Many years ago, I was in Kenya looking at oil prospects in the Great Rift Valley. The Valley is geologically similar to Saudi Arabia and to this day, is one of the best, underexplored oil fields on earth…
Somewhere around there, I found myself talking to a small coffee farmer named Abebe, who was thrilled to learn that global coffee prices had surged due to a drought in Brazil. Brazil is the world's largest coffee exporter.
Abebe told me that he had expected his crop would earn a great deal of money that year. However, when he went to sell his beans at the local market, he was disappointed because the Kenyan Shilling had dropped in value against the U.S. dollar.
The young farmer discovered that the price of coffee is set in U.S. dollars on the New York commodities exchange. The dollar has strengthened against the shilling, so even though the dollar price of coffee went up, it didn’t translate into wealth for Abebe.
Aside from road kill giraffes, this was the big idea I brought back from Africa at the time. It reinforced the idea that the dollar was all-powerful. The greenback is everything and everywhere.
Over 60% of the world's foreign exchange reserves are held in dollars. Most commodities like oil, gold, and coffee are priced in dollars. There are 66 currencies tied to the dollar through a formal peg or countries simply using the U.S. currency as their own.
Of course, the dollar is backed up by the full faith and credit of the U.S. government, and by this, they mean the 11 nuclear-powered aircraft carriers of the U.S. Navy.
The Beginning of the End
Peter Ziehan wrote a book a few years ago called The End of the World is Just Beginning. In it, he argued that the global order is defined and defended by the U.S. and its navy, whose primary goal is to keep the sea lanes open.
However, the U.S. is only dependent on world trade for 15% of its economy, and most of that is with Mexico and Canada. Ziehans's main idea was that the reason for free global trade and NATO died with the Soviet Union 30 years ago.
It was all an expensive artifice to build a coalition of the free world against the communist block. And now that that world is over, at some point the U.S. will no longer want to care about nor wish to fund its global police state.
Donald Trump sees this and is accelerating the process. Recently, the Chinese Navy circumnavigated Australia. And the Houthis have been shutting down shipping in the Red Sea for years.
The question you have to ask is how much longer free, unencumbered trade will happen. How long will it be economically feasible to ship West Virginia coal to China in exchange for trinkets and geegaws?
Two months ago, a dollar and two cents would buy you a euro. Today, it costs a dollar and nine cents. If it keeps falling, silver, gold, and other commodities will go up in value. Silver grinded out another 2% gain today and hit $33.03 an ounce. In a few more good days, it will break resistance at $34.83. When we clear that it is off to the races.
All the best,
Christian DeHaemer
Outsider Club
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