The Financial Times notes central bank gold buying at its highest since the 1950s, as 30% of world economies are now sanctioned by the G7, and the US debt ceiling looms, arguing dollar hegemony is in trouble. However, it errs in saying the US relies on foreign capital inflows to supplement its local capital stock when, as Michael Pettis puts it, those flows supplant it, forcing up either debt or unemployment. Larry Summers also just defended the dollar on Bloomberg, asking if China is really somewhere people want to hold their reserves, and arguing capital –and people– are flooding out. Even Russia’s central bank says CNY isn’t a good option.
More broadly, what are gold buyers going to sell it for or price it in? Worse, gold either forces barter trade to balance, so the end of our global system of large imbalances, or a 19th century zero-sum imperialism to force people to let you run trade surpluses. As Dr. Pippa Malmgren says on this ‘new’ anti-US market meme: “Tactics without strategy leads to disaster. This is not about de-dollarisation. This is about replacing the medium of exchange from dollars to violence.”
Indeed, if the US is talking about a world where it doubles its defence spending, buy the buck and buckle up. As Yellen noted in her speech: “It’s important to know this: pronouncements of US decline have been around for decades. But they have always been proven wrong. The US has repeatedly demonstrated its ability to adapt and reinvent to face new challenges. This time will be no different.” Many would feel more confident if it weren’t Yellen saying it; but Foreign Policy’s ‘The Myth of Multipolarity: American Power’s Staying Power’ makes the same case.
5% of your net worth in physical gold IN YOUR POSSESSION should be enough to carry you through the transition that is coming