Death of the Dollar & Demise of the Euro

Off the keyboard of John Ward

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Published on The Slog on December 27, 2014


Discuss this article at the Economics Table inside the Diner

CRASH2: The death of the Dollar + the demise of the euro…and other more important outcomes CITIZENS MAY BE WEARING CLOTHES, BUT IT’S GOING TO TAKE A LONG TIME BEFORE THEY REALIZE THAT THE EMPERORS ARE NAKED

I’ve taken a fair amount of stick over the years for seeing ‘the end’ before it happens. A lot of the criticism is justified, and I would agree that on the whole I’ve been naive about just how incorrigibly crooked national and supranational elites were prepared to be in order to keep the show on the road.

On the other hand, I did put my money where my mouth is – and it did cost me dear. So I’ve made mistakes…and I’ve learned from them. And gradually – first with gold and then via the currency markets – I made up a good 60% of the loss. And most important of all, I am today 80% less exposed to fiat currency bailin losses than I was ten months ago.

However, I’ve maintained from the outset that collapse is a matter of when, not if: I realise that many Sloggers continue to assert that ‘They’ will just keep the Rollover going until one day sovereign debt and derivative exposures are simply inflated away. But for me, that strategy has been a dead duck for eighteen months at least. The movers and shakers of whom we write and talk have the same chasmic fault as every other psychopath: they overestimate their superhuman ability to control everything.

The events that have yanked control from their grasp have been piling up over those eighteen months….and accelerating. Now there is a rushing, bubbling confluence of standoff, retaliation, long-term weakness, blunder and testosterone ensuring that the game is up. Whether one looks at Greece, Italy, France, Ukraine, oil prices, interest rates, the Bundesbank v ECB slugging match, falling consumption, dated export strategies, East European growth or Asian production costs, they can’t all be evaded. The bad ship SS Neolib is surrounded by a wolfpack of U-Boats: only so many torpedoes can miss before one hits the powder magazine.

It is the latest truly remarkable miscalculation of US foreign policy, however, that has sealed not just the fate of globalist supranational colonialism, but doomed the Dollar. The decision to “bring Putin to heel” has been – for what one might call the anti-Washington bloc – one American imperial goose-step too many. Like many acts of State/Pentagon/White House macho have done in the past, this latest calumny has united opposition. The difference this time is that it has galvanised the ‘alternative world view’ like no other. This time, we aren’t talking Islamist lunatics, we’re talking very powerful interests.

I believe the two main fallouts from oil manipulation will be these: first, a triggering of energy derivatives in excess of $6 trillion that will be a San Francisco Earthquake of 1909 proportions for Wall Street. And second, the creation of a serious Dollar alternative when it comes to international transactions. While even fifteen years ago I would have dreaded those outcomes, today I think ‘Bring it on’.

Although Western Christmas has interrupted the process, the speed with which enthusiasm for a Chinese bailout of the Ruble has been displayed is dizzying. Even the old Australian warhorse Fraser now sees Aussie alignment with the USA as a hostage to fortune; more significantly, the feedback I’m getting is that much of Latin America, the former Soviet satellites, North Africa, Black Africa and even a post-euro Greece may very quickly sign up to whatever the new currency ‘bloc’ has on offer.

If you think I’m off beam here, then examine the reaction of Jamie Dimon to developments. Mr Dimon – the banking equivalent of Sweeney Todd – railroaded first Wall Street and then Congress into the inclusion of a clause in new bailin legislation….and the clause explicitly allows the banks to remove derivative responsibilities to shell satellite subsidiaries that do not fall under the ‘bail yourself out, asshole’ thrust of the legislation. The heroine as ever, Elizabeth Warren, was quick to spot it…but too late to rally the defence against it. (Obama, by contrast, was so active in supporting Dimon’s amendment, he came across like a guy about to ejaculate prematurely, and frequently).

Dimon knows what the oil-spill is going to mean. Hence the panic. Significantly, Paul Craig Roberts has also blogged with great wisdom in the last ten days to concur 100% with the view that this time, the US has shot itself not just in the foot, but in the temple. So too have Wolf Richter, Ye Zie at Bloomberg, and a host of other normally divergent commentators.


It is a regularly repeated human trait to see the end of something awful as the beginning of something idyllic. 1918, 1945, 1990 and 2013 proclaimed, in turn, a War to End all Wars, the United Nations, the Peace Dividend, and The Arab Spring. Such New Dawns turn out to be just Another Day in very short order – almost without exception.

The collapse of the Soviet Union did two things: it put a reunited Germany back at the centre of Europe, and fed gargantuan meals to the inflated Id of America’s State Department-CIA-Pentagon-Texas-Wall Street axis of interference. It also unleashed a neoliberal greed-fest in Russia, the ramifications of which Putin is still wrestling today.

What we are about to experience over the next 2-3 years is Crash2. Crash1 (2008-9) was an alarm-call that Wall Street and the City of London treated with a large mallet applied liberally to the clock. Crash2 will wreak socio-economic havoc across the globe, but even that will not be the end. It cannot be the end, because our problem as a species is constitutional and cultural. There won’t be a Crash3 (I suspect) but there will be a Stage3. And it won’t be over until the natural species state of affairs is restored.

That ‘natural’ state is, contrary to neoliberal agitprop, not a sort of Hobbesian brutishness. In the wild, neither Socialism nor Neoliberalism exist. The norm au sauvage is the hierarchical mutuality of the tribe, in which the elite cannot ignore the poverty of the majority: the brutish conflict, in fact, only occurs when the Alpha’s power has gone to his head. The result – always – is that he loses it.

While futurology consultancies speculate about such developments, they always get it wrong because they don’t ‘get’ the concentric circles of regular backlash that rule the creation and assessment of ideas: they know only how to extrapolate a straight line from what is.

The utter uncertainty of the future beyond Crash2 is best summed up by the reworking on an old gag.

Question: How long does it take Homo sapiens to restore the natural order of things?

Answer: Nobody knows, because it’s never been tried.

Enjoy your Sunday, wherever you are – and remember: however hard you try to render them otherwise, Christmas leftovers are still Christmas leftovers.

Knarf plays the Doomer Blues

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