End

Of

Bretton Woods

Nikkei Asian Review

September 1, 2017 8:56 pm JST

China sees new world order with oil benchmark backed by gold

Yuan-denominated contract will let exporters circumvent US dollar

DENPASAR, Indonesia -- China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry. The contract could become the most important Asia-based crude oil benchmark, given that China is the world's biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars. China's move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.

DYI:  The Bretton Woods Accords – held in Bretton Woods, New Hampshire – were agreed upon by western powers on July 1, 1944 as it became clear the allies were going to win WWII and America emerging as one of the two military super powers – U.S. and the Soviet Union.  This placed the final nail in the coffin of the British Pound as the world’s reserve currency and “officially” replaced by the American dollar.  The agreement was simple the U.S. would absorb all imports without protective tariffs AND America would protect all major and minor sea lanes plus Europe from the Soviets with our nuclear umbrella.  The thought process at the time was this:  those who control the world sea lanes make the rules, however like all plans of mice and men the Bretton Woods had a tragic flaw.  In order for all those governed by the accord to generate the world’s reserve currency – U.S. dollars – they would have to under cut in price and eventually outperform on quality.  This began the gutting of America’s manufacturing base.

 America’s True Export: 

Corporate and Treasury Securities plus Inflation

America’s chronic imbalance of trade is paid for by the accumulation of debt whether in the private sector or U.S. Treasury securities these securities are never paid off only “rolled over” when they reach maturity.  Hence the money supply has been increased by debt thereby debasing – inflating – U.S. dollars both here and abroad.  In order for inflation at home not get out of control countries need to hold dollars and recycle dollars back into a closed loop system.  If enough countries “break out” from American dollars the U.S. free ride ends with either high inflation or bouts of massive deflation as debts go bust.

   

Foreign nations have long since tired of having their economies inflated generating (but not always) the root cause of their social unrest.  Countries such as Iraq were attacked by the U.S. for Saddam Hussein shifted from dollars to euros for his excess oil revenues.  Make no mistake this was the major reason as back channel diplomatic measures failed to bring Saddam back to the American dollar reservation.  Colonel Omar Gaddafi went even further by purchasing large sums of gold with the eventuality of having their currency the Dinar convertible on a one for one basis.  This not only displeased the U.S. but the French as well who despite the euro being used on the continent the French franc was (and still is) traded among many African nations.  We all know Omar’s fate!

Break Out!

China, Russia and Iran are moving at light speed – as measured by seismic geopolitical macro economic currency shifts – establishing gold trading platforms between their three countries with the eventuality of bringing in other nations within their sphere (and military protection) of influence.  In the article the author states this is to circumvent U.S. sanctions all you would have to do is line out the word sanctions and replace it with Bretton Woods.  China, Russia and Iran will be successful in throwing off the U.S. dollar as the world’s reserve currency and will spread, as stated before to other countries within their sphere and military protection.

America Grows Up

American petro dollar recycling scheme has run its course and will soon end retiring the U.S. free ride for global domination and trade.  The U.S. will remain a very powerful country but will be shared by Russian alliances and Chinese alliances.  Creating a modifying effect upon America’s hubris as these foreign chronic wars will no longer be economically doable forcing the U.S. to do more with significantly less.  This is NOT anti-Americanism but just reading the tea leaves – geopolitics – and reporting as the chips fall where they may.  Economically how this plays out is up for grabs.  To state the obvious the next 10 to 15 years will be marked by inflation and bouts of recessionary deflations.

DYI