Brief Summary
This video discusses the potential breakdown of the current dollar-based monetary order and the shift towards a multipolar world. It explores the implications of a weaker dollar, the strategies countries are adopting to diversify their reserves, and the potential winners and losers in this transition. The video also touches on the roles of financial, sovereign, technological, and military powers in shaping the new global landscape.
- The global monetary order is potentially shifting away from a dollar-based system.
- A weaker dollar can benefit the US by making domestic production more competitive.
- Countries are diversifying their reserves by buying gold.
- The transition could lead to inflation or deflation, impacting people differently based on their asset ownership.
Introduction: The Breaking Down of the Monetary Order
The video begins by stating the macro theory that the world is transitioning from a globalized, dollar-based system to a more evenly distributed power structure. This shift involves a change in the dollar's role, signaling a breakdown of the current monetary order. The presenter highlights that this transition is causing volatility in markets as countries diversify their reserves and explore new trade agreements, moving towards assets like gold and silver.
The Evolution of the Monetary System
The presenter explains the historical context of the monetary system, referencing gold and silver certificates from the early 20th century that were redeemable for physical precious metals. He contrasts this with the current system, where the dollar is not backed by any physical commodity since the U.S. left the gold standard in 1971. The dollar became the center of the global economy, with countries selling goods and energy in dollars and then reinvesting those dollars into U.S. assets. This system allowed the U.S. to maintain trade deficits and consume more than it produced, but it relies on the dollar remaining strong, which is now changing.
The Weaker Dollar: Good or Bad for the US?
The video explores the implications of a weaker dollar, presenting two perspectives: the "financialized America" that benefits from a strong dollar, cheap imports, and expanding debt, and the "productive America" that could benefit from a weaker dollar to rebuild its industry. A strong dollar has incentivized offshoring jobs and financial speculation, while a weaker dollar could lower the burden of debt, make domestic production more competitive, and shift capital towards real assets. The presenter notes that the transition to a weaker dollar can be painful and lead to market volatility.
Measuring Time in Dollars: The Impact of Inflation
The presenter illustrates the impact of a weakening dollar by comparing the amount of gold that could be purchased with a week's worth of minimum wage earnings in the late 1960s versus today. He explains that the dollar has been allowed to weaken due to Keynesian economics and the debt-based monetary system, which requires continuous growth and expansion. The U.S. has been running a "consumer of last resort" model, but this system is changing as countries diversify their reserves and central banks buy more gold.
Central Banks and the Shift to Gold
The video discusses how central banks are diversifying their foreign exchange reserves, with gold overtaking treasuries. This shift is partly due to Basel 3, which changed how banks value gold on their balance sheets, making it a more attractive reserve asset. The presenter shows that while the stock market appears to be rising when measured in dollars, it has actually lost value compared to gold since the year 2000. This trend is accelerated by China and other central banks building a parallel system to the dollar using gold.
Winners and Losers in the Transition
The presenter analyzes who benefits most from the weakening dollar through the lens of four power players: the financial industrial complex, sovereigns, the tech industrial complex, and the military-industrial complex. The financial sector benefits from ownership of real assets, which rise in nominal prices when the currency weakens. Sovereign nations can rebalance trade in their favor with a weaker currency, making domestic production more competitive. The tech sector gains influence by controlling new systems of technology, and the military-industrial complex enforces these changes.
The Fork in the Road: Inflation vs. Deflation
The video concludes by outlining two potential paths for the future: inflation and deflation. Inflation could occur if interest rates are lowered, making it easier to borrow money and leading to a weaker currency and rising asset prices. Deflation could occur if investors lose confidence in the U.S., leading to capital flight and falling asset prices. The presenter believes that this transition will continue to favor people who own assets more than those who rely on incomes, widening the wealth divide.
