Thursday, April 21, 2022

Still in the Building?

Christian America has been stirred by the decision of the leaders of Vineyard Anaheim to secede from Vineyard USA. This decision was shocking because John Wimber was heavily involved in establishing Vineyard Anaheim, and many people see it as the mother of the Vineyard movement.

Geoff Holsclaw who is a professor at Northern Seminary and a pastor at Vineyard Grand Rapids asked and answered the following question.

Has Vineyard USA lost its “anointing”? Has God’s anointing passed to those of the Toronto Blessing, to the Kansas City Prophets, or to Bethel Redding, and The New Apostolic Reformation? (Yes, I have heard this privately...many times).
His full answer is here, but his conclusion is,
I’m certain the anointing of God’s Spirit has not left the building.
I value Geoff’s teaching, but I not sure that he is totally correct.

I decided to follow Jesus in 1974 when I studying at University (I was a late starter). After a year of seeking to follow him, I felt that I was not progressing quickly enough. I talked with a friend, and she suggested that I read the book of Acts, to see if I could discover what made the early Christians different from me. I followed her advice, and the answer to her question was obvious.

The difference was the presence of the fulness of the Holy Spirit. After claiming Luke 11:9-13, I was baptised in the Holy Spirit sitting in my bed one Saturday morning while my wife was at work. I was given a heavenly language, which has continued to refresh me until this day.

In the season that followed, we saw some amazing things. (This occurred during the Charismatic Renewal in New Zealand). The Holy Spirit seemed to be doing amazing things everywhere. This was real steak, not sizzle. People were not falling down (that did not come to until the Toronto Blessing took off twenty years later). People were being healed and delivered.

Sadly, a few years on, the activity of the Holy Spirit seemed to go into decline. Some people believe that they can almost mark the date this happened. We dealt with this decline by assuming that the Holy Spirit moves in seasons. We assumed that the season where the Holy Spirit was moving freely had come to an end, but another season of similar blessing would come again in the future.

Now, more than forty years later, I realise that we were fooling ourselves. The season of blessing did not end because the Holy Spirit lost interest or decided to pause things for a while.

I believe now that we were responsible for the end of our season of blessing. The season ended because we grieved the Holy Spirit. Looking back, I understand that we tried to take the blessing of the Holy Spirit and use it to renew the church. The problem was that the Holy Spirit was wanting to do something radically different. He wanted to transform the church to prepare it for the next season when he would establish the Kingdom of God on earth during a season of trouble on earth. We refused to heed his call to change because we believed that we could enjoy the blessing of the Spirit within the existing church structures.

The Holy Spirit cannot achieve his goals with a church that is led by big-name leaders and conducts its activities in buildings where the people of the world cannot see what he is doing. The Holy Spirit wants a church that is led by teams of elders with balanced giftings. He wants a church that is active in the places where people live. Until the church is willing to change in the way that the Holy Spirit is asking, we will continue to grieve him.

The Holy Spirit has not left the building, but it is not his happy place.

Tuesday, April 19, 2022

Freedom (6) Basic Freedoms

In their book called The Dawn of Everything, David Graeber and David Wengrow give a different description of freedom. They suggest that in primitive societies, three basic freedoms were important.

  • freedom to move
  • freedom to disobey
  • freedom to create or transform social relationships.
They described these freedoms in this way.
The freedom to abandon one’s community, knowing one will be welcomed in faraway lands; the freedom to shift back and forth between social structures depending on the time of year; the freedom to disobey authorities without consequence – all appear to have been simply assumed among our distant ancestors, even if most people find them inconceivable today (p 132).
The English word “free” ultimately derives from a Germanic term meaning ‘friend’ – since, unlike free people, slaves cannot have friends because they cannot make commitments or promises. The freedom to make promises is about the most basic and minimal element of our third freedom, much as physically running away from a difficult situation is the most basic element of the first.

One might ask, how could that most basic element of all human freedoms, the freedom to make promises and commitments and thus build relationships, be turned into its very opposite: into peonage, serfdom or permanent slavery? It happens, we’d suggest precisely because promises become impersonal, transferable – in a nutshell, bureaucratized (p. 426).

The freedom to ignore people who want to control others was basic.
The real puzzle is not when chiefs, or even kings and queens, first appeared, but rather when it was no longer possible simply to laugh them out of court (p.133).
In contrast, the moral basis of a nation like the United States is largely formal freedoms, mostly defined in relation to the state.
American citizens have the right to travel wherever they like - provided, of course, they have the money for transport and accommodation. They are free from ever having to obey the arbitrary orders of superiors-unless, of course, they have to get a job (p.131).

These thre basic freedoms are worth pondering.

Previous posts here

Saturday, April 16, 2022

Paper Gold

Paper gold has been a profitable activity for the US and the UK, but it could be problematic. Much of the gold owned by central banks all over the world is currently stored in vaults owned by the Federal Reserve and the Bank of England. These countries have been covering their storage costs and earning a profit by allowing the vaults storing their gold to engage in a variety of lease and swap agreements. The US Government has encouraged the growth of gold derivatives to absorb demand and suppress gold relative to the dollar.

Under the IMF’s accounting procedures, leased and swapped gold balances are recorded as if they were still under a central bank’s ownership and control, despite bullion being transferred to another party in unallocated accounts. This is morally wrong, because two entities cannot own the same asset at the same time.

The US and the UK have been undermining confidence in this process by confiscating gold reserves that they were storing for Venezuela, Libya, Afghanistan and Russia. Central banks with their gold reserves vaulted at Western central banks will now be pondering whether their reserves would continue to be safe if they upset US political leaders. Requests for repatriation of bullion are bound to follow.

Some countries that have made profits from their gold reserves will be unlikely to renew swap and lease agreements and will instead demand reallocation of their bullion into earmarked accounts. This could drain liquidity from bullion markets. A rising gold price will then be bound to ensue.

Wednesday, April 13, 2022

Inflation (3) Central Banks

Inflation is always a monetary phenomenon. Prices of goods and assets go up and down relative to each other due to changes in supply and demand, but an overall increase in the price level has to be funded by the central bank increasing the supply of money.

Since the GFC in 2008/9, the Federal Reserve has massively expanded the money supply, first by keeping interest rates low (near zero) and second by quantitative easing. The Fed brought roughly 3.5 trillion assets between 2008 and 2014 (mostly Treasuries). It has never been able to roll this quantitative easing back and now holds $9 trillion on its balance sheet. Central banks throughout the western world followed this example.

Inflation of a currency does not always feed through evenly. When central banks massively inflated their money supply during the golden season, the inflation did not push through to consumer goods, due to the enormous supply of consumer goods manufactured in China. Instead, it flowed into a massive increase in the prices of financial assets, particularly share prices. The boom in share prices increased the wealth of the wealth in a big way. Ordinary people did not complain too much because cheap consumer goods deadened their economic pain.

Lack of inflation allowed central banks to keep interest rates low for over a decade, which enabled households and businesses to increase their borrowing. Governments also borrowed heavily to deal with Covid. The consequence of low-interest rates is that households, businesses and governments are now all heavily indebted.

A major outcome of getting inflation under control in the 1990s was that price stability became the target for central banks all around the world. This policy emphasis assisted the development of a trading system based on the US dollar. The guarantee of price stability made it safe for businesses and foreign governments to keep their foreign reserves in US Treasuries because they would not be eaten away by inflation. China took advantage of this situation to hold large reserves in US Treasuries. Foreigners currently own $US33 trillion of US financial securities and short-term assets. Unfortunately, inflation is now roaring back into the world economy again, undermining the guarantee of price stability.

The constraints on price inflation have now come off and consumers all over the world are facing serious inflation that is eroding their living standards. Normally, when inflation gets out of control, central banks tighten the money supply by increasing interest rates to dampen demand and take the heat out of their economy. In the current situation, rolling back quantitative easing by selling treasuries and the other assets that central banks have purchased would be part of the solution.

Increased interest rates are considered to be the standard cure for price inflation, but the Federal Reserve and central banks around the western world face a serious dilemma, as the traditional medicine could be quite painful.

  • Near-zero interest rates allowed governments to rapidly expand their debt without facing any extra interest burden. If central banks push up interest rates, governments will have to find money to cover their interest bill. They will not be able to borrow so easily, so their budgets will have to be more constrained, at a time when there are growing demands for more government spending.

  • Interest is a significant cost for all businesses, so an increase in interest rates will up the cost of production for them, at a time when they are already struggling to deal with the increased costs described in the previous post.

  • Rising interest rates will put pressure on households with big mortgages and other types of debt. They will cut back their spending at a time when the world economy is only just starting to recover from the Covid shutdowns.

  • If governments push up interest rates to control inflation, they will hurt both businesses and households when the recovery from the covid recession is still very weak.

  • Another big problem is that the share price boom and rapid increases in property prices have been driven by a long period of low interest rates. If interest rates are increased sharply, financial markets could collapse with shocks spreading throughout the economy.

  • The combination of high debt levels and raised interest rates will make it difficult for governments to spend their way out of any recession.

  • Rising interest rates reduce bond values. Through QE, the European Central Bank (ECB) and the Bank of Japan have bond portfolios, which have already wiped out their equity, playing havoc with their balance sheets. Like many other central banks, the ECB is technically bankrupt and needs a massive, systematic recapitalisation, but there is no institutional pathway for a capital injection to occur.

  • The United States has a couple of extra problems that will make it difficult for the Federal Reserve to deal with rising price inflation.

    • Every economy needs institutions that shift money from those who want to save to those who need to borrow. This is a relatively straightforward process that does not need a huge number of institutions. Through hyper-financialisation and securitisation of debt, the US banking system has built a massive superstructure of debt, derivatives and other dodgy financial instruments sitting on top of it, weighing it down. If too much pressure comes on one part of it, the entire system will become vulnerable to collapse.

    • If serious inflation continues, foreign governments will be unwilling to risk holding their reserves in US Treasuries. The Fed may need to raise interest rates to protect the US currency from depreciating.

    • Over the last few decades, the US has been able to cover its massive budget deficits by issuing debt. Continuous big budget deficits have been funded by selling US Treasuries to countries wanting to store their foreign currency reserves and to support trade denominated in US Dollars. As described in a previous post, countries are becoming less confident about the security of their US dollar assets, so increasing sales of US Treasuries are likely. The US budget deficit for 2022 is projected to be $US1.2 trillion, which will have to be borrowed. If this additional borrowing cannot be funded by foreign or US banks, the Fed may need to engage in further Quantitative Easing, which will feed into further inflation.

It is hard to know what central banks will do. Will they push up interest rates to restrain inflation, or will they let inflation go to protect their financial markets from pain? In the United States, you would presume that after a decade of quantitative easing, the capacity for further inflation of the money supply has been so exhausted. However, the willingness of politicians to inflate their currencies in order to maintain their political power should not be underestimated.

My guess is that politicians will go for the softer option and let inflation run, as they will be able to blame it on external players. They would have to take responsibility for any policy decisions that slowed the economy and politicians hate taking the blame. Of course, the outcome they don’t want to cause will probably happen anyway. So I expect to see inflation continuing to be a problem, with governments unwilling to take responsibility for taming it. This will be painful for people on fixed incomes and businesses that cannot deal with rapidly rising prices.

Monday, April 11, 2022

Inflation (2) Now

In a previous post, I describe the inflation that wracked the 1970s and early 1980s. Inflation is appearing again, but the situation is totally different now. This inflation is caused by a real increase in the cost of production and a consequent rise in the prices of consumer goods.

A number of factors are contributing to a significant rise in the costs of production.

  • The United States has imposed tariffs on goods produced in China, ostensibly to protect industries that no longer exist, but mostly for political reasons. Other nations are beginning to impose tariffs and import duties. The problem is that a tariff war quickly becomes a vicious cycle of tit for tat that harms everyone by reducing specialisation and pushing up the costs of production. This will lead to an increase in the price of consumer goods all over the world.

  • The United States has put sanctions on most of the world’s big oil producers: Iran, Venezuela and Russia. These trade restrictions will push up oil prices.

  • Saudi Arabia is the other big producer of oil. It is ruled by a corrupt dictatorship, so at some point, the US will impose sanctions on it, if it is not blown up by a rebellion first. This would make the oil situation worse.

  • Rising oil and gas prices are a serious problem because oil and gas are major inputs into the chemical industries that are essential for modern industrial economies. Their costs of production will rise.

  • Natural gas is an important input into fertiliser production, so gas shortages will push up fertiliser prices. This will push up the price of crop-based foods (including most kinds of meat).

  • A rise in the price of oil doesn’t just increase the price of fuel for commuters. It increases the cost of all transport, including sea, air, road and rail freight, which will increase the price of all goods, especially those that are imported. Truckers have to pay more for diesel fuel, which increases the prices of all delivered goods.

  • Increased transport costs also make many forms of specialisation and trade less viable. They also push up the price of all consumer goods that need to be transported in some way.

  • Rising oil prices even increase the cost of drilling for oil, by increasing the cost of things like fracking fluids.

  • The United States is using economic sanctions to drive a wedge between the Eurasian countries (China and Russia) and the United States and Western Europe (I have explained this in more detail in Big Picture). Dividing the world market into separate domains in this way reduces opportunities for specialisation and efficiency, so costs and prices will inevitably rise on both sides of the divide.

  • Real estate prices have increased rapidly over the last few years. This raises the cost of factories and warehouses, which will push up the price of manufactured goods.

  • Rising land prices eventually feed to rising food prices.

  • Rising interest rates will increase the cost of capital expenditure, which will eventually feed through to the price of final productions.

Most of these increases are real economic effects so the additional cost will have to be carried by someone. Unless they are reversed, which seems unlikely for political reasons, the world will face a permanent increase in prices, that will increase the cost of living for everyone. The cost will have to be borne by everyone but the impact will vary depending on each group’s political and economic power. Governments will probably adjust welfare benefits to compensate, but that will put extra pressure on their budgets.

Workers will want an increase in pay to cover the increase in their cost of living. Businesses will face a squeeze on their profits as they face an increase in the cost of their inputs, a bigger wage bill, and bigger interest payments, all at the same time. Unfortunately, the increased costs that the world economy is facing are real, so one or other of these groups will have to bear the cost.

Some people will be able to push up their wages, but unions are not as strong as they were, so many people will find their wages falling behind. In industries where labour is scarce, employees will be able to get compensated and the owners will have to carry the additional cost. Some businesses will not be able to put up prices, because they face too much pressure from competitors. Some will fail altogether because the increasing costs of production place a bigger squeeze on their profits.

The economic and political pressure across the world will not be even. Some countries will fare better than others. Those that produce minerals and oil will do better, especially those who control easy-to-extract mineral and oil resources. Countries that rely on imported food will suffer the most.

The problem for the United States is that its crop production is heavily dependent on oil-based fertiliser and most of its cheap-to-extract oil has been used up. (The prices of fracking sand, fracking fluids and labour costs are rising relentlessly).

The economic and political changes currently underway will eliminate some productive capacity, so some people will be made worse off. In the 1990s, a massive increase in productive capacity across the world made everyone better off. In the same way, a worldwide decline in productive capacity will mean that many people miss out on something they were used to consuming.

A tit-for-tat struggle between business and labour could develop and create an ongoing inflationary cycle, as occurred in the 1970s, but more competitive markets will probably prevent it from happening. Central banks seem to have used up most of their capacity to inflate the economy, so they may not be in a position to fund a wage-price inflationary spiral.

I will cover the role of central banks in the next post.

Friday, April 08, 2022

Inflation (1)

All over the world, inflation is emerging as a serious economic problem. Some economic commentators are suggesting that we are seeing a return of the problem of stagflation that plagued the world during the 1970s and early 1980s. Fortunately, or perhaps unfortunately, I am old enough to remember the 1970s well, and the inflation we are seeing now is quite different from the problem that occurred back then.

The inflation during the 1970s was initially triggered by an oil shock (OPEC raised the price of oil from $5 dollars to $12 dollars a barrel), but it quickly became an institutional contest in which businesses and employees ratcheted up wages and prices. Businesses would put up prices because their costs were going up. Employees would demand an increase in wages to cover the rising cost of living (Unions were stronger in that season and would often strike to get the wage increases their members needed to maintain their standard of living).

This behaviour created a vicious cycle. Businesses would put up their prices. Unions would demand an increase in wages to compensate them for the rising cost of living. Businesses would put up their prices to cover the increased wages and other rising costs. Salary and wage earners would demand an increase in pay to compensate for the rising prices. The increases tended to get bigger and bigger and it seemed like this inflation could not be stopped. Of course, it was facilitated by lax monetary policy as politicians increased the money supply to help themselves get re-elected.

Most people did okay during this season, as they would get an increase in wages to compensate them for the increasing cost of living. I can remember a year when nearly everyone in New Zealand got a 15 percent wage increase. It seemed good, but we were no better off due to the rising prices of consumer goods.

Governments tended to adjust pensions and welfare benefits in line with the rising inflation. Interest rates were low during this period, so people who owned a house did really well because the rapid inflation of prices (including house prices) quickly wiped away the value of their mortgages. Of course, some people in vulnerable positions were not able to push their wages up, and they suffered declining real incomes. Some businesses were not able to push prices up quick enough to cover the rise in their costs and they folded.

The immediate cause of the inflation coming to an end was the appointment of Paul Volcker as Chair of the US Federal Reserve in 1979, a post he held for twelve years. Volcker squeezed the money supply by massively pushing up interest rates. This squeeze permeated around the world putting a dampener on interest rates everywhere. Tight monetary policy caused a serious recession, but it choked inflation out of the world economy. I can remember a period in the mid-1980s when interest rates on house mortgages reached 21 percent.

The more important cause of the long-term death of inflation was the increased globalisation of trade that began during the 1990s. Tariffs and import duties were removed all over the world, which allowed a massive increase in international trade. Increased trade increases the efficiency of production because it allows production to be shifted to the businesses and countries that can do it most efficiently. This increased inefficiency reduces the costs of production which led to declining prices for consumer goods.

Most of the people of the world benefited from the expansion of world trade. The people of China and South East Asia benefitted when industrial production was moved to their countries to take advantage of cheaper labour. Although they were paid less than the people they replaced, it was a big increase in income for them, and they gained access to a huge range of consumer goods. Of course, people in high wage economies suffered when they lost their well-paid work in industries that moved production to Asia. But even they benefited from the massive increase in the supply of cheap consumer goods from China.

It was the massive increase in international trade and the shift of industrial production to China that really killed the price inflation that plagued the 1970s and 1980s.

Inflation is appearing again, but the situation is totally different now. I will explain how in my next post.

Monday, April 04, 2022

Acts 1

Reading Acts 1, I am struck by the difference between what Jesus told the disciples to do, and what Peter got them to do. Jesus gave them a clear instruction.

Do not leave Jerusalem, but wait for the gift my Father promised, which you have heard me speak about. For in a few days, you will be baptised with Holy Spirit… You will receive power when the Holy Spirit comes on you; and you will be my witnesses (Acts 1:4,5,8).
Jesus gave a clear time frame. This promise would be finished within a few days. They would receive the fulness of the Spirit. Jesus had taught them that when the Spirit came, he would lead them into all truth. They would have a much clearer understanding of his will.

Peter did not wait for the Holy Spirit but instead organised a process to appoint someone to replace Judas. That seems odd, as Jesus had warned the disciples numerous times that Judas would betray him, but he had never told them that they should appoint someone to replace him. Jesus seemed to be happy with just eleven.

The disciples had two cast lots to decide which person to appoint (Acts 1:26). This was a legitimate method under the old covenant for discovering Gods’ will, but it would become redundant once the Holy Spirit was fully given. That was only a few days away, so wouldn’t it have been more sensible to wait until they had received the gift of the Spirit before making an important decision. Instead, Peter got them to use a method that would be outmoded under the new covenant.

The other interesting issue is why Peter wanted to fill up the number of Twelve apostles. Jesus had warned them not to take up positions of authority but to act as servants of the people. He warned that they would suffer for their loyalty to Jesus (Luke 22:14-30). When they selected a person to replace Judas, I wonder if they saw themselves as selecting someone to serve and suffer from Jesus. It seemed like they were more intent on preserving the privileged role of the twelve.

Peter thought it was important that the person selected had been with Jesus from the start (Acts 1:22, but he had already promised Thomas that many who had not seen the things he had seen would be blessed (John 20:29). Stephen, Philip and Paul had no trouble proclaiming the gospel, even though they had not been present at Jesus’ baptism.

And it seems that the Holy Spirit had already moved on. He was not limited to working with twelve people, as Jesus was, because he was a man. By that time, there were 120 believers gathering together to wait for the Holy Spirit and to pray (Acts 1:15). They all received the fulness of the Spirit a day or two later on the day of Pentecost. I am sure that the Holy Spirit sent (apostled) many of them out into the world to share the gospel and build the Kingdom of God. By the time of Acts 15:2, the church in Jerusalem was being led by "apostles and elders”.

Peter’s concern about maintaining the twelve was really a bit redundant, although Simon the Zealot still needed some to work with him in place of Judas (Matt 10:4, See Power Pairs). It seems that the tendency for an elite to guard a position of privilege for themselves was there right from the beginning.

Friday, April 01, 2022

Big Picture (2) Economic Shift

At the same time as this massive geopolitical realignment is taking place, a massive economic shift is occurring in parallel.

  • During the last thirty years, the shift of industrial production to low-wage economies, such as China and Eastern Europe, has produced an endless supply of cheap consumer goods that has flooded the entire world.

  • Cheaper consumer goods have allowed most people to maintain their living standards despite a sharp drop in real wages.

  • Lower production costs have eliminated inflation, allowing central banks to keep interest rates low.

  • Low interest rates have fuelled a boom in prices of assets, such as housing and shares, which has massively increased the wealth of the rich at a time when the poor are struggling.

  • Low interest rates have made it easy for households and governments to borrow, so debt ratios are now much higher than normal.

  • The globalisation of trade through container shipping and electronic communications has allowed a massive increase in the division of labour as work has been moved to where it can be done most efficiently. This has released a huge increase in productivity which has also contributed to lower prices for consumer goods (not higher wages for employees).

The golden season is coming to an end.
  • The people in low-wage countries are moving into the middle classes, so options for cheap production are disappearing.

  • National interest and sanctions are undermining the division of labour as nations attempt to become more self-sufficient. This will reduce efficiency and push up prices.

  • Inflation is becoming a problem all over the world, and it will get worse.

  • Governments usually control inflation by raising interest rates, but in the current environment, that will likely cause a recession in economies struggling to recover from covid.

  • Raising interest rates will push up the cost of government borrowing, exacerbating fiscal problems.

  • The combination of high debt levels and raised interest rates will make it difficult for governments to spend their way out of any recession.

Sanctions Push
The United States is speeding this economic transition by imposing economic sanctions on Russia and China. During the last three decades, the world benefited from the removal of tariffs and free international trade, but sanctions are doing the same job as tariffs did in the past to restrict trade. If these sanctions are kept in place, the world will be divided into two trade blocs: US/EU and Eurasia. The decline in free trade and the collapse of the division of labour will make most nations worse off as goods become more expensive to produce.

The United States has pushed Russia into an alliance with China. Many nations in the Middle East are being pushed in the same direction. The Eurasian continent is going to become an economic powerhouse by combining the benefits of Russian minerals and oil with Chinese industrial production (The Soviet Union did not have the benefit of Chinese productivity). A permanent trade barrier is being raised between the United States and its clients and the nations of the Eurasian continent.

The nations of Western Europe are going to be caught in the middle. They will have to decide between submitting to the United States dictates and their need to import from Russia and China the minerals and energy necessary for its industrial production and the consumer goods that people need to maintain their lifestyles during a season of serious inflation.

Nations in Africa and South Asia are also caught in this struggle. They will be pressured to choose sides, but most will remain neutral. Very few will give their full support to the United States.

Israel will continue to be an ally of the United States because it relies on its military, economic and political support in its struggle to destroy the Palestinian people. It will become the last bastion of United States power and influence on the edge of Eurasia. The surrounding nations will tend to be ambivalent to the United States and unwilling to submit to its dictates. (Egypt will realise that it needs Russian wheat more than it needs American weapons).

International Reserve Currency
Since the emergence of the Breton Woods financial system at the end of the second world war, world trade has been denominated in US dollars. Most nations held their foreign currency reserves in US dollars because they can be used quickly to buy goods anywhere in the world. An unexpected outcome of this need for US dollar reserves was substantial demand for US Treasuries that has allowed successive United States governments to run budget deficits without any serious consequences. The current value of outstanding treasuries is upside of $20 trillion dollars. This debt will probably never be repaid, so it has been a massive free lunch.

This advantage allowed the United States to spend money on overseas wars without having to worry about paying for them, because they knew that the nations of the world would buy any debt instruments issued to cover the costs. Indirectly, the nations of the world paid for American invasions into their regions.

This privileged position is now coming to an end as nations stop trusting in the United States’ integrity and the reliability of its currency.

  • In recent years, many nations have diversified their foreign reserves into other strong currencies.

  • The widespread adoption of floating exchange rates has reduced the need to hold foreign reserves to protect a currency peg.

  • Saudi Arabia has had an agreement with the United States since the late 1950s that it would only sell oil for US dollars in exchange for a security guarantee. This petro-dollar agreement significantly strengthened the role of the US dollar as a reserve currency. That agreement has now been broken due to United States hostility, and the Saudis are now negotiating to sell oil to China for Yuan.

  • The development of cryptocurrencies and digital currencies are providing alternative secure options for governments to store their reserves.

  • The United States has been shooting itself in the foot by freezing the reserves of nations like Russia and Afghanistan and pushing them out of the SWIFT system for international banking transactions. (The United States has just stolen $9 billion of Afghani reserves because it lost a war. It encouraged the UK to steel Venuzuela’s gold). It is unwittingly giving out the message that a nation’s reserves held in the US dollar might not be safe, if the current United States government gets a snitch against it.

As the role of the US dollar as the international reserve currency evaporates, the free lunch is coming off the menu, so in the future, the United States will have to pay its bills rather than just issue debt paper.

Outcome
The United States economy has been massively inflated over the last couple of decades. The various problems listed above could be the trigger that causes an implosion. This would seriously undermine the ability of the United States to project political, economic power in the geopolitical domain.

These economic headwinds will make life on earth more uncertain than we have been accustomed to.