The TreeceCo Report
By David Treece
Recently I spoke to a man whose parents had migrated to America as Christian refugees from Russia. I asked for his impression of Russia's economy compared to that of the U.S. He explained that Russians are accustomed to difficult times but Americans are not. So when things are less than ideal, Russians know they can make it through but Americans have only known prosperity.
The generation of Americans who were children during the Great Depression has mostly died. They were the last generation of Americans who understood what truly doing without was like. One of the major reasons America has seen prosperity during our lifetimes is because of America's favored trade status.
After World War II, the world's nations formed the Bretton Woods System, which established how countries would interact monetarily and set the rules for trade. At this point it was determined that the United States dollar was the most stable and reputable currency for international trade.
When China wants to trade with Russia, these countries use U.S. dollars. If America trades with Russia, we do not have to convert our currency, therefore it is cheaper for us to trade. Other countries must pay a fee to convert their currency. America saves billions of dollars each year because of our favored trading status.
Last year China called for the "de-Americanizing" of the world. Essentially this means that the dollar should be removed as the world's reserve currency. A collaboration of countries referred to as BRICS have united to begin trading amongst themselves.
This week China's central bank stated that it would directly trade with the European Union, cutting out the need to convert to dollars then to the yuan or euro. This is significant because it is another sign that China will be halting its use of the dollar as soon as possible. Most believe that as soon as the yuan is backed by gold, China will completely remove itself from the dollar.
Even the most optimistic observers must realize that trade with China will become more expensive, but we must also realize that China and Russia do not want America eliminated. They both need America's resources. When President Obama stated that he wanted to "fundamentally change America," the BRICS countries lined up to accommodate his request.
While the American government has worked to suppress the precious metals market to prop up the dollar's value, it has afforded China the opportunity to buy gold cheaply to further extend its goal of backing the yuan with gold. The dollar has lost significant value since 2008, when the Federal Reserve began creating trillion of dollars, commonly referred to as quantitative easing. Inflation must necessarily increase.
The combination of the dollar slowly losing its reserve status and inflation drastically increasing makes owning precious metals a no-brainer. Plus the suppression of precious metals pricing makes for an opportunity to buy that will not be seen again in our lifetimes.
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