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by Lear Capital EditorialJune 30, 2022

While the rest of the world goes nuts over Roe v. Wade’s demise, Johnny Depp’s exoneration, January 6 Committee Hearings, and whatever the Kardashians are doing, you should be aware of 4 critical issues that will have real effects on your family’s budget and financial future.

Are you paying attention to what is happening to the US dollar on the world stage? Don’t get distracted by the latest hot button issues.  These critical pressure points could have you paying $300 for a gallon of milk or a loaf of bread one day – and not because the milk or the bread is laced with gold but because the dollar is losing purchasing power – fast.

Buckle up.

1. New global reserve currency replacement in the works

The BRICS countries (Brazil, Russia, India, China, South Africa) are in talks about a competing reserve currency. From Business Insider:

"This is a move to address the perceived US-hegemony of the IMF," ING's global head of markets Chris Turner said in a note. "It will allow BRICS to build their own sphere of influence and unit of currency within that sphere."

Russia's move comes after Western sanctions imposed over the Ukraine war all but cut the country out of the global financial system, curtailing access to its dollars and putting pressure on its economy. 

"The speed with which western nations and its allies sanctioned Russian FX reserves (freezing around half) no doubt shocked Russian authorities," ING's Turner said.

"The Central Bank of Russia effectively admitted as much, and no doubt some BRICS nations — especially China — took notice of the speed and stealth at which the US Treasury moved," he added.

Those sanctions have likely encouraged Moscow and Beijing to work on an alternative to the IMF's international reserve asset, the special drawing rights, Turner suggested.

A competing reserve currency will necessarily reduce global demand for the dollar and curtail our ability to export our inflation. We have gotten very spoiled by the near unlimited global demand for the dollar. If that dissipates, it will shake our economy to the core.

 2. Money Supply is still INCREASING

Keep an eye on M2 – money supply. The Federal Reserve is still pumping out money - albeit at a less alarming rate as 2020-2021. The latest moves to raise interest rates have the financial world shook, but in the face of near double digit inflation, the highest in 4 decades, a 75 basis point increase was paltry. It has slowed down the real estate market, for sure, but we will be paying the price for all this excess money printing for generations to come. From Advisor Perspectives:

“However, high inflation is likely to linger. The M2 measure of money grew at an 18% annualized rate in 2020-21, or roughly three times the "normal" rate, and it will take multiple years for the US economy to fully digest all that excess purchasing power even if the money supply slows in the year ahead. If the Fed really does want to achieve a soft landing for the US economy, the best option in our opinion is to somehow keep M2 growth at a below trend rate in the 2-4% range for the next few of years.”

3. Out of Control Government Spending and MMT

From Washington Examiner

“Counting only debt held by the public — which is some 20% lower than total government debt, including intragovernmental transfers — CRFB says that absent strong corrective action, the federal debt is likely to reach 125% of gross domestic product within a decade. Most nations are in a serious danger zone for economic collapse when debt exceeds 100% of GDP.”

Ultimately, all of that money is printed because the government continues to spend uncontrollably. And no past administration is blameless. The budget grew under Bush, under Obama, under Trump and now under Biden. But it does seem that COVID lockdowns and the Ukraine war have given Biden carte blanche to spend trillions of dollars at an unprecedented and breathtaking pace.

It is all justified in Washington’s mind by Modern Monetary Theory – MMT which is the idea that government can spend whatever it wants because it owns the printing press. It can simply conjure currency from thin air without consequence. This idea was hatched in academic ivory towers and is beautiful music to a politician’s ears. You see its influence all over Washington's spending decisions.

But we are feeling the consequences now with the inevitable loss of purchasing power.

4. The Petrodollar is on the verge of collapse

As a corollary to #1 on this list regarding the dollar as reserve currency is the status of the petrodollar system. A big part of the demand for the US dollar over the last 40 years (contributing to its status as the most important reserve currency) was the petrodollar system and the dollar’s monopoly over world oil markets. This was all arranged by Nixon in the 1970’s and helped to eventually tame the vicious cycle of inflation during that era.

Since the 1990s oil producing countries that have bucked the dollar and threatened to accept anything other than dollars have been vilified and some leaders have even met very public, humiliating and torturous demises. (Hussein, Gaddafi) Thus, it is alarming to see Saudi Arabia casually talking about diversifying their oil contracts out of dollars. Our government won’t be able to fight an ally as big as Saudi Arabia on this one. From Yahoo Finance: 

“Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan," a move that could cripple not only the petrodollar’s dominance of the global petroleum market - something which Zoltan Pozsar predicted in his last note - and mark another shift by the world’s top crude exporter toward Asia, but also a move aimed squarely at the heart of the US financial system which has taken advantage of the dollar's reserve status by printing as many dollars as needed to fund government spending for the past decade.

According to the report, the talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom.

The Saudis are angry over the U.S.’s lack of support for their intervention in the Yemen civil war, and over the Biden administration’s attempt to strike a deal with Iran over its nuclear program. Saudi officials have said they were shocked by the precipitous U.S. withdrawal from Afghanistan last year.

China buys more than 25% of the oil that Saudi Arabia exports, and if priced in yuan, those sales would boost the standing of China’s currency, and set the Chinese currency on a path to becoming a global petroyuan reserve currency.”

Keep an eye on these issues and plan YOUR dependence on the US dollar accordingly.

If Saudi Arabia - of all countries! - is hedging its bets and diversifying, perhaps you should too. You can convert a portion of your net worth to UNPRINTABLE precious metals and get the peace of mind that comes with taking control of your future.

You don’t have to be bankrupted by the bad ideas coming out of Washington.

You can own gold and silver and know that you have something that will always have value, and has historically moved counter to the markets. Many experts recommend putting 5-20% of your portfolio into precious metals.

If you call Lear Capital today, one of our knowledgeable account executives can go over your options with you, based on your budget. By the end of the call you can be well on your way to a safe, secure and easy transaction that could change your family’s financial future forever. Don’t hesitate. Call today.

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