Is the Kabul syndrome going to hit a US Dollar close to you soon?
I – The US dollar and gold standard
Since the Second World War, the US dollar has been the anchor currency of global trade, with the US Federal Reserve as centrepiece of the global financial architecture – including western dominated Bretton Woods institutions, such as the International Monetary Fund. A watershed moment in that history was the decision to move the US dollar away from the gold standard in the early 1970s. Since then unbacked fiat currencies (with mysterious floating values) have blossomed and flowered. However, persistent money printing in the northern hemisphere (since 2008, and accelerating since the COVID pan(dem)ic erupted) is leading to a market crash of rather epic proportions.
Nevertheless, the little bit of ‘history’ above is relevant for the question as to whether the Kabul syndrome of imperial collapse, will be hitting a US dollar close to you soon. This is due to the fact that the world system is, in the turbulent twenties of this century, clearly at a major inflection point.
II – Is the US & NATO’s disgraceful Afghan departure ushering in the era of the Shanghai Cooperation Organisation?
With the US/NATO disgracefully backing out of twenty years of shooting themselves in the foot in Afghanistan, it is clear that power dynamics on the multi-layered central Asian chessboard will tip decidedly in favour of nations that are members of the Shanghai Cooperation Organisation (SCO). The Islamic Republic of Iran is an observer nation in the SCO context, and rumours indicate that there may be a strong push coming from China, to advocate for Iran to transition to full membership. This geopolitical context is critical in a period where US global ‘military prowess and power’ is exposed as nothing but empty posturing.
The changing balance of geopolitical power in Central Asia, with Afghanistan at the epicentre, will of course all have a decided impact on the shifting political sands of the Middle East and North Africa. The latter especially in terms of the US posture towards remaining allies, and the likelihood that a Taliban victory in Afghanistan will inspire, and inflame like-minded Islamist forces around the world: Yemen, Libya, Lebanon, Syria, Somalia are geographies already caught in long-term processes of state collapse, insurgency, and societal fragmentation and marginalisation.
III – How will the Kabul syndrome manifest in the US dollar?
The Kabul syndrome of collapse, deceit, and defeat is manifesting in the US dollar as well. But how? It is in the inflation numbers that have been coming from the USA. While the mainstream press report on rising inflation in the USA, and UK, for example, but do not for a moment underestimate the monstrous risks chasing us in the economic blindspot.
Blindspot #006, Part 2, therefore extends the virus theme beyond that of COVID, into the domains of markets infected by a money printing virus portending volatility at a scale that will make 2008’s global financial crisis look like a fender bender on the sidelines of a catastrophic multi-vehicle pile-up crash. Blindspot asks what, in addition to the proverbial books, are cooking on the Wild West’s financial frontiers?
Blindspot talks through the highlights of an extremely insightful article on goldmoney.com entitled: 2020 – 2022 vs 1929 – 1932. Some highlights from the article include:
“Current levels of equity markets are not only divorced from their underlying economic and business realities but are repeating the madness of crowds that led to the Wall Street crash of 1929—1932. The obvious difference is in the money: gold-backed dollars then compared with unbacked fiat today.”
“In the past I have compared the current market situation with 1929, when the US stock market suffered a major collapse that October. With memories short today, many will have even forgotten that between 12 February and 23 March last year the Dow Jones Industrial Index fell 38.4% top to bottom in less than six weeks, paralleling the 66% fall between 4 September and 13 November 1929 on an eerily similar timescale.”
“As the background to stock market trends, there is enough circumstantial evidence for us to assume that the world is on the brink of a major financial catastrophe. The list of negatives is growing. It started with the US repo market blow-up in September 2019, followed by the Dow losing 35% in nominal points between 10 February and 23 March 2020 (as pointed out above) before the Fed stepped in to rescue the stock market by cutting the funds rate to the zero bound and reinstating QE to the unprecedented extent of $120bn every month, along with several other market-enhancing measures. They worked. At least, that is, if you ignore the costs and consequences.”
The quantitative easing dynamic has unleashed a monstrous amount of money into the US market, or in the EU context via the European Central Bank. But, the problem is that there is no underlying value in the economy. Supply chains have been decimated, while policy makers are still killing economies through uninformed lockdowns.
David Goldman, recently reflected in an article on the Asia Times platform that the world has to prepare itself for persistent inflation in the US economy. He is of the view that regular economic commentary suggesting that inflation in the USA is a ‘temporary’ phenomenon, is nothing but part of a grand economic smoke & mirror numbers game.
Goldman argues: “The scare headline about Thursday’s Producer Price Index release said that the year-on-year jump of 7.7% was the biggest on record. That’s for the PPI “final demand” index, which starts in 2010, long after the horrendous inflation of the 1970s had become a distant memory.”
This means that a historical record has been set in the USA in terms of a spike in inflation. More importantly though, he indicates that the historical record shows that two previous periods of inflation spiking in the USA, being 1973, and 2007, were both brought about by external shocks to the economy. What scares him, he argues, is that the current case of wildfire inflation is brought about by internal economic dynamics.
IV – How does this impact on South Africa?
Chris Harmse, from CH Economics, argues in an article entitled – US sneezes, South African markets catch a cold, that:
“…last week once again showed how vulnerable South African financial markets were to economic and geopolitical events in the US. The hawkish fashion in which the Federal Reserve Open Market Committee (FOMC) warned that the quantitative easing in the US (and the current record low bank rate) may come to an end sooner than later, had devastating effects on share prices in South Africa and the rand. The all share index fell 4.9 percent last week, its sharpest decline since the 15.2 percent decline during the first week of lockdown in March 2020. The rand had softened by 61c against the dollar last week from R14.70 the previous Friday, to R15.31.”
Clearly the threat of ‘tapering’ the QE printers in the USA had a direct and nearly immediate impact on the South African currency and economy. The major risk and blindspot to consider is the warning implied in the analyses shared here, being that a collapsed, or collapsing US dollar, can and will, like a black hole, suck all other fiat currencies with it down the toilet once the moment of collapse, retreat, and Kabul-style dollar defeat comes.
V – What to expect?
With spiking inflation in the USA, brought about by historically insane levels of money printing, it is clear that the power of the US dollar will be eroded from the inside. The Kabul syndrome of imperial collapse and retreat is, if one looks at inflationary dynamics, and the crisis of QE, already a reality that will hit a US dollar close to you. How soon is anyone’s guess, but, it may be good to take some advice from China and Russia, two countries that have over the years actively been limiting their exposure to the US dollar. In fact, these countries are also leaders of the post-dollar pack by establishing exchange platforms in their central banks to allow and enable trade in national currencies.
The time might be right for BRICS, and members of the African Continental Free Trade Area to seriously consider currency alternatives to the sinking US dollar ship.
And lastly, according to goldmoney.com, the best way to preserve wealth under such volatile market conditions is by holding physical silver, or gold.