The 'Kremlin Memo', King Dollar, Gold

Perhaps you’ve seen the latest hoax. Zerohedge has a pretty good summary account:

Dollar Detente? Kremlin Memo Explores Rejoining US-Led Financial System

The article starts out as if this is a verified proposal:

The Kremlin apparently has a highly ambitious proposal for finally mending relations with the United States and wooing the Trump administration to its side regarding resolution to the Ukraine war.

It centers on Russia weighing a return to the dollar-based settlement system as part of a broader economic reset with the White House, according to an internal Kremlin memo reviewed by Bloomberg.

Right. I know what you’re asking: What’s “an internal Kremlin memo?" Who wrote it and who did the writer address the memo to? Unsurprisingly, we don’t even get so much as a hint of an answer to those questions. Not even a wave of the hand to an anonymous source. But rest assured, it’s a “high level document.” Oh, and it’s “unclear” whether it’s even been presented to Americans—only to Bloomberg. Here’s the gist of the memo:

One central item is the call for pivoting back to fossil fuels over green energy, expanding joint ventures in natural gas and offshore oil, while partnering on critical minerals - with significant upside for American firms.

The partnership would include, per the Bloomberg report:

1. US and Russia working together on fossil fuels

2. Joint investments in natural gas

3. Offshore oil and critical raw material partnerships

4. Windfalls for US companies

5. Russia’s return to the USD settlement system

The memo was reportedly circulated among senior Russian officials and would mark a dramatic and sharp reversal from the Kremlin’s de-dollarization push, with obvious major implications for global financial flows.

When was the last time you saw a dramatic and sharp reversal of Russian policy? And why would Russia embrace the dollar at this particular juncture (see below)? Moreover, as Luke Gromen asks, Which dollar are we talking about?

Luke Gromen @LukeGromen

*RUSSIA MEMO SEES RETURN TO DOLLAR SYSTEM IN PITCH TO TRUMP

Which dollar system - the pre-Trump dollar system or the post-Trump dollar system that USTR Jamieson Greer laid out at Davos three weeks ago?

Because there’s a “yuge” difference between the two.

Read Greer’s speech

For my part, this “memo” sounds suspiciously like reports we got about the conversations between Kirill Dmitriev and Steve and Jared. In other words, a Jewish American wheeler dealer dream list.

Some people speculate that this hoax—there is no Kremlin comment, but perhaps that will be the subject of another memo release—was floated to try to drive a wedge between Russia and China. That’s as plausible as anything I can think of. For the rest:

Will Schryver @imetatronink

6h

 No, Russia Is Not “Rejoining” the Dollar System

This report stems from a specious claim by Bloomberg to have reviewed a confidential Kremlin memo.

There is no corroboration to substantiate their assertion, nor any logical reason to postulate its accuracy. It is #FakeNews.

*Walter Bloomberg @DeItaone

RUSSIA CONSIDERS RETURN TO DOLLAR IN TRUMP ECONOMIC PITCH

A Kremlin memo outlines proposals for Russia to rejoin the dollar system as part of a broader economic partnership with a potential Trump administration, Bloomberg reports.

The document suggests cooperation on fossil fuels, natural gas, offshore oil, critical materials, and US corporate gains, tied to a peace deal in Ukraine. Returning to the dollar would reverse Russia’s recent push for alternatives and could reshape global finance.

Western officials doubt Putin would act against China’s interests, and it’s unclear if the proposals have been formally presented to the US.

Here’s the context for this absurd story—Bessent’s claim that the US has a “strong dollar” policy:

Bessent Begs Global Investors TO BUY USD Assets As US SELLS GOLD Massively To China

So things are getting nasty and really desperate in the markets. Over the past month, we have seen a big repudiation or rejection from investors in US assets. More specifically, the US bond market is getting pummeled. Demand for treasuries from central banks is starting to fall. The absolute number might be going up, but the percentages are dropping. You cannot afford for your bond demand to collapse and still hope for a strong dollar down the road.

The biggest buyers of US bonds in 2025 are from the G7. But Canada is moving away from the US economy. So that number is going to fall. Japan is facing a currency collapse. So they might become net sellers instead. Only the UK is left. Meanwhile, the biggest growing economies belong to BRICS. China, Brazil, and India are all dumping their holdings. They sold almost $200 billion worth of US bonds. And in 2026, they will probably start dumping even more.

There are multiple reasons why countries are selling. China obviously wants to de-dollarize and reduce the risk of sanctions. They don’t want to be another case study like Russia, that moved too slow. Now, India has denied selling treasury bonds, but the sale numbers are solid. New Delhi is selling to bolster their own currency during this trade war. Brazil is also dumping because their China trade is booming and, when bilateral currencies are being used, holding US debt becomes less necessary.

But the biggest hurdle facing US assets is the dollar collapse. In just two months, the dollar is down again by 1.5%. The NASDAQ that tracks US tech stocks is also down by almost 1%. So if you’re a foreign investor, you have lost 2.5% in total. The weaker dollar just amplifies your losses. And over the past 12 months, it is down by over 10%. This is a huge reason why money is afraid to flow into US assets. As the dollar continues to fall, it’s making stocks and bonds toxic. If this doesn’t reverse, the only basis left for them will be domestic US investors. That’s going to increase domestic inflation and it’s going to hammer the currency down even further.

It’s so bad as Scott Bessent just gave a public service announcement. He’s trying his best to defend the dollar. He’s trying to tell everyone, begging global investors, to return to US assets and that the reserve currency will be staying strong.

Bessent: I get asked, What what does a strong dollar policy mean? And it means that we want to have the fundamentals to keep the the dollar strong. So in terms of whether it’s FDI or portfolio flows, we want to make the US the most attractive place for capital, which I think we’ve done. Uh we have regulatory certainty. As I mentioned, I think now this administration for every one new regulation has cut 23 regulations.

The problem is that Bessent isn’t just about regulations. That’s a red herring. The problem is the collapse of US industries and the manufacturing sector. The US just isn’t exporting enough to the world because of the tariffs. They can’t justify a strong dollar. When your inputs now cost 30% to 40% higher, everything becomes uncompetitive. Exports collapse and as a result, people start losing their jobs. It’s not rocket science. In the latest BLS report, US manufacturing’s decline is worse than we all expected. Since 2023, the sector has lost more than 300,000 jobs. The biggest decline came, of course, after Liberation Day when the tariffs went up. It’s not a coincidence. Trump’s trade war is sparking global boycotts, especially up north in Canada. Even if countries have no trade barriers on US goods, just the price tag alone is a turnoff, which means demand for dollars is dropping.

At the end of the day, a currency is simply a colorful piece of paper used to exchange for goods and services. To buy something made in the US, suddenly you need to acquire a ton more dollars to buy the same product. If prices rise by 10% to 20% for US goods, you need the currency to fall further for normalization of trade. Basically, things are still out of whack. And this exposes the true strength of the reserve currency. The USD is still heavily overvalued, especially on a trade weighted basis. Despite the fall, we are still near 30-year highs for the dollar’s relative strength. But if exports continue to drop and the US manufacturing sector continues to crumble, the dollar will have to adjust and it’s going to adjust down. There’s still more downside to go. And because the US is so hyper financialized, the dollar falling doesn’t just affect demand for exports. It cripples the demand for US assets as well.

Now, this is one interconnected mess that’s extremely hard to untangle. The easier fix is to reverse the trade war and take back all the threats made in Davos. But, as we know, it’s really hard to walk back on hubris. Bessent’s next argument for a stronger dollar is energy independence--that the US has enough power to run the economy and is now an export giant.

Bessent: uh on energy certainty that we we are back to exploiting the the US great natural resources that whether it is uh clean coal or our energy dominance in crude and net gas. So you we want to set the fundamentals. I I to the extent I had a strength in my uh investment career, it was in currencies and currencies on the screen go up and down, but over time if you have the right fundamentals, ...

But we have to push back here. Yes, the US can pump more oil and gas. You can issue a ton of permits and even bring in tons of Venezuelan oil. That was definitely part of the agenda. However, US oil exports are falling. It’s 10% down compared to the last few years. Trying to sell Venezuelan oil won’t be easy because it’s just too heavy. Not many refineries around the world can handle it. Power generation is also lagging behind China. Over the past four years, China installed more capacity than the entire United States today. The US has 1.3 gigawatts of capacity. China in its totality has nearly tripled that at 3.9 gigawatts. Bessent’s claim of energy independence isn’t wrong, but it’s just a snapshot. You need to zoom out and compare that to the great power competition. You need energy to run data centers and industry. The US grid buildout is not happening fast enough, which means eventually China will surpass the US in technology even in AI and semiconductors. then demand for dollars and US assets is going to get even more compromised.

So, Bessent’s speech on the dollar’s strength ignores a lot of obvious plot holes. As it stands, we have to brace for it to fall even lower. And by extension, that means US assets or their returns might not be that great going forward. The S&P might rise by 10%, but if the dollar falls by 5%, your real return is just 5%. Really something to consider.

Now, while Washington is trying to defend the dollar, China is back on the offensive. During Bessent’s Congressional hearing, he admitted that China is making moves against the US financial system. Setting up alternative payment rails is one of them, but a bigger issue is how China might be backing their digital currencies with gold. Beijing is firing on all cylinders to wreck the dollar because now is the time to strike. US spending is just out of control. The CBO just released their latest report and it shows the deficit is only going to get worse under Trump. By 2036, the US deficit is going to reach $3.1 trillion annually. This year alone, it will hit $1.9 trillion. So, it is an increase of $1.2 trillion going forward. This is equivalent to 6.7% of US GDP. The money will have to be raised or printed or the US will plunge into an instant recession.

It gets materially worse when we look at the breakdown. The majority of the deficit is going to come from interest payments, a crazy 4.6%. The primary deficit itself is just 2.1%. It’s something we have talked about endlessly. The national debt is spiraling out of control. We are at a point where the interest payments are now the majority of money borrowed. Either the US government defaults and doesn’t pay the debt, or they work with the Fed to print dollars. You’ll get your money back, all right. They’ll pay back your principle plus interest, but in devalued currency.

Now, China knows this and that’s why they are moving in the opposite direction. They’re accumulating sound money like never before. They’re accumulating more bullion, physical gold, within the country itself. Gold inventories in the Shanghai exchange boards are exploding. It is up by a record 104 tons. This is outside of Chinese government buying. Chinese investors and entities are moving global supply into the country. It’s obvious what the play is here. Beijing wants the country flush with gold to activate their contingency plan when the time comes. The PBC [People’s Bank of China] is buying gold. Their banks are buying gold. The Chinese military is buying gold. And now the Shanghai exchange is full of the metal as well.

There is a reason why countries hold gold. It’s not just to bolster their balance sheet. The reason goes deeper than that. It’s to show investors and trading partners that we are fiscally responsible. We have a real asset that is no one else’s liability. There’s no counterparty risk here. Now, Goldman Sachs has reported China is understating their gold buying. It’s 10 times more than what they are [officially] saying. So when Beijing reports they are buying a ton of gold, or that they bought a ton of gold, it’s probably 10 times that.

All this clandestine buying points to a currency reset. Bessent was afraid of the Chinese buying gold to back the digital currency. Well, it might very well happen. And here’s the irony. A lot of that gold is actually coming from the US. This will shock a lot of people, but in the past few months, the top export of the US was physical gold. This isn’t good news. Exporters sold and transferred away $12.5 billion worth of gold in November. Net on net, the US is actually settling the trade deficit in gold. This is an endstage collapse when trading partners would rather drain gold from the US than hang on to dollars. The gold is shipped from the US to London and Switzerland. But guess who is the biggest buyer of physical gold from these two places? It’s China. In other words, in a roundabout way, Beijing is draining the US of gold. The trade deficit between the US and China is being settled in gold. Chinese exporters are no longer recycling their earnings into US bonds. They are demanding gold. They are buying it from US markets.

This puts the US in a very vulnerable position. If a currency reset happens, countries will need to mobilize their gold reserves plus commercial gold. China draining gold from the US really puts Washington in a pickle. Should a revaluation begin, where’s all the gold going to come from? Forget about using dollars to buy it—countries at that point won’t want to sell gold for dollars. There is a reason why China is going around the world to buy up the gold supply chains. They are buying up companies with all the mining rights. The Canadian miner Allied Gold is the latest acquisition. A Chinese gold company just bought it for $4 billion. And this gives Beijing access to gold assets across Africa.

The playbook is as clear as day. When the revaluation happens, China will be sitting pretty. They will have a ton of mines ready to supply the Chinese financial system with physical gold. Meanwhile, the US Treasury or the Fed will have only 8,100 tons to fall back on--and that’s if the gold is still there. We don’t know whether it is still there because there hasn’t been a proper audit for decades. For China, the time to strike is now.

Since 2022, demand for US bonds has stagnated and yields are still staying high. Meanwhile, the dollar’s strength is trending down. And as we believe, there’s more downside to go. Even if the Fed cuts rates, it won’t help the dollar or demand for bonds. Even if Bessent makes another 10,000 speeches to back investors, it won’t help organic demand for US assets. The downtrend can’t be reversed with all these superficial actions. You need to reverse the trade war and cut deficit spending. Now, yes, yes, I can hear people laughing at the back. It sounds hilarious because we all know that isn’t going to happen.

So the Russians want back into the dollar hegemony system, to subject themselves once again to the Anglo-Zionists who plundered Russia in the ‘90’s? Seriously?