Monday, March 20, 2023

Sound as a Dollar

At the time of this writing, if you listen to any media, you're convinced that the world is about to end and that the United States -- as we once knew it -- will cease to exist.  Pundits the world over are selling clicks and ads as they conflate a myriad of events that in reality, seem to suggest that everything is inextricably tied together through cause, correlation or both.  Front and center is the usual conclusion that "this means the end of the dollar as the world's reserve currency."

But is really? As I've mentioned so many times previously, I'm just a brand strategy guy, but throughout my career, I've managed to untangle some of the worst commercial spaghetti in order to get a clear view of what's happening and more importantly, what's not happening.  So how about we take a giant step back and look at the situation from the 100,000 foot level, high above the media spin of manufactured crises?

At the time of this writing, we've seen a bunch of really stupid banks make really stupid decisions, resulting in their being dissolved and their assets being sold off at bargain prices.  Bad news for them, good news for the buying banks, who are buying healthy, performing assets for as little as 20¢ on the dollar.  Believe me, if I could walk through life doing that, I'd be building houses out of gold bars.  Another result of the Biden incompetence is that the previously artificially inflated Fed rates have dropped like a brick, so while not as low as they once were, at least some home and car loans are more affordable.

So what does that mean for the good old U.S. dollar?  If you listen to the media, they'd have you believe that China, Russia, the Middle East and just about every other not-so-friendly region is taking advantage of the situation to destabilize the dollar as the world's reserve currency.  Really?

For the those unfamiliar, the phrase world reserve currency means that  no other country on the planet trusts the value or stability of any other country on the planet. So when France does business with Zmibabwe, they both agree to conduct the transaction in U.S. dollars.  There's more than one reason for that, but among the top few are:

1. The United States of America is the most politically stable country in the world.

2.  The United States is the most physically secure country in the world.

3.  The United States is the most economically powerful country in the world. 

If you find those hard to believe, ask yourself why virtually all the gold reserves owned by virtually every other country is stored in the United States, either in the New York gold depository or Fort Knox. Transferring hard assets like gold is not like breaking up with your girlfriend -- you don't just show up with a pick up truck to move your gold back home.

And if you haven't been paying attention, the sworn mortal enemy of the United States, the Chinese Communist party, has been dumping their ill-gotten gains into American real estate for years. And they're not doing it to have a nice summer home.  They're actually overpaying for the opportunity because they know their currency is an unstable as a propped-up currency gets.  That's why they buy dollars and then dump them into real, tangible performing American assets like real estate.

Additionally, let's add in the notion that the United States is really, really difficult to invade.  It's bordered by two expansive oceans and two "friendly" weak nations who depend on us for their existence. Every other non-North American country is bordered by at least one other country of whom they're suspicious, if not downright hostile toward.

So where does this leave us? Well, this is the brand strategist talking again, and here's the long play as I see it:

In the short term, China, Russia, the Saudis, North Korea, the entire continents of Asia, sub-Asia and Africa will rattle their sabers as they mock the Biden impotence. But if history is any indication, that won't last long. OPEC has been brought to its knees more than once. Embargoes usually fail. Alliances get undercut by backroom chicanery. And through it all, the United States remains the land of plenty.  Plenty of energy, food, and natural resources for a self-sustaining economy.

So after the kids are finished and the adults take the wheel, everyone will come running back to the dollar as the world's reserve currency.  And old Uncle Sam, if he's smart, will re-establish domestic industries and programs, and will have learned the simple lesson that even Dorothy had to learn from experience:

There's no place like home.


Blogger Etienne Taylor said...

First rate

7:50 AM  

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