Claudio Grass (CG): Taken together, the moves by Russia and China, especially on the monetary front, with their plans of a gold-backed digital currency, appear to pose a direct challenge to the status quo and America’s central role in it. Do you think we might be witnessing a tectonic shift already, and do you expect to see the US and the USD decline in influence and relevance? (Click here to read part one)
Simon Hunt (SH): As I shift through your questions, none can be answered in just a few lines so I am doing my best to summarize the key points as concisely as possible. This question especially deserves a full report, but I will do my best to confine my answer to a few paragraphs.
There are three interlocking themes for both China and Russia:
- To distance themselves from using the dollar because America often uses the dollar for political purposes.
- To develop an alternative payment system for the New World of countries being tied into BRI etc., and
- The time will come within 5 years when China especially will demand payment for what it imports in Yuan, Rubles and other non-US currencies, perhaps including the Euro (part of the development of Eurasia which America is trying to prevent).
Both countries will soon issue their own E-Yuan and E-Ruble. At some point they are likely to back those currencies in some way to gold. China has over 40,000 tons of gold and Russia around 12,000 tons according to our sources.
Middle Eastern countries will look favorably on such an alternative to the US dollar where trust in America and its currency are waning fast. In fact, watch out as Saudi Arabia is on the verge of an economic and religious transformation.
The US economy and in fact the world’s is slowing to a point that in the second quarter, if not earlier, the risk of recession will be rising. Central bank policy will once again open the spigot gates leading to a very inflation-driven environment by the end of this year and into 2023.
The US dollar will start falling sharply as institutions then begin to hedge aggressively both a falling dollar and rising inflation which by end-2024 could well reach the sort of levels last experienced in 1980.
By around 2025, we have the US dollar index about halving in value from an imminent rise to the 98 level. Therein lies the real story.
CG: All these shifts and developments we’ve been seeing, especially over the last decade or so, increasingly bring to mind Halford Mackinder’s Heartland Theory, which is something you have mentioned in your analyses as well. Could you expand on that and explain how it fits with the current geopolitical picture in Eurasia?
SH: History is often forgotten. Politicians and government think-tanks look at the world through a prism of today, less than how events grew from years gone-bye. Eurasia has been the center of world power for at least 500 years until following the collapse of the Soviet Union America found itself to be the first non-Eurasian global super-power.
Halford Mackinder postulated in 1904 that whoever controls the heartland, controls the world island and whoever controls the world island will soon control the world.
This is why America is so concerned that China and Russia are intent on controlling the World Island largely through the Shanghai Cooperation Organization (SCO) and the BRI. These concerns originated in 1946/47 when George Kennan first came up with the policy of Containment for Russia that then led to the formation of NATO in 1949.
It is why China and Russia have also formed such a strategic alliance in their quest to pursue Mackinder’s Heartland theory. Part of the two countries strategy is to encourage Germany into eventually forming a triple alliance with them which would not only cement the creation of Eurasia but remove much of America’s power and influence in the World Island.
75 years of Europe’s declining world power could then be returned to them as first controlling the world island and then the world. How then will the EU be structured and will it exist? These developments in Eurasia coincide with America’s empire starting to fall apart – so the real question is whether they will risk war with all that will involve to retain their hegemonic status. Let’s hope that sanity will prevail over vanity.
CG: Turning our attention to the financial markets for a moment, what kind of impact, if any, would you anticipate to result from all these tensions and shifts?
SH: From all the developments and patterns discussed, we can form quite a clear picture about what we can expect to see in financial markets. To summarize:
- There should be a sharp correction in equity and commodity markets in the first six months of 2022 because of a global economic slowdown led by China and America and continuous geopolitical tensions.
- The Fed and other western central banks will throw more liquidity into their systems forgetting their policies to tighten.
- By end-2022, global recovery will be in-place but inflation will be rising sharply driven not only by central bank policies but by rising wages, rising food prices and rising energy costs, but above all by central banks continuous policies of throwing money at every problem that arises. At its routes inflation is a monetary problem causing too much money chasing too few goods. Some of us remember the events 1979-1982.
- The US dollar will start collapsing in 2023; people outside America just won’t want to hold it; and exporters to China will be encouraged to accept currencies other than US dollars – will this development lead to war because it would signal the beginning of the end of the US dollar’s hegemony.
- A combination of world inflation at 10% or over and 10-year US Treasuries at 6% plus will completely unravel world financial markets resulting in a similar outcome as was experienced in 1929-1932.
- It is during these crisis years that the global tectonic plates will shift with Eurasia becoming the global power. Countries in the Middle East will mend their fences with each other; Pakistan and India will come peacefully together and China together with Russia and others such as some Middle Eastern countries will be left standing strong able to pick up cheap assets.
CG: Given all the financial and social pressures that our societies have endured since the onset of the covid crisis, do you think a period of sustained inflation or a deeper economic downturn could have wider social and political implications? Do you see the US or Europe as being more vulnerable to such a scenario?
SH: Society or the People are now understanding fully that Covid and Climate Change have been part of the Great Reset crowd to take control of the world. There is a rebellion against these control measures that is only just starting. You can see the beginnings in the Canadian truck drivers strike followed by similar events in Paris and Brussels. Its small events like these that can mushroom into bush fires.
If governments don’t accept the futility of ordering people how to conduct their lives and begin to question the policies being introduced to control CO2 emissions then they will be thrown out resulting in political revolutions in some countries. The consequences of these policies are only just starting to be reflected on households’ costs: costs of driving and other transport costs are rising; electricity and food prices are soaring in many countries (much more to come because of weather conditions) all resulting in the increasing costs of households’ ability to heat their homes and cook their meals
The truth is warming weather leading to excess CO2 emissions is a function of long-term weather patterns that are driven by sun spot and volcanic activity and ocean temperatures. The world will move out of its long period of warming weather into a many years of cooling weather so allowing the oceans to absorb the excess CO2 emissions by 2030 if not starting in 2028 which NOAA predicts.
What then for the trillions of dollars being spent on renewables and EV’s etc.? It’s a game being played by the Davos crowd supported by most governments but not supported by the real data. It’s the People who will rebel.
CG: Given the heightened volatility and the geopolitical uncertainty we’re currently facing, what would be your advice for conservative investors and ordinary savers who seek to preserve their wealth for the next generation? What role do you see precious metals playing in this context?
From the second half of this year through into early 2024 there is the opportunity to establish the funds to see one through the depression years, but sometime end-2023/early 2024 one should be heavily cashed up with exposure only in gold and silver and a few other tangible assets.
There is the story of an old and famous Italian family, whose name I forget, which retained its wealth over the centuries through wars, famines and depressions by owning gold, art and land. When wars or famines came, they held titles to their land which they could return to and gold held in the form of coins and art could be transported on horseback or wagons.
Some things never change like weather patterns, famines and wars, whilst others change rapidly through technology and human greed.