Many people who have been following me over the years are well aware the Petro Dollar was one of… if not the most important piece of the US dollar hegemony. The rest of the world has been forced to buy dollars to purchase oil. This in turn created an artificial demand for the greenback and is the central reason the dollar is the world reserve currency. The might of the US military and threats of violence is the other major factor. This is a cliff note version.
More and more other countries around the world view the US not as the city on the hill, but as the bully whose worn out their welcome. Since Washington DC has their tentacles on nearly every facet of the financial system, those who do not play by Washington’s rules often find themselves cut off from the financial system and are forces to comply with Washington or else have their money stolen, cut off or held for ransom.
The US has gotten so full of themselves that they even threatened to kick China off the Swift system back in September 2017.
What is the Petro Yuan?
The Petro Yuan is a Yuan denominated oil contract that is a competitor to the petro dollar. Another interesting facet of this is that the contract is also convertible into gold. While I’m still a little fuzzy on what the gold backing really entails, it is certainly something worth noting. Since I don’t read mandarin we’ll have to wait and see what gold backing really means and what the market thinks about it.
If one had the option of having fiat that is backed by a military industrial complex hell bent on blowing up earth or one that is backed by gold… it won’t be too hard to tell which one will win out in the long run.
Is a Monetary reset coming?
One of the main benefits the East has is their patients and ability to plan decades, if not centuries in advance. America is still stuck in a minute by minute, tweet by tweet and quarterly earnings mindset that continually sacrifices long term prosperity for short term gains. China knows this and they also know the US Dollar hegemony cannot last forever. While the US has been busy squandering away their assets and getting their offspring further and further into debt, the Chinese have used their debt to build actual infrastructure to set themselves up for the future. At some point it will be abundantly clear… even to the sheeple… that the US will not and has no intentions of paying off the debt.
For those of you that have been listening to me for awhile, you understand that it is IMPOSSIBLE to pay off the debt, because “our money” is backed by debt. Americans have enjoyed and abused their world reserve currency status for far too long. Other countries are sick of subsidizing Americans lifestyle and want to win the 21st century not through military force but through trade. For more on why it is impossible to pay off the debt please check out this short video I made.
All of this is coming on the back of Donald Trump continually calling for a trade war with China. The Chinese know that the Soviets weren’t defeated by bombs. Similarly, the way to defeat the west is not through bombs but through the financial system. Another blow Donald Trump recently delivered that went relatively unnoticed is when he stopped the Chinese from buying American Tech assets. If you are the Chinese and you are sitting on a mountain of US debt that pays interest in dollars. What purpose do the dollars serve if their only use to buy more US treasuries from a deadbeat country.
China surely has to know that the US game plan is to inflate away the debt i.e. Pay China back with devalued dollars. If you are China and you know this is the plan and you know the FEDERAL RESERVE plans on rolling bonds off their balance sheet, why would you not try to get ahead of this?
If the Chinese don’t front run this, then they can also simply stop buying bonds and within a decade most if not all of their investment will be back without them having to sell any of their bonds. Most of the bonds the US sells have maturities of 10 years or less which is a cosmic blink to the Chinese.
Conclusion
Today marks an important day on the timeline of the dollar, but in true 1984 fashion, the main street sheeple were distracted by a porn star who allegedly slept with Trump, while Wallstreet cheered that the trade war with China might be a nothing burger. The Petro Yuan went completely unnoticed by the pundits, politicians and the people. While this is not the final blow to the dollar, it is another straw on the camel’s back and represents an important alternative when the financial system fails. Ultimately, the Chinese being in control is not the goal as we’re trading out one power hungry ruler for another.
Just look at the new social credit score they are rolling out and let me know if that is a system you want to live under. While the Petro Yuan may provide a great alternative to nation states bypassing the dollar, ultimately the answer is decentralization… of everything. Block chain will go a long way towards helping us achieve decentralization but first we need to keep spreading the word as to why decentralization is the answer.
-Cheers,
Tim Picciott CFP(R) CRPC(R)
Tim Picciott CFP® CRPC® is an AZ based wealth manager who had to leave his firm in order to present at the 2018 TDV Investment Summit. Tim specializes in Crypto Currency Estate planning, Charitable giving strategies, crypto IRA’s and he also helps others with their traditional wealth management needs as well. You can learn more about Tim at www.timpicciott.com. You can learn more about working with Tim at www.thelibertyadvisor.com . To stay up to date on all things: finance, economics, geo-political and crypto make sure to subscribe to The Liberty Advisor Podcast. A Bias Toward Liberty
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