I am certainly not unfamiliar with being labeled as a “conspiracy nut” and this piece will likely increase its usage, but I am okay with that. For many years I have been urging caution with regards to investments and asset allocation. From my perspective, the writing has been on the wall for quite some time with regards to the looming demise of U.S. Dollar domination. Its de facto role as reserve currency, it appears, is finally on its last legs.

Ever since the acceptance of neoclassical economics the United States government, at ever increasing rates, has relied on external investors for deficit servicing. The U.S. has relied on the de facto reserve status to export inflation and the “petro-dollar” for strength (the agreement to sell oil using solely U.S. Dollars). Over the past few years, numerous nations have been posturing in ways which suggest an attempt to end the U.S. Dollar domination. Consider the following:

–          China has become the largest gold producer and purchaser in the world. Official holdings rank China sixth in the world, but known purchases within the last two years alone put it second. This also ignores the very real possibility that the U.S. is not in possession of the claimed 8,000 tons of gold. This postures China to very easily select the new reserve/petro currency.

–          Coincidentally, China’s official press agency has called for a new reserve currency.

–          India and Iran agreed to an oil deal using gold rather than dollars. Russia, China, Brazil, France, Japan, and many Gulf nations have been engaged in talks for years to discuss the adoption of a new currency for oil purchases.

–          Popular support in China appears to encourage a change of relations with the United States.

–          Russia and China have been engaged in a long courtship which has increased trade and cooperation to new highs.

The most telling event comes next week when Vladimir Putin heads to Beijing for talks with China’s Xi Jinping. It is widely expected that they will finalize agreements on two massive natural gas contracts and mark entry into other markets. More importantly, the deal will likely be priced in Chinese yuan.

What all of these events suggest is that the world, with few exceptions, seems to be tiring of the U.S. “meddling in the business of other countries and regions far away from its shores.” They are posturing to eliminate the economic stranglehold the U.S. currently enjoys by removing the dollar from the equation. A move to a gold-backed currency – despite it being a “barbarous relic” – would have enormously devastating consequences on the U.S. economy. Without the ability to export inflation to the rest of the globe, dollar prices would skyrocket. What makes these events even more serious is the fact that Washington continues to run record deficits and appears to have no intention to change anytime soon.

So once again, I will urge you to diversify away from dollar denominated instruments and hedge against (and prepare for) the very real possibility of a dollar crash.