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July
27
2023

Why the Durban Accords Matter to You
Peter Reagan

If you’re a regular reader, then you already know all about the BRICS nations and their plans for their August 22nd meeting in Durban. As I predicted and official Russian media outlet RT confirmed earlier this month, the BRICS plan to “introduce a new trading currency backed by gold.”

Okay, so that’s their plan – why does it matter? 

Why am I spending so much time talking about the BRICS and their plans?

Do we really care if the BRICS create a new currency? Who cares how Brazil gets paid for their beef exports to South Africa? Does ANY of this affect the average American?

Short answer: YES, a whole lot more than you might think.

Long answer below. (Professor Reagan’s class is now in session!)

Supply, demand and the value of a dollar

Everybody over the age of 6 understands how supply and demand affect prices. When goods are scarce, their price rises – and vice versa.

Here’s the thing: most people don’t apply the same logic to currencies.

During the age of the gold standard, currencies were convertible into gold. Therefore, they had a relatively fixed value that didn’t change much – because the global supply of gold doesn’t change much.

Since the U.S. took the world off the gold standard in 1971, virtually all currencies worldwide have been “free-floating” – with a value established by the currency’s supply and the global demand for it.

Tens of thousands of traders are involved in forex trading (“forex” is a contraction of “foreign exchange”) or currency swapping. This is a massive market, exchanging up to $7.5 trillion per day – all based on supply and demand.

This is how the value, or “strength,” or “purchasing power” of currencies is established. It’s a giant auction.

The supply of dollars comes from the Federal Reserve. And it’s been growing, year after year, for decades. As the supply (blue line) increases, the dollar’s value (red line) declines:

Since the turn of the century, the world’s dollar supply grew 344% – and every dollar’s purchasing power has declined 44%.

And there’s no constraint on the supply of dollars. As Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told 60 Minutes:

There is an infinite amount of cash in the Federal Reserve.

The Fed can print infinity dollars – at any time, for any reason.

Every time the dollar supply goes up, dollar value goes down worldwide.

Right now, leaders around the world are scratching their heads and asking, Do we really want to own this asset with unlimited supply and steadily declining value?

Declining demand for dollars

Nobody likes inflation (except debtors – because inflation diminishes the after-inflation value of their debts).

BRICS nations find dollar inflation particularly insulting, because they haven’t spent decades piling up debt. Rather than being rewarded for their financial prudence, they’re being robbed by the U.S.

So the BRICS project, the Durban Accords, seeks to replace the dollar and its steadily-declining value with a new, stable gold-backed currency.

Why should we care whether India buys Brazilian soybeans with dollars, rupees, reales or redbacks?

“An avalanche of checks coming home to be paid”

Former currency strategist and professor Avinash Persaud of Gresham College described the consequences of the dollar losing global reserve currency status.

I’ll break it down for you:

1. Higher prices on virtually everything imported from the rest of the world – not just champagne and caviar, but cars and computers. Crucial imports might even be rationed or simply unavailable at any price.
   
   
2. Rising rates on loans because the world is simply less willing to finance mortgages and infrastructure projects in the U.S., which leads to:
   
   
3. Higher taxes to pay for the higher interest rates on loans. Not just the $32 trillion federal debt, but the entire $100 trillion U.S. debt mountain. Both individuals and companies would see higher tax rates, which leads to:
   
   
4. Unemployment sets in, as higher taxes force U.S. companies to balance their books and sends other companies overseas. I expect there’d be a wave of unemployment among highly-paid, specialized workers in some industries like finance, consulting and international law as the U.S. becomes increasingly less relevant to the rest of the world.
   
   
5. Inflation as the Federal Reserve prints new dollars to pay for old debt. On top of higher prices mentioned above which are rising independently of inflation! Which leads to:
   
   
6. Social unrest as a response to increasing unemployment and increasing prices. Social Security recipients marching on Washington to protest COLAs that aren’t keeping up with their costs of living. Everyday people picketing outside grocery stores. This leads to:
   
   
7. Government response because unhappy voters don’t lead to re-election. The challenge is, there’s no helpful government response to this situation! There’s no way to undo 60+ years of deficit spending, no way to wipe out the $100 trillion debt mountain and just start over.

In Ray Dalio’s Principles for Navigating Big Debt Crises, he makes one extremely concerning observation:

…the countries that were most externally reliant [on external borrowing] through the upswing and experienced the biggest asset bubbles ultimately experienced the most painful outcomes.

The U.S. is currently the most indebted nation in the history of the world – at both the national and household levels.

My concern is the consequences of global de-dollarization will lead to an economic collapse on par with the Great Depression – this time, with no easy way out…

Protecting your savings from de-dollarization

There’s a crucial reason that, when BRICS first announced their new currency, they specified that it would be “gold-backed.” In another of his books, Ray Dalio observed:

Gold is the timeless and universal alternative currency.

Or, as former Federal Reserve Chair Alan Greenspan said in 1999:

Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted.

Gold has been, and will remain, the historic safe-haven store of value regardless of which currency the world uses to settle their transactions. Currencies rise and fall, but gold is forever.

If your family’s prosperity, like the government’s, is dependent on the long-term viability of the U.S. dollar, I strongly urge you to consider diversifying your savings with real, physical gold.

 

 

Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.

 

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