The Dollar’s Had Its “1914 Moment” It’s Nov. 30, dear reader. And like a train pulling up to the platform on time, CNBC reports: “IMF Expected to Include Yuan in SDR Currency Basket.”
Throughout the year, our colleague Jim Rickards has mapped out the path toward the new special drawing right -- also known as “world money”:
Nov. 30, 2015 -- IMF executive committee votes to include Chinese yuan in the SDR basket. (The IMF surprised us today by providing the new currency basket weights -- something Jim had slotted from March, 2016. The shift in allocations are shown below.)
Sept. 30, 2016 -- Effective date of the new currency weights.
The Current SDR
The New SDR
Today, we X off today’s date and turn our eyes toward September next year.
If you’ve been reading these reckonings or Rickards’ Strategic Intelligence for any length of time, you’ve literally been one year ahead of the mainstream financial press. If you’ve been with Jim since his book Currency Wars was published in 2011, you’re four years ahead. (See Chapter 11 of that book.)
“When I started talking about SDRs,” Jim once told me, “most people thought it stood for strawberry daiquiri on the rocks.” Today, we wouldn’t be surprised if the folks at Bloomberg and CNBC are forwarding our monthly Strategic Intelligence issues around their offices to inform themselves.
So while the mainstream plays catch-up, we’ll lean forward again with a new and frank hypothesis: The dollar has already died.
Few people know it (or are willing to admit it)... but it’s true...
Jim Rickards shows you why he thinks as much, below, in today’s essay. He dubs the dollar’s last gasp its “1914 moment,” for reasons that become apparent as you read on. But before we leave you to it, our new friend James Dale Davidson at Strategic Investment made an important distinction in his October newsletter. He specifically was analyzing the collapse of nations. But his insight gives context to today’s discussion of the death of money and when the other shoe drops.
We liberally quote Davidson to set the stage for Rickards…
“In the mid-1980s, when I mustered the nerve to begin forecasting the collapse of the Soviet Union, it was a prelude to something amazing. On Dec. 25, 1991, Mikhail Gorbachev resigned as the last president of the Soviet Union, and declared his office extinct. At 7:32 p.m. that evening, the Soviet hammer and sickle flag was lowered from the Kremlin for the last time. The Soviet Union ceased to exist.
“I later regretted that I had not gone to Ladbrokes or another legal betting agency somewhere to wager a million-dollar bet that the Soviet Union would collapse. A few years earlier, I probably could have gotten great odds. And with the evidence of Dec. 25, 1991, I would have collected. There could have been no argument about whether I was right.
“On the other hand, it might have been a different story if you were a rogue Roman senator who had bet a million denarii in 42 B.C. after the Battle of Philippi that the Roman Republic would cease to exist within 15 years.
“I think it highly unlikely that your counterparty would have paid when the Senate granted Octavius extraordinary powers in 27 B.C. and he assumed the title ‘Augustus.’ (When you threaten to win a large bet, you can expect your counterparty to the wager to view its terms in a literal-minded way when doing so obviates the obligation to pay.) That could have postponed settlement of your winnings for as long as 1,488 years.
“Notwithstanding the fact that Wikipedia tells you that the Roman Republic ended in 27 B.C. with the establishment of the Roman Empire, it is merely reporting the current consensus among historians of the de facto end of the Roman Republic...
“In a de jure sense, the Roman Republic soldiered on for another millennium and a half until July 1461, when the last garrison of the Roman army defending the Castle of Salmeniko, in the Peloponnese region of southern Greece, capitulated to the forces of the Ottoman Turks.
“As Edward Gibbon confirms, in their minds, the people we now call ‘Byzantines’ thought of themselves as Romans: They alleged a lineal and unbroken succession from Augustus and Constantine, and in the lowest period of degeneracy and decay, the name of ROMANS adhered to the last fragments of the empire of Constantinople.
“Without venturing further into the small ‘b’ byzantine complexity evidenced in the evolution of the institutional character of the Roman Republic over the 1,488 years between its de facto end in 27 B.C. and its final de jure extinction in July 1461, you will recognize the highlighted difference between the de facto and the de jure.
“Bearing this in mind may help in better understanding the many potential permutations of the wind-down of the nation-state. Ponder, if you will, the vast difference between the rapid and permanent de jure collapse of the Soviet Union and the protracted de jure afterlife of the Roman Republic.
“No doubt part of the reason the USSR went quickly, while 75 generations carried on insisting that they were living in Res Publica Romana long after it ceased operating on the principles upon which it was founded 482 years before its de facto end…”
In a similar fashion, it seems the dollar’s met its de facto end. And yet, de jure, the greenback lives. In fact, it seems to strengthen every day. Perhaps because the world wants to believe in what the dollar used to stand for… and still pays lip service to: soundness.
But it’s our contention that as the two narratives converge, the dollar’s collapse will be realized -- even if only by historians. Meanwhile, reactionaries stand to be separated from their money while the prepared stand to preserve -- and even grow -- their wealth in the transition.
In the latest issue of Strategic Intelligence, Rickards created a novel way for you to own the new world money and protect yourself. It’s the only method to own SDRs that we’re aware of… it takes one click to own them… and could give you a crack at double-digit gains by the Sept. 30, 2016, date we cite above. When you subscribe, you’re given access to that new issue in addition to free access to a hefty archive and useful research library. Click here now to sign up. click2.dailyreckoning.com...ZD1ibDBLTmgmZz0w./AQ/lq1W
Then, read on for Jim Rickards’ prime historical example of a world reserve currency being replaced right under investors’ noses...
Best regards,
Peter Coyne
for The Daily Reckoning