THE COLLAPSING VALUE OF DOLLAR AS CREDIT / MACLEOD FINANCE

The collapsing value of dollars as credit

Soaring monetary and base metal values are the consequence of collapsing confidence in the value of US$ credit. It is not driven by investor demand but is a derating of the dollar. 

ALASDAIR MACLEOD

The dollar is on its way to zero, and it is increasingly difficult to see how this outcome can be stopped. 

This is what the end of a fiat currency system looks like. 

Those who do not understand it stand to lose everything.

In recent days, there has been a readjustment in the relationship between legal money, which is physical gold and arguably silver, and the value of credit represented by currencies. 

The guilty party is obviously the King Rat of fiat currencies, the dollar, which is being destabilised by capricious US foreign policies making enemies of all the US government’s foreign creditors. 

This is reflected in the trade weighted index, which fell heavily last Friday, a trend which now looks like continuing:

As the chart strongly suggests, the dollar is now falling against other major currencies with downside momentum developing. 

And as the leading form of global fiat, it will drag the other major fiat currencies lower measured against gold as well. 

Gold is the real legal money free from counterparty risk, preferred by foreign central banks and increasingly held as the ultimate hedge against the dollar’s failure.

Mainstream media and commentary from investment managers and banks all agree that the reason gold and silver are rising is because investors are buying. 

This is hardly the case at all — that is evident from market statistics. 

Instead, it is a fundamental reassessment of the relationship between the fiat dollar and real money, centring on a growing realisation that ultimately the dollar is worthless.

The only way the slide in the dollar’s value can be stopped is to anchor it credibly to gold. 

But we can easily see the impossibility of this development, and it would take considerable time and effort even if the will was there (which it is not):

· There’s significant doubt over the status of US gold reserves, officially stated at 8,133 tonnes. 

In the light of circumstantial evidence that they have been substantially compromised since 1971, their existence would have to be independently confirmed. 

Furthermore, Germany’s experience over 10 years ago of trying to get just some of its reserves returned from the NY Fed suggests that earmarked gold held in custody for foreign governments may have been compromised as well. 

In other words, the US authorities have a mountain of credibility to climb with respect to gold, having denied its role as money for over five decades. 

Doubtless, it has been used by them as part of its price suppression policies. 

And because of Germany’s past experience, there are renewed calls from German economists and others for the Bundesbank to press for the return of its remaining gold held at the NY Fed. 

The timing could not be more calamitous for the US authorities, unless of course the gold is there to be readily returned.

· Confidence in the US government’s debt needs to be reestablished, which requires substantial cuts in spending and a suitable monetary policy to compensate foreign holders of dollars for their anticipation of its future purchasing power. 

With a spendthrift president determined to force the Fed to lower its rates this is not a realistic prospect.

· The reemergence of a Monroe doctrine accepting a multipolar world has two negative consequences, which probably can’t be remedied. 

The first, put simplistically and more obvious, is that it frees the rest of the world from US hegemony and therefore its dependency on the dollar to settle intranational trade. 

The second is the consequences for China’s investments particularly in Venezuela. 

There is some evidence reported by copper and geopolitical analyst Simon Hunt (Simonhuntstrategicservices.substack.com) that China is moving more aggressively against the US and its dollar with respect to technology, trade, logistics, and the availability of its CIPS settlement system which bypasses the dollar entirely. 

The dollar’s role as the must-have trade currency has been suddenly and sharply cut out.

These developments threaten the value of subsidiary credit to the dollar, particularly derivatives which are a promise to pay in another promise to pay. 

These compound promises are coming unstuck dramatically in commodity derivatives, notably for silver and platinum group metals. 

There is a sudden realisation that forwards and futures contracts are not deliverable, leading to a scramble for physical metals as industrial stock. 

This instability is likely to spread to other contracts either deemed potentially undeliverable or at risk of counterparty failure in the incestuous world of derivative dealing.

This is why it is important to realise that what’s happening is a collapse in the fiat dollar’s credibility. 

Without that credibility, it has no value. 

It does not require investment flows to push gold and silver prices higher. 

They are rising of their own accord, reflecting an accelerating loss of confidence in credit ultimately represented by the fiat dollar.