There is a big party going on in Russia. BRIC countries, along with Central Asian countries, are sitting down to talk over their problems.
Their number-one problem is that they have a lot of U.S. dollars. China has $800 billion or so. Russian has around $300 billion. According to Bloomberg, “The BRIC countries have combined reserves of $2.8 trillion and are among the biggest holders of U.S. Treasuries.”
These countries have a hard job. If they talk down the dollar by saying that they are moving to other currencies, the value of their dollar holdings will drop. If they do nothing, the U.S. will put a turbo charger on its printing presses and devalue the dollar that way.
Russia Talks Up the Dollar
On Saturday, Alexei Kudrin, Russia's finance minister, told reporters at the “G-8 meeting in Italy that there was no near-term alternative to the U.S. dollar as the world's leading reserve currency.”
This sent the dollar spiking up as you can see on the chart below.
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Russia Talks Down the Dollar
Today, perhaps thinking they were talking to a different audience, Arkady Dvorkovich, Russian President Dmitry Medvedev’s top economic adviser, told reporters that Brazil, Russia, India and China are thinking about switching out of U.S. dollar-based assets and buying each other’s debt. Medvedev also called for new global reserve currencies to complement the dollar.
Which sent the dollar back down… All of this is political posturing. As we speak China is scouring the world to buy up every type of hard asset it can find. It is trading dollars for iron ore and copper, oil companies and gold mines.
According to the Chicago Tribune, “Since crude oil and other commodity prices plunged last year – oil tumbled from $147 last July to nearly $33 in December – China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.”Russian just got over a currency crisis of its own, saved by the fact that oil bounced back up. It’s hardly in a position to point fingers.
The U.S. is committed to printing money and monetizing debt. China, Russia, Brazil and others need the U.S. to buy their stuff and import their oil. So, they won’t chop the U.S. off at the knees.
What I do know, is that in the lender/borrower relationship, the lender sets the rules. The dollar might bounce for a week or so, but its long-term trend is down.
I also know that in times of currency uncertainty, you should invest in hard assets. And the best place to put your money is in small-cap gold mining stocks. I have four that should go up more than 1,000% over the next few years. As a bonus, they all trade in the U.S. Learn all about them in my Free Special Report.
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