Russia Is Going To Pass A Law Formally Dumping The U.S. Dollar

Vladimir Putin 2015 - Public DomainRussian President Vladimir Putin has introduced legislation that would deal a tremendous blow to the U.S. dollar.  If Putin gets his way, and he almost certainly will, the U.S. dollar will be eliminated from trade between nations that belong to the Commonwealth of Independent States.  In addition to Russia, that list of countries includes Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Uzbekistan.  Obviously this would not mean “the death of the dollar”, but it would be a very significant step toward the end of the era of the absolute dominance of the U.S. dollar.  Most people don’t realize this, but more U.S. dollars are actually used outside of the United States than are used inside this country.  If the rest of the planet decides to stop accumulating dollars, using them to trade with one another, and loaning them back to us at ultra-low interest rates, we are going to be in for a world of hurt.  Unfortunately for us, it is only a matter of time until that happens.

When I first read the following excerpt from a recent RT article, I was absolutely stunned…

Russian President Vladimir Putin has drafted a bill that aims to eliminate the US dollar and the euro from trade between CIS countries.

This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets”, said a statement from Kremlin.

For a long time, tensions have been building between the United States and Russia over Syria, Ukraine, the price of oil and a whole host of other issues.  But I didn’t anticipate that things would get to this level quite yet.  It is expected that Putin’s new bill will become law, and this is only one element of a much larger trend that is now developing.

You see, the truth is that Russia and China have both been dumping dollar-denominated assets for months.  The following comes from a recent piece by Mac Slavo

Last year Russia began unloading massive amounts of their US dollar reserves. In the month of December 2014 alone Putin sold some 20% of the country’s U.S. Treasurys, a move that further increased tensions surrounding what can only be described as economic warfare between East and West.

Then, as if part of a coordinated effort, this summer it was revealed that China had implemented a similar strategy, dumping half a trillion in dollar denominated assets.

But that’s just the beginning of the end for the US dollar. Amid a major meltdown in Chinese stock markets the People’s Republic sold off billions in dollar assets last week in what was reported to be an effort to stabilize their collapsing financial markets.

And now, as Russia’s economy collapses under the weight of American and European sanctions, including what many believe to be widespread downward manipulation of oil prices, Vladimir Putin is sending a clear signal to the central bank of the world’s reserve currency.

China has the second largest economy on the entire planet, and Russia has the tenth largest.  In recent years, these two superpowers have become much tighter.  For example, just consider this headline from Sputnik News that I came across just today: “Crippling US Foreign Policy Draws Russia, China Closer Together“.

And I don’t know if you have noticed, but U.S. relations with China have turned rather sour lately.  Lots of accusations about spying and trade violations have been flying around, and just this week five Chinese warships were spotted off the coast of Alaska.  In the months ahead, expect our relationship with China to continue to unravel.

If China and Russia were to both fundamentally reject the U.S. dollar at some point, much of the rest of the world may choose to follow suit.

So why is that important?

The fact that most of the nations of the world use our dollars to trade with one another creates a tremendous amount of artificial demand for our currency.  In other words, the U.S. dollar is valued much higher than it otherwise would be just because it is the de facto reserve currency of the planet.

As a result, we can import massive amounts of products at super cheap prices.  When we go to Wal-Mart or the dollar store, we can fill up our carts with lots and lots of ridiculously inexpensive stuff.  Our standard of living is way higher than it actually should be.

And because the U.S. dollar is used so widely in global trade, major exporting nations end up with giant piles of our currency which they have been willing to lend back to us at ultra-low interest rates.  This has made it possible to fund our massively bloated federal government and to go 18 trillion dollars in debt.

If the rest of the world stops using our dollars and stops playing our game, we will be in a tremendous amount of trouble.  The cost of imported products would absolutely skyrocket and our standard of living would go way down.

In addition, the federal government (along with state and local governments) would have to pay much more to borrow money which would rapidly create a gigantic debt crisis.

So Russia knows where they could really hurt us.  Most of the “power” that America currently projects around the world is based on having the de facto reserve currency of the planet.  If you take our financial power away, we would be far, far less imposing on the global stage.  Sadly, the truth is that the U.S. military is rapidly shrinking and has largely been defanged by the Obama administration.

A lot of people that will read this article will not understand this, but it is very, very important to keep an eye on this emerging Russian/Chinese alliance.  I believe that it is going to play a critical role in world events during the years ahead.

So do you agree with me or do you disagree?  Please feel free to join the discussion by posting a comment below…

We Have Already Witnessed The First 1300 Points Of The Stock Market Crash Of 2015

New York Stock Exchange - Photo from Wikimedia CommonsWhat has been happening on Wall Street the past few days has been nothing short of stunning.  On Thursday, the Dow Jones Industrial Average plummeted 358 points.  It was the largest single day decline in a year and a half, and investors are starting to panic.  Overall, the Dow is now down more than 1300 points from the peak of the market.  Just yesterday, I wrote about all of the experts that are warning about a stock market crash in 2015, and after today I am sure that a lot more people will start jumping on the bandwagon.  In particular, tech stocks are getting absolutely hammered lately.  The Nasdaq has fallen close to 3.5% over the past two days alone, and it has dropped below its 200-day moving average.  The Russell 2000 (a small-cap stock market index) is also now trading below its 200-day moving average.  What all of this means is that the stock market crash of 2015 has already begun.  The only question left to answer at this point is how bad it will ultimately turn out to be.

When stocks were booming, tech stocks were leading the way up.

But now that the market has turned, tech stocks are starting to lead the way down

The Dow and the S&P 500 are negative for the year. The so-called “FANG” stocks – Facebook, Apple, Netflix, and Google – were some of the biggest losers, and helped send the Nasdaq more than 2% lower. Biotechs also suffered big losses; the iShares Nasdaq Biotechnology ETF fell 4% to a three-month low. The Vix, which gauges market expectations for near-term shifts in the S&P 500, surged more than 21%.

And Twitter is absolutely imploding.  It has fallen below its IPO price, and at this point it is now down 65 percent from the peak.

Of course it was inevitable that Twitter and these tech stocks would start falling eventually.  I specifically warned my readers about Twitter’s stock price nearly two years ago.  I hope people listened to what I was saying and got out in time.

This current market crash is happening in the context of a full-blown global financial meltdown.  Stock markets all over the planet are collapsing, and currencies are being devalued left and right.  The following comes from a recent piece by Wolf Richter

Hot money is already fleeing emerging markets. Higher rates in the US will drain more capital out of countries that need it the most. It will pressure emerging market currencies and further increase the likelihood of a debt crisis in countries whose governments, banks, and corporations borrow in a currency other than their own.

This scenario would be bad enough for the emerging economies. But now China has devalued the yuan to stimulate its exports and thus its economy at the expense of others. And one thing has become clear on Wednesday: these struggling economies that compete with China are going to protect their exports against Chinese encroachment.

Hence a currency war.

Two more major shots in the currency war were fired on Thursday by Kazakhstan and Vietnam

Hit by sharp declines in crude prices, the oil-producing nation of Kazakhstan introduced a freely floating exchange rate for the tenge, which subsequently lost more than a quarter of its value.

The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday—its third adjustment so far this year—and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days.

A quarter of its value?

Now that is a devaluation.

In the coming days, we are likely to see even more emerging markets devalue their currencies in a global “race to the bottom”.  But this “race to the bottom” presents a great danger to financial markets.  As I have written about previously, there are 74 trillion dollars in derivatives globally that are tied to the value of currencies.  As foreign exchange rates start flying around all over the place, there are going to be financial institutions out there that are going to be losing obscene amounts of money.

I cannot say the “d word” enough.  Derivatives are going to play a starring role during this financial collapse, and so that is a word that you will want to be listening for very carefully in the weeks and months to come.

The meltdown that has already been affecting much of the rest of the planet is now starting to affect us.  And it was inevitable that it would.  I like how Clive P. Maund put it recently…

Many lesser markets around the world are toppling, but somehow the big Western markets of Europe, Japan and the US are staying aloft. If you have ever made a sand castle on the beach and watched what happened when the tide comes in, you will recall that it is the weaker outer ramparts and smaller turrets that collapse first, and the big central towers that hold out the longest. The weaker outer ramparts and smaller turrets are the Emerging Markets which are already crumbling, and it won’t be long until the big central towers – the big Western Markets, go the same way – everything is pointing to it.

The funny thing is that even though all of the signs are pointing to a nightmarish global financial crisis, the mainstream media continues to insist that everything is going to be just fine.

In fact, CNBC says that the recent dip in stock prices is a “bull indicator” and they are encouraging everyone to pour lots more money into stocks.

But of course the truth is that what financial conditions are really telling us is that stocks have much, much farther to fall.

For instance, high yield credit is starting to crash just like it did prior to the stock market crash of 2008.  Stocks and high yield credit usually tend to track one another quite closely, and so when there is a divergence that is a huge red flag.  And as this chart from Zero Hedge demonstrates, a very large divergence has developed in recent months…

HY Credit And S&P 500 - Zero Hedge

Sadly, the 358 point plunge for the Dow on Thursday was just the beginning.

Yes, there will be up days and down days, but we are now officially entering the “danger zone” as we roll into the months of September and October.

So will 2015 soon be mentioned along with the famous market crashes of 1929, 1987, 2001 and 2008?

Please feel free to share what you think by posting a comment below…

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