Off the keyboard of RE
Published on the Doomstead Diner on December 25, 2014
Discuss this article at the Economics Table inside the Diner
Doom may not seem very Christmas-y as a concept, but in the spirit of Gifting, as I often like to say, Doom is the Gift that Keeps on Giving.
The old saw has it that if you were Naughty, Santa would leave you a lump of coal in your stocking instead of an Iphone. As we move along the Collapse Highway though, we turn more of the coal into Iphones, leaving fewer lumps of coal for stockings, and more Iphones. At a certain point, only the Nice children will see a lump of coal in their stocking at Christmas. At least you can use a lump of Coal to burn in the fireplace and stay warm on a chilly winter night, the Iphone will not do you much good when the electrical grid goes down.
Most people don’t ever think that will come to pass, and most of the small minority of people who think it might come to pass think this outcome is still far into the future. How far away is it, how much time do we have here left to live in the comfort of brightly lit McMansions, driving the Cars to Walmart and stopping at Starbucks for a cup of overpriced Coffee?
For the most part, this all remains dependent on the continuing functionality of the Global Monetary System, which as we close out 2014 and move into 2015 shows ever increasing signs of extreme distress. The most clear signs are in the FOREX, or foreign exchange trading markets, where numerous countries have seen the value of the money they use in their location drop by anywhere from 20-50% in the last few months.
Most prevalent in the newz on this subject of late has been the Russian Ruble, which has collapsed in value along with the price of Oil. However the Japanese Yen has also been collapsing in value, same with the Brazilian Real, the Indian Rupee, and even to a lesser extent the multi-national Euro, and the Chinese Yuan also. What are all these currencies losing value in relation to on the FOREX market? The Dollar of course, still the World Reserve Toilet Paper and the currency in which the vast preponderance of international loans and interbank finance is denominated.
As should be obvious, in any currency pair trading, if one currency is Inflating, the other is Deflating. The people holding the currency that is inflating, say the Ruble, want to trade it as fast as they can for the deflating currency, in this case the Dollar. This leads to a shortage of Dollars in the local market that can be purchased with Rubles, which exacerbates the problem and makes the street value for the Ruble even less than the official exchange rate, which is the panic stage and is what drives an inflationary event into a Hyperinflationary one. So far that does not appear to have occurred in Russia itself, but does already appear to be occuring in one of the satellite countries of the former Soviet Union, Belarus.
To try to put a lid on a problem like this, the local Goobermints try all sorts of things, Capital Controls, large penalties for currency exchanges and so forth, but once the confidence has been lost in the local currency, there is very little that can be done to fix the problem, until and unless you get some folks from the Western Banking Cartel who step in to take control of the local money and start issuing out some new money with some arbitrary peg against the dollar. This has occurred repeatedly over the years in Brasil, which used Cruzeiros when I lived there in the 60s, switched to Cruzados by lopping off some zeros from Hyperinflating Cruzeiros, and today uses Reals, which are no more REAL than Cruzeiros or Cruzados, but did manage to last a bit longer as a viable currency there.
To the resident of the FSoA watching as the Federal Deficit skyrockets now to $18T, it’s kind of hard to imagine why Dollars hold more value than Rubles, but there are many reasons for this in play, some psychological, some financial and some physical.
The psychological one begins with the fact that coming out of WWII, the FSoA was the last country standing in a world of ruin, both in Asia and Europe. The Dollar became World Reserve Currency, and the entire rebuild done in the aftermath of that was done with Dollars loaned out by the FSoA, through the Marshall Plan. While Deutchmarks bought just about nothing in Germany directly after WWII, if you had a few Dollars, you could buy ANYTHING, and cheap too. Who had access to borrow said Dollars? The same people who had access to credit before, the Rothschilds, the Warburgs, the Kuhns, et al. They build a new and bigger edifice based on debt once again here, and now they have the all the Oil under the ground in MENA to issue that debt on. So since then, not one but really several generations have all grown up with the BELIEF in the Dollar as a valid currency, and since it has generally worked to buy the stuff you need to live with only a few periods of relatively minor disruption, the belief is quite powerful that it will last in perpetuity. The strong belief in the Dollar is the reason it is always the preferred currency that other smaller nations and their populations run to when they have a local currency crisis. In Argentina during the currency crisis in 2001-2, as Ferfal chronicled, if you had Dollars in an overseas account you could access, you could do OK, although it was still a wicked dangerous place even if you did have some.
The Financial reasons become ever more obvious when you watch the manipulation and how easy it is for the Westerm Banksters to put the Thumbscrews down on a country even as large and well gifted with resources as Mother Russia is. Since Oil is priced in Dollars, most International trade is done in Dollars and the Western Banking Cartel has control over all the computer systems which handle global trade, anytime they wanna cut you off from access to international credit they can, no matter how big you are or how much Oil you have left in the ground.
The physical reason should be obvious, the Dollar maintains some value because ineffectual as it is, the Big Ass Military still holds the threat of bombing your country back to the Stone Age if you don’t buy in Dollars.
Taken altogether, this makes the Dollar look like the best Dogshit in the Pound out there, it still buys stuff at the supermarket and so when your local currency gets hit, this is the preferred “safe haven” to run to. Despite all the jawboning about bilateral tade agreements, currency swaps and a Sino-Russian Yuan-Ruble currency regime taking over from the collapsing Dollar, at least so far the opposite appears true, which is that the Dollar appears to be collapsing Yuan and Ruble. Not so fast with the Yuan, but the signs in China aren’t too good these days for the big Growth numbers they need and the exploding internal demand from middle class Chinese
In any event, either way whether the Dollar or or Yuable ends up as the last one standing, everybody has run to the winner, THEN WHAT? It’s really only at this point you get to see what paper claims denominated in the Winning currency actually represent any real value and which do not. Mostly, they are quite worthless.
The other possibility here is that as soon as one of the 1st Tier currencies like Sterling, Yen or the Euro starts Hyperinflating, there will be a terminal liquidity lockup and then everyone goes down together simultaneously, rather than a cascade of weaker currencies over time. If that occurs, things will spin out of control REALLY fast.
Either way, 2015 looks to be a Watershed year for us Kollapsniks, as many of the issues we have discussed finally become obvious to all as the Tide Runs Out here. I can only hope the Internet is still up next Christmas so we can look at all the Doom Gifts in Santa’s Bag for 2015.
HO, HO, HO.