Summary
➡ Over the past decade, global central banks have been selling US treasuries and buying more gold, which could lead to more inflation and less global influence for the US. The US could attract more capital by raising the Fed’s fund rate, but this would make borrowing more expensive for the government and the economy. While the US dollar’s dominance is falling, it won’t disappear quickly, and this process could lead to more inflation and trade problems. Despite these challenges, assets like Bitcoin could benefit from this situation, as they may outperform the market as more money is printed and inflation increases.
Transcript
Now the United States basically agreed to sell Saudi Arabia cheap military equipment and weapons think you know protection in exchange for Saudi agreeing to keep the oil trade dominated in dollars meaning any country that wanted oil from Saudi Arabia had to invest in dollars then as a result of that agreement 80% of all global oil trade happened in dollars and that basically cemented the US dollar as the world’s reserve currency which the dollars been since the end of World War two with the Bretton Woods agreement signed in 1944 but now Saudi Arabia just officially walked away from that agreement so the ripple effects for the US dollar are going to be massive which is why in this video I want to go over what exactly is going on why are the Saudis walking away from this deal now and more importantly where are they going and then of course how is this going to affect our future and the potential consequences of it all so let’s get into it now if you’re new here my name is Mark Moss and I talk about a range of topics covering investing macroeconomics business finance Bitcoin and more but it’s crucial that you stick around to the end of this video to understand everything we’re about to break down because these ripple effects could affect you no matter where you are in the world okay so first what just happened and what’s going on well the decision of Saudi Arabia just made not to extend the petrodollar agreement allows them to now sell oil and other goods in multiple currencies including the Chinese RMB euros yen you want and even even Bitcoin if they want which it sort of sounds like they may want to do we’ll come back to that but there’s basically more choice for Saudi which is of course great news for them but the issue is the problem for the US and that is that the petrodollar agreement that’s been going on for now decades has kept the dollar in the dominant position and without it we speaking of those of us that use the dollar system lose a great amount of global power this agreement acts as a safety valve for our economy because it allowed us to release pressure by exporting dollars to other countries because after an oil trade one party is sitting on too many dollars surplus dollars and then those dollars are then reinvested back into the US dollar system usually into US treasuries or equities or even sometimes local infrastructure when the excess dollars are reinvested it’s called petrodollar recycling and petrodollar recycling is the primary way the US is able to export its inflation now petrodollar recycling allows the government to print money and keep those dollars outside the US money supply however the resulting inflation we feel although very high it actually only represents about 4% of the monetary expansion because those dollars have been exported to the other countries meaning again like I said we’ve exported the inflation but if those dollars come back we could experience massive even potentially triple digit inflation in the US okay so now that we understand that deal then the question is why why are the Saudis ending the deal now and then what’s this new system well from the outside it looks like they’re simply stepping away from the agreement to be able to trade in a currency they want more options more choices if you have a store why not accept more currencies I suppose which you know like I said as a country seems pretty reasonable however in reality there’s a few things going on the first one is it turns out that like in a partnership they’re supposed to work two ways meaning you know both partners should be respectful of each other but when President Biden came in he basically came into office with threats and even name calling which of course is you know not a good way to start a partnership or a relationship when President Biden was on the campaign trail back in 2019 he vowed to make Saudi Arabia quote the pariah that they are and even Biden initially shunned the crown prince agreeing to speak only to his alien father King Solomon then he went on to rescind Trump’s terror designation for the Houthis despite the group having attacked Saudi oil infrastructure and of course now we’ve seen what the Houthis have done to the oil industry overall then even worse Biden attempted to revive the nuclear deal with Iran which is Saudi Arabia’s bitter enemy and then on October 11th 2022 President Biden gave an interview with Jake Tapper on CNN basically talking about you know the sanctions Russian president Vladimir Putin China Saudi Arabia and so forth the midterms all of that and in the interview Biden threatened Saudi Arabia publicly with consequences well let’s just listen to it they’re gonna have to there’s gonna be some consequences for what they’ve done with Russia what kind of consequences Menendez says suspend all arms sales is that something you’d consider I’m not gonna get into what I’d consider and what I’m having mine but there will be there will be consequences okay so besides that it’s also a result of Saudi Arabia’s commitment to the BRICS alliance the BRICS I’ve talked about them a lot Brazil Russia India China South Africa and of course more nations now but China and Russia have been reducing their reliance on the dollar or what we call de-dollarizing for over a decade now and of course Russia has been now completely kicked out of the entire global financial system so how could all three of these powerful nations continue to trade well they’d have to use another currency one that’s outside the dollar so China and Saudi Arabia have been engaging in trade using the Chinese Yuan especially for trades involving oil and gas Nigel Green the CEO of one of the world’s largest independent financial advisory and asset management companies said quote one of the most significant but underreported outcomes of April’s three-day summer between Russia’s Vladimir Putin and China’s Xi Jinping was that Putin said Russia is now in favor of using the Chinese Yuan for oil settlements in quote ever since Western sanctions were put on Russia for its invasion of Ukraine early last year Russia has increasingly depended on China to buy the oil other countries won’t touch this move away from the petrodollar suggests that the world’s second largest economy and the world’s largest energy exporter are actively intending to reduce dominance of the US dollar as the bedrock of the international financial system now if we look at the data as you can see from the graph that I have on the screen in the first two months of 2023 alone China’s imports of Russian goods surpassed their total purchases for all of 2022 with a staggering 9.3 billion flowing in February even saw a record high of over 2 million barrels of Russian crude oil being imported by China now this surge suggests the Yuan is gaining traction as a major currency and this points towards a larger shift in global power dynamics potentially giving China more influence in shaping economic policies that impact everyone and Russia they’ve also been buying up tons of gold since the sanctions were imposed on them by the Western States the NATO Alliance in 2023 Russia announced that its bullion holdings jumped by approximately 1 million ounces over the past 12 months the bank reported having nearly 75 million ounces at the end of February 2023 up from about 74 million a year earlier now while the US dollar remains the current king of reserve currencies its reign isn’t guaranteed it’s not absolutely at least not as it once was over the past two decades the dollar share in global central bank holdings has shrunk from a dominant 72% in 2001 to just under 60% in 2023 meanwhile the Yuan has been steadily climbing since 2016 its share has more than doubled reaching roughly 2.8 percent of global reserves by September of 2022 now I get it those numbers are small it’s a small number compared to a big number but it’s not about the absolute number obviously that’s important but we also have to consider the rate of change and the direction right we’re trying to see where we’re going not where we’re at and it’s pretty clear what’s happening so then the question is so what what does this matter to me and why should I even care well as we’ve already discussed less countries recycling trade surpluses into US treasuries makes them buy less treasuries and we can see how this has been happening over the last 10 years central banks around the world have become net sellers of US treasuries and net buyers of gold at this point today there’s no good reserve currency status that’s you know it’s not like the other nations are gonna start parking their money in Russian or Chinese bonds but going back to gold is working well for them and you can see the price of gold is moving in accordance of that and if the Fed is forced to buy more of their own treasuries that means more money printing more money printing means more inflation and it also means less global influence for the US when it comes to trade and political issues now does this mean it’s game over for the US dollars global status well not entirely the US could raise the Fed’s fund rate right and by doing that they could attract more capital the problem is it also makes it way more expensive for the US government to borrow money and as we’ve seen in the interest payments on the US debt which have now exceeded a trillion dollars even exceeded the amount that the US spends on its military that’s a problem and that’s only a problem for the government but it’s also extremely hard on the economy homeowners are struggling to buy homes businesses struggle to finance new projects finance inventory consumers struggle to keep up with living expenses now the other thing the US could do or really I guess could have done or maybe should have done is to be less demanding less demeaning right less less coercive it turns out when you seize a global superpower like Russia’s assets and then you threaten nations like Saudi that quote there will be consequences those other nations don’t really like that and then they start to maneuver to protect themselves from that so while the US could try to go back on that you know that hard line rhetoric it’s one of those things that you can’t really take back okay so that’s the what and the why and even what comes next but what do you and I do about this well first off I’m not saying let me be clear here I’m not saying the US dollars demise and the end is imminent I’m not saying it’s coming anytime soon as we’ve already discussed the dominance is falling and I think it continues to fall but the dollar doesn’t just disappear at least at least not for decades in my opinion you have to understand history right so the US dollar took over the global status from the pound sterling about a hundred years ago and yet the pound it’s still the third largest currency today and the UK doesn’t even really like produce and export anything so US has a long way to go and I think this is a process it’s not like an event that’s gonna happen it’s a process and I think this goes out more of like with a whimper and not a bang that means that we continue to just sort of head in the direction that we’re going into which is you know the same direction more inflation more money printing but only at accelerating rate this means more deficit spending more money printing more inflation it also means less global cooperation which means more trade problems which means more inflation which is exactly why I’ve been an inflation bull I continue to remain an inflation bull I’ve been saying for a long time I think this is still just getting started now there’s good news and there’s bad news in this now if you work for hourly wages and you don’t own any assets it’s gonna be bad right you’re gonna continue to fall further and further behind and your quality of life is gonna continue to go down and I know that’s bad but for those of us who do own assets and even long-term debt like a home we can expect inflation to continue to push those asset prices higher and higher and inflation will continue to make our fixed rate debt cheaper and cheaper now for Bitcoin of course not all assets move at the same rate and speed now we know that Bitcoin has a 9% sensitivity ratio to global liquidity so as more money is printed more debt is financed more inflation Bitcoin should continue to outperform the rest of the market but interesting developments are that Saudi specifically mentioned accepting Bitcoin as payments for oil now I don’t expect them to do that today okay so I already hear all the comments I’m not expecting them to do that today but again it’s the trend it’s the direction that we’re going we know that some of the oil producing nations in the region are already starting to mine Bitcoin with their energy and there are talks of Saudi Arabia joining into this we also know that Bitcoin is legal there we know there’s lots of Bitcoin ATMs there we know they’re the they’re sovereign wealth on the Saudi sovereign wealth fund invest into Bitcoin and crypto projects so there’s lots of interesting developments there and remember again it’s the direction we want to be focused on and as we continue to see a decline in the global power of the US dollar I think the trend will be that we continue to see a rise of foreign countries investing into Bitcoin sort of like what El Salvador has done why well of course instability of the dollars means people need somewhere else to park their money something else to use as trade something else they can trust now I hope this has answered a lot of your questions my honest opinion is again this isn’t imminent I’m not saying warning warning warning like I have to go do something right now but rather it’s the confirmation that we’re on the same trend which means for our future plans of wealth building we want to stay long we also need to continue to watch for further developments and for more on the BRICS Alliance and the developments there their currency reserve status you might want to go watch this video I did about that here now as always give me some thumbs up if you like the video if you don’t you can give me some thumbs down that’s okay but at least tell me why in the comments down below and of course while you’re at it don’t forget to subscribe and that’s what I got to your success I’m out
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