While the pandemic is the main focus of the media now, there’s something else going on behind the scenes (the impact of U.S. dollar losing its status as world reserve currency). The U.S. has been insolvent for a long time now. Technically, America is bankrupt, but the world is still operating by habit, viewing the deeply indebted U.S. dollar as a safe haven, and loaning the government more money in exchange for a less and less interest, while taking on more and more risk.
From Ernest Hemingway’s 1926 novel:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
We are on the cusp of great change in society, curiously at the beginning of a new decade. It will start with hyperinflation at some point later this year, and then a big drop in the U.S. dollar. This is the consequence of snowballing never-ending debt, and no real assets backing all the U.S. dollars in circulation (which is nothing more than a promise to pay). The coronavirus was the pin that popped the bubble; it is not the cause of the crisis. The crisis is the result of borrowing from the future to support our present lifestyles, not saving for a rainy day, and never having the courage to change.
When the dollar loses its world reserve status, all that paper now held in banks and used in trade will be sent back to its maker. Add all the additional money printing and you get something like the Weimar Republic between 1919 to 1933, Zimbabwe, or Venezuela. I’m not being negative, just realistic. If you knew a tsunami was coming, you wouldn’t go to the beach, would you? No, you would protect your home the best you could, and hunker down.
Well, a financial tsunami is coming, and Americans won’t be able to live the same standard of life they’ve been accustomed to for such a long time. That American lifestyle was supported by an inflated dollar, and world reserve currency status, which allowed us to sell treasury bonds without end. Now with 0% interest, and no way to ever pay back the debt, would you invest your wealth in our liability? Times are changing…at first slowing, and now very sudden.
I’m afraid the endgame is here. The party is over, and all of our lives are going to get more difficult. This likely means the overvalued FANGS (Facebook, Amazon, Netflix, and Google) will not continue as the leaders of the future. These were the leaders in a strong dollar environment, but in a weak dollar environment, real assets (commodities, utilities, etc.) will rise. In other words, your dollars will buy less and less over time. So think about what people NEED, what they cannot live without, and that’s where you’ll see growth.
The governments do have a way of preventing this tsunami, and a lot of the pain, and that’s to revalue gold. All the governments stockpile gold, and the U.S. supposedly has the most of all the nations, unless they loaned it out or exchanged it without telling the American people. It’s the one asset all the governments safeguard which has the same intrinsic and monetary value, and it’s really the only thing that can back up all the currency. The last time it was revalued was 1934: the United States Gold Reserve Act. I’m not sure why they haven’t done again, but I think it’s because there’s a lot more paper gold than there is physical to back it up. Leverage always dies by a thousand cuts.
As difficult as it is…we must remember that change is a good thing. Bankruptcy is also a good thing. It flushes out all the bad money, all the corruption, the companies that aren’t profitable but have high valuations, and redistributes wealth to people and businesses who know how to manage it. Something always has value. If it’s not the currency, then it’s the assets that people want and need…and the shortages. The secret is to be ahead of what people will want and need. The law of supply and demand is beginning to matter again. The worst thing you could do now is think that everything is going back to the way it was before. It’s not, and if you’re ahead of that fact, and you make provisions, your future will be a little less painful, and you’ll be in a better position to help those in need.
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