Jim Rickards and Alex Stanczyk, The Gold Chronicles May 2018
*Update on gold markets
*New phase of financial warfare with Iran
*Financial system chokepoints
*US Dollar payments system
*SWIFT transfers and third party influence
*How the US uses dollar payments leverage to control non US transaction
*How Inflation turns people against government and increases probability of civil unrest, limits government options
*How the current situation with converging factors in Iran, China, Russia, can lead to a disturbance in the gold markets and dollar payments system
Listen to the original audio of the podcast here
Physical Gold Fund presents The Gold Chronicles with Jim Rickards and Alex Stanczyk offering insights and analysis about economics, geopolitics, global finance, and gold.
Alex: Hello. This is Alex Stanczyk, and welcome to another edition of The Gold Chronicles. I want to welcome the brilliant Mr. Jim Rickards.
Jim: Alex, it’s great to be with you and our audience.
Alex: It’s good to have you back again. I know people are looking forward to this one, because we have some important and special things to talk about today. What we’re going to be covering is already being talked about in the Twittersphere.
As a bit of review, in our last Gold Chronicles, we did a deep dive into common objections to owning gold and using gold as a gold standard for monetary policy. We covered objections such as there’s just not enough gold to support finance and commerce, the gold supply doesn’t grow fast enough to support economic growth, gold has no yield, gold causes depressions and panics (particularly The Great Depression), gold has no intrinsic value, and gold is a barbarous relic.
If you’ve heard these kinds of objections and aren’t sure how to deal with them or even how to answer them for yourself, I highly recommend going back and checking out our last podcast where we spent close to an hour really deep-diving those topics. PhysicalGoldFund.com/podcasts
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Also, we’re actively monitoring comments, so if you want to leave comments underneath the video, we are answering questions and taking note of questions that might be useful to talk about in the future.
Why don’t we dive right into our topics now?
Jim, first, I want to make a quick note about gold. I know we’re going to be talking about gold later as to how things are playing out, but I think people realize it’s been trending sideways in a channel since the beginning of 2018. It’s basically bouncing between $1300 and $1366. All economic activity really hasn’t impacted it; there have been no major panics or catastrophes or anything like that.
I do note that demand out of India has dropped off and, as far as we know, sovereign demand from China is not reporting any increase. That doesn’t mean they’re not increasing it off the books, but they’re not reporting any increases. Demand in the west has been extremely flat, so the fact that gold is not going down is really interesting to me.
Do you have any thoughts before we get into the rest of it?
Jim: I agree completely. First of all, you’re right; gold has been trending sideways for months. My thesis – and I think there’s good support for it – is that we’re in a multi-year long-term bull market that actually started in December 2015. If you look at the six-month chart, there’s not much action. If you go back to the post-Brexit high around July 8, 2016, we’re not really past those highs. That was around $1360 with a lot of action. In the meantime, it was down as far as the low $1200s.
The point is, it never got anywhere near the December 2015 low of $1050. It’s never been anywhere near that. It’s barely been in the $1100s, bounced around the $1200s a little bit last year, and has traded in the low to mid $1300s since then. But that’s still a good 30% pop from the low. Yes, trading sideways lately but in a bull market since 2015. That’s number one.
Number two, the amazing thing about gold is not that it’s not higher but that it’s not lower. Considering monetary conditions, stock markets peaked on January 26th, so stock markets are off their highs – that’s tightening; the Fed is raising interest rates – that’s tightening; the Fed is reducing its balance sheet by tens of billions of dollars a month – that’s tightening; and the dollar is stronger – that’s tightening.
Going down every item on the checklist, we have tighter monetary conditions across the board which is usually bad news for gold. If you gave me that scenario ex ante, I would have said, “Gold is going to go down to $1250,” but it’s not. That is a very positive sign. When you maintain your levels against headwinds and those headwinds turn to tailwinds, you’re going to take off like a rocket.
That’s what I’m watching for. I believe the headwinds will turn to tailwinds. That’s really the point, because the Fed is not putting the U.S. economy into recession. Three or four months ago, there was all this buzz about inflation. Now suddenly, most recently the inflation data looks weak. It’s not deflation, but it looks a little disinflationary.
Europe has slowed down and may be very close to a recession. What does that mean? It means they must go back to the currency wars and cheapen the euro. Well, if you have a cheaper euro, you have a stronger dollar. That’s going to import deflation in the form of lower import prices if the dollar is stronger. That’s going to push the Fed away from the goalpost in terms of their inflation targets.
A lot of things have come together that cause me to believe that later this year – not in June, but I’m watching September to December – the Fed may go back to pausing on the rate hike series, which is an easing of conditions, and that’ll give gold a boost.
We know that Trump and Mnuchin want a weaker dollar, because they said so. They have not been shy about it, and I’m getting more and more evidence from inside the White House that they’re just going to start beating on Jay Powell about not raising rates.
Powell has so far maintained his independence, but history shows that when the White House and the Fed diverge, the White House wins. That’s the history of monetary policy going all the way back to FDR, Richard Nixon, take your pick.
The fact that gold is holding its own in a tough environment, and the fact that that environment may switch later this year to an easier environment for the reasons I’ve mentioned, is one more rationale to say it looks like gold is on sale right now. You ought to get it now.
It’s an amazing thing, Alex. All the people who won’t buy gold at $1310 will line up to buy at $1390. We know the reason; it’s human nature. All I can do as an analyst is say, “It looks cheap to me. Get some here and enjoy the ride.”
Gold has shown a lot of resilience. On top of the economic analysis I just gave, in the rest of this podcast, we’re going to talk about some very big geopolitical vectors that should push gold a lot higher. Again, all the more reason to get your gold now at an attractive level.
Alex: Let’s get into the core topic for today. In private conversation, you have mentioned to me that there are some urgent developments occurring with Iran. The potential scenarios moving forward are all interconnected and could impact everything from oil sales to China to the world’s gold markets. Would you elaborate on this?
Jim: Sure. In addition to this podcast (which is my favorite), I do quite a bit of writing and get invited to keynote speeches and TV and all that stuff. Fortunately, I’ve never been at a loss for topics, but people will say, “Jim, what do you want to talk about? Do you want to talk about Iran, China, currency wars, trade wars, gold, oil?” I look at them and say, “That’s one topic.”
Those six things I just mentioned are all connected, and I mean densely connected. Let’s try to unpack that a little bit starting with Iran, but we’ll just play out the thread as we unspool it.
We are in a financial war with Iran. To put it maybe more starkly, we’re in a war with Iran using financial weapons.
A couple of weeks ago, I had the privilege of leading a seminar at the United States Army War College. Among the group are career officers such as lieutenant colonels and majors who have
been identified and fast-tracked as the future strategic thinkers. This is something called the Advanced Strategic Art program. I’m a guest lecturer/seminar leader covering financial warfare; they don’t need any help from me on cruise missiles or whatever.
We went through in detail what we’re going to talk about now. Afterwards, the Commandant of the U.S. Army War College based in Carlisle, Pennsylvania, General Kem, was very complimentary. He said, “We’re actually going to change our curriculum, because this was a wake-up. We realize we have to get these financial weapons into the curriculum a little more.” I took it as a very nice compliment from the Commandant.
We’re in our second financial war with Iran using financial weapons. The first financial war went from 2011 to 2013. I cover this in chapter two of my book, The Death of Money, but let me briefly talk about a number of things we did to Iran.
You have to look at the chokepoints in the global financial system which are no different than geographic chokepoints. What do people worry about in the Middle East? The Straits of Hormuz. It’s only about 12 miles across, so if you block the Straits of Hormuz, none of that oil can get out of the Middle East. The Strait of Malacca in Singapore is one of the major pathways to China, etc. The Navy keeps an eye on these chokepoints.
There are also financial chokepoints. One of them is the dollar payment system, which goes through the banks but is run by the Federal Reserve and the Treasury. It’s called Fedwire. If you’re Citibank or Bank of America and want to send money, it either goes through the New York Clearing House or through Fedwire.
We kicked Iran out of the dollar payment system and said, “Anybody who moves dollars for Iran, you’re breaking our sanctions, you’re in trouble. Maybe we can’t arrest the mullahs, but we can arrest you.”
The banks have had enough fun in this area. They’ve paid somewhere between $70 billion and $100 billion in fines and penalties over the last 15 years for various violations of money laundering, know your customer, Iranian sanctions, and other similar violations in the money transfer area, so they don’t mess around with this.
Iran was kicked out, so they said, “Fine, we’ll just sell our oil for euros.”
There’s another payment system based in Belgium called SWIFT – the Society for Worldwide International Financial Telecommunications. This is the central nervous system of the entire global financial system and where banks in different countries pay each other.
I mentioned Citibank and Bank of America using Fedwire, but what if Deutsche Bank wants to send euros to Citibank or the biggest bank in China wants to send Swiss francs to UBS? Those payments go through SWIFT.
I’m very involved with sanctions and thinktanks in Washington and have a lot of experience working on this with the intelligence community, much of which I’ve described in my book, so I’m a little more than a bystander; let’s put it that way.
Well, we went and got our allies and kicked Iran out of SWIFT. The term for this is de-SWIFTing. That’s the jargon. We de-SWIFTed Iran and kicked them out of SWIFT. That’s serious, because not only can they not use dollars, which they never expected, but now they can’t use euros, Swiss francs, sterling, yen or basically any other currency.
Now what can they do? In theory, they can ship oil to India, open an account in Indian Bank, and be credited in rupees, but what are they going to do with the rupees? That’s the thing. Now they must dump $50 billion equivalent of rupees. So, that didn’t really work.
There are lots of other sanctions aside from the financial area. For example, vessels flagged in these countries cannot pick up oil in Iran, oil supply firms – the Halliburtons and Schlumbergers of the world and European equivalents – cannot sell equipment to Iran, no aircraft, on and on.
Just looking at the financial side, even if there weren’t sanctions on selling them stuff, they couldn’t pay for it, because they can’t use the payment system. Dollars were being smuggled into Iran from Iraq due to all the dollars floating around in Iraq because of the war. By the way, this is under pain of death. You get the death penalty for money smuggling in Iran, but they were doing it anyway.
It’s a black market and a free market rate. This caused a run on the banks, because everyone was like, “I’ll take my money out of the banks and get the black-market rate to get some dollars.” The smugglers in Dubai were cash and carry. If you bought some black-market dollars from Iraq, you could hire smugglers in Dubai.
The Iranians are actually fairly sophisticated as President Trump said the other day. The people of Iran like their iPhones, their HP printers, and their Macs as much as we do, and that stuff comes in from Dubai. You can see smugglers lined up on Baniyas Road down on the waterfront.
With a run on the banks, bankers raised interest rates to 20% to keep the money in. “Here, I’ll pay you 20% interest to keep your rials in the bank.” Because the currency depreciated so much, it was hyperinflationary.
Think about what’s going on in Iran. There’s a hard currency shortage, there’s a run on the bank, interest rates are 20%, and inflation is out of control. There’s no faster way to turn a population against you than inflation, because you’re robbing them of all their life savings.
Very few people know that Tiananmen Square, the protest that ended up being a massacre in Beijing, China, in 1989, started as an anti-inflation protest. It turned into a pro-democracy protest and they had their papier-mâché Statue of Liberty, but it started as anti-inflation.
The Iranians were in the same place, and now you get into psyops (psychological operations), you’re playing with our heads on Twitter, etc. We were going down the path to regime change without firing a shot. I’ll give credit to Obama and the Assistant Secretary of the Treasury who engineered all this stuff, but they declared a truce in December 2013 because the Iranians said, “No más. We’ll come to the table.”
I’ve personally spoken to people who were in the Treasury at the time and said, “Why didn’t you double down? Nobody was getting shot at or killed. We weren’t invading. The 101st Airborne wasn’t marching to Tehran. We were getting close to regime change. Why didn’t you double down?” They said, “Because we wanted to negotiate, and it worked. They came to the table.”
That’s okay. I might disagree, but that’s not an unacceptable policy. The problem President Trump has pointed out is that the negotiations were a complete failure. John Kerry and Valerie Jarrett – who was born in Iran, by the way – signed the worst deal ever.
No teeth. It didn’t limit anything in the long run. It deferred some things for a number of years but didn’t limit other things that were just as important. It had no teeth. “Other than that, how was the play, Mrs. Lincoln?”
A part of this was unknown at the time and has since been declassified, and we know about it now. We gave the Iranians hundreds of billions of dollars.
Remember, we got our hostages back. There was the whole controversy in 2014/15 of whether this was ransom for hostages or not. Obama kept saying it’s not ransom because it’s their money; we’re just giving it back to them. Well, that turns out not to be true. Some of it was their money and we did give it back, but a lot of it I would call ransom money that we paid. Bribery, whatever you want to call it, to get this deal done.
This money was delivered in cash, and I mean physical notes. With Iran kicked out of the banking system, they didn’t want wire transfers, because we could freeze it again if we changed our minds. I’m sure if they had a nickel in the financial system, Trump would have frozen it, but they don’t, and this is the reason.
We flew in pallets of 500-euro notes that we got from the Bank of the Netherlands. Our Bureau of Engraving and Printing doesn’t print euros, and Iran didn’t want dollars, so we had to go to the Netherlands Central Bank, do a swap, get the euros, and ship them. And gold – a lot of gold.
I haven’t been able to get the exact numbers, but we’re talking perhaps $30 billion in gold. Doing the math, it comes out to maybe about 800 tons. You know gold better than I do; that’s a lot of gold.
Where’d that gold come from? A lot of it was trans-shipped through Turkey, but it started with our friends in Switzerland. It came from refiners and existing vaults, but that is an enormous amount of gold. For all I know, some of it came from the Federal Reserve Bank of New York.
Now Iran was like, “Hey, I got the gold,” and started spending the money on terror. They’re firing missiles into Riyadh from the Houthis, they’ve re-armed Hamas, Hezbollah, and the Houthis, they’re encircling Saudi Arabia. It’s typical Iran.
This is what Trump said the other day. He said, “We were supposed to get better behavior in exchange for all this goodwill. We gave them the goodwill – cash and gold and relief from sanctions – but the behavior got worse.”
That brings us to today, but just put a footnote next to that gold, because it was a lot of gold. Iran is completely intransparent. We don’t know how much gold they have, but my estimate would be well north of 1000 tons, maybe 1500 tons, which puts them not too far behind Russia and what China at least admits they have not counting their off-the-books gold.
Follow the thread. Now Trump comes out and says, “The deal is off. We’re putting sanctions back on.” Our European allies don’t agree, but too bad. Going back to what I said earlier, this is all based on the dollar payment system, which we control.
They’re saying, “Trump is making the U.S. an unreliable ally, because one administration promises something, and the next administration tears it up. How can our allies trust us, because we change our minds? Blah, blah, blah.” That’s not true. What Trump did is in the four walls of the agreement that Obama negotiated. You’ll hear it on this podcast, but you won’t hear this on CNN or NBC.
This is called the JCPOA, Joint Comprehensive Plan of Action. There are seven members to this agreement – if it is an agreement; that might be an over-statement. It’s the five permanent members of the United Nations Security Council – U.S., China, Russia, U.K., and France – plus one, which is Germany, and Iran. With seven countries in this, that’s why they call it joint.
Comprehensive? I don’t know what’s comprehensive about it. There are a lot of loopholes, but it sounds nice. Plan of action? What is that? It’s a loose statement of intent. It’s like, “Here’s
what we all intend to do,” but it’s not legally binding. I don’t think it was ever signed. I’m not sure who signed it in Iran, but it’s out there. Another thing you get into is if you read the Farsi version (the language of Iran) and the English version. A lot of translators will say they’re not the same, so this is a hot mess at best, but it’s basically a handshake deal between two people who don’t trust each other. So, that’s what you got.
To the extent that it is in English, it says that the President of the United States has to periodically certify that Iran is complying with the terms and provisions. Trump issued two or three positive certifications – maybe three, but at least two. Every time he did, he said, “I’m warning you. I’m not happy with this, and one of these days, I might not recertify. You’re on notice. Europe, Germany, Iran, you better bring a better deal.” They didn’t, so he said, “Okay, I am not certifying. I’m putting sanctions back.”
That was a legal act in accordance with the JCPOA. It wasn’t a rogue act. This is really Obama’s fault. Why didn’t he get a treaty? A treaty is law. Changing a treaty is a much tougher process. A president can’t just wave his hand and change a law, but he can decide not to certify something if that’s his role. That’s what happened, so it wasn’t rogue. As I said, it was within the four walls of the agreement.
Where are we now? We are right back where we were in 2012 and early 2013. We’re in a financial war with Iran, and we’re putting all these sanctions back on again.
Some of them have 60-day or 90-day windows. If you shipped goods and they’re in the middle of the Mediterranean Sea on their way to the ports in Bandar Abbas – one of the big ports in Iran – the president is not saying you must turn the ship around. He’s saying, “You can finish that delivery. You have 90 days to clean up that work in progress or things in motion, but nothing new. Don’t do a new deal today. I’m not giving you 90 days on new deals; I’m only giving 90 days to unwind existing deals.” They’re out of the dollar payment system again.
I don’t know where things stand with SWIFT, because the U.S. cannot act unilaterally in SWIFT, but what we can do that’s even more powerful is what’s called secondary boycott. As an example, we can say to Germany, “I can’t stop you from paying Iran in euros unless we agree in SWIFT – and they may do that – but if you pay Iran in euros, tell Deutsche Bank to close up shop in New York. France, you want to pay Iran in euros? You want to do business with Iran? You want to sell them hydroelectric plants or whatever? Tell BNP Paribas to close up shop.”
Every one of these countries’ banks will say, “Our U.S. operations are far more valuable to us than anything we do in Iran.” So, they’re going to comply. They may not like it, but we have all the cards, so this is going to work. This is going to put the screws to Iran and begin to destabilize Iran.
The false dichotomy you hear is, “We’re going to war.” In other words, we had two choices: 1. Stick with the agreement, as flawed as it is, or
2. If you pull out, Iran will restart their nuclear program and they’ll either become a nuclear power sooner or we’ll attack them. Either way, you’re in a war.
That is completely false.
That’s a false dichotomy. Those paths are possible. I’m not saying those things cannot happen, but what I’m saying is there are many other outcomes or paths that are far more likely than the worst scenario.
We’re seeing this in North Korea. I was very vociferous in the fall when I said, “We’re on a path to war with North Korea by the end of March.” We were on a path to war with North Korea by the end of March. Precisely because of this and the fact that North Korea and China believed us, we had this change of behavior by Kim Jong-un.
That’s what’s called a self-negating prophecy; making an accurate forecast and the forecast itself causes changed behavior that makes the forecast become untrue. That’s a good thing. It worked the way it was supposed to.
Back to Iran, it’s the same thing. If we were close to regime change in 2013, we’re going to be close to regime change later this year, except that the Iranian people are even more receptive to our message and less tolerant of the Iran regime than they were five years ago. This is going to hit Iran very hard.
In May, the desired purpose was to bring them back to the table, negotiate a better deal, and then kind of do what we’re doing with North Korea. Then maybe Trump will meet the ayatollah. You never know with Trump, but maybe he will. Maybe he’ll meet Ayatollah Khomeini or the president of Iran in Vienna or someplace. You can’t rule that out. That would be a really good outcome. That’s what you get out of putting the screws to Iran.
I said that gold, oil, China, and all that stuff is connected, so let’s pivot a little bit. Who is Iran’s biggest customer for oil? The answer is China. China gets an enormous amount. They’re the biggest by far. The next biggest customer isn’t even close to China. It’s China’s leading source of oil. Saudi Arabia is in the same ballpark.
The Iranian-Chinese oil relationship is blood and oxygen to the Chinese. Their economy doesn’t run without Iranian oil. How are they going to pay for it? They can’t pay in dollars; we just went through that. They could pay in yuan in a Chinese bank, but now Iran is like, “I have a Chinese
bank account with tens of billions of yuan in it. How much chop suey do I need?” What are they going to do with the yuan? That’s the thing.
You can get into cutouts and illegal money laundering, but what Swiss or U.S. or German bank is going to be a party to that? They’re risking their franchise. They’re risking jail. They’re not going to do it.
What’s the third option? If it’s not going to be dollars or euros, and if yuan are impractical because there’s not sufficient liquidity, the third option is gold. China can pay Iran in gold – physical gold. Put it on a plane, fly it over.
We know that China has been acquiring gold like crazy hand over fist for the last ten years. Officially, they’ve tripled their gold reserves from about 600 tons to about 1800 tons. Unofficially, we believe they have significantly more, but the mining output is starting to deplete. They ran at 450 or 500 tons a year for four or five years, but if you know anything about old mining, that’s a very hard level to sustain. And they used all kinds of environmentally unfriendly techniques to cut costs. The bottom line is, apart from putting cyanide in the water, they’re depleting their mines.
If China is trying to get all the gold they can to catch up with the United States for the dollar reset that is coming down the road, how much more gold are they going to need to pay Iran for oil? The answer is a lot.
I haven’t worked through all these numbers, but this is a huge hidden uptick in demand for gold at a time when global mining output is flat-lining. It’s not declining, but it’s flat-lining around 2100 tons a year. It has for several years and may go down a little bit. Peak gold is a separate discussion we don’t want to have right now, but it’s certainly not going up. Gold is getting extremely difficult to find and costly to mine.
The beauty of gold is that it’s nondigital. You can’t hack it or freeze it; it’s fungible. China has a pretty sophisticated refinery industry. They can just take any gold bar with a serial number, melt it down, put a new serial number on it, and ship it to Iran.
That’s what I see happening. Obviously, it is happening because we’ve been here before. As I say, this is a replay. I know the playbook for the first Iranian war, and this is running some differences. I think Iran is a little weaker, the screws are a little tighter, and China is maybe a little more desperate.
That said, let’s widen the aperture and look really big picture. We have sanctions on Russia because of Ukraine and Crimea, and there are Syria sanctions. Russian global corporations cannot refinance dollar- or euro-denominated debt in western capital markets. They’ve been
begging the central bank, and Nabiullina won’t give them the money. She’s building up the Russian reserves and has said, “Gazprom, you go get your own dollars.” This sanction has been in place for a while.
We now have sanctions on China, not related to war and peace but related to theft of intellectual property. These Section 301 sanctions are a much more broad-based opportunity for the president to do pretty much whatever he wants to get compensation for the theft of intellectual property, which we estimate at $1 trillion. Trump is getting ready to dial that up, and Venezuela is sanctioned, and we’re using maximum pressure on North Korea and Syria.
Look around the world. Venezuela and Iran are out of the system. Russia is out of the system to a great extent but not completely. China is not out of the system, but they’re under scrutiny and the target of sanctions. And there’s North Korea and others.
If you’re these countries, at what point do you say, “You know what? The only reason the U.S. can do all this successfully is because they control the dollar payment system.” (This is true, and we have buddies that control SWIFT.) “We need a different system. We have to get out of this system, because until we get out of the system, this is the financial equivalent of the Seventh Fleet. We can’t fight the Seventh Fleet, but we can fight the dollar.”
If you can’t build a bigger navy – and you can’t – can you build an alternative to the dollar? Well, that’s a lot easier than matching the Seventh Fleet ship for ship, and they’re working on it.
They’re using blockchain, distributed ledger technology, physical gold, and their own proprietary Internet. Not that you can’t hack it, but if they have good encryption using blockchain and a proprietary network that’s pretty secure, even if you do hack it, what do you see when you get there? You see some encrypted message traffic, but you really don’t know what it means.
They’re getting close. I believe this will be announced in the not distant future meaning in the next two years – I’m not saying tomorrow but sooner rather than later – that they’ve set up what I call the Putin coin or the Xi coin. Let’s just call it the world coin or something other than the dollar. It’s encrypted, distributed ledger technology. By the way, it’s not bitcoin, so don’t go out and buy bitcoin based on this; that’s junk.
In effect, it’s some kind of worldwide cryptocurrency that is secure and encrypted and used for payments between all the people I mentioned. Iran, Russia, China, Turkey would probably join, Venezuela, and maybe others as well will say, “I’m not kicked out of the dollar system, but you guys have an alternative. I’ll join that too.” It’s redundancy like a spare tire.
None of this is a stretch. I’m not talking 22nd century science fiction here. This is all happening. This is all work in progress.
At the IMF spring meeting about a month ago, Christine Lagarde said that the time has come to look at the SDR. The IMF executive committee has launched a new study on the uses of the SDR and explicitly how that can be expanded. Why would you have the existing SDR system today with distributed ledger technology or so-called blockchain? You would have an e-SDR, a crypto- SDR.
The IMF can’t get too far out of their lane or they’ll run into trouble with the United States, but they can push a lot. With Russia and China looking at this on their own, the IMF saying “Let’s look at a crypto SDR,” a lot of gold piled up in certain places, and a necessity to transact in gold because you’re kicked out of the dollar payment system and probably SWIFT, we’re getting closer to the point where there’s going to be an all-out attack on the U.S. dollar.
That’s the other side of financial warfare. I’ve said to people at the Treasury, “You guys are pretty good at this, but be careful what you wish for, because your success will drive a reaction function that may lead to the demise of the dollar as the leading global reserve currency.”
There’s a big picture here, and my takeaway is to get some physical gold now. Get it while you can and while the price is attractive. Put it in a safe place. Don’t put it in a bank; put it in safe nonbank storage in a good jurisdiction. Go to some extent – not all in, but to some portion of your portfolio.
If you don’t, you may be caught completely unaware on the day when Putin and Xi have some kind of joint press conference to say, “We came up with our own payment system. See you later, dollar.”
Alex: I totally agree. Thinking about all these different components we’ve been talking about, another area just occurred to me that might be something worth watching. Depending on which scientific papers you’re reading as to who’s claiming to be farther ahead in the race for quantum computing, basically whoever gets there first is going to have stronger crypto than anybody else and theoretically be able to break everybody else’s crypto.
If the Chinese get quantum computing first, then you have that. They’re already bouncing quantum messages off satellites now. There was a huge breakthrough way ahead of any other nation. I don’t think it’s very farfetched to see a satellite-based distributed ledger that’s locked up by quantum computing technology and does everything we’ve just been talking about.
You and I have been talking about this whole idea of blowback for years. The fact that the United States can essentially lock down the entire international monetary system because of
the U.S. dollar being the world’s reserve currency, even if countries are transacting with each other using U.S. dollars, they have that chokepoint. We’re going to come to the point where all the other sovereigns are ultimately like, “We’ve just had enough of this nonsense.” Right?
Jim: Right. The dynamics are the same as the schoolyard bully. The schoolyard bully goes out and beats up a little kid. The next day, he beats up another little kid. The next day, he beats up another little kid. Day four, all the kids have a gang and they beat up the bully.
I’m a U.S. patriot. I love America, so that’s why I’m warning when I meet with Treasury officials, Fed officials, and Intelligence Community officials. I have to say that the military lends a more eager ear than the Treasury. What I hear from the Treasury is, “You’re exaggerating. This’ll never happen. The dollar will always be the global reserve currency. What are you talking about?”
The military are a lot smarter in my view. They take it in and they’re like, “Yes, this is serious. We have to think about dealing in a world where we have to use currency we don’t print.” It’s something they’re not accustomed to.
That’s what’s happening. We’re beating everybody up, but all the victims are getting together, and they’re going to form a gang and try to beat us up. That’s going to be bad news for the dollar and good news for gold.
Alex: Yes, I agree totally. Jim, we’re out of time. This has been an invigorating discussion. I think these last couple of topics we were talking about are really great. I appreciate your time as always, and I look forward to getting together with you again next time.
Jim: Thanks, Alex. I look forward to it.
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