Gold at $10,000? Death of the 40-year bull market in bonds? What’s next for the global financial system after Russia’s central bank gets cancelled
The shockwaves are still being felt by the incredible Western sanctions that have rendered the $630 billion in reserves the Russian central bank accumulated virtually unusable. Can the current dollar-centered global financial system last if money can be summarily cancelled?
Arthur Hayes, a former emerging markets trader and co-founder of the BitMEX trading platform, argues central banks will choose, instead of dollars, to load up on either gold, storable grains like wheat, or storable commodities like oil and copper. “In essence, the largest surplus countries’ fiat currencies will implicitly grow their gold or commodity backing,” he writes, saying gold could rise beyond $10,000 per ounce.
Luke Gromen, publisher of Forest For The Trees and a long-time dollar bear, said that shift had been happening even before the sanctions. In a podcast with Grant Williams, Gromen said that over the last eight years, global central banks have bought about $260 billion worth of gold, compared to $60 billion in Treasurys. “So there’s been this very slow, but steady and recently accelerating move toward the away from this dollar system that broke in 2005, through 2008 to this system that looks a lot like what was proposed by [John Maynard] Keynes 80 years ago,” he says.
The dollar-centered system has some disadvantages for the U.S. “The issue with this is the American version of this deal that we’re printing dollars for oil as we have since ‘73 is, and this is the downside of the deal, is you got to run the deficits to supply the dollars to the world,” he said. “Which means you got to offshore all the manufacturing. You got to offshore all the manufacturing jobs. You got to run a bunch of deficits at the government level. You got to do all these things that are really, really good for GDP growth and the economy in the short and medium term. And in the long run, they bankrupt you.”
Gromen, like Hayes, expects more gold accumulation. “So every central bank in the world is now looking at this thinking, okay, we need to not be in a position where that can happen to us. Because who knows what might happen in the future and what might get us deemed a bad actor. So presumably they are going to be looking to accumulate a lot more gold,” he said.
(It should be noted that gold has its perils for foreign central banks. In Russia’s case in particular, the central bank won’t be able to sell to any western entity directly, and bipartisan legislation introduced in the U.S. Senate would impose secondary sanctions to any American entities knowingly transacting with or transporting gold from Russia.)
Gromen expects the end of the 40-year bull market in bonds. And he sees the potential for re-industrialization. “When you see Ohio getting an Intel INTC,
The buzz
Initial jobless claims fell to 214,000, the latest data show, as both housing starts and the latest Philly Fed manufacturing index improved. The Bank of England made its third rate since December, a day after the Federal Reserve made a quarter-point increase and pencilled in 11 increases over two years.
There weren’t any major developments in the Russia-Ukraine situation as of Thursday morning. Ukrainian President Volodymyr Zelenskyy spoke to Germany’s parliament and criticized its support for the now-halted Nord Stream 2 pipeline project.
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