Welcome to the 03-27-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike talks about the creation of the Chinese oil exchange, and the consequences it could have for the value of the US dollar and other goods.
They did it …
After many starts and stops over the past few years the Chinese oil exchange launched on March 26, 2018 as I have been reporting for the past few weeks. This is a big deal. It appears to be a direct competitor to the US dollar in, right now, just oil but it could expand to many other materials- particularly in Eastern Europe and Asia where their one belt one road initiative is taking place. (the largest infrastructure plan the world has ever seen being overseen by China)
Basically, oil is now trading in Shanghai for Yuan rather than the US dollar. In addition, anyone who doesn’t want to hold Yuan can trade the Yuan for gold in either Shanghai or Hong Kong.
This will likely lead to less demand for the US dollar and a lower value for our currency. In my opinion this is no longer a future event- it is upon us.
The reason I am putting this note out right now is that as I watched CNBC yesterday there was no mention of this major story. There was talk of tariffs, trade wars, etc. but arguably, to me, the most important story of the 21st century so far had no mention made. I’m pretty sure that Fox and other channels didn’t report on this either. The reason I am pretty sure this is true is that I contacted a few people who keep informed and asked them what the top news story of the day was- no one mentioned that the event that I believe challenges our leadership role in the world’s economic hierarchy as one. As a matter of fact many had not heard of this before I called at all!
As I have said I don’t expect that the change will be easy to see in the short term but in the longer term it should be obvious that a major change in our economic system took place on 3-26-18.
My guess is that we should prepare for inflation as the Fed is likely to get their wish- and likely a lot more than they actually want. Hopefully, the US dollar will continue to be accepted in world trade in a few years. As ridiculous as that comment sounds keep in mind that we have imposed sanctions on many individuals and nations. Russia and China have set up a system to bypass the US dollar and to effectively bypass any sanctions. The Iranians have gone one step further and made it illegal to value ANY imports in US dollars.
What starts as a trickle sometimes turns into a torrent.
This may be bullish short term for stock markets as the dollar will likely weaken but if the inflation really does start to take off it could be very bearish for most bonds- which in turn could potentially lead to longer-term problems for stocks and real estate also.
I still continue to believe that gold and silver will be revalued higher- either in a major event like a one-day repricing that likely would be carried out by China with support from many other nations including Russia, Turkey, Iran, etc. or a longer-term bull market that is LONG overdue particularly with all of the “printing” of currencies that has been taking place since 1971 but in earnest since 2009.
I really believe it will be the first option as I believe that somewhere in the world it will be revealed that all of this debt built up over many years but which has been in overdrive for the last 10 years will not get repaid if currencies maintain anywhere near their current value.
While it SHOULD be apparent to everyone that these debts can’t be paid-most developed nations are already “printing” their currencies- and pretending that they can pay the interest on their massive debts already.
Notice I didn’t say paying off one cent. They even “print” money to get new debt issued to spend more money they don’t have.
Personally, if I busted my backside to produce a real product like oil or any other tangible good I would much rather get a real asset back- like gold or silver- than a piece of green paper backed by nothing but the full faith and credit of a country that has become the largest debtor nation ever. We admit to over $21 Trillion in liabilities. We admit to a trillion dollar current account deficit. We admit to unfunded liabilities of up to possibly $200 trillion. On top of that, we can’t account for $21 trillion missing from the Pentagon’s budget and $24 trillion given to the banks over the past 9 years!
I didn’t even mention our underfunded pensions, state and local liabilities, personal liabilities, etc.
We have a government that I am embarrassed to say is making us the laughingstock of the world. ALL OF THEM! Remember the $1.3 trillion spending bill passed last week- CONGRESS GAVE THEMSELVES A RAISE!!!
Must be for the great job they are doing.
I’d like to laugh but the joke is on us. My opinion is that if you don’t have some real assets not just paper- you should consider putting some of your wealth in something other than another’s promise to pay.
Judging by the morals I see from the top of our economic structure and all the way down to the bottom I can’t imagine being dependent upon the government for help in time of need.
Mike Savage, ChFC, Financial Advisor
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