Chaos Will Replace the Dollar If It Falls

ZH: "Nice Narrative" But No: Why One Strategist Thinks Zoltan Pozsar's "Bretton Woods 3" Is Never Going To Happen

A very good and long piece covering all the reasons why Bretton Woods 3 isn't happening. The author makes many good points. Boiling it down, it gets to points I've made for a long time on this blog. First, there is no alternative. No other currency can handle the volume of trade and capital flows. Two, a reserve currency must run a trade deficit to work. That rules out China, as if the yuan didn't have capital controls in place. China has failed at economic reform for the past 20 years. Where's the property tax on real estate? An opening economy was replaced by Made in China 2025, doubling down on mercantilist export policy.

Second, the global system is breaking down. There was a unipolar moment after the fall of the Soviet Union. Instead of inviting Russia in, an anti-Russian segment of the U.S. foreign policy establishment together with the military-industrial complex concocted a new enemy. Years of duplicity, lies and American aggression finally destroyed whatever hope there was for truly global cooperation. If the dollar fails, it will be replaced by ad hoc currency systems, likely trade blocs where the dollar remains nearly as dominant as today. The same setup as the Cold War except China isn't murdering and starving itself under Mao. Gold would be the default for international transactions.

Third, nobody wants reserve currency status. Most competitors such as China are set up to game the U.S. dollar system. They devalue their currencies against the dollar, or soft peg, to maintain export industries. They would have to offshore their manufacturing to the USA and import goods and services to be the reserve currency. They would have to sell their companies and debt to the world. Do you think the CCP wants to have foreigners with that much say in their markets? They don't even allow Chinese that much say. After China, there is no competitor. The euro probably will not survive.

None of this should be construed as defending U.S. government policy, Federal Reserve policy, the dollar as an asset vs hard assets and so on. The least accepted outcome is the most likely: everything gets worse. There is no white knight nation that will step up and save the world or offer a superior currency. The most likely "savior" is a domestic American reform movement that moves America back towards its pre-WWII role as the pre-eminent creditor and business nation, a beacon of liberty in a world domianted by autocracies and tyrants. Otherwise, the next best outcome will be the path we're on now. A fracturing the world that limits the reach of the USA, China and Russia as all three become increasingly tyrannica regimes.