James Rickards on the Future of the Dollar
James Rickards, a well-known financial commentator, recently gave his insights on the potential threats to the U.S. dollar. He made these comments in light of Janet Yellen's speech at the 2024 U.S. Treasury Market Conference in New York. Yellen discussed the risks in the banking system and the U.S. Treasury debt market.
Yellen's Remarks on Presidential Transition
In an interview with Politico before her speech, Yellen was asked about the potential risks related to a smooth presidential transition in the current election cycle. This question was based on the assumption that Donald Trump, whether he wins or loses, might make the transition process challenging.
Yellen responded by emphasizing the importance of a democratic system and the rule of law for the stability of the financial system. She subtly suggested that Trump's actions on Jan. 6, 2021, and potential similar acts on Jan. 6, 2025, could pose a threat to the rule of law and the financial system's stability.
Yellen's Role in the Treasury Department
Rickards argues that Yellen is using the Treasury Department to discredit Trump by suggesting he is a threat to the financial system and the Treasury market. He believes this is part of the Biden-Harris administration's "all of government" approach, where all departments and agencies are expected to advance the White House's top priorities, regardless of their relevance to the issue at hand.
Yellen's Threat to the Treasury Market
According to Rickards, Yellen herself is the greatest threat to the Treasury market due to her persistent and illegal efforts to seize $300 billion in U.S. Treasury securities owned by the Central Bank of Russia. This move has accelerated efforts by the BRICS (Brazil, Russia, India, China, and South Africa) and the Global South to establish a new currency linked to gold. This new currency could initially compete with the dollar in global payments and eventually rival the dollar as a major global reserve currency.
The BRICS Currency
The BRICS leaders' summit, hosted by President Putin in Kazan, Russian Federation, on Oct. 22–24, is expected to make significant advancements towards this new currency. The summit will announce new members, which is crucial for launching a viable payment currency.
However, the transition from a payment currency to a reserve currency is more challenging. It requires a large, liquid bond market surrounded by extensive transactional and legal infrastructure. The U.S. Treasury securities market currently fulfills these requirements, but a potential BRICS bond market does not.
U.S. Rule of Law and the Price of Gold
The U.S. is potentially undermining its rule of law advantage with sanctions on Russia, freezing of the Central Bank of Russia's assets, and efforts to convert these assets into a loan to Ukraine. This behavior is making countries cautious about holding large U.S. Treasury note reserves, which may be contributing to the recent rally in the price of gold.
BRICS Summit and the Rise of Gold
The upcoming BRICS summit in Kazan is expected to announce significant progress in establishing secure payments channels and admitting new members. This will bring the group closer to launching a currency union.
In addition, Yellen's efforts to seize U.S. Treasury securities from Russia are driving the price of gold to new all-time highs. Central banks have been net buyers of gold since 2010, but the pace of gold buying has increased as the U.S. rule of law begins to crumble under policymakers like Yellen.
Bottom Line
Rickards argues that what began as a political tactic to defeat Trump has turned into another factor contributing to the downfall of the dollar and the U.S. Treasury market. This is another example of short-term, self-defeating thinking by the White House and the U.S. Treasury.
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