Economic World War
Very few people recognize the severity of the dollar crisis we have at hand.
The abundance enjoyed by most Americans is a relatively modern reality. It wasn’t always this way.
In the past, Americans struggled as others have struggled. But in more recent times, Americans have been given a gift of relative economic stability, compared to more traditional times. Even with some serious fiscal recessions, we have never experienced a catastrophic fiscal hit the likes of Weimar or Venezuela.
The dollar crisis puts this option back on the table. We are at more risk now than we have ever been since our global financial hegemony was first secured.
Understanding why this occurred is essential for the dissident. It’s the only way you can truly recognize the threat posed and prepare for it, to be able to carry on through it.
But understanding it is no easy task. The economic instruments involved are increasingly complex and intermingled. I’ll do my best to boil it down here, but remember that it goes far deeper and presents far more complexity than I could detail in a short article that could keep most reader’s attention spans.
We must begin with the dollar. The dollar is the worldwide petro currency, which means that oil is dollar-denominated. This simply means that most oil is bought using USD. Even countries that have and typically use other currencies purchase oil in our dollars. This means that our dollar, whether it is inflated or devalued, impacts oil prices on the world stage.
Ours was also chosen as the reserve currency because of its supposed “stability” at the time in history when it was adopted (1944). Reserve currency is simply a currency that is held in large amounts by central banks/institutions around the world to use for international transactions. The USD was chosen to replace gold, primarily because the greenback was backed by gold at the time, which supposedly made it more stable. But it’s no longer backed by gold, and it’s no longer stable. This meant instead of stockpiling gold, other countries would stockpile our dollar. The benefits to this are obvious, as it made worldwide trade more often conducted using our dollar, giving us significant trade leverage worldwide and a strong financial hand in all countries.
This should then lead you to recognize that the price of our currency matters tremendously for the world stage, because oil and other traded goods are bought using that dollar.
The Federal Reserve manages the dollar. They can tell the Treasury to print more dollars and they can manipulate interest rates, both of which impact the value of the dollar. Other things, like outsourcing and offshoring, also play a role in this.
The third piece to understand is debt. We are an insanely indebted country, with levels of debt that shouldn’t be considered reasonable in the slightest. We have the highest debt in the entire world at about $30 trillion ($30,347,161,713,641), but that debt is increasing so rapidly every second that my number will be off by a significant amount by the time I am finished even writing this article. That figure is nearly a public debt-to-GDP ratio of ~100%. To compare, Russia’s national debt is about $290 billion, with a debt-to-GDP ratio of 17.82% (but they are one of the lowest indebted countries).
This debt has been hedged as we’ve had a decent economy and been used as the reserve/petro currency. Our debt can simply be paid by the Federal Reserve printing more money. But, as noted above, this creates inflation.
If you’ve been following along so far, you should clearly see how all of this can easily collapse with a single mishap. The USD is the reserve currency because it was stable (IE: We will pay our debts and our dollar will remain viable and dominant). This means we have to (again) 1) pay our debts, 2) manage the inflation of the currency, and 3) play nice with other countries by allowing them access to our dollar and financial systems, so that they continue to use our dollar.
If any of those break, the trust in our dollar is broken and countries can begin seeking a new reserve currency. Or just use their own.
But therein lies the problem. Each of those pieces is trapped right now and cannot be stabilized.
First, we are breaking worldwide trust by disallowing Russia from the financial systems and our dollar. Other countries are looking at this and realizing that America can, and will, use their financial position as the reserve currency to punish other countries that won’t bow down to them. Every single country is looking around, asking when the U.S. will do the same to them. Regardless of your position on the Russia-Ukraine war, this was a cataclysmic error on the part of the United States administration that apparently thinks it can do anything with no consequences. We have clearly shown that we will crush any nation that goes against what we desire using our reserve status, which means every nation is looking at this and saying they could be next.
Second, because our debt is so high and we’ve lost essentials such as manufacturing (recall my offshoring and outsourcing comment), we cannot pay off our debt obligations using conventional means if even the slightest problem were to arise in our economy. But if the Fed does not pay off those debts, we will default, which will make us spiral even further. We will lose the ability to keep our status as the reserve because we can’t pay our debts. But the Fed wouldn’t let that happen, so they’ll move to Third.
Third, since the debt can’t be paid using conventional means, the Fed will have to use monetary means. IE: They’ll have to print more dollars to finance the debt and they’ll have to reduce interest rates (which they can’t do effectively, because they’re already so low). But what happens when they print more money? Inflation. This makes current debt easier to pay because it’s cheaper, because there are now more dollars to pay it. So, to avoid the debt problem, the only solution the Fed has is to shift it to an inflation problem. But this breaks the other tenet we needed to maintain the reserve currency, which was to control the inflation/price of our dollar to justify its use as the reserve currency.
Which means there is no way out. This is often referred to as a debt trap, and we are most definitely within one right now. The loss of trust by punishing Russia using our financial position was the first gunshot, but the final shot will be our very own debt trap that we cannot escape.
If the economy falters or other countries choose not to trust our dollar (particularly because we weaponized it), other countries will abandon our reserve and petro status. This will cause a flood of dollars to return to the U.S. as they are unneeded, increasing inflation and reducing trade potential. The only monetary mean we have to do anything about that issue is by increasing interest rates and reducing the amount of dollars to strengthen the dollar to convince those countries otherwise. But if the Fed attempts that, we wouldn’t be able to pay the debt using printing.
Thus, we would either default or we would pay the debt, but have very little money left for anything else. If we default, there again goes the trust in the system, which would again spur a loss of the USD as reserve. If we do pay it but also restrict printing more dollars, there goes any money for anything else within the U.S. because there would be no money for the government to finance it. Say goodbye to social security, medicare/medicaid, federal roads, federal-funded education, military expenses, and the like.
None of this happened in the past because, again, this is a new invention of modernity. There was no reserve currency before. Secondly, there has been no real competitor currency that could take its place. But now there is, and now other countries are recognizing the risk that arose from us holding the reserve currency.
The first moves have already been completed. India has agreed to trade rupees-for-rubles with Russia. China is discussing using their currency to trade with Saudi Arabia, which will draw in OPEC. Russia has demanded all of its oil be purchased using its currency in “unfriendly countries” such as much of West Europe, where gas prices are already insanely high and they cannot afford to not purchase that gas. The Russian currency has also been hit decently hard by the sanctions, making it an attractive option to use at a discounted rate compared to the USD, which is continually inflating because of our endless printing of money. Most of the world that is not already under our boot is fighting back and seeking that alternative global currency (or currencies), now fully evident of the risk that we present.
Even if the Fed can fix this mess with interest rates and chopping off the endless printing, nothing will necessarily change, because those dollars are not being used for oil purchases anymore. Russia certainly won’t voluntarily return to ours, and neither will Saudi Arabia, Iran, China, or India without massive sanctions from us on them to “incentivize” them (which we have since threatened). But those sanctions would only further the resolve of those countries and highlight the risk evident from those countries using us as a reserve currency. It will only inspire more to leave.
I believe this is why we are rushing to forget covid and get everyone back in the office and on the corporate payroll. Our economy is teetering, and the unthinkable has happened to American economists and Federal Reserve planners. We have to stabilize our economy as quickly as possible now, because full economic war is coming at the minimum.
We can’t spend our way out of this. We can’t restrict our way out of this. Neither can we stop what we’ve already put in motion with the Russian sanctions.
I’ve tried to consider this from every possible angle, and there doesn’t seem to be any reasonable way out. We’ve broken the necessary tenets of sustaining a reserve currency, and there doesn’t appear to be anything we can do to “right the wrong” besides full-scale economic or even military war to bring these other countries back in to line.
The United States government is not going to just let this happen. They won’t give up power so easily. We know what shady things they have done in the past and continue to do to this day. So, anything could be on the table. Full-scale economic war against all dissenting countries, releasing a biological agent to take other countries’ economies with us, or even something as insane as actual military confrontation.
We are in for an incredibly rough road ahead. One wrought with the loss of the petrodollar, reserve status, and economic war the likes of which our species has never seen. Modernity has created a monstrosity so intense that a single mishap could bring about the downfall of nearly all prosperity in one fell swoop.
If you are not prepared for this, I thoroughly encourage you to do so now.
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