Milk Shakes And Money Wars

Today we turn again to the money front in Globalist/Neocon war to maintain—and extend—their hegemony over the world—including Russia, China, and the Global South. Also over you and me. With the power of algorithms nothing and nobody is too minor to escape their all-seeing eye.

Among those who are opposed to the Globalist/Neocon combine many pin their hope on a collapse of the US dollar. This collapse, they argue, is now inevitable based on the extraordinary amounts of dollar denominated debt, unsustainable US deficits, the weaponization of King Dollar through sanctions, and the flight of a massive portion of the world economy to alternative means of payment, centering around BRICS and its proposed alternative currency. We’ll present this view as argued by Alasdair Macleod, a goldmoney proponent, and then contrast Macleod’s view by an alternative, represented by Brent Johnson and Tom Luongo, who maintain that—at least for some indefinite period of time—the dollar will paradoxically maintain its status and will actually strengthen.

First are some excerpts from Macleod’s latest article. It’s quite a lengthy article; I’ll only present these brief excerpts to give an idea of his views, which are followed by many:

Macleod: Beware The Great Unwind

The Great Unwind is under way. It is the consequence of monetary and currency distortions which have accumulated since the end of Bretton Woods fifty-two years ago. It will not be a trivial matter.

The trigger will be capital flows leaving the dollar, creating a funding crisis for the US Government. Foreigners, who have accumulated $32 trillion in deposits and other dollar-denominated financial assets will no longer need to maintain dollar balances to the same extent, perhaps even paring them back to a minimum. Furthermore, economic factors are turning sharply negative with energy prices rising ahead of the Northern Hemisphere winter, springing debt traps on western alliance governments.

...

But the world is now tired of faith and credit in a weaponised dollar, and therefore of all the currencies which tag along with it. Other than the arrogance of weaponization of the fiat dollar, the trigger for a collapse in the faith and credit in the fiat dollar is the US Government’s policy of banning fossil fuels. The strategic wisdom of President Nixon and Henry Kissinger to tie the dollar’s future to energy demand has been undone in a stroke. The entire Gulf Cooperation Council, led by the Saudis, has now abandoned the 1973 agreement. The link is gone, and with it the dollar’s future security.

Inevitably, politicians in undeveloped economies around the world with safety in numbers now feel freed from the dollar’s tyranny. This is why they seek better international relationships with the Russian and Chinese axis. It coincides with a new realism in Africa and elsewhere, that the days of politicians lining their pockets with western aid programmes are over. Instead, genuine investment in infrastructure is the way forward and that is what China is already providing.

...

The West’s global banking system fundamentally changed in the mid-eighties from financing Main Street to financing an asset boom on Wall Street. Europe followed, facilitated by Big-Bang in London. Large-scale manufacturing emigrated to Asia, where labour was cheap, available, intelligent, and lacked attitude. Factories could be up and running in very little time, compared with the planning and other regulations which led to long lead times in America and Europe. Instead of providing liquidity to businesses which had migrated overseas, the big banks invested heavily in financial activities. It is that trend which is now unwinding.

...

Getting rid of the dollar had been an evolutionary process until the western alliance implemented sanctions against Russia, when the US defaulted on its debts to Russia in March last year.

For Russia, this action led by the US changed the evolutionary approach into one of necessary aggression.

...

There is considerable confusion in Western commentary ahead of the summit as to what will be announced if anything. But Russia has made it clear that the new currency will be backed by gold, likely to be an expression of gold weight. Some are saying that it requires unanimous agreement from BRICS members, with officials in India saying they would not support it. But the reality is that the oil and energy suppliers — Russia, Saudi Arabia, and Iran — set the payment terms. We do not know the details yet, but it will almost certainly be credit denominated in gold by weight, freeing it entirely from the dollar and national currency exchange rates. The chart below says it all. Priced in gold, the price of a barrel of oil is remarkably stable, the volatility being in the dollar and other fiat currencies.

Now the contrasting view—not necessarily contradictory, but contrasting. We start with a milkshake:

Dollar Milkshake Theory Explained

The Dollar Milkshake Theory, penned by Santiago Capital's Brent Johnson, foresees the US dollar fortifying amidst global economic uncertainty. The theory pivots on two contrasting central banking strategies: expansive liquidity provision by global central banks and the US Federal Reserve's tighter monetary policies. 

The former creates a 'milkshake' of global capital, and the latter acts as a 'straw,' drawing in this capital due to higher returns and perceived safety. Despite inherent US economic weaknesses, Johnson's theory suggests the dollar will strengthen as it becomes a global financial sanctuary. This provocative theory has ignited heated debates within economic forums.

‍The Dollar Milkshake Theory, if realized, could have a two-pronged impact on gold. Typically, a stronger dollar, as predicted by the theory, would drive gold prices down due to their inverse relationship. 

However, in periods of severe global economic uncertainty, gold's status as a safe haven could counteract this effect and potentially increase its price.

Tom Luongo invited Johnson for a podcast and I’ve done a summary style transcript of what I believe is the money part of their conversation. The entire podcast runs 80 minutes, while my transcript covers from around the 34 minute mark to about the 52 minute mark. What you’ll notice is that, while Johnson and Luongo agree that the end of King Dollar isn’t exactly nigh—they believe the process of unwinding, the transition to a new monetary system, will take quite a bit longer than Macleod believes—they do disagree on some important geopolitical matters. Johnson believes the American Empire—which he maintains hasn’t yet come into being—will do any thing it takes to maintain hegemony, even hinting broadly at the use of nuclear weapons. Luongo believes the Empire will back off from that out of necessity:

Episode #152 - Brent Johnson and Why the Dollar Has a Long Road Ahead

Gold Goats 'n Guns Podcast

Santiago Capital's Brent Johnson joins me for a frank discussion on the role of the US dollar, it's present and it's future. Brent and I come to similar conclusions about the potential paths in front of us and how to capitalize on them with your investing strategies.

BJ: I think the majority of people aren't well educated about the development of the Eurodollar market. The Eurodollar market--trade being conducted outside the US in dollars--wasn't mandated coming out of WW2. What was mandated was that the dollar would be the base of the monetary system and would be backed by gold. But nobody forced other countries to conduct their trade in dollars--that developed over many years because the dollar was the cheapest, most efficient, and most demanded currency. If and when that changes, then the dollars position will change--but so far the market keeps reinforcing the dollar. In the meantime the US reinforces its position and the markets do, too. There's so much dollar debt 'out there.' If dollars were to stop trading in the same amount that they are trading, that would mean that circulation would fall, and if circulation falls but there's still all that debt, then you actually get into a credit contraction. In a credit contraction dollars start to disappear. What happens when dollars start to disappear? The price of dollars goes up, because you still have to pay the debt [denominated in dollars]. There are all sorts of forces that reinforce the system as it is. I'm not saying we're not going to transition from this system to another one. All world currencies come to an end, all empires die. The transition from one to the other is very rarely peaceful. When a transition does come it will probably be both economically volatile and militarily violent. The idea that we'll transition to a new system without one or the other or both of those things happening isn't impossible, but it's a very low probability.

TL: You and I completely agree on this.

BJ: I think you and I sorta agree on the role of the dollar and what certain factions within the US are doing to ensure that the dollar stays, or the US stays, at the top of the geopolitical pyramid. I'm not sure we agree on the reasons these factions are doing this.

TL: I think it's very clear that there's no profit in betting on the Federal Reserve cannibalizing its own business--and the Federal Reserve works for the money center banks. I also there are factions within the Federal Reserve itself. The NY Fed is at war with the SF Fed, has been for a long time. Powell represents NY and Yellen represents SF. I believe that most of the Biden administration work for European colonial powers. Every day we see events that just scream: What can the old European powers do to hold onto their yoke over our system? And then there are the US sovereigntists [Powell] who are sitting there saying, 'No, we're going to raise interest rates and drain the world of the excess leveraged dollars that exist around the world that do the worst of the dollar enslavement. We're gonna get rid of those, because that's what fuels the rampant colonialism'--call it what you want, it ends up being economic slavery for the rest of the world.

That's what everyone who hates the dollar can see. The question is: Who's actually pushing those hated policies? Whose policy is this? Is it US policy, or is it the policy of certain people within the US who are globalists in their thinking and have been using the US and the US military and the US State Department and the US CIA as their gendarme of this entire system? That's the big question. Geopolitically, five years ago I was in with the crowd that was anti-US empire--Pepe Escobar, Moon of Alabama, etc. After Covid it became very obvious that the anti-empire crowd only cared about anti-imperialism and they didn't care about getting to the truth. I called Caitlin Johnstone a Chinese agent on Twitter. A lot of the emotions around gold and bitcoin and all that stem from profound disappointment with our own government that's doing these terrible things. But the question is: Is it really us doing it? Continuing down this road will kill the golden goose [for the country at large]. I just call 'em NY trash commies.

BJ: I always start from one truth, which is that power is always taken and never given. Only rarely given (e.g. Geo. Washington). I don't think the US would mind a globalized world--as long as they were the ones running the global world government. Still sitting at the top of the pyramid.

TL: I agree.

Here comes the disagreement. Johnson sees Luongo as maintaining that there will be a more or less peaceful transition—well, outside of the slaughter in Ukraine. Johnson believes the transition will be violent:

BJ: People in Washington don't want to give away their power. There may be some who just want to get rich off it, but I don't think the Deep State in Washington wants to become a Second City to Shanghai or Frankfurt, or wherever. From that perspective I think the US will do whatever it needs to do to stay at the top of the mountain. I think they'll use every tool available to stay at the top, and if they're ever seriously threatened they will use the most diabolical means, the most destructive tools, and the most incendiary weapons to do that. I hope I'm wrong, but I think it probably will come to that. My biggest fear is not the US losing hegemony. My biggest fear is that there's a war for hegemony and the US comes out stronger than before and is no longer the American Republic but the American Empire. I think that's more likely than a big hegemonic battle that the US loses. Whatever comes next is probably not better than what we have now.

TL: I won't say that's not one of my scenarios. But, when I hear things coming from the chair of the FOMC (Fed Open Market Committee), saying that there's room in the world for more than one reserve currency--that's Jerome Powell's Senate testimony. Danielle DiMartino Booth brings up the point all the time, why is Powell even there (at the Fed)? You say there's no Geo. Washingtons? I dunno, dude. Powell is rich. He doesn't need that job. He walked away from tens of millions of dollars in private equity. He could've ridden zero interest rates for years making tens of millions more. But here he is at the Fed, taking all the slings and arrows, and doing exactly what he needs to do to break the old system. This is a gray hat argument. Powell looks around and says,

'Look, we'd like to keep doing the things we've been doing, BUT WE CAN'T. There's no balance sheet room left. We have to give up some of what we have in order not to lose everything.'

My insert, to confirm what Powell is doing:

Danielle DiMartino Booth

@DiMartinoBooth

Few thought the Fed would get this far. But the Fed’s balance sheet will be $1 trillion smaller by Labor Day. I’m sure the Street would prefer to still have breakneck M&A volumes instead of the fastest pace of bankruptcies since the GFC.

MOST would have guessed [Fed] put struck by now.

Tom Luongo (Head Sneetch)

@TFL1728

Agreed. The real story is that the Fed didn’t have a choice or they faced their own extinction, replaced with something far worse.

Back to Luongo:

There are very few people on Capitol Hill and on Wall St. who understand that we CAN'T stop the BRICS from decoupling--somewhat--from the US and the West. Somewhat--not completely. It's the terms of the divorce that haven't been settled yet. The big losers in this? Again, I go back to Europe ...

BJ: Oh, absolutely.

TL: Four player game of Diplomacy. There's the Global South, China, Russia, US, and Europe [one, two, three ...], Europe's the weak man at the table, but they're the ones with the biggest egos who don't want to give it up. They want their colonies back.

BJ: I agree with you on Powell. I think he knows what he's doing. He knows he might cause a recession to do it and he knows he absolutely 100% will hurt everyone else in the process. You saw it last year. He kept raising rates and Europe's sovereign bond market needed to be bailed out. BoJ had to intervene to save both their bond market and their currency. China was struggling to meet their dollar payments but also to keep their real estate market from a deflationary bust. All that was largely a function of the US raising rates. That's using the dollar as a weapon. I don't think the US will tolerate BRICS rising.

TL: I completely agree, and that's the fight that's going on. But, for the Eurodollar system that we're talking about here to exist as it does today, with all its power, requires a compliant and willing Federal Reserve to go along and take interest rates to the zero bound over the course of two generations, filling the US balance sheet with a bunch of crap, hollowing out our manufacturing, hollow out our economy and everything else ... Without a bunch of globalist shitbags at the Federal Reserve destroying the freaking country--Greenspan, Bernanke, and Yellen--then, yeah, the Eurodollar market goes turbocharged and runs the whole thing. The minute you get someone [Powell] up there who just says, 'No,' the whole thing ends.

Johnson adds that this can’t go on forever, but that it can go on longer than many believe.

For my part, I believe that Johnson misses the degree to which Putin has been preparing for this moment. He has largely been able to insulate Russia from sanctions, assuming a leadership role for the non-West. He has also armed Russia against nuclear blackmail, with hypersonic missiles. The US still retains a powerful nuclear submarine fleet, but when Russia begins deploying Zircon hypersonic missiles on its own submarines, that could be a game changer. Russia could become un-blackmailable. This is why Putin, in announcing deployment of hypersonic missiles, could confidently state: “You wouldn’t listen to us before. Now you will listen.”