Confiscating Russian Assets Might Break the Dollar System
Weaponizing the dollar has unleashed a series of counter-measures that could bring down the Global Dollar System.
Good Day - The US Treasury and its European counter-parts are pushing hard to confiscate Russian assets held primarily in sovereign bonds and use them to fund the War in Ukraine. Similar actions are being taken to indirectly sanction China in the process. Doing so is potentially devastating to the dollar and the global financial system as constructed.
Some context is needed to understand why the US Government (USG) would embark on such a disastrous course of action:
For decades, the USG has been able to operate with asymmetric power - financial, military, and economic. Such power existed primarily because the world was still recovering from the devastation of WWII. A power vacuum emerged that the US filled: the world dollarized, Europe outsourced defense to the US, and for multiple decades the US economy was overwhelmingly dominant (peaking at 50% of Global GDP).
Unfortunately, such prosperity and power was not to last. A series of blunders led by financialization (1971), terrible trade policies (NAFTA), disastrous immigration policies (open borders) and successive costly wars all over the world, from Vietnam to Iraq, and the Balkans to Africa have severely weakened the US strategic position. We are now experiencing the consequences of such executive incompetence and grift.
The world has been changing rapidly since 2000 when China joined the WTO, Russia retrenched under Putin, and India, Brazil among other regional powers began to form economic blocks to thwart US interventionism in pursuit of economic nationalism.
Twenty years on, the theme of global affairs since 2020 has been Counter-Measures, something completely unexpected by US policymakers, a political class blindly implementing revanchist policies (Sanctions, Carrier-Diplomacy) that no longer work and are causing serious blow back.
Among the most dangerous of considerations to date is repurposing (stealing) Russian assets to fund the War in Ukraine. Such actions are causing irreparable damage to confidence in the dollar system and unleashing a series of counter-measures, namely de-dollarization.
While the dollar is in secular inflationary decline and the US financial system is structurally broken ("unrealized losses"), protecting the assets of foreign investors ($32T+ invested in USD denominated assets) is essential to maintain the US as the place to invest money and do business.
The rest of the world is building alternatives (CIPS, SGI) that render America's financial system and currency inessential. Asian bankers and Eurasian countries still prefer to use the dollar and US banks but weaponizing the dollar invalidates its benefits. Worse, as the world's leading debtor nation the US is in no position to spurn creditors.
Sadly, such vulnerabilities are ignored in DC and NYC. Truly, "pride comes before the fall."
Stay liquid, stay alert.