The New World Order (Out Of Context)
Although context is key in most cases, sometimes it helps to assess news flow out of context in order to discern whether the prevailing zeitgeist makes any sense.
While it's eminently plausible that the Chinese yuan will one day challenge the US dollar, it's not imminently plausible, for a laundry list of reasons outlined in these pages on too many occasions to count.
A few smart people (and one very smart person) have suggested recently that a transition to a yuan-dominated system of global f
Everyone will have their date. For me the dollar died on February 11, 2022 when the US took over Afghan reserves and distributed over 50% to Americans. That day I decided to move some assets to a non-US jurisdiction and diversify away from the dollar. How is it going? Slow. I haven’t figured out what to do, but where there is a will, there is a way. It will take years, if not decades, but in 10 years I will have a sizable portion of my assets outside of immediate US control. I have a feeling I’m not alone.
“No currency is born a reserve currency, it becomes it.” -Zoltan Pozsar
It’s hilarious that people quote these folks like they’re Aristotle or Thomas Aquinas.
You’re the one that called him, “one very smart person.”
About 12 years ago I had a colleague who was very conservative . . . an Opus Dei kind of guy. We had both been Navy SEAL officers, and we were both working for the Naval Special Warfare Command in Coronado, CA. I was a contractor, and he was a GS.
His story was a bit different from mine. Whereas I had spent my entire career in the SEAL community, he had crossed over into Navy meteorolgy at some point early on. So he was considered a “technology” kind of guy, and he was there working certain classified technology issues.
One day I asked him about climate change and sea level rise. Being as conservative as he was, I figured I would not get any bullshit the-sky-is-falling hyperbole from him.
He drew a chart on the whiteboard that looked like the S&P 500 over a period of several decades. Basically going up, but in a sort of jagged manner, and with a few significant dips here and there.
He said that sea level rise was like the stock market . . . it keeps going up. Yes, there are some years or whatever when it seems to go down, but the general trend has been—and will continue to be—up. And he went on to say that if you own waterfront property on the ocean, in 50 years it will probably be underwater to some degree, making it useless.
But the thing he said that really got my attention was this: he said that even though the land would be useless in 50 years, the trend and ultimate fate would be so obvious in 25 years that—in 25 years—the land would be worthless.
Rightly or wrongly, that particular notion has informed my thoughts about the dollar. It may be years or decades before the dollar looses it’s hegemonic status to the point that we can actually consider ourselves in an entirely new world order, but it’s possible that at some point long before that the trend and ultimate outcome will be clear enough to make owning and living on dollars—especially overseas, where I live now—a somewhat undesirable situation.
I pay pretty close attention to all the arguments about the dollar. For a lot of reasons—many outlined in this post—I’m not too worried about it significantly losing its status in the near term. But I do keep my eye on it, and keep an eye out for that moment when perception overtakes reality.
Interesting career and interesting colleague. He didn’t get the memo on “conservatives don’t believe in climate change and, if they do, God wills it”?
Frankly, the US is the best world policeman we can hope for. It’s not above making mistakes or indeed terrible hubristic moral high ground shattering ones like the Iraq invasion but, if my choice is between the US and China, the US wins my vote every time. Even the Vietnamese agree!
So I think the USD is safe. It won’t be CNY or RUB that takes it down. Not now and not in the future.