how will exchange rates be determined?

If there IS a BRICS currency, will it trade against other currencies in global FOREX markets?

If the bloc is serious about making this work, then we can answer some of these questions now. We can certainly opine on what ‘should’ be done. However, given the fluid nature of the situation – and the fact that the world is already mired in another regional (proxy) war and several smaller ones, the situation on the ground is likely to change rapidly and the attendant amount of disinformation will certainly be present – as is the case anytime countries are at war.

It is also worth mentioning that the BRICS countries do no agree on many other matters. Some of the countries have trading alliances with NATO nations for example, while others do not. Again, the single point of focus thus far is to (at a minimum) decrease dependence on the USDollar and its hegemonic system. Surely there are some current and aspiring members that would love to see the Dollar disappear from the world stage. Others are simply looking for a stable and reliable alternative.

Instead of ad hominem attacks, the US and the collective west would do well to take a huge step back and look at WHY the BRICS alliance started and why it is growing. From our vantage point, the wounds the Dollar has sustained have been largely self-inflicted, which is consistent with economic and monetary history. We simply don’t learn from history. Or, worse yet, there is enough hubris involved that policymakers think they can do things so much better now than in the past. Again, history indicates otherwise.

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Andy Chats with Joe Cristiano about the Dollar and Signposts for the Future

Banking, Currencies, Economics, Geoeconomics, Liberty Talk Radio, National Debt, Trade War, , , , , ,

As always it was a pleasure getting together with Joe Cristiano. We never seem to be able to stop at our 20 minute target, however! We talking about the Russia-China trade situation where they’re slowing backing out of the $USD, what happens when global demand for the $USD drops, some mild to moderate capital and price controls that have emerged under the cover of NCV and other useful tidbits. The link for the YouTube video is below.

Sutton

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Gold – The Opportunity of a Lifetime – Original Post 8/29/2008

Currencies, Economics, Geoeconomics, My Two Cents, Precious Metals, , , , ,

My Two Cents – “The Opportunity of a Lifetime”

For the past 8 years, wise investors have chosen to ignore the confusion and in many cases unplugged themselves from the traditional financial system, opting to become their own central bank and invest in gold and silver. Others have used a hybrid model of investing partially in the physical metals and partially in shares of precious metal miners and related companies. This has undoubtedly been the right move. The recent correction included, gold prices alone are up an amazing 45% just since my Survival Guide was published on 10/23/2006. For those who have been in since the beginning of the move, the gains have been even larger.

Many in the mainstream press will quickly scoff at the idea of holding Gold and Silver because they don’t pay dividends. So to be fair to their argument, I calculated the movement in the S&P500 Dividend Reinvested Index from 10/31/2006 to the last report at the end of this past July. Even with dividend reinvestment, the S&P500 is down 4.78% while Gold is up nearly 50%. This takes the primary argument against owning real money and blows its doors off. Granted, we’re only looking at a period of not quite 2 years here, but given the macroeconomic events that have transpired it is clear that real money was the way to go.

The question we need to ask now is pretty simple. Is anything going to change moving forward that will reverse this trend? Or, put another way, what would need to happen to make precious metals unsuitable for investment? There are dozens of prerequisites, but we’ll stick to the Big Four.

  • Since precious metals, particularly Gold are proxies for inflation, we would need to see worldwide inflation slow dramatically. A quick look at the chart below tells us this is nowhere near happening. The global supply of money in US$ terms has increased by 12.4% since mid-2007 from $53.7 Trillion to $60.3 Trillion. We’re still inflating like crazy. (Chart Compliments of dollardaze.org)
Global Money Supply
  • Geopolitical risk would have to decrease. Risk tends to be friendly towards precious metals. This because deep down, most people understand that fiat money is not real money, but only has value because its backing government says it does. Its value is based almost entirely on perception. Wars and rumors of wars tend to undermine political and therefore financial stability. On the other hand, gold has been recognized as real money for thousands of years because it is desirable, portable, homogeneous, and scarce. Scarcity and fiat money are 180 degrees diametrically opposite to each other.
  • Systemic risk to the financial system would need to be swept away. This is no simple task and, despite what Bernanke & Company choose to say, it is clear that the systemic risk to the financial system is nowhere near close to abating. Bank failures are on the rise and credit spreads are at record levels. The housing debacle has left many financial hand grenades in the portfolios of investment and commercial banks the world over and many have yet to go off.
  • Inflationary expectations would need to decrease significantly. Again, perception tends to be reality and if people are convinced that prices are going to continue to rise, then they will behave accordingly. They will seek out assets that protect their purchasing power. Commodities generally assume this role due to scarcity: they cannot be printed or digitally created like fiat money. And the more funny money that sloshes around chasing a finite quantity of goods, the more those goods will increase in terms of the fiat currency. To reverse this trend, people worldwide would have to get the idea that their money is going to buy more, not less. It is going to be difficult to accomplish that feat with the price of almost everything (except housing and stocks) going up.

Given just this cursory analysis, it is easy to see why Gold is a slam-dunk choice in terms of protecting wealth. Certainly, gold is prone to nasty corrections. Too often, people buy gold with the idea that they’re going to get ‘rich’. These folks fail to properly understand why it is they should own gold in the first place and are easily shaken out when a correction occurs. Gold should not be purchased with the expectation that it will make you rich. It should be acquired to protect your purchasing power. The recent rout in precious metals presents a fantastic opportunity for new buyers to get on board and for people who already have positions to add to them as circumstances permit.

One caveat that needs to be mentioned is the fact that the precious metal markets are prone to intervention and manipulation. These activities are disruptive to normal market function and can create disparities between the price of futures contracts and the actual metals themselves. GATA covers these activities in great detail and has done a masterful job assimilating a vast array of resources, articles, and other materials related to this topic. I highly recommend getting up to speed on this important issue before investing – particularly if you’re new to these markets.In totality, the recent correction in precious metals should be viewed not as a tragedy, but rather as the opportunity of a lifetime.

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