On Power and its Paradigm Shifts
Resiliency and adaptability are keys to thriving in a changing macro world.
This submission first appeared for The Prospector News in the summer of 2024.
One thing about power - like the physical state of energy, power is never completely destroyed, only transferred or consumed. As is the case of power vacuums created after the downfall of empires or independent nations, the power that becomes available is either swallowed up by the nation who overcame the other or distributed piecemeal to regional neighbors and rival entities. The power of the Western hegemony, led by the United States, may be waning or diminishing; but that does not mean the power made available simply vanishes - it also does not mean that the power automatically shifts to the immediate rivals in the East. The web of global geopolitics often means something other than an A to B conveyance. De-dollarization does not necessarily mean the USD is headed for collapse or serious debasement. One who surmises this due to current forces alone is simply reacting in a very linear way, rather than thinking proactively and with the understanding that the United States still carries great power and can re-purpose the USD to avoid serious currency issues in ways not yet conceived.
In the 1970s, the USD was under serious stress due to rapid swelling inflation from increased currency supply and de-attachment from the last vestiges of the Bretton Woods Agreement. The oil crisis during the same period, and increased conflicts in the Middle East, saw a mini-power vacuum open up as Eastern influence began increasing in the region. Iran’s power began to rise as well (as similar to today’s current events) and challenged Western influence over Middle East geopolitics and diplomacy. The Hunt Brothers, in an attempt to proactively protect themselves from what they saw as a clear path to USD hyperinflation and the power of the West crumbling, began purchasing large amounts of physical silver as they viewed the historically monetary metal as undervalued and a safe haven from fiat currency collapse. However, in actuality their move was reactionary and not fully evaluated; to make matters worse, their move became all-in, as they used large amounts of credit to buy the silver rather than money from their own pockets. What they failed to consider, and what many people fail to consider in the current day, was the ability of the US government to achieve a solution for their urgent currency woes. The petrodollar agreements of the 1970s and 1980s once again cemented global demand for USD by way of OPEC and oil being purchased and sold in dollars, in exchange for American military protection in the Middle East, mainly with Saudi Arabia, Kuwait, Bahrain, and Qatar. This stabilization and agreement certainly saved the USD and prevented its demise, continues to be a main driving factor for dollar demand to this day, and ultimately proved the Hunt Brothers incorrect in their premise (at least in 1980). The bottom line is, never underestimate a government’s ability to circumvent or bypass what looks from the outside be certain defeat, especially when that government represents the world’s only superpower.
Looking to the present day, we see many, many voices pronouncing the doom of the USD and its seemingly inevitable downfall. While current events and affairs around the world certainly do not bode well for its outlook, this does not mean a turnaround is possible or a solution invented in a way that is not foreseen. One of the avenues to which this could be accomplished would be renovation of the global USD demand by way of investing, financing, and endorsing regions of the world that are currently undervalued but play a large role in the future of the resource sector. Like with oil and the Middle East in the 1970s, the large number of metals and minerals located in Latin America and Africa make for a prime USD expansion opportunity, and the resource wars in some parts of Africa have already begun. China has been heavily involved in Africa for decades and has siphoned resources from African nations in exchange for financial assistance and Belt & Road initiatives; while Russia plays the part of the paramilitary arm, shipping weapons and military advisors, while actively engaging in anti-terrorist operations in Western Africa, especially Mali, Niger, and Burkina Faso - major gold-rich nations. However, the West has made plans to wrestle influence away from the East in Africa with major land projects of their own including the Lobito Corridor Project, which aims to carry large amounts of resources from counties like Zambia and the DRC to ports on the west coast in exchange for dollars. In Latin America, large lithium and copper stores in pro-Western nations like Argentina and Chile present obvious opportunities to create new channels of monetary flow for the USD via strategic energy partnerships with benefits for both sides. In South Asia, Chinese warmongering continues to threaten pro-West Taiwan as the US continues to pledge military and financial support to the island nation and the global hub of microprocessors, which need critical minerals for production. A brand new trilateral defense agreement with the Philippines, Japan and the United States has been signed to deter Chinese aggression in the South China Sea and conceptualizes any wartime coalition that could be established if the need arises.
There is an obvious symmetry developing in regards to the energy sector. Things may not repeat, but they often rhyme. Both the Eastern and Western nations at large understand the importance of these metals and minerals and the energy they can provide, as was true of fossil fuels 50 years ago. Energy brings power; not only the power to start a car or light up a home, but geopolitical and global authority as well - control the resources, control the energy - control power. This is the fight we could see play out in the remaining 2020s and into the 2030s. The West, if it does nothing, will certainly roll over and become greatly vulnerable, and the value of its currencies will likely take huge blows. However, if it becomes proactive and repeats successes from the jaws of defeat like with the petrodollar, USD demand can still be just as plentiful as before. And while the fiat currency invariably will still lose purchasing power over time (as they all do), it can stick around for far longer than current prognosticators envision.
I originally wrote this piece as an off-the-cuff response to the large amount of ‘dollar demise’ proponents which have been floating around for the last few years. And while I make it clear they might not be wrong in their conclusion, they may just be wrong on the timeline. To navigate the murky waters of changing global geopolitics requires the acceptance that these large fluctuations do not happen on our watch and that circumstances may occur that can speed up or slow down that process.
All ecosystems have a natural cycle of ebb and flow; calmness followed by chaos, to a new calm. Just because these forces can be destructive does not mean they are unnatural or that they should be stopped - this is cyclic and necessary. Human beings are a product of nature, and as such the systems that humans create are bound by these same natural cycles of calm, chaos, change, and calm; they are expected and not to be feared.
The key components are the understanding of why the change is occuring and to best position yourself for the greatest chance of success, or at least survival. We must remain aware of the implications of change and be ready to adapt to its outcomes with a constant process of re-evaluation. Resiliency is a cornerstone of this adaptivity, as it is better to be able to become dynamic and maneuverable in an environment where the sands are shifting.
As Andrew Zolli and Ann Marie Healy wrote in their book Resilience: Why Things Bounce Back, “If we cannot control the volatile tides of change, we can learn to build better boats.”