I Agree With Putin on This One

A chance exists that today’s dispatch is a lie. 

Or it might be true on some level. 

Nevertheless, I share this story with you because every lie, by definition, hides the truth.  

On to the story, which begins a decade ago…in a woodsy suburb of Estonia, over apple cake and coffee. 

I’d landed in the Baltic nation to meet up with an elderly Soviet Politburo member and renowned economist who, after Estonia broke free of the USSR’s grip in 1991, helped his motherland design the Estonian currency, the kroon.  

He invited me out to his tidy little house. 

His wife was pulling the apple cake from the oven when I arrived. The place smelled of fresh forest and apples.  

Apparently, there was no ill-will between the new version of Mother Russia and its former satellite state, because as my interviewee told me with a flourish of the hand “the Russian central bank calls me all the time.” 

The “why” is ultimately what the dispatch is all about. 

The Russian central bank wanted his help building a commodity currency.  

Russia is packed to the rafters with all kinds of industrial and consumer commodities—from wheat to gold to oil, gas, diamonds, copper, platinum, iron, and on and on. 

In a world of fiat currencies, and where one fiat currency rules them all—the U.S. dollar—the Russians recognized that if they could build a hard currency, one backed by mountains of very real, hard assets, they could undermine the greenback’s structural supports “and probably kill the dollar,” the Estonian economist told me. 

“But China keeps telling Russia, ‘Not yet. It’s too early. Be patient.’” 

I am not sure what happened to that economist. He was in his 70s when I spoke to him, and I’ve lost touch with him over the last decade. But he came to mind this week for one reason—this headline: 

Vladimir Putin Slams Western Monetary Policy, Predicts Global Shift to Commodity Reserves 

Now, to be sure, this could just be the rantings of a global leader angry that the West has shoved him and Russia into the penalty box because of his unwarranted and ill-advised invasion of Ukraine. Maybe he’s just lashing out irrationally like people do when they’re livid, backed into a corner though decisions that are entirely their own fault. 

That said, Putin made a salient point at the St. Petersburg International Economic Forum Plenary last week: 

A conversion of global reserves will begin … They will be converted from weakening currencies into real resources like food, energy commodities, and other raw materials. 

I do not regularly agree with Putin. However, in this case I think he’s more right than bombastic. 

Western money supply has exploded beyond all rationality. The pandemic saw the U.S. and Europe, among others, dump historic amounts of cash into the system.  

I’ve noted this fact before, but 81% of all the U.S. dollars in existence today are only about two years old. That is an unhealthy and unprecedented increase in the amount of dollars zipping through the global economy. 

Even before that, though, the West had been continuously pouring money into the system to shore up sharply slowing economies and to paper over financial cancers that should have been allowed to follow their natural course.  

Now here we are, facing the worst bout of inflation in 40 years. We face the prospect of a recession. And there is no easy fix to these troubles.  

Raising interest rates is like a doctor telling you to treat gangrene by taking some baby aspirin. 

Like I said, maybe the purpose behind the dispatch—Russia’s push for a global hard currency—is a lie. 

But the rationale for that lie is 100% accurate.  

The West is in trouble. Rampant inflation hints at that. The vast sums of Western debt that now exist and the vast sums of Western currencies flooding the global economy also hint at the underlying cancer. 

I’m not saying, “Listen to Vladimir Putin.” But I am saying think about the points he makes outside of a Russian context…because they’re accurate. 

This just tells me that the commodity super-cycle I’ve been talking about for a year now is alive and well, and has a big uptrend to come.  

And it tells me that gold, more than at any other point in the last century, is very likely to prove its mettle as the currency of last resort when a fiat currency either collapses or is forcibly restructured later this decade. 

Silver, too. But more on that later…