Does the following chart look familiar to you?
Yeah, this is from 2022. So you might say, “it was just a temporary event in 2022. The inflation is getting lower, and a lot of the global economies are coming towards soft landing..”
We disagree. We believe that the importance of the global commodities market will escalate for the next 20 years, if not 50 years and will be the key deciding factor of the global economy.
Here are our three reasons:
The globalized world trade is no longer accessble
The global economy has fragmented ever more since the 1950s, with rising restrictions inhibiting free trade of assets worldwide. Rising tensions between the US and China over major technologies critical to each economy has resulted in sanctions over companies that are critical to each others’ economies and further technological development. Some analysts debate whether recent trade restrictions amount to a strategy of complete economic decoupling, a harbinger of a decline in trade. The Dollar regime alongside the US military dominance is being questioned, accelerating multi-polarity.
Some bold claims would be:
When this happens, global trade would be in complete paralysis. Specifically, global trade would be in chaos on two levels. First, global commodities trade would be fragmented into the US allies trading block, Chinese ally trading block (and possibly neutral trading block). Considering that China has been expanding its mining investments for the last 15 years along with its Belt and Road initiative, China controls 45% of the global strategic raw materials in 2021.
Global trade would be fragmented geographically, just like it did right between the First and the Second World War. Second, the global commodities market would be void of a settlement currency. Without a dominant world reserve currency that dollar once enjoyed a status of, producers (or buyers) would be unwilling to be paid in the currency from the other side (i.e. Chinese traders would not receive US dollars and US traders would not receive Chinese Yuan).
American dominance is no longer a given
Look at Hamas’ attack on Israel. Look at the Ukranian war that was predicted to end in the first three months.
<aside> 💡 Free, efficient markets, in general, require a World Power who lays out the trading infrastructure that supports the legal/financial engineering involved in trading–which was luckily provided without much friction for the last 70 years by the US–but not anymore.
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These factors include
Moreover, such world order was possible for two main drivers:
Such drivers are fading away both internally and externally from the US, and at the same time the US’ strategic focus is shifting over East Asia and the semiconductor industry.
Commodities will elevate its position as a “unrivaled reserve” of a future currency
Zoltan Pozsar writes in his writing Bretton Woods III:
“…you pay with dollars for commodities and the Fed and private banks (G-SIBs) police the par, interest (and bases), and foreign exchange aspects of the nominal side of the commodities trade, while sovereign states police the legal and military aspects of commodity trades so that shipping companies and commodity traders can move tonnages around.”
Although with certain assumptions, Zoltan draws parallel between the global dollar economy with the commodity market. One thing he did not consider in his piece is that creating new type of world currency that is linked with the global commodity market has become easier than ever, with blockchain infrastructure and turing-complete smart contracts available from anywhere on earth.
Henry Kissigner on World War III
Henry Kissinger explains how to avoid world war three
Petro-dallar is undergoing stress points