by F. William Engdahl
"A World Full of Dollars"
A 2019 Global Economic Crisis
It's de facto a silent weapon:
Developed over a period
of decades since the decoupling of the dollar from gold by Nixon
in August, 1971, today control of the dollar is a financial weapon
that few if any rival nations are prepared to withstand, at least
At that point, with aid of the infinite money-creating resources of the FED known as Quantitative Easing, the half-dozen top banks of Wall Street, including Paulson's own Goldman Sachs, were rescued from a debacle their exotic securitized finance created.
The FED also acted to give unprecedented hundreds of billions of US dollar credit lines to EU central banks to avert a dollar shortage that would clearly have brought the entire global financial architecture crashing down.
At the time six Eurozone
banks had dollar liabilities in excess of 100% of their country GDP.
The Institute of International Finance (IIF) in Washington estimates the debt of households, governments, corporations and the financial sector in the 30 largest emerging markets rose to 211% of gross domestic product at the start of this year.
It was 143% at the end of
Excluding China, emerging market total debt, in all currencies including domestic, has nearly doubled from 15 trillion dollars in 2007 to 27 trillion dollars at end of 2017.
China debt in the same time went from 6 trillion dollars to 36 trillion dollars according to IIF. For the group of Emerging Market countries, their debts denominated in US dollars has grown to some 6.4 trillion dollars from 2.8 trillion dollars in 2007.
Turkish companies now owe
almost 300 billion dollars in foreign-denominated debt, over half
its GDP, most in dollars. Emerging markets preferred the dollar for
Now all that's beginning to change...
Arguing that the domestic US economy is strong enough that they can return US dollar interest rates to "normal," the FED has begun a titanic shift in dollar liquidity to the world economy.
Powell and the FED know very well what they are doing.
They are ratcheting up the dollar screws to precipitate a major new economic crisis across the emerging world, most especially from key Eurasian economies such as,
Despite all efforts of Russia, China, Iran and other countries to shift away from US dollar dependence for international trade and finance, the dollar remains still unchallenged as world central bank reserve currency, some 63% of all BIS central bank reserves.
Moreover almost 88% of daily foreign currency trades are in US dollars.
Most all oil trade, gold
and commodity trades are denominated in dollars. Since the Greek
crisis in 2011 the Euro has not been a serious rival for reserve
currency hegemony. Its share in reserves are about 20% today.
The peak for total
emerging market dollar debt falling due comes in 2019, with more
than 1.3 trillion dollars maturing.
The FED bought a
staggering sum of bonds from the banks up to a peak of 4.5 trillion
dollars from only 900 billion dollars at the start of the crisis.
Now the FED announces it plans to reduce that by at least one third
in coming months.
That bank liquidity was in turn invested in any part of the world offering higher returns as US bonds paid near zero interest. It went into junk bonds in the shale oil sector, into a new US housing mini boom.
Most markedly the liquid dollars went into higher-risk emerging markets like,
Dollars flooded into
China where the economy was booming. And the dollars poured into
Russia before US sanctions earlier this year began to put a chill on
Late 2017 the FED slowly began to shrink its bond holdings which reduces dollar liquidity in the banking system. In late 2014 the FED already stopped buying new bonds from the market. The reduction of the bond holdings of the FED in turn pushed interest rates higher.
Until this summer, it was all "gently, gently"...
Then the US President
launched a global targeted trade war offensive, creating huge
uncertainty in China, Latin America, Turkey and beyond, and new
economic sanctions on Russia and Iran.
That takes those dollars out of the banking system. In addition, to aggravate what is quickly becoming a full-blown dollar shortage, the Trump tax cut law is adding hundreds of billions to the deficit that the US Treasury will have to finance by issuing new bond debt.
As the supply of US
Treasury debt rises, the Treasury will be forced to pay higher
interest to sell those bonds. Higher US interest rates already are
acting as a magnet to suck dollars back into the US from around the
Since March, the world
has de facto been in the new era of QT...
Today the world central banks more than even before 2008, dance to the tune played by the Federal Reserve.
As Henry Kissinger allegedly stated in the 1970's,
The combined G-3 central banks' balance sheet increased by a mere 76 billion dollars in the first half of 2018, compared with a 703 billion dollars rise in the prior six months - almost half a trillion of dollars gone from the global lending pool.
Bloomberg estimates that net asset purchases by the three main central banks will fall to zero by the end of this year, from close to 100 billion dollars a month at the end of 2017.
Annually that translates
into an equivalent 1.2 trillion dollars less of dollar liquidity in
2019 in the world.
The debt is not state Turkish debt for the most part, but private corporate borrowing.
Turkish companies owe an estimated 300 billion dollars in foreign currency debt, most dollars, almost half the entire GDP of the country. That dollar liquidity has kept the Turkish economy growing since the 2008 US financial crisis.
Not only the Turkish
economy… Asian countries from Pakistan to South Korea, minus China,
have borrowed an estimated 2.1 trillion dollars.
The dollar is rising strongly against all other currencies, 7% this year.
Combined with this, Washington is deliberately initiating,
Trump's trade wars, ironically, have led to a "flight to safety" out of emerging countries like Turkey or China to the US markets, most notably the stock market.
Weaponizing the US
Then all it needed was a concerted US hedge fund attack on the weakest Asian Tier economy, the Thai Baht, to trigger collapse across most of South Asia to South Korea and even Hong Kong.
Today the trigger is
Trump and his bellicose tweets
All it took was a series of,
..and banks from Paris to Milan to Frankfurt to New York and anyone else with dollar loans to higher risk emerging markets, began the rush for the exit.
The Lira collapses as a
result of near panic selling, or the Iran-currency crisis, the fall
of the Russian ruble. All reflects the beginning, as likely does the
decline in the China Renminbi, of a global dollar shortage.
This is war by other means...
The FED dollar strategy is acting now as a "silent weapon" for not so quiet wars. If it continues it could deal a serious setback to the growing independence of Eurasian countries around the China New Silk Road and the Russia-China-Iran alternative to the dollar system.
The role of the dollar as lead global reserve currency and the ability of the Federal Reserve to control it, is a weapon of massive destruction and a strategic pillar of American superpower control.
Are the nations of
Eurasia or even the ECB ready to deal effectively...?