The BRICS Dollar Debacle

The BRICS nations' attempt to dethrone the dollar suddenly emerges as deeply dollar-dependent to such extent that one of the biggest BRICS banks could topple into the zombie apocalypse.

Jun 19, 2023

The New Development Bank set up shop in Shanghai with $10 billion in committed capital from the five BRICS founders.

My latest Deeper Dive dug into China’s failing commercial real-estate market, as well as other global commercial real-estate markets that are collapsing, laying out the corporate zombie apocalypse that is building particularly in office real estate, but also still deepening in retail real estate.

It’s happening all over the world: Unprofitable companies that survived only because of cheap credit (zombies) — and even some profitable ones — are toppling as credit costs rise. The headlines supporting my summary analysis this weekend can be found below in today’s free edition of The Daily Doom for those who didn’t have full access to the Deeper Dive’s summary analysis. (Normally, I don’t promise to publish on holidays, but I decided to make an exception today with a free edition for everyone because there is a broad swath of important news here about the global economic collapse that is happening and about some major cyberattacks by Russian hacking groups.)

First off in today’s news, the real-estate crush turns back to residential real estate — this time to the UK where people, not just the housing market but people who already have homes, are really facing a dire threat to their existing homes.

Britain has hit a mortgage-crisis cliff. In the UK, unlike the US, mortgages come at fixed-rate interest for periods of only 2-5 years. While the mortgage payments are amortized typically over 25 years, homeowners must remortgage every 2-5 years at current interest rates or they are moved automatically to constantly variable-rate interest, which is often worse. These mortgages are as bad as the time-bomb ARMs that blew up in the US, causing the housing collapse that started in 2007 – only in the UK all mortgages are subject to that readjustment at a time when interest rates are soaring and inflation is still almost 9%, assuring UK interest rates will have to rise even more!

Analysts are making such observations as …

“Pretty much everything is starting with a 5 now ... for context, two years ago everything started with a 1 or lower.” (referring to interest rates)

“I think the worst of the mortgage crunch is ahead of us.”

“We are now in the unenviable position of staring over the abyss where the bodies of the over-leveraged, under-saved, landlords, renters and owners of discretionary spend businesses are beginning to pile up,”

As a result of concerns that rates will rise even further, “borrowers were approaching advisers up to a year earlier than they normally would, with attitudes ranging from despair to pragmatism.” The U.K.’s Financial Conduct Authority in January warned more than 750,000 households were at risk of default as rates rise.

Another story in today’s news is about the commercial real-estate crisis hitting Sweden as a major office landlord just got it credit rating cut to junk.

Besides my weekend analysis of China’s enormous real-estate woes along with those in other nations, including the US, I’ve also made some noise in the past month that runs contrary to a lot of the alternative press (and, therefore, the beliefs of a fair number of my own readers) by stating repeatedly that China and the BRICS nations are failing badly in their attempt to replace the dollar.

Today, one of the big stories in The Wall Street Journal is that the big Shanghai bank China created in partnership with the other BRICS nations to destroy dollar dominance in global trade is on the verge of its own destruction. It is becoming an actual zombie bank that actually needs the dollar in order to save itself with affordable funding!

So, hate me for telling it to you straight all along; but I do not aim for being popular in either the alternative press or the mainstream media: I just aim for the truth and telling it like it is, even if that costs me readers or people willing to publish me. State the truth as best as I can, and let the chips fall where they may. So, here we are, coming around to the prediction I have been making, from one of today’s articles linked to in the news section below:

Eight years after Chinese leader Xi Jinping and his counterparts from Brazil, Russia, India and South Africa established the New Development Bank, with headquarters in a swanky Shanghai skyscraper, it has all but stopped making new loans and is having trouble raising dollar funds to repay its debts, according to an examination of its finances and interviews with bankers and others familiar with the matter.

It turns out New Development Bank is, itself, highly reliant upon US currency and unsurprisingly (here) not on rubles nor even so much on gold. A lot of people are just too eager to dish out doom to the dollar based on wishes. It has turned out that Wall Street grew wary of trading with a bank that is owned 20% by Russia. Getting shunned by Wall Street has significantly raised the cost of its own credit.

The bank has had to take on increasingly expensive debt to service old borrowings and stay current with its own liquidity requirements…. After setting up shop in Shanghai in 2015 with $10 billion in committed capital from the five founders, the members found it would be difficult to rely only on China’s banks and capital markets. The development bank began to borrow billions of dollars from institutional investors on Wall Street as well as China’s state-owned banks. Some of what it borrowed was denominated in China’s yuan, but around two-thirds of the bank’s borrowings are dollar-denominated—hardly in line with the bank’s stated aim to break their members’ reliance on the dollar.

New Development Bank’s larger companion bank in the BRICS attempt to supplant the dollar as the world’s trade currency —the Asian Infrastructure Investment Bank — also fell into a public-relations crisis last week after an executive in charge of the bank’s communications resigned, accusing the bank of being controlled by members of China’s Communist Party. Who would have guessed that? A Chinese bank being centrally controlled by the Communist Party? I would have been shocked if the news was that it was not controlled by the CCP.

Trouble at both banks, as well as at China’s giant Belt and Road infrastructure push, which has seen China spend $1 trillion to expand its influence across Asia, Africa and Latin America, spotlights growing difficulties for Beijing’s strategy to rearrange an international order it considers biased in favor of the West.

As I’ve said before, there are no straight lines in economics. The BRICS and their currencies have plenty of problems of their own and corruption of their own that make them weak contenders against the dollar for all of its own faults.

Both the AIIB and the New Development Bank were set up in large part to reduce developing countries’ dependence on dollar-based funding.

That said, I don’t believe the dollar is without its own problems, even from being weaponized in many ways, but it is far, far harder to take down than many believe, and, more importantly, all of its contenders such at the euro and the yuan, have worse problems of their own. I am also far from being a fan of the Fed, as you can see in my latest interview on Goldseek: Inflation and Bank Failures, Will Stocks Rally or Crash?

I am however, committed to telling it like it is, not to popularity with any political party or audience. As I say, I am an equal opportunity critic of both major parties in the US: I don’t like either one of them. I also don’t like fake news against either of the parties that I don’t like either. You can see that in the political headlines below where there are clearly no sacred parties or politicians. The peculiarities and perversions of both parties and their politicians are pointed out without apology to anyone. This is not a safe space for those who only want to hear what they already believe or like. It is for those who can take the truth straight up, which often cuts both ways.

(Headlines to support today’s editorial appear in boldface type below. Today’s headlines also contain some of the articles that became the basis for this weekend’s Deeper Dive. There are a lot of good stories below, including a number of follow-throughs on last week’s threats by Russian hacking groups to damage the West, particularly banks but also government and energy entities, that are now being carried out as threatened. Remember, if you become a paid subscriber, you always have access to these headlines as well as to the full Deeper Dive articles.)