Topic
There’s a lot of speculation lately about an “October Surprise” – some “black swan” event that will rock our world in one way or another. (October Surprises are not ordinarily envisioned as being good surprises.)
So, what is an “October Surprise”? Well, it’s something that happens in October – that much is clear. And it’s something that is largely unexpected by the general public – hence, the word “surprise”. It may be something intentionally planned, or something that happens totally by accident. And it’s typically a bad thing. But as far as exactly WHAT sort of event the October Surprise might be…well, that is still very much up in the air.
An October Surprise can be primarily a financial event, one whose major impact is on the financial markets – for example, a stock market crash or a major policy shift by the Federal Reserve. It might also be a primarily political event, such as, for instance, the President of the United States declaring amnesty for all of the 10-15 million people who have entered the country illegally over the past few years. It could be a terrorist attack, another pandemic, or a natural disaster, such as an earthquake.
It's something big, something that matters, and whose impact is substantially amplified by the fact that it comes as a surprise.
One possible candidate for an October Surprise would be the BRICS alliance making an announcement of its intention to create a gold-backed currency for international trade. That’s not beyond the realm of possibility. The BRICS alliance is growing in strength as it adds more and more nations to the fold, and as the economic fortunes and futures of its members appear increasingly rosy.
Russian Foreign Minister, Sergey Lavrov, and economist and member of the National Financial Council of the Bank of Russia, Sergey Glazyev, are both strong advocates of a gold-backed Russian rouble – or, alternatively, a new, gold-backed BRICS currency. Their position gains leverage from the fact that Russia is hosting the BRICS summit meeting in October. Both men have the ear of President Putin, and both have strongly and publicly criticized US financial sanctions against Russia – notably, the 2022 seizure of Russian financial assets – and signaled that the US choice to weaponize the dollar will eventually lead to it being dethroned as the world’s #1 reserve currency.
Russia certainly appears to be gearing up for a return to a gold standard, by aggressively increasing its gold reserves. Just six years ago, gold made up only 11.8% of Russia’s total reserves. It now accounts for approximately 30%.
But wait…there’s a problem with a rush to a BRICS gold-backed currency.
I don’t think that the BRICS coalition as a whole is quite ready to move to a gold-backed currency that quickly. There are a couple of notable obstacles to that happening. First, there are simply the practical aspects that make it all but impossible for such a transition to occur “overnight”.
Second, the introduction of a gold-backed rouble, yuan, or BRICS currency would undoubtedly deal a hammer blow to the value of the US dollar. What’s wrong with that? – Well, just the fact that China – while it may be gleefully rubbing its hands together in anticipation of an eventual killer punch to the US dollar – has no interest in tanking the USD while it still holds nearly $1 trillion in US Treasury securities. (It should be noted, however, that China is on a determined course to get clear of exposure to the US dollar. In just the past few years, it has reduced its holdings of US debt securities from around $3 trillion to less than $1 trillion. Russia has already rid itself of virtually any exposure to the US dollar.)
Third, one of the currency proposals being discussed among BRICS members is the idea of creating a new international currency that would be 40% backed by gold and 60% backed by either each country’s local currency or by a basket of BRICS currencies. While it may be attractive in theory, such a proposal is problematic for some members of the BRICS alliance. What’s the problem? Nations such as Brazil don’t yet have sufficient gold reserves to put a 40% gold backing behind their currencies.
Therefore, while I believe that there will certainly be much discussion about a return to the gold standard at the October BRICS meeting, real substantive moves in that direction are more likely to be put off until next year’s summit, which will be hosted by China.
The BRICS coalition is moving at a relentless – but moderate – pace. Although more than 50 nations have now applied for membership to the group, the coalition is only expected to offer admittance to a handful of new members this year.
(Interesting trivia tidbit: World political analyst, Pepe Escobar, reports - two days after the assassination attempt - that he’s seeing Trump t-shirts for sale in CHINA!!!)
Regardless of whatever specifics emerge from the BRICS summit, there’s no question that the China-Russia led economic alliance is inexorably moving toward unseating the US dollar as the world’s reserve currency. And that movement is gaining strength all the time as –
The significance of the US moving to confiscate Russian central bank financial assets can hardly be understated. It was a blatant violation of the previously presumed sanctity of central bank reserves, and a clear weaponization of economic foreign policy. The US basically signaled to the entire world that its position was, “If you do something we don’t like, then we’ll confiscate your money.” From that point forward, Russia, China - and a growing number of other nations - set a determined course to remove themselves beyond the reach of US financial authorities. And, obviously, a primary step in getting out from under Uncle Sam’s financial thumb is ridding yourself of Uncle Sam’s currency.
Here’s a snapshot of the whopping 8,000% increase in the volume of Russian-Chinese trade being done in yuan:
The US is pressuring nations such as Thailand to adopt its anti-Russia, anti-China stance, but such efforts are doomed to failure. Here’s the thing: No amount of pressure that the US can apply is anywhere near sufficient to overcome the pressure of the basic economic fact that China is Thailand’s major trading partner. Thailand is an undeniable economic success story – having, over just the past three decades, reduced the population’s poverty rate from 58% to just 6.8%, and spawned a burgeoning middle class. But the Thai economy is massively dependent on trade with China. The Thai government would have to be complete idiots to poke China in the eye, to do anything like institute punishing import tariffs on Chinese goods or participate in any sort of anti-China economic boycott.
It wasn’t true back when Chairman Mao Zedong originally said that the US was a toothless “paper tiger” – but in a global economic sense, it is largely true now. The US simply no longer has the clout - political, military, or otherwise - necessary to thwart the rise of a new global economic power base headed by an increasingly strong alliance between Russia and China, and whose members are the BRICS nations and the members of the Shanghai Cooperation Organization (SCO).
The BRICS coalition is an undeniably powerful economic force. It includes roughly 45% of the world’s population, covers 30% of the world’s land, and accounts for more than 35% of total global GDP.
The BRICS nations and their increasing push toward de-dollarization are more commonly talked about, but the Shanghai group may ultimately prove to be just as important an international trading force. The Shanghai Cooperation Organization is, in the succinct words of Wikipedia, “a Eurasian political, economic, international security and defense organization”, which was jointly founded in 2001 (the start of a new century indeed) by China and Russia. It is all of the following:
A key event in the history of the SCO occurred in 2017, when India joined the alliance. In addition to its core member nations, designated partner nations of the SCO include Turkey, Egypt, Saudi Arabia, the UAE, and Myanmar. It has its own Regional Anti-Terrorist Structure (RATS), and its members and partners cooperate in numerous infrastructure, energy, and economic development projects. As of 2023, its members had also participated in several joint military exercises.
While the SCO is officially governed by a Council of Heads of State of its members, there’s no question that China occupies the seat at the head of the table, right next to its second-in-command, Russia – much like the positions occupied by the US and the UK in the NATO alliance.
The bottom line is that the increasingly strong China-Russia alliance is a global economic juggernaut, one whose influence extends from the whole of Eurasia and the Asia-Pacific region, through India and Africa, all the way to South America. And a primary goal of this new, global economic powerbase is to weaken the US dollar’s position as the worldwide reserve currency. Vahan Roth, the Executive Director of the gold tokenization firm, Swissgrams AG, predicts that the result of this China-Russia led alliance will eventually be a shift “in the center of geopolitical gravity”. China and Russia are forming a club that pretty much every nation will want to belong to, but that the US and much of western Europe may be barred from joining.
China, in particular, continues to take important steps to undermine the dollar. According to the International Monetary Fund (IMF), the US dollar’s share of global foreign exchange reserves has plummeted from 72% all the way down to 55%, as of 2023. And that’s excluding gold from the calculation. If you include gold in the mix, then the USD share of global FX reserves has fallen even lower – down to around 45%.
As foreign nations are dumping, rather than buying, US Treasury securities, that puts the US Federal Reserve in the position of having to take up more and more of the slack, buying Treasuries itself. (The concept of exactly how it’s possible for the US to, essentially, buy its own debt is still one that makes my brain hurt to think about.)
A recent Bloomberg headline reads, “China Takes the Yuan Global in a Bid to Repel a Weaponized Dollar”. China has been very successful in its efforts to persuade more and more of its trading partners to abandon using the US dollar for international trade, instead accepting the yuan in payment for goods. A recent notch in its belt in this endeavor is getting Argentina to settle payment for Chinese imports in yuan. It had already gotten Brazil, which has the largest economy in South America, to make a similar agreement.
A major currency coup for China is its success in convincing Iraq and other major Middle Eastern oil producers to accept payment for oil in yuan. A key maneuver in that effort was offering countries the option to sell oil for yuan, and then immediately convert the yuan received into gold. Since, like most of the rest of the world, countries in the Middle East are looking to increase their gold reserves, an “oil for gold” deal is very enticing.
Each one of these victories for the yuan chips away significantly at the US dollar’s position as the world’s reserve currency.
William Middlekoop, of the Commodity Discovery Fund, summed up the situation by stating that, “China is sending a message…that they don’t support the global financial system backed by the US dollar.” You can’t put it much plainer and simpler than that.
So, what will the October Surprise be? - I don’t know. Look, here’s the thing – if I knew what the October Surprise was going to be, then it would not be coming as a complete, “black swan” surprise. I mean, sure, I’m reasonably well-informed, more informed than some – but it’s not like I’m the ultimate global insider, tipped off to every major event before it occurs. (I know, I know – you’re shocked to learn this – having previously envisioned me as sitting right at the heart of a spider web of inside global political and economic knowledge, along with being in possession of an all-seeing crystal ball.)
One possible October Surprise might be a gigantic increase in gold and silver prices happening virtually overnight. This one is based on the whispered rumor that I’ve heard most often this week - that the gold and silver vault inventories at COMEX and other major futures exchanges are at their lowest levels in recorded history, and dangerously close to being completely emptied. It’s a fact that those vaults are being drained at an alarming rate as central banks continue buying massive amounts of gold and silver futures contracts and taking delivery on them when they come due. So, imagine this scenario: Suppose that China’s central bank holds December gold futures contracts on 10 million ounces of gold, and that it plans to take delivery on all those contracts – in other words, take possession of all 10 million ounces of gold when the contracts come due in December. Now imagine what would happen to the price of gold if it leaked out that COMEX only has 8 million ounces of gold left in its vaults… Think that’s a wild theory? – Well, consider this little factoid: COMEX currently has paper claims on 28 ounces of silver for every one ounce of silver that it actually has in its vaults.
Here’s one perhaps-only-slightly-crazy October Surprise possibility: What if the Democrats – fearful of a Trump victory in the Presidential election – pulled the ultimate voter suppression move? Suppose that – citing some new pandemic, be it bird flu or “cat scratch fever” – President Biden instituted a new nationwide lockdown, which would make it extremely difficult for people to get out and vote on election day. (cue “Twilight Zone” theme music)
Another rumored October Surprise is a possible invasion of Taiwan by China. This one is based on news reports of China’s sudden surge in stockpiling huge quantities of nearly every basic commodity, in addition to the piling up of gold and silver that it’s long been engaged in.
Feel free to let your own imagination conjure up other possibilities for an October Surprise. Just remember that you probably need to think waaay outside the box.
Will there really be an October Surprise this year? Well…check back with me on October 31st and I’ll let you know for sure – promise. 😊
Sources:
https://www.worldbank.org/en/country/thailand/overview
https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisation
https://go.behindthemarkets.com/btm-china-attacks-us-dollar/
https://w3.financialintelligencereport.com/Finance/FIR/LP/FIR-Putin-LG
https://www.gisreportsonline.com/r/new-gold-rush/
https://www.youtube.com/watch?v=vybqPYJfcgM
https://alasdairmacleod.substack.com/p/glazyevs-take-on-things-and-ww3
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