Bitcoin Unlocked
Bitcoin Unlocked
Bretton Woods III - A Major Inflection Point
0:00
-6:39

Bretton Woods III - A Major Inflection Point

Good Morning Everyone,

As commodities continue to surge in an unprecedented way, Credit Suisse released a paper on Saturday titled Breton Woods III which highlights that we are at a major inflection point as the changes to the world order appear to accelerate.

At the heart of this shift is the conflict between Russia and the US, and the actions taken by the US to apply extreme sanctions in response; but it’s important to understand that those events are merely symptoms, and not the cause. The cause is a broken monetary system, which is fundamentally a breakdown of “geo-trust” in the US dollar-backed system.

To first give you some perspective on how extreme the moves in commodities are lets look at a couple of charts.

Gold - Up 15% in 2022

Oil Up 66% (in 2022)

EUR Natural Gas (Dutch Futures) up 220% this year, and over 5700% in the last 2 years. (THIS IS NOT A TYPO!!)

Wheat up 74% (in 2022)

Nickel - Up almost 200% (in 2022)

These are absolutely incredible moves and they demonstrate the wild instability in global commodity markets right now.

Now that you have a bit of a feel for how wild the current moves are, lets get into the article from Zoltan Pozsar at Credit Suisse:

The article begins as follows:

“We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.

A crisis is unfolding. A crisis of commodities. Commodities are collateral, and collateral is money, and this crisis is about the rising allure of outside money over inside money. Bretton Woods II was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia’s FX reserves…”

Lawrence Lepard discusses this crumbling of the foundations in the clip below and articulates the situation with clarity and the advertisement for state-less money as he puts it, as a result of the weaponising of the monetary system for political reasons.

Pozsar goes on to lay out his thesis - that in prior crisis the US fed has been the backstop, but this is no longer possible given that western nations are the ones imposing the sanctions.

“If we are right, and if this is a “crisis of commodities” – a 2008 of sorts thematically, if not in terms of size or severity – who will provide the backstop?

We see but only one entity: the PBoC!

Western central banks cannot close the gaping “commodities basis” because their respective sovereigns are the ones driving the sanctions. They will have to deal with the inflationary impacts of the “commodities basis” and try to cool them with rate hikes, but they will not be able to provide the outside spreads and won’t be able to provide balance sheet to close “Russia-non-Russia” spreads.”

If their thesis plays out, when we look back at history, this is likely to be the inflection that marks the end for the US dollar as the global reserve, and the rise of the new world order born of a Chinese-driven commodity backed monetary standard. Wild.

The US is trying to hurt the Russian Government by applying sanctions and freezing assets, but in many ways, this is accelerating a move away from a monetary order dominated by the US.

It is sending commodity prices through the roof, disrupting global trade, will force further devaluation of the USD and is likely to significantly accelerate inflation and make it very difficult for the US fed to hike rates - many analysts had priced-in 7-8 hikes in 2022 which now seems unlikely .

The article finishes with the following:

“The Fed and other central banks will be able to provide liquidity backstops… …but those will be Band-Aid solutions. The true problem here is not liquidity per se. Liquidity is just a manifestation of a larger problem, which is the Russian-non-Russian commodities basis, which only China will be able to close.

Do you see what I see?

Do you see inflation in the West written all over this like I do?

This crisis is not like anything we have seen since President Nixon took the U.S. dollar off gold in 1971 – the end of the era of commodity-based money.

When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities. From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities).

After this war is over, “money” will never be the same again… …and Bitcoin (if it still exists then) will probably benefit from all this.”

This is an absolutely mind blowing piece to read in all honesty. I recommend you take the time to check it out yourself obviously to capture the full detail of his thesis.

Many bitcoiners suspected and theorised for years that in the event bitcoins price rises to insane levels, it likely does so along side major problems in the world - which none of us really want to see.

Part of the challenge here from my point of view, is to accept reality as it is. Instead of how you would like it to be. Accept the mechanics of what is taking place in real-time and avoid overlaying our biases or preferences over how we perceive the world.

That last line is going to be ringing in my head for days though.

“After this war is over, “money” will never be the same again… …and Bitcoin (if it still exists then) will probably benefit from all this.”

While this situation has clearly woken governments to the fundamental and pivotal role of energy within our lives, and i don’t discount the potential for a commodity-backed monetary system to be installed; I don’t see how this fixes the underlying need for trust. And it doesn’t look like we’re moving toward a world where Geo-Powers trust each other more. It appears to me to be a far more adversarial world.

Are we really going to go back to trusting what another country has in reserves because they say so? Are we really going to underpin a global monetary system to commodities that take weeks to ship around the world?

I just don’t see it. Whether or not that perspective is accurate however remains to be seen i suppose.

Obviously no one can predict the future, but the writing is on the wall right now. We are living through the most significant economic war of our lives, and most still have not grasped how significantly the fundamentals that unpin our way of life are being disrupted from energy to food, and everything in between.

After what we’ve seen recently from western nations, If you trust still your government to protect your wealth you deserve to lose it.

Get educated. Custody your keys.

Hope you have a great day and i will speak to you tomorrow.

AK

0 Comments
Bitcoin Unlocked
Bitcoin Unlocked
A daily letter about bitcoin & the future of money
Listen on
Substack App
RSS Feed
Appears in episode
AK
Recent Episodes
4:55
  
10:38
  
8:36
  
4:22
  
4:28
  
4:47