It’s a big deal to freeze the assets of Russia’s Central Bank. It could up-end everything on how we look at world finance going forward. The standard model for the global financial system goes something like this:
A country runs an account surplus and buys US treasuries as reserves, which in turn helps the US fund its deficit.
The US always runs a deficit, thereby ensuring the rest of the world has plenty of US dollars.
88% of Global trade is denominated in dollars (oil, wheat, gas, pork, chickens, etc.)
When a country like Russia wants to export its oil to another country, the buyer's currency is converted to US Dollars to buy the actual commodity.
If a global crisis like Covid comes along, the US Federal Reserve injects lots of US dollars into the global system. It works for everybody, particularly the US, until now…
Suddenly, the US has decided to weaponize the global US money flow. This has never been done before! Allow me to explain.
If you push Russia, the second-largest energy producer, out of the dollar system, then you need fewer dollars in circulation, and thus the demand for treasuries declines.
In this particular case, Russia is not an enormous buyer of our debt, which has slowed since Merkle and Obama threatened Russia when it annexed Crimea in 201. Since then, dollar purchases by the Russian central bank have been on the decline.
The world has decided it’s a good thing to freeze Russia’s US dollar and Euro savings. Putin is a THUG! What he is doing in Ukraine is horrible.
Now Putin realizes that his savings in the form of US dollars and Euros are not his anymore. Roughly between the EU and USA, it is 238 Billion dollars that has been frozen (assuming Russia hasn’t done something about that number already)
The issue at hand is how China will react to the freezing of Russia’s savings in US dollars and Euros? What about Turkey or India or Pakistan? Now, suddenly, a system that has formerly been considered safe savings are now contingent on passing an ethical litmus test.
I can tell you according to Reuters this morning, 3/3/22, Saudi Arabia, a quasi-ally of the US, publicly said they could diversify away from US assets if they choose. The Saudi Prince publicly acknowledged that a new game is afoot with dollar Hegemony.
The point is that any country that isn’t willing to ethically be what the US and EU want will probably consider doing something else with its reserves, and perhaps that is what it should be.
But that means the global financial system, as it has been for over 50 years, is slowly being reconsidered, and US dollar dominance over time will slowly be drawn away. This is why systems like Cryptocurrency get such attention! They are not controlled by the whims of political discourse.
What will countries not interested in being morally judged by the USA and EU do with their reserves? Probably go back to the Gold standard or a basket of currencies, something China has been pushing for years.
With that, my top 5 places to invest that have zero to do with Covid and the world’s problems are the following:
Public storage ideas
Insurance companies
Precious metals
Healthcare
Christopher R. Lakian
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