Guest Article: America Loses When The Trade War Becomes A Currency War, by Brandon Smith

There has been a longstanding narrative in economic circles that no matter what crisis occurs the U.S. dollar is essentially invincible. I have never been one to buy into this assumption.

Reason 1: Because I remember distinctly just before the derivatives and credit crisis in 2007/2008 the majority of mainstream economists were so certain that U.S. housing and debt markets were invincible, and they were terribly wrong. Whenever the mainstream financial media are confident of an outcome, expect the opposite to happen.

Reason 2: Because karma has a way of crushing grand illusions. When you proudly declare a Titanic “unsinkable,” nature or fate often tests that resolve and finds it wanting.

Reason 3: Because I understand that a primary goal of the internationalist, globalist, anti-sovereignty and New World Order crowd is to diminish U.S. economic performance dramatically, and this includes ending the reserve status and petro-status of the dollar in order to make way for a single global currency unit dictated by a single global economic administrator.

Mindless blind faith in the dollar (and U.S. treasury debt) seems to switch sides politically according to whose narrative it best suits. During the Obama administration, conservatives and Republicans witnessed unprecedented fiat currency creation and dollar devaluation by the Federal Reserve and rightly drew the conclusion that this would eventually trigger a currency crisis as various systems absorb and then regurgitate all these dollars back into the U.S. We saw the biggest foreign trading partners of the U.S. launching bilateral trade agreements that cut out the dollar as the reserve currency, and we witnessed many foreign creditors questioning the viability of U.S. debt.

Only a couple of years ago, conservatives were warning of potential disaster for the dollar caused by the bailouts and unchecked stimulus programs while leftists were staunchly defending the dollar as an immortal golden goose. Today, the roles appear to be switching, as many conservatives now defend “king dollar” in the wake of a Trump presidency, and adopt numerous arguments once reserved for ignorant lefty commentators.

One question that needs to be addressed is how long the current trade war will last? Some people claim that economic hostilities will be short-lived, that foreign trading partners will quickly capitulate to the Trump administration’s demands and that any retaliation against tariffs will be meager and inconsequential. If this is the case and the trade war moves quickly, then I would agree — very little damage will be done to the U.S. economy beyond what has already been done by the Federal Reserve.

However, what if it doesn’t end quickly? What if the trade war drags on for the rest of Trump’s first term? What if it bleeds over into a second term or into the regime of a new president in 2020? This is exactly what I expect to happen, and the reason why I predict this will be the case rests on the opportunities such a drawn out trade war will provide for the globalists.

In my article World War III Will Be An Economic War, I reiterated my longstanding view that there is indeed a global war brewing between major powers, but that this war will be fought primarily with financial weapons, not nukes. I also summarized my position that this war will be engineered by globalists deliberately to provide cover for something they call the “great economic reset.”

With Trump’s cabinet currently loaded with banking elites and neoconservatives with ties to institutions like Goldman Sachs and the Council On Foreign Relations, institutions notorious for promoting one-world economic and political programs, it seems to me that the worst case scenario for the U.S. could easily be staged. If the goal is to kill the dollar’s reserve status, then the trade war will be purposely prolonged.

The next question that needs to be addressed is how is the dollar actually vulnerable to destabilization?

Pro-dollar cheerleaders will say that the dollar is in high demand, with countries like India begging the Fed to stop balance sheet cuts for fear that this will reduce the amount of dollars and dollar denominated assets in circulation in emerging markets.

I see this as a gross misinterpretation of what India and others are warning about. Interestingly, foreign central banks are now sounding an alarm many of us in the alternative economic field have been sounding for years. When India’s Reserve Bank Governor, Urjit Patel, writes about the danger of speedy balance sheet cuts by the Fed causing a liquidity crisis in global markets, this is not necessarily a declaration that India has a insatiable desire for more dollars. What it is a declaration of is the fact that the global economy is weakened by its dependency on the dollar as the primary international trade mechanism.

When I see India complaining about the frailties in dollar liquidity caused by Fed balance sheet reductions, I don’t interpret that as them saying “go king dollar!” I interpret that as India coming to the realization that they are going to have to adopt other alternatives to the dollar, and they are going to have to do this quickly.

Emerging markets and much of the world have been propped up for the better part of a decade through Federal Reserve stimulus measures, from direct bailouts to near zero interest rate loans to asset purchases to outright stock market manipulation. The dollar has become a drug easing the pain of economic downturn, and many nations are addicted.

So what happens when the drug dealer, for whatever reason, suddenly stops providing the drug? The addict is going to look elsewhere for a fix.

The Fed is NOT going to stop its balance sheet cuts, and it’s not going to stop interest rate hikes. Not with the current discussion on “inflation dangers.” This will ultimately cause declines in various markets including equities, and I believe these declines will accelerate by the end of 2018. Meaning, liquidity in foreign trade and markets will have to be facilitated by other sources, such as the International Monetary Fund’s (IMF) basket currency system, or the application of a new global cryptocurrency system, which the IMF has been avidly studying.

The IMF has even been singing the praises of cryptocurrencies recently, even depicting them as the next stage in human evolution and perpetuation [of] the lie that crypto is “anonymous.”

The dollar is vulnerable to destabilization by the very institutions and elitists that created it in the first place, and these people are seeking something much bigger than king dollar. The problem is, the globalists cannot implement such a vast “reset” in the economy without a considerable distraction. Enter Trump’s trade war…

I have been outlining the reality behind dollar weakness for quite some time. Rehashing the facts over and over again becomes tiresome but is unfortunately necessary, because there is always some new contingent of the public that falls into the trap of dollar worship. So, let’s do this one more time.

First, the dollar is NOT backed by U.S. military might. The U.S. military can barely manage its concerns in the Middle East, let alone take on nations like Russia or China in an attempt to force them to keep investing in U.S. treasury debt or retain the dollar as world reserve. If these countries drop the dollar, there is nothing the U.S. can do. Anyone who makes the dollar-by-military argument should not be taken seriously.

Second, while the dollar is in demand now, this is only because the current system has been propped up by endless Federal Reserve stimulus. If the Fed continues to cut assets and raise interest rates, then emerging markets and others will look elsewhere for support. The dollar is only valuable to global markets so long as the Fed continues to provide a perpetual supply of liquidity. Economies are fickle, and welfare recipients are even more so. Stop giving people free goodies and they will abandon you angrily.

Major foreign economies like China and parts of Europe have been adopting bilateral trade relations for some time. Rather than intimidating these countries into capitulation, a trade war on the part of the U.S. is far more likely to drive them more closely together. Germany and China in particular have been establishing strong trade ties, and OPEC nations have been much cozier with the East. The idea that the U.S. is somehow a linchpin to the entire global economy is a lie. The world can and will organize trade avenues without us if pushed. In fact, this seems to be the plan.

The U.S. has only two major points of leverage in a trade war. First, the U.S. dollar’s world reserve status, which I have already addressed as not a point of leverage at all unless the Fed continues stimulus indefinitely. Second, the U.S. consumer.

U.S. consumers and corporate buyers are sitting at historically high debt levels. In fact, their debt levels are higher than they were just before the crash of 2008. As the Fed continues to raise interest rates, this debt will become unsustainable and something will have to give. For corporations, this means job cuts and wage reductions. For consumers this means cuts to household spending. U.S. consumers are only a point of leverage in a trade war so long as they continue to consume at ever expanding rates. If we suffer another crash similar to 2008, foreign creditors will see this as a lack of incentive to continue placating the U.S.

Without a massive resurrection of American manufacturing and production, we enter into a trade war with little ammunition because we remain dependent on foreign production and goods, while other nations like China can easily expand into alternative markets and retain their own production capabilities. Trump could have launched a new renaissance of production in the U.S. if he had given corporations incentive to bring manufacturing back home. Instead, he gave them a sizeable tax cut without asking for anything in return. Those tax cuts, instead of creating jobs or luring factories back to the U.S., have instead been spent where we all knew they would be spent — on stock buybacks to prop up a flailing equities market.

The longer the trade war continues, the more other countries will consider the “nuclear option” of dumping the dollar as world reserve, or dumping U.S. debt. In my view, this is exactly what the globalists want. Trump bumbles into a trade war and is blamed for a crisis in the dollar as well as a crash in stock markets, while the banking elites introduce their new world order reset as a solution. In this case, I think the worst case scenario is the intended scenario.

This article was originally published at Alt-Market.com




13 Comments

  1. We have been in a trade war for over 50 years. Other countries have taken advantage of us including our best friend forever Canada. What we are seeing today is ONLY the US finally recognizing we are in a trade war and we are setting the terms for peace. If you (all the countries that have tariffs on our goods and sell into our market) don’t reduce or eliminate your tariffs and trade restrictions on our goods than we will reciprocate and you will lose the lucrative American market. Additionally our leaders have foolishly allowed us to become dependent on other countries and long supply lines for the essential strategic goods that we must have to insure our safety. This must be reversed. We must manufacture at least 50% of the steel and aluminum we need and have the reserve capability to manufacture 100% with very short notice. Ditto for a couple dozen or so other strategic materials and goods.

    Trump is playing the game right. Threaten with real and believable consequences and then agree to renegotiate trade deals. We can’t bluff this. We must be prepared to follow through. Everyone of our major trading partners needs us more than we need them. If we have a trade war with any or all of the other countries it will be an inconvenience for us and a disaster for them. So they will come to the table, unless our congress undercuts Trump and the citizens in their desire to keep the swamp in power.

    1. Don´t Forget to take into account the Money th US makes with Services, especially in the Finance and Internet Sektor.
      Then the Picture might look a bit different.
      The solution could be to produce goods in the Kind and good Quality we want, you will not sell much to us.

  2. There seems to be a lot of disjointed info in this article but if the author is only trying to say that a long drawn out trade war is bad for U. S. consumers well — Ok I can go along with that. Old folks remember how expensive consumer goods were in the seventy’s when they were made in out of date U.S. factories and sold in Mom & Pop stores downtown. However, equalizing import/export rules and intellectual property protections, along with America’s newfound abundance of cheap oil and gas could reinvigorate U.S. manufacturing. With a more equal playing field, cheap fuel, modern plants and the new marketing systems (internet communications) the U. S. has a chance to successfully compete with any country, even China. The only way America can save itself and the world from an International monetary system controlled by an egomaniacal tyrant (be it an individual, a self appointed Board of Directors, or an International Council) is to always be strong economically. In the 90’s there was an old adage that said “In business as in life, you don’t get what you deserve, you get what you negotiate”. Hopefully Trump, always the negotiator, can get us a deal that will make it all possible without sending us over the edge, but Brinksmanship is always a dangerous game!

  3. All the Fed and Euro games will be moot once the inflation gets hyper as a medium of exchange that is marked by less and less confidence. Day to day living may just get very sketchy as buying gas, groceries, or anything of value becomes a mathematical exercise (a losing exercise) trying to establish the dollar or euro’s worth. When you see those signs at consumer businesses, no credit, no debit, no EBT, all cash transactions, and then signs demanding hard currency only,(gold, silver, etc.) you will know that time and mathematics has finally destroyed ordinary peoples confidence in greenbacks/euros.

  4. We will win a trade war, because we have the natural resources to do so.
    Ultimately, I think the value of a nations currency will become dependent on it’s natural resources and ability to turn them into marketable products.
    The more we manufacture in house, the less we’re dependent on other countries, and that’s a very good thing.

  5. Lets not forget all the regulations being cut here at home. For far too long heavy handed EPA regs and mandates have stunted and killed off domestic production. We have rare earth elements here at home and don’t need to get them from places like China. The problem being the regulations that make it next to impossible to mine/produce them.

    Will we feel pain in leveling the playing field? Yes, but we need to be willing to take our medicine and fix this problem now while we have a chance. We don’t need Globalism. Globalism needs us. We need to quit playing their game and restore our economic sovereignty.

  6. Imagine for a moment that your last name is Rothschild or any one of the families that purportedly control a majority of the world’s finances and resources. For years you have been able to convince the citizens of the planet to willingly surrender their money in the form of taxes and interest, persuaded them to send their own children to fight, bleed, and die in petty wars that you have dreamed up to further your own agenda and fatten your own coffers. Now why would you completely collapse a system that has allowed you to effectively rule the world?

    You wouldn’t, and neither will they. If there is anything to be learned from the “history repeats” mantra it is that a collapse will only be allowed to their benefit of a time and duration of their choosing. They will buy up whatever is left that they don’t own, for pennies on the dollar, euro, or pound, and re-inflate the bubble once again. They can do this with impunity because time and time again, under the threat of some boogeyman that they have concocted, we willfully surrender our blood and treasure.

    There will be no dumping of King Dollar because we have the military means to destroy anyone that tries. Dump US debt? “Owe the bank $100,000, you have a problem. Owe the bank $1 Trillion, the bank has a problem.” Just a slow, grinding, decay far into the future.

    “it’s never gonna get any better, it’s never gonna be fixed, be happy with what you got…because the owners of this country don’t want that…forget the politicians, the politicians are put there to give you the idea that you have the freedom of choice…you don’t, you have no choice, you have owners, they own you, they own everything…it’s a big club, and you ain’t in it…”-George Carlin

  7. I have read about the pending doom of the US for decades upon decades nowguess what, my dollars still buy me what I need. They are desired by other nations when one travels.
    When I was in Canada a few years ago they would not take a Euro but American cash, yes!

    However I have noticed this “fear trade” must be working since it never ends. There is new authors since the old ones die but the same fear keeps going. The dollar is going to crash, stocks will crash, gold will be $700,(Harry Dent).

    Just read Revelations. That will be the time global systems will crash.

  8. Being a devotee of Ron Paul and Austrian economics, I tend to view this supposed trade war a bit differently. We are a signatory of NAFTA, ostensibly a free trade agreement. It doesn’t take thousands of pages of rules and regulations to have free, mutually beneficial trade between countries. NAFTA has something like 3000 pages of such rules and regulations. Those rules and regulations support the easy access to our markets for Canada and Mexico, they grossly inhibit our access to their markets. That is not free trade, period.

    Every trade agreement we are a signatory to, especially those multilateral trade agreements like NAFTA and GATT and the recently defunct TPP, leaves us subsidizing the economies of countries all over the world.

    As the great Dr. Paul has stated over and over again, show me in the Constitution where the States granted the authority to the Federal government to confiscate the treasure of the American people, the citizens of the States, and transfer that treasure to any state that is not one of these united States. So where does the Fed think they have the right to subsidize any foreign nation, period? It isn’t there, it does not exist.

    Show me in the Constitution where the States granted the authority to the Federal government to spend the treasure of our citizens and the blood of our citizens, our mothers and fathers and brothers and sisters and sons and daughters, in defense of any state that is not one of these united States of America. It isn’t there, it does not exist.

    So I’m with Trump on the trade renegotiation. Cancel the multilateral trade agreements that always seem to include defending some other country with our blood and treasure. Make many mutually beneficial bilateral trade agreements. That is how we get to the win-win scenario in trade. Thank you Mr. Trump, stick to your guns.

    Just remember, the uSA (intentional) is one of the few countries in the world that can successfully internalize commerce. The rest of the world actually does need us more than we need them.

  9. I remember reading somewhere – Without Walmart there would be no middle class and without China there would be no Walmart! It is sad and true. I clearly remember all the mom and pop stores and how they bleed you for every cent. Now Amazon brings competitive prices to everyone and you don’t have to waste time and gas hoping they have what you need.

    The only sure loser in a trade war is the average American. All those well paid blue collar jobs are history and they are not coming back! If it is not a foreigner then it will be someone with advanced skills running robots! That is the way it is and it is only going to get worse.

    This is a global problem! Low skilled jobs move to areas of cheap labor or are replaced with automation. When one man can do the work of ten – What do you do with the other nine?

    All this is a huge problem, but it is our currency and [government] spending that will take us down and leave us in poverty!

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