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Russia vs. the petrodollar: the latest reserve currency meltdown

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Dateline: Kuala Lumpur, Malaysia

Twenty-five centuries ago, traders throughout civilization were increasingly using a single method to do business with.

The silver drachma, coined in ancient Athens, would become the world’s first sort of global reserve currency; a standard by which many far from Athens used to conduct trade.

Within a few hundred years, Rome’s gold aureus also became widely used outside the borders of Rome, and the two currencies shared the status of an ancient reserve currency.

However, Rome suffered an eventual currency collapse of its own, as rampant inflation from the first century onward made the aureus increasingly less attractive to those outside of Rome.

Imagine: an endlessly devalued currency containing less and less valuable metal being shunned by those who weren’t forced to use it, either by a gun or out of sheer necessity.

That explains exactly what is happening with the US dollar, which you know has lost all but a few cents of value in not Rome’s four centuries, but in one.

Jim Rogers understands that you have to stay on top of these things.

After selling his penthouse in Manhattan seven years ago, Jim Rogers remarked, “If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia.”

Specifically, Rogers mentioned that countries like his former home in the United States would be less likely to provide his young daughters a sense of work ethic that used to exist.

We talked last month about the theory that rice producers here in Asia are inherently more analytical and more driven that wheat producers in the west, and Rogers believed that being in a culture on the rise was better than living in a place one default away from having a wave of EBT card users rioting in the streets.

You know that, throughout history, there has been a constant ebb and flow. The only thing consistent is change, as they say.

One year you’re the Greeks on top of the world… and, before you know it, your own citizens are throwing Molotov cocktails at your buildings in austerity protests.

The same is true about the global reserve currency at any one time, which makes the latest revelation from Russia about the petrodollar particularly interesting.

Countries “on top of the world” tend to act a lot like bombshell party girls or high school quarterbacks. Throughout their entire existence, these groups have been conditioned to believe they have it all and the party will never end.

But bad behavior and entitlement, just as Jim Rogers believes, can never go on forever.

The US dollar replaced the British pound as the world’s reserve currency, which itself replaced a number of other reserve currencies from Spain, Portugal, and a number of other nations.

Russia, for one, believes that the era of dollar dominance is not at the end of its run. The country just wrapped up negotiations with Iran to trade oil and goods totally off the petrodollar grid.

Now, western media will tell you that this is nothing more than two rogue nations doing the best they can in face of increasing US and European sanctions. And, at first glance, that makes sense.

But I’m a capitalist with no judgment to pass on either party. I merely want to protect the money I have from currency collapse and confiscation while making more of it.

And Russia and Iran are two large nations, one of which just so happens to be the largest oil and natural gas producer on the planet.

Russia has the power to take a bit out of a US dollar that has remained the world’s reserve currency for seven decades despite Bretton Woods, the first part of a financial meltdown, and endless quantitative easing.

Add to all of that the United States government’s increasingly diva-like mentality that has seen non-stop financial imperialism with the introduction of measures like FATCA and many others.

The world has had enough, and the share of US dollars used in foreign trade is down double digits this century.

Russia isn’t the only one that has had enough. We talked last month about the BRICs joining forces to create a dollar alternative that would seriously imperil the US dollar’s future.

You can attack Russia and China all you want. You can call them evil. You can stand with great minds like John Kerry and attack other countries as “rogue nations” or say they have no right to trade their own oil.

But no amount of western propaganda can influence the effect large nations like Brazil, India, China, and Russia can have on the global flow of currency in trade.

And the east versus west division being set up by an arrogant Washington means that wealthy Russians and Asians are putting their money in Hong Kong, Singapore, and Dubai. Even Bloomberg suggests that that won’t be good for business.

Heck, it’s not even just east versus west, as Germany has hopped onto the bandwagon to criticize US dollar debasement.

Gone are the days when the US dollar trumps all. I’ve seen this myself…

Twenty years ago, I traveled to Europe with my family, where money changers in Portugal, France, and Spain were positively giddy to receive more fresh US dollars. Today, they roll their eyes at the prospect.

That’s how currency collapse happens; the people holding the collapsing currency rarely get a vote in the same way the quarterback doesn’t get to force women to salivate over him once he gets a job at a lumber yard.

People in places like Hong Kong are looking forward to a world less dependent on the dollar as the reserve currency, as well. I have received several comments and emails from Hong Kongers telling me how expensive things have gotten there thanks to the Hong Kong dollar’s peg to the US dollar.

I wrote about it when I was there last month.

The feelings are largely the same in Singapore, with the central bank itself saying the US dollar is wreaking havoc on the country. I just moved some of my US dollars into Singapore dollars now that the “Sing” is just under 80 cents on the dollar.

Eventually, Singapore and Hong Kong will be less dependent on if not entirely independent of the next former reserve currency.

Those smaller countries can’t enact change on their own. We frequently discuss how places like Singapore have become rich catering to people from all around the world who need a safe haven for their wealth.

That countries like Russia are on board with a US dollar alternative is only one more nail in the coffin. The increasing influence of the renmibi in Asian and global settlements is another.

I told you a few weeks back that the US title company handling the proceeds from the sale of my home there (yes, I’m one of the few lucky ones in a market that is now official “declining” again) hadn’t even heard of Singapore.

Yesterday, a woman from that title company called me at four in the morning to make sure my money got sent where I wanted it. She was quite flustered when I said “no, it wasn’t”, but that I had moved my money where I wanted it on my own.

She basically told me I was some kind of lunatic for not believing all of my money would be perfectly safe at a Chase Bank branch in Scottsdale, Arizona.

These are the people who will suffer as the US dollar becomes less and less important as a reserve currency. They know nothing beyond the shores of California or the port of New York.

The question is, will your dollars be devalued along with theirs? Or will you make other plans? Because you won’t get a heads up before it all starts happening.


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