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Yellen Shocks Investors with Strange De-Dollarization Comment
Photo by Mark Warner
Photo by Mark Warner
From Peter Reagan at Birch Gold Group
Janet Yellen, the current Secretary of the Treasury and former head of the Federal Reserve (2014-2018), assured us in 2017 there wouldn’t be another financial crisis during our lifetimes.
Maybe that was just wishful thinking. I can forgive her for failing to predict the 2020 coronavirus pandemic panic, the Federal Reserve’s multi-trillion-dollar money-printing stimulus spree (and the subsequent 2nd, 3rd and 4th largest bank collapses in U.S. history).
She downplayed inflation as it was heating up at the time. In this case, she claimed it would only be a short-lived “transitory” event. As we now know after 24 months of historic inflation, she was obviously way off base. I’ll give her credit for admitting she was wrong – eventually...
Well, everybody makes mistakes.
Which brings us to the present day.
We previously discussed the U.S. dollar’s declining share of global foreign exchange reserves, a 25-year low at the end of 2020.¹ Since that report, the world’s central banks lowered their dollar holdings another 6%.
Why? For all the reasons we’ve discussed previously! Inflation and weaponization of the dollar – see this explainer of the Durban Accords for more details.
My colleague Phillip Patrick explained this issue to Steve Bannon not long ago:
BGG - Transcript Video Transcript
Axios this morning talking about the collapse of the European energy market. You’ve got California doing blackouts We’re still sitting here right now with another 47 billion where you were gone last week They put another 47 billion up give us your sense the birch gold sense Give us your sense of global capital markets and particularly the danger that Europe presents to the United States right now as far as a country that a Continent that may not have a recession but may actually collapse into a depression, sir. I Mean it’s an absolute disaster What’s happening now? And I think we talk about the the second installment of the death of the dollar and that’s focusing on loss of global reserve Currency look at what’s happening now very recently on Wednesday Putin announced China Would start paying for gas in in rubles Stop paying for gas or in rubles and you want right? This is Significant.
Hold it. Hold it. Hold it.
They would stop they would stop paying in dollars and start paying her animals in Iran, right? They’re not going to convert into dollars. That’s the biggest shot the timing of our letter By the way, go to birch gold.com Ford slash Bannon I’m telling the Financial Times put a column out last week and two weeks ago Philip. I said it’s pretty good timing today The Russians and the Chinese announced it they’re not they’re not convert.
They’re not going to convert into dollars. How big a deal is that? it’s Massive it’s huge. And unlike I said that the timing of this second report is just absolutely perfect But it’s significant look commodities are priced for a price in and paid for in US dollars That’s been the case for the last 50 years and it’s so important, right? It’s a very privileged position to be in every nation needs dollars to transact which strengthens the dollar by proxy and it makes imported Goods and deficit spending very timely today eat cheaper for us here in the United States now Initially after the sanctions China had agreed to pay Russia in euros This rate recent deal between themselves is a move away from that now They’re viewing it as mutually beneficial, right? What it’s allowing them to do is reinforce their own economies and now they’ve even agreed to build two new pipelines Between Russia and China, so that’s a big commitment.
It’s a big investment It takes a lot of time a lot of money to do that And I think it demonstrates their commitment to a long-term partnership what it means for us here in the West However in the United States in the Western world, it’s very very dangerous, right? It’s removing our power on the international stage The most frustrating thing of all though was this was a self-inflicted crisis, right? The Biden regime had attempted to take resources away from Russia and all it’s done is made them more resourceful, right? This is the beginning of the end in my mind for u.s. Dollar hegemony globally. It’s a big big problem Hold it in the report by the way The you’ve got to they’re all free you get the politics of money’s part one This is called the end of the dollar Empire the overall series we’re doing the first is called the politics of money you get up to speed on how what the United States used to be when We used to actually have politics around currency The second is about our fall as the prime reserve currency, which will change everybody’s life We do we don’t sit in the same. It’s not going to happen tomorrow But to your point these type of things that wouldn’t even be conceived of a two years ago under a Trump administration The major powers in the world are doing it and Philip everybody else is trying to figure out a way That they can get away from the dollar, correct? Absolutely, you a global dollar holdings by central banks are at 31-year lows, right? Even friendly nations are looking at what the US government is doing to the dollar and they’re looking for shorter term solutions That has been gold gold reserves have been boosted internationally significantly longer term They’re going to be looking for it for it for it for another alternative as you say, these moves are glacial.
They’re slow It’s not we’re not going to lose global reserve currency status tomorrow But when you have the second and eleventh largest economies in the world now transitioning away From US dollars. It’s significant and for me It’s the beginning of the eventual downfall of the dollar and that is significant Currencies do not recover from a loss of global reserve We’ll be like you’ve been at this a long time Have you ever seen a world economic crisis like is building right now sir in every different aspect of it whether it’s energy food National security geopolitical. Have you ever seen anything in your life like this brother? Never never in my life.
What’s happening geopolitically what’s happening domestically with the economy the lack of options? I’ve never seen anything like this and quite frankly a lot of this was avoidable. We just needed good leadership We didn’t get it and we’re heading Down a path that I’m not sure that there’s any return from so no is the short answer By the way, if you think of where we were in two years, you think we were in the Christmas of 2019 Phillip one more time people should go to birch gold comm Ford slash Bannon to get the second installment you get the first two, but it’s all free get the second installment The end of the dollars the end of the loss of the prime reserve currency. It will shock you Phillip also How do people go just to talk to an advisor if they want to talk to somebody now at birch gold to find out about? Gold as an option right now.
You got to be looking at all options You owe it to yourself to look at all your attorneys where they go Is exactly correct. So same place birch gold comm forward slash Bannon There’s a lot of good information for your listeners. They’ll get that second report in my humble opinion It’s even better than the first.
I think it’s fantastic. Very educational and everybody needs to read it. It’s so important We broke this down so the layman can understand it, right? So we want to make sure you have to get this information.
You have to start start understand about money Frick What is your social media? I know you’re putting stuff up all the time now. How do people follow you particularly? Look even if you don’t like economics or math or anything like that now you’ve got to start understanding this this this country’s Economic base is being destroyed. It’s your responsibility to think it through for yourself And we’re going to provide you with all the information and access to the smartest best people in the world all for free Phillip how do people get to you? at Philip Patrick on get a fillet with two L’s Patrick on gather and For information from us at birch birch gold comm forward slash Bannon Make sure you request the end of the dollar Empire Segments one and two we’ll be talking about a lot more.
Okay stick around
Well, the outspoken Secretary Yellen has a different take. When called before Congress back in June and interrogated on the global de-dollarization trend, she announced that it was nothing at all to worry about:
We should expect over time a gradually increased share of other assets in reserve holdings of countries – a natural desire to diversify.
Now, that is an admirable bit of political spin.
If you believe it, we aren’t seeing an unprecedented global de-dollarization drive – not at all! We’re just seeing “a natural desire to diversify.” And we all know, diversification is smart. I talk about it all the time!
But in order to share Yellen’s perspective, you have to also agree that it’s a simple coincidence that the world has this “natural desire to diversify” after a multi-trillion-dollar dollar-printing spree, subsequent decades-high inflation and the unprecedented financial sanctions against Russia.
Politics may dictate her response – but logic contradicts her.
Either way, the world is de-dollarizing. That’s a problem for a nation that relies on foreign buyers to fund its multi-trillion-dollar annual budget deficits. Less dollar demand means fewer creditors, fewer creditors means borrowing costs rise.
So regardless of the motives behind the de-dollarization drive, the challenges to the U.S. and its debt-smitten government are the same. How does Yellen address that?
I would say there is no meaningful workaround for most countries, for using the dollar as a reserve currency.
Interesting! In that case, since Russia is completely frozen out of the dollar-based financial system, their entire economy must’ve ground to a halt, right?
And if there’s “no meaningful workaround” then why is China inking dollar-dodging trade agreements with Saudi Arabia, India, Brazil – frankly, with most of the world?
Why are BRICS nations launching their own gold-backed dollar alternative currency on August 22nd?
Once again, reality contradicts political spin.
So what does it matter to you and me?
The benefits of dollar dominance
The U.S. dollar has been the global reserve currency for over 80 years, and our nation has become dependent on the economic benefits of that role. Here’s a short explanation of why it’s critical. to maintain the dollar’s hegemony as global reserve currency:
Domestically, reserve currency status brings a greater global demand for dollars. This means more of a global willingness to absorb dollars into foreign central banks and foreign bank accounts even as the dollar inflates and loses purchasing power. Ultimately, this means the U.S. regime can get away with more monetary inflation, more financial repression, and more debt before domestic price inflation gets out of hand.
After all, even if the U.S. central bank (the Federal Reserve) creates $8 trillion in new dollars in order to prop up U.S. asset prices, much of the world will take those dollars out of US domestic markets, and this will reduce price inflation in the U.S. – at least in the short term.
Moreover, the fact the dollar dominates in global trade transactions means more global demand for U.S. debt.² Or, as Reuters put it in 2019, the dollar is used “for at least half of international trade invoices – five times more than the United States’ share of world goods imports – fueling demand for U.S. assets.” [emphasis added]
From the U.S. perspective, there are only benefits to being the global reserve currency.
To the rest of the world? Well, to paraphrase Nixon’s Secretary of the Treasury John Connally, “The dollar is our currency, but it’s your problem.”
You can plainly see by reading the bolded text in the quote above that it would create a major economic catastrophe if the dollar were ever to lose its privileged status.
While that isn’t likely to happen soon, it will inevitably happen.
The global de-dollarization drive is accelerating. The dollar is losing market share, dollar demand is climbing, and viable alternatives to the dollar are in the works.
That said, Yellen is correct. Anyone who has assets, whether it’s a sovereign nation or an everyday American family, should have “a natural desire to diversify.” Like your grandma used to say, Don’t put all of your eggs in one basket.
So how are nations and households fulfilling this desire to diversify?
“Dollar dumping” is another word for “diversification”
When we say global central banks are “de-dollarizing” or “dumping the dollar,” don’t imagine a bunch of suits hurling bundles of Benjamins into a bonfire. They aren’t destroying their dollars. Instead, they aren’t keeping their dollars – they’re using those dollars to acquire other assets.
That’s what diversification is! And it looks like global central banks are spending their dollars on gold. I’ve told you several times that 2022 was the biggest year for central bank gold buying in history. While dollars are going out the door, gold is coming in. (Okay, maybe it’s simply a coincidence that gold-buying and dollar-dumping are happening simultaneously. I can’t prove the connection between the two – but it’s a strong circumstantial case!)
Why gold? Physical precious metals have historically been the go-to hedge against failing currencies. When the dollar declines in purchasing power, the dollar price of gold and silver (like other commodities) tends to rise.
Furthermore, physical gold is the universal and timeless alternative currency of last resort. Even though it’s not often used to settle transactions today, nobody will say no to gold – and, for that reason alone, gold is usually the last thing you spend.
That’s why central banks have gold reserves in the first place – they’re the nation’s equivalent of an economic bug-out bag. Probably the safest, most stable form of money in human history.
(If it wasn’t, why would the BRICS nations be planning to back their new dollar alternative with gold?)
While I disagree with Janet Yellen’s public-relations-inspired, hand-waving explanation about the global de-dollarization drive, she is right about one thing. It’s smart to diversify, whether you’re a central bank or an every day citizen. It may even be smarter for those of us whose incomes are denominated in dollars, from a U.S.-based source, whose assets (like our homes) are also firmly in the U.S. If you’re an American citizen, you may be much more “invested” in the U.S. than you think…
If you’re experiencing “a natural desire to diversify,” adding physical gold and silver to your savings is easier than you might think. You can get all the information you need about both gold and silver for free to make an informed decision right here.
BGG - About the Author 
About Peter Reagan
Peter Reagan has covered precious metals and the economy for Birch Gold Group for over 15 years. His articles have been featured in several leading publications, including Newsmax and Zerohedge. At Birch Gold Group, Peter leverages his deep market insights to help educate website visitors and customers on why they should consider diversifying their savings into gold and other precious metals, and how that process works. Due to this commitment to education, his content has become a trusted source of information throughout the industry.
BGG - About the Reviewer About the reviewer Phillip Patrick
Phillip Patrick is a Precious Metals Specialist and spokesman for Birch Gold Group. Born in London, he earned a degree in politics and international relations from the University of Redding, and began his career as a wealth manager at Citigroup in London’s financial center. Since joining Birch Gold in 2012, Phillip has become a trusted voice on economic policy and precious metals, appearing as a guest on dozens of television and podcast platforms, including Newsmax, The Ben Shapiro Show, The Megyn Kelly Show, and Stephen K. Bannon’s War Room. In addition to his contributions on Birch Gold Group's blog, you can watch his interviews on Rumble and follow him on Gettr.
Sources
- “U.S. Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low.” https://www.imf.org/en/Blogs/Articles/2021/05/05/blog-us-dollar-share-of-global-foreign-exchange-reserves-drops-to-25-year-low
- “The Changing Role of the U.S. Dollar.” https://www.brookings.edu/articles/the-changing-role-of-the-us-dollar/
BGG - CTA Option 2 