Welcome to our Friday mailbag edition!
Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.
But before getting to today’s mailbag, I want to tell you about a special briefing I’m doing tomorrow, March 11 at 8 a.m. ET.
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Now, on to today’s mailbag…
Up first, a question from reader Gary L. on the dominance of the U.S. dollar…
I see that you believe the dollar will stay on top. Do you realize that the globalists plan for the British pound to be the next reserve currency? Or that BRICS is growing in numbers and one of their main objectives is to undermine the dollar and create their own gold-backed currency?
– Gary L.
Hi, Gary. Thanks for your questions and observations.
You’re right. BRICS countries like China and Russia have been unhappy with the dollar’s dominance for quite some time. Both countries have taken steps to try to bypass the dollar.
You may recall what I’m talking about. Back in June 2022, I wrote to you about one of China’s attempts to outdo the dollar: the petroyuan.
That same month at the BRICS Summit in June, Russian president Vladimir Putin said that Russia and its allies are working on a new international currency.
Russia and China are challenging the petrodollar for dominance. I’m not denying that.
But even if BRICS rolls out its new currency tomorrow, it will take a long time before it can really challenge the dollar.
And that’s because, for an international currency to be successful, it has to meet three criteria.
It has to be safe, contain stable value, and have the ability to move without restrictions.
None of the BRICS currencies check that first box. It’s safe to say that so long as the Chinese Communist Party is in power in China and Putin in Russia, both the yuan and ruble will continue to be considered anything but safe.
Most BRICS don’t have large liquid bond markets needed to prop up their currencies.
The one exception is China. But even China doesn’t have a floating exchange rate that is determined by market forces, as is the case with the U.S. dollar.
Instead, it pegs the yuan to the U.S. dollar. This is a dealbreaker for the world’s major central banks.
Finally, BRICS nations are no strangers to capital controls. Those controls limit the flow of foreign capital in and out of the country.
China’s capital controls complicate the international use of the yuan. The same goes for Russia (even though it relaxed some of them recently).
This means that their capital markets aren’t free. And that’s a problem for any central bank wishing to hold their respective currencies as reserves… Or for any oil-producing country needing to invest all the money it receives for its exports.
Now, some smaller BRICS economies may not have these problems. But they lack the scale needed to move a large volume of cross-border transactions.
So, I don’t see the U.S. dollar’s status as the primary currency for both global reserves and trade changing any time soon.
Bear in mind… I’m not saying that the influence of the dollar hasn’t been slowly decreasing over the last couple of decades. It has.
In 1999, for example, 70% of the world’s reserves were held in U.S. dollars. Today, it’s closer to 59%. In other words, more countries are choosing to hold alternative currencies, in addition to U.S. dollars.
So, this process (and its repercussions) is definitely something to watch. But I’m not worried about China and Russia’s efforts to dethrone the dollar any time soon.
One final thing… For BRICS, this is probably one of the worst times to develop a new global currency.
China is facing an unprecedented demographic crisis. The population is shrinking and getting older before it ever reaches high-income status. This will be one of the major headwinds for its economy this century.
Russia finds itself in a similar predicament. Only much worse, with its self-inflicted war in Ukraine and sanctions eroding its economic outlook for years to come.
Moving on, reader Jerry K. wants to know about the use of wash sales by the ultra-rich…
When you were with Goldman Sachs, were you aware of wash sales of stocks? I just read an article about this method the super-wealthy use to avoid paying taxes on interest income.
Although it is legal, it certainly seems unethical. Could you shed some light on this practice so others could see how this works?
In the article I read, the author showed how investors sold stocks for a loss, then repurchased the same stocks but in a different class. This way, they were able to harvest the loss for tax purposes but still have their investments stay the same.
The article used Steve Ballmer as an example and showed how he was able to save taxes of $579 million! One of the Walton family members was also on the list, saving $30 million. There were other examples of well-known billionaires that avoided millions in taxes.
Obviously, these loopholes were meant for the ultra-rich. I would really be interested in hearing your expertise on this subject, as this is another way our government is controlled by billionaires.
– Jerry K.
Hi Jerry, thanks for your question and excellent observations.
I was aware of wash sales when I worked at Goldman.
And you are correct. They are a way of selling stocks or other financial securities like options to take a tax loss… And then buy similar securities in their place, keeping the investments intact.
Now, wash sale regulations do require these transactions to be spaced 30 days apart to not count as wash sales.
But here’s the thing… Waiting 30 days to get a tax loss counted is no great hardship for the ultra-rich.
And the more wealth you have with financial securities, the greater the tax offset of these losses against future gains.
Of course, it’s upsetting that the scales are tipped in favor of the uber-rich. The good news is, you understand that the game is rigged.
That means you can arm yourself with the right strategies… And in some cases, even beat the rich at their own game.
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And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Editor, Inside Wall Street with Nomi Prins