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King Dollar Paradox: Global Reserve

August 30, 2019

An intriguing paradox is evident, whereby the USDollar continues to rise despite the global economic recession. In fact, it can be argued that the USDollar is rising in the past several months, because of the global recession. On a worldwide basis, the economy is struggling badly, especially in the West. Worse still, without a doubt, the rising USDollar is destroying the individual economies of smaller nations, one by one. The King Dollar is truly an economic machete. Numerous factors are at work. All contribute toward the continued rise of the USDollar until the systemic breakdown hits both the economy and the financial system. The sign of systemic breakdown is the bond rally, which has taken bond yields into negative territory. Nobody with a working cerebrum can claim that $17 trillion in sovereign bonds sporting negative yields can defend the current system as either normal or stable. The Fed Valuation Model justifies higher stock index values when bond yields are lower, but the model has no modern feature for negative rates. Eventually, and soon, the only beneficiary will be Gold & Silver, along with a few hard assets like diamonds.


The USDollar paradox rules. The USDollar will continue to rise with the global recession, due to reduce trade payment volume. Numerous nations are under tremendous strain, due to the decline in their native currencies. Their entire cost structure has risen. Battles with grand friction will be seen in frontier zone nations.

To comprehend the rising USDollar phenomenon, it is best to think in terms of the other currencies, since a paradox. This is especially difficult for residents of the United States. The leading trade item on a global basis is crude oil and energy supplies generally. Close behind is grains and a variety of commodities. Due to the pervasive economic recession, the result is much less USDollar volume in trade payments. Thus, foreign currencies are seeing much less demand from lesser global economic activity. With less demand for other currencies, the USDollar rises in turn, and the cycle continues. It is an intriguing paradox. Less trade with USD on the buyer side, thus less demand for foreign currencies across the entire spectrum. The energy market is the leading arena. The tangible effect of a higher USDollar is reduced export trade by US companies, which extends the vicious cycle. Foreigners demand less of US products, since higher priced. The high USD valuation has priced out many US export products, even export services. Simply put, in the last two or three years, there has been a diminishing volume of USDollars bidding up foreign currencies in the global markets, resulting in the King Dollar going even higher, and thus damaging numeorus national economies, medium sized and small especially. Therefore, the foreign currencies have fallen in valuation, from the lower bid in global trade.


The USDollar paradox rules. The USDollar will continue to rise with the global recession, due to reduce trade payment volume. The newly evolving energy market trend for the last few years has been less USD-based trade. The Russia-China Holy Grail project, started in 2015, valued at $230 billion, has resulted in an enormous energy flow. But none of it is based in USDollar trade. Even the pipeline construction was paid in large part by means of USTBond dumping, called Indirect Exchange. Then the Saudis since 2018 have been secretly trading in RMB terms, selling oil to the Chinese and accepting their Yuan currency. Proof is found in the ARAMCO financial statements, a required element for their London bond issuance. Next on tap is Iran, which continues to defy the Washington crew. The Tehran officials have found a friend in Germany for managing the non-USD oil trade. Their INSTEX payment system will serve as yet another workaround to the USGovt sanctions. The oil trade will continue outside the USD control room. Worse still, Russian President Putin has discovered a large Achilles Heel. He has latched onto the INSTEX facility, encouraged other nations to join, and will create a parade of participating members. The result is a true Wall Street nightmare.

The oil payment standard for Europe will become the Euro currency, and no longer the USDollar. Nations like Venezuela have received some liquidity aid from the Russians, who have been buying their heavy crude oil, managing the blending function, while providing Caracas with urgently needed cash liquidity. The result here too is more non-USD oil trade. Two points to make. First, the lower US oil needs from the profound economic recession, has resulted in lower payments to foreign countries. Think less foreign currency demand. Secondly, the sharply reduced energy trade in USD terms has resulted in a lower oil price. Within the confines of the Petro-Dollar derivative complex, a lower oil price pushes up the USDollar. The boomerang is brutal to the big US Banks, which desperately need a higher price to sustain their losing venture in the shale sector. It has been operating at a loss for the last three years, soon to show bust.


The USDollar paradox rules. The USDollar will continue to rise with the global recession, due to reduce trade payment volume. Since 2015, the Belt & Road Initiative has been a major pet project by China. It has been a resounding tremendous magnficent success, much to the chagrin of the Anglo-American masters of global commerce and money. If truth be told, much of the financing for the multi-$trillion cornucopia of projects is being done in USTBonds, from dumped bonds in Indirect Exchange. They had been held in reserve by China. The number of participating nations in the BRI is stunning, well over 100. Most are in the East, but not all. It has been reported that in the first six months of 2019, a robust $600 billion in trade payments has resulted from the entire collection of BRI projects. They are in progress, in motion, and working as gears in the global economy. The Jackass calls it the nucleus of the Global Economic RESET. The entire trade is non-USD. The virtuous cycle of USDollars chasing foreign currencies is ending. Within the vast array of BRI projects, the only USD trade visible is the systematic dumping of USTBonds, used to finance the construction of the new non-USD roadways, railways, bridges, ports, and waterways.


The USDollar paradox rules. The USDollar will continue to rise with the global recession, due to reduce trade payment volume. As the isolation of the United States grows worse, the bond market shows itself to be a corrupt arena. The US-based pension funds and mutual funds, even managed private equity funds, conduct considerable bond trading activity. But it is all from USD demand from USD funding. Thus no effect is seen on foreign currencies. Surely a big factor in keeping the USGovt debt securities in equilibrium, the vast derivative machinery provides fabricated bond demand. Again, no effect is seen on foreign currencies. The US bond market has become an isolated corrupt casino, for all the world to see. A massive $22 trillion debt, with a gargantuan $1.3 trillion annual deficit, garnished by a fabulous $20 trillion stolen funds figure, all contribute to a crime scene image. Foreign demand for USTBonds is low, actually almost nil, like a global strike. The US bond market does not figure any longer into the valuation of foreign currencies. The market is a whirling dirvish, a daisy chain, a spinning roulette wheel of the most unspeakable financial corruption the modern world has ever witnessed. The USDept Treasury is the major buyer of USGovt debt.


The USDollar paradox rules. The USDollar will continue to rise with the global recession, due to reduce trade payment volume. The USEconomy is in terrible shape, stuck in a multi-year recession. The USGovt continues to lie about the price inflation, with the CPI perhaps 6% to 8% higher. Therefore the USEconomy GDP is 6% to 8% lower in growth, as in minus 4% to minus 6% for growth, amazingly. Such miserable conditions have persisted ever since 2008, with no improvement. Reality of a chronic multi-year recession is a bitch! Imagine all the imported products that the Americans are NOT buying, as they suffer household budget distress. The Americans buy less from many countries, thus less demand given with USD in hand for their currencies. The result is that these foreign currencies all go down, and the USDollar goes up in response.


People must think in terms of Supply & Demand, not in terms of strength of economies or any logical concepts like debt volume or even bond demand. Most USTreasury Bond demand comes from inside the USDept Treasury, in house. It is pure self-dealing. The US is stuck in grotesque isolation, with the victim being foreign currencies. The USDollar will go up and up, and cause severe problems. Eventually, like in the last 12-18 months, it has caused the birth of Dual Universe with the USD vs RMB in direct confrontation with global trade. Actually the confrontation has extended to global investment, like in large scale projects. Next the grand battles will be fought in the FOREX market, the Gold market, the Oil market, and for colonies of strong support. In addition, big constant battles will be fought in the frontier zone nations where the USD and RMB are both used. Refer to Germany, Iran, Saudi, Gulf emirates, and Eastern Europe. The battles will be volatile and replete with friction in full view.

The high value of the USDollar bears no reflection upon any strength of the USEconomy or strength of the US financial system. Its high valuation is a direct reflection upon the weak global economy, the poor trade payment flow, the numerous weakened economies, and the vicious cycle therein. The supposedly strong King Dollar will continue to wreck the global economy and to destroy the global financial structure. There is no interruption in the vicious cycle, nor any benefit except to force the birth and implementation of the Gold Standard. The magnificent bond market crisis will usher in the Gold market price explosion.

With each successive round in global economic weakness, seen from lower foreign currencies, higher domestic prices within their damaged economies, the King Dollar seeks a higher value. The cycle is not well understood by Western economists. In fact, the Jackass has come to conclude that the economists almost never notice vicious cycles from policy change or market change. The King Dollar will work efficiently in wrecking the global economic and financial structures, forcing the arrival of the Gold Standard, riding in on a white horse. The calls for a Golden Solution have begun to be heard. The powerful historical US bond market crisis will blossom further, and force the issue of installing the Gold Standard. Then finally, to seek equilibrium, to seek a structurally sound new system, the Gold price must be over $5000 per oz in price, and closer to $10,000 per oz, all in time. The Silver price must be over $100 per oz in price, and closer to $200 per oz, probably higher, all in time. It is said; it will be done. Buy physical Gold & Silver, in bars and coins. Avoid paper forms, especially the Exchange Traded Funds designed by the same banker crowd to undermine the physical prices.

Imagine the safe haven for the bond market being the burning building known as the USTreasury Bond complex. HOW LUDICROUS!! The occupants of the bond complex will seek gold, but only when they awaken to reality of debt impairment, debt eruption, debt corruption, and debt default. Gold has no debt counter-party risk. Gold is the true safe-haven, and always has been, except for the last heretical corrupted, if not moronic century.


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Jim Willie

Jim Willie

Jim Willie CB, also known as the “Golden Jackass”, is an insightful and forward-thinking writer and analyst of today's events, the economy and markets. In 2004 he launched the popular website that offers his articles of original “out of the box” thinking as well as content from top analysts and authors. He also has a popular and affordable subscription-based newsletter service, The Hat Trick Letter, which you can learn more about here.  

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Jim Willie has experience in three fields of statistical practice during 23 industry years after earning a Statistics PhD at Carnegie Mellon University. The career began at Digital Equipment Corp in Metro Boston, where two positions involved quality control procedures used worldwide and marketing research for the computer industry. An engineering spec was authored, and my group worked through a transition with UNIX. The next post was at Staples HQ in Metro Boston, where work focused on forecasting and sales analysis for their retail business amidst tremendous growth.

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