Monday, June 15th, 2009...11:41 am

Everybody Wants to Rule the World $USD $CNY $CEW BRIC

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The leaders of these countries: Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan will be meeting for two days (June 15-16) in Yakaterinburg, Russia (see map) to create strategies of interdependence that expressly avoid usage of the U.S. Dollar. The reason? Their respective concentrated financial exposure to a recently ridiculously weak U.S. currency exceeds existing risk tolerance.

There is special word to describe a powerful entity that oppresses and controls less powerful entities: hegemony.  Loads of places seem to be fed up with answering to and being financially beholden to America. Leadership from Iran, India, Pakistan and Mongolia will attend and monitor the talks.

It boils down to this: America has fallen into the classic imperialistic trap. When the financial strength of Roman Empire failed, its foreign outposts and colonies rebelled. At present, there does not appear to be sufficient mental, social or physical space for America in Asia.

Suppose all of those countries decide to abandon the U.S. Dollar in favor of the Renminbi $CNY - the most likely candidate going into the meeting. Within 10 years the U.S. will lose approximately half of its financing because EurAsian investment interest in U.S. Treasury Bonds will be nil. Suppose all of those countries conspire to default on payments and dump existing U.S. dollars and bonds entirely. Will the U.S. launch a land war in Asia? A war of debt enforcement and compulsory capital cooperation is too politically (and morally) unpopular for a free nation to rationally consider.

Check and mate. The power of the dollar and all things associated with it will fall. How quickly that occurs will depend on the course of action established by the participants of a meeting in Yekaterinburg. If an accord is reached and successfully carried out, the new conglomerate will have assets commensurate to a new world power: oil from Iran, gold from Mongolia, manufacturing and man-power from China, technology and agriculture of India, and military prowess of Russia.

Disclosure: The author does not hold a financial position in CEW, but that ETF offers exposure to three out of four BRIC currencies (Brazil, Russia, India, China).

Want my perspective? The Greeks, the Romans, the British, the U.S. and now EurAsia. Everybody wants to rule the world. Queue the video:

More on this topic (What's this?)
The Russia Pick I Recommended to You Is Up 39 in 53 Days (Contrarian Profits, 6/1/09)
Dollar Rallies (Contrarian Profits, 6/11/09)
Buy-And-Hold Under Attack (Dividends Value, 4/28/09)
Read more on Investing in Russia at Wikinvest

Comments

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  • elljay66
    Boromir told Frodo that he would beg for death before the end.

    http://www.youtube.com/watch?v=tm7V3xyuoUQ

    about 50 seconds into the video you can read his lips.

    The funny thing is that Boromir died right after that and Frodo lived on to beg for death
  • Hi Patrick! Good to hear from you and thank you for the questions. In both questions, you are absolutely correct. The weak Yen in Japan compares to the weak dollar in the USA. One advantage of a weak dollar is attractive exports, but the inverse relationship is reduced buying power. For a nation that consumes more than it produces, there is no question as to which is better fiscal policy. The spin is called "the broken window" fallacy. If a man breaks a window and says "see, now I have more glass" he's a fool. The Fed just broke the dollar and said, "see, now we'll have more money." This fallacy is akin to the "war stimulates growth" fallacy. It is like setting your own house on fire in the name of economic stimulus. Americans will wear out their lives building and rebuilding broken assets for those who glut themselves on the taxation (municipal, county, state, nation, lender) of the massess. The debauchment of the dollar is a societal/political maneuver for more government power over American citizens. Also, what is interesting about the BRIC summit is that it signals global change. The countries upon whom we depend for our consumptives just rejected our currency. Could BRIC be the new Axis of evil? :-) It may take them a while to untangle themselves from us, but the decision is certain. This is bad news for Americans. I'm seeking peaceful solutions to this turn of events.
  • I love this post, though I hate the trend you highlight. The U.S. is quickly losing ground, with no real hope on the horizon.

    On the other hand, this could all be really positive long-term; it could cause the U.S. to drop its hegemonistic, cocky superpower stances and become much more humble. The trick, however, is to maintain our sense of exceptionalism in the process.

    But if history tells us anything, we'll probably just throw the baby out with the bath water and be starting from scratch. Again.
  • Mr. Palmer,
    Thank you for stopping by and sharing your insights.

    For those who don't know this gentleman, please take a moment to get acquainted with him. By his fruits I have been honored to know him and you can too:
    http://www.causeofliberty.com/
    http://www.kgaps.com/
    http://www.killingsacredcows.com/
    http://www.thesocialleader.com/

    He holds these titles: father, founder, author, consultant, leader, patriot, and friend of freedom. Only the greatest stuff of which great men are made.
  • Patrick Furner
    This is a very interesting article Brian. However, I am wondering that with a weak US. Dollar, won't it have a similar effect to the US that a week Japanese Yen had to Japan? Won't a week dollar make our exports more attractive to other countries?
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