For most of my life, people have been beating the drum about the collapse of the dollar (USD). Thus, for most of the last 5 decades we heard the same tune. This also ties into the idea that hyper-inflation is right around the corner, something that never took place.
We now see this getting louder since the Federal Reserve engaged in Quantitative Easing, i.e. a massive money printing campaign. Once again, the gold bugs are screaming about hyper-inflation and touting the protection of gold.
They also cite the fact that the United States is now $23T in debt, running a deficit of a trillion dollars a year.
Hence, all of this leads to the collapse of the USD.
Unfortunately, for those betting on this outcome, this will only happen after the demise of the Yuan, Euro, JPY, and every other fiat currency out there. Regardless of the problems, the U.S. is still the best house on the block.
The Fed has done all they can to get inflation yet seem to fail in their quest. In my view, there are a couple reasons for this. To start, technology is becoming a bigger part of the economy. This means that a larger segment is under deflationary pressures since Informational Technology tends to decrease over time.
Another issue the Fed has is the fat that 1/3 the global debt is negative. This does not instill a lot of confidence in investors who are going to opt for better returns. On a global basis, this is the United States.
Of course, we hear about the push by China and Russia to break the USD as the reserve currency. This is something that could have some teeth. There is one challenge with this, confidence. Russia and China are not two countries that instill the aforementioned confidence in investors. In fact, reports are many of Chinese elite have been moving their money out of the country.
Viewed from a United States only perspective, the situation looks dire. However, when one looks at things globally, the international market tells a much different story. When we look at the sovereign debt around the world, we see how the U.S. makes up a small part of the whole. In fact, the Chinese debt-to-GDP is at an historic high. The situation in that country is much worse as compared to where the U.S. stands.
Fear-mongering makes for great news bits and can get clicks. The challenge is that when one is trying to sell the fear, it is tough when people are in countries where interest rates are negative, where wealth taxes instilled, and where the currency is a mess.
Here is the gold chart, something that is often pointed as a hedge against the actions of the central banks. I think it is safe to say that we saw unprecedented easing across the world over the last decade. We still are at a point where there is $200B handed out each month around the world by central banks.
Yet, when we look at this catastrophe, gold went from about $1,000 to $1,400 over the course of the decade. This is a decent return but in light of the easing that took place, it looks like something is amiss. How do the likes of Peter Schiff, a perennial gold bug, claim we will get to $5,000? The truth is this is dependent upon a collapse in the dollar.
Ultimately, the U.S. will be the last to fall. If everything is heading into the toilet, the U.S. will outlast the rest of the world. Whatever issues that country has, other countries are much worse.
It is also why countries around the world are loading up on physical dollars. It is a much better defense against a collapse than their own currencies.
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