Hyperinflation Watch, September 5, 2021 - Part 1

In this blog series, we will keep a running record of risks that could create hyperinflation. We then rate them according to our arbitrary scale. This is likely to be a monthly report.

Risk 1: Serious civil unrest – LOW, not imminent. To be clear - given the destabilizing events over the last year, unrest is an ongoing issue. However, for exactly that reason, it is unlikely that more unrest, while likely, can affect the currency given that unrest is now “normalized” for lack of a better word.

Risk 2: Petrodollar Collapse – HIGH, but not imminent. The biggest geopolitical story developing is the Saudi-Russian military cooperative agreement. This is highly significant in our view, but over the long term. We do not expect any changes in the short term, but the past year has taught us anything is possible. Immediately following the botched US withdrawal from Afghanistan, it appears that the Saudis are looking to develop closer ties to Russia and China. Combined with Biden’s failed appeal to the Saudis to lower oil prices, it is increasingly clear that the petrodollar is under pressure. The petrodollar is the key linchpin preventing instant hyperinflation – this is a key development to follow closely!

Some articles on this event:
1. https://www.rferl.org/a/saudi-russia-arms-weapons-/31425164.html
2. https://english.alarabiya.net/News/gulf/2021/08/24/Saudi-Arabia-Russia-sign-deal-to-develop-joint-military-cooperation

We will dig into this event in detail in future posts.

Gold-backed currency development – MEDIUM, potentially imminent in January 2022, but unverified claim. Another quiet story underway has 2 parts. First, a well-circulated rumor by a Mexican billionaire speculates that Putin was about to announce a gold-backed currency in April, but delayed it to allow the BIS to get its house in order. RT reported that Putin would soon come out with the most important announcement of the 21^st century, but he did not follow through, so we are left guessing. What lends this rumor credibility is that the Russians are known to have been interested in hitting back financially. Hank Paulson, former Treasury Secretary, stated that in the 2008 crisis, the Russians had asked the Chinese about dumping US Treasury bonds jointly to hurt the dollar. If true, would be highly significant.

The second part is market speculation of China targeting 2022 for a gold-backed digital currency. It is unknown at this time how well-founded this rumor is, but certainly this is one way out of a depression for China, given the Evergrande crisis now occurring. By converting to a gold-backed currency, China can instantly grant many of its own citizens extreme wealth in a global realignment. With that purchasing power, ordinary Chinese who have saved in accordance with government dictates, in gold, will be able to afford the fruits of Chinese manufacturing.

Part 2 coming tomorrow.