There was little to like in Donald Trump’s UN speech yesterday.  A tired rehash of half-truths, omissions and outright lies it ticked all the pro-US boxes, played to the peanut gallery and let everyone know that the new sheriff plays by the same old rules.

I spoke with a friend last night about Donald Trump’s UN speech and he reminded me that international politics operates on principles of mutual aggression because of the need to secure finite resources.

It sounds trite to remind everyone of this but it’s also important given the sheer intensity of the noise occurring politically every day.  Trump’s speech was an announcement to Russia, China and Iran that the U.S. would not go gently into that good night.

That our leadership would use everything at their disposal to fight to maintain position and leverage in the global race for the minerals, metals and hydrocarbons that will power the world economy for the next hundred years.

This is what Trump bombast boiled down to.

It was no different than Obama’s bombast or Bush the Lesser’s.

Russian President Vladimir Putin knows this.  Presidents change but the policy does not, in his words.

Because, when push comes to shove, no one in power believes for a second that trade and commerce are win/win arrangements.  When push comes to shove I will take the oil fields/mineral wealth and keep you from having it.

Insert Sam Elliott mustaches and milk shake references to your heart’s content.

This is the mindset of those that inhabit the corridors of power.  All talk about existential threats and defending allies is simply code for standard European colonial views on resource management and denial.

The rest is noise.

The U.S. is rightly threatened by the burgeoning power of the Russian/Chinese/Iranian alliance.  They are moving rapidly to integrate the Eurasian economy, including North Korea and make economic allies out of of current political enemies.

Putin’s already flipped Turkey.  Is South Korea on the agenda via the Belt and Road Initiative?

The race is on now to stop North Korea and Iran from completing their mutual outsourcing of their nuclear weapons programs before regime change by the U.S. is off the table.

We won’t allow a nuclear North Korea.  We’ve been saying this for fifteen years.

And, make no mistake, Trump spoke out of both sides of his mouth yesterday when it comes to regime change.  As long as you are a regime that the U.S. approves of you won’t be subject to our wrath.

How is this any different than any U.S. president of the past twenty years?

What? Because Trump is more of an enfant terrible than past Presidents?  And, so that makes his threats more serious than before?

The Dollar’s Achilles Heel

No.  It’s just Trump’s turn to implement the latest round of ‘Dollar Diplomacy’ at the point of the Pentagon’s shotgun.

Look, there’s no coincidence here that one day before the Federal Reserve announces it is reversing its decade-long experiment with QE Trump stands up at the UN and announces that “We’re all Neocons now.”

None.  Zero.

I told you last month he made a deal with them to 1) stay in power and 2) get parts of his domestic agenda through a hostile Congress.  This is the pinnacle of that deal.  The U.S. just declared financial and military war on all of those that would seek to either challenge or ignore its rule.

After a nine-month bear market the dollar will bottom here in the next few weeks and turn around.  The Fed is taking back what it gave the world.  There are trillions in new dollar-denominated emerging market debt just waiting to be squeezed by higher interest rates, tighter dollar liquidity and an emerging panic cycle in the European political sphere.

This is policy, folks.

This was always the plan.

Russia announced just before Trump’s speech that its ports would no longer accept the dollar in settling trade.  Putin just cut the world’s biggest exporter of oil and gas off from the dollar.

This is war.

I agree with Martin Armstrong that the volume of trade globally doesn’t compare to the volume of financialized capital that flows through the currency and bond markets.

exter's pyramid
Exter’s Pyramid of Financial Assets

I also think we’ve reached the peak of that ratio.  Russia and China are moving away from the dollar but it won’t matter until there has been a collapse in the value of all of the debt out there that’s inflating the prices of all the assets.

In short, Exter’s Pyramid can and will collapse.

That means that as all of that dollar-denominated debt explodes and/or is retired the dollar will not be as dominant a trade currency in the future as it is right now. That market share will never be recovered.

But, that’s not tomorrow or next year.  But, yesterday marked the beginning of the new policy.  Trump bent the knee, kissed the ring and put lipstick on biggest Gator in the swamp.

And the world now has its marching orders.

The Dollar Own Goal

This sparking off of a new strong dollar financial war will be the last time the Fed will be capable of waging it.  Think back to the 1997 Asian Crisis or the prelude to Lehman Brothers’ collapse in 2008.  It was this same thing– pulling back on dollar liquidity to destroy emerging market economies drunk on cheap dollar-based debt.

But, the problem this time is that we’ve been at the zero-bound for a decade.  We’ve hollowed out our middle-class and bankrupted our pension systems.  No amount of tax reform is capable of changing this.

And let’s get serious, there is no appetite in Washington to cut one real dollar of spending.

The banking system is infinitely less anti-fragile than it was in 2008, central bank protestations notwithstanding.

So, with the Trump / Yellen one-two punch we have the beginning of the next big wave up in the U.S. dollar.  The Euro crashed along with Gold.  Yes, the yield curve flattened slightly, but that won’t matter.

Higher rates are coming.

And that’s going to begin sending shockwaves around the world that have nothing to do with bombs in North Korea, earthquakes in Mexico or diplomatic shoe-banging at the U.N.

It will be as it always has been.  It will be about the money and the ability of the one country that controls the value of everyone else’s to maintain its iron grip through the pricing of oil and gas.

That’s what Trump was saying in his speech.  Russia and China listened, but they’ve heard this speech before.  Expect nothing to change and everything to get really scary from here.

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