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The dollar is done dude. It was nice while it lasted. But I believe that the U.S. dollar's reign as a universal reserve currency has ended. Over time fewer countries will hold U.S. treasuries and do business in U.S. dollars.
But why?
The dollar is a bad investment. How would you feel about holding a currency that is controlled by the government of a foreign country? You'd feel pretty bad if that country is $35 trillion in debt and will need to print trillions more every year to have any hope of even making the interest payments.
China is dumping U.S. treasuries and buying gold instead. It just makes financial sense.
U.S. treasuries are suffering their worst bear market possibly ever. Let's say you bought TLT (a long-term treasury ETF) at its peak in 2020. Today, you'd be down by more than 50% in real terms. What is supposed to be a "safe" investment becomes very unsafe in the presence of inflation.
The long-term picture isn't much better. Since the end of the gold standard in 1971, gold has outperformed U.S. treasuries. Simply buying and holding a lump of rock is better than holding the debt of the U.S. government. And the government was actually in good financial health for most of those years, unlike now.
The U.S. is not a trustworthy partner. Before Russia invaded Ukraine, Russia held about $600 billion in currency and gold reserves. About half of those reserves, $300 billion, were held in the West. After the invasion, those reserves were frozen. Now, they are now likely to be given to Ukraine.
Because of this, there is no reason for a country like China (or any other country for that matter) to store their wealth in the West, or to hold U.S. dollar-denominated assets. It's all conditional on U.S. allegiance.
For most countries, trade with China is more valuable than trade with the U.S. China now dominates most of the world's industries, and the trend continues to point in that direction. Third world countries often have much stronger trade ties with China than they do the U.S. They export natural resources and import Chinese goods. Increasingly, they can do without U.S. goods and services. Do what we say or otherwise you can't have our, um, Microsoft Excel licenses...
As this process strengthens, China will be able to lean on these countries to do business in Yuan, or perhaps in some resource-demoninated currency.
Okay, so the dollar is done. What comes next? Probably nothing major. I don't think that the Yuan will become the reserve currency, or that we'll move back to the gold standard (although global reserves will be held increasingly in gold). But the U.S. dollar will no longer be the uncontested reserve currency. The world will once again be multipolar, with the U.S. just one of multiple competing forces, and not necessarily the strongest one.
In the long run (10+ years) I expect gold to significantly outperform treasuries.
Gold Bugs love to talk about the price of gold since 1971. But the performance really depends on what year you start in. Turns out 1971 was an exceptionally good time to purchase gold, as it had just been deregulated and could be bought for like $50 an ounce because no one was paying attention. By the end of the decade it had already boomed to a price similar to what it is now, like $2000 an ounce. And there have been several boom and bust cycles since then. It's (ironically) not really a long-term, buy-and-hold investment, but something that can maybe save you during a big market crash but can just easily tank. Treasuries have outperformed over almost any period other than starting in 1971.
Incidentally- treasuries right now have a great interest rate and are still rock-solid safe. This might be the time to just park your money in bonds.
Not quite. Gold very briefly spiked in 1980. It reached a high of $843 for a single day. It's true that if you somehow managed to top-tick this speculative bubble, you'd have performed poorly.
The returns for most periods after 1971 look decent.
It's actually a wonderful buy and hold investment. What it isn't is a low-volatility investment. And it's pro-cyclical so it almost certainly won't save you during a market crash either. Gold is best as a hedge against a period of high inflation when other assets perform poorly.
5% is not great by historical measures, but I agree the Fed is likely to lower rates in the next 2 years which might make long-term treasuries a decent investment in the short run. If they lower rates, the new bonds at 2% or whatever will be terrible investments. But you will get paid back. In dollars.
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Tlt bad investment. You compared long term investments where the market was priced at 0% (historically high prices) to now higher rates. This is just bond math. Interest rates change. T-Bills did not lose any money. 30 year bonds are a bet on rates.
US took Russias money. If I have $20 of Jeroboam’s money in my pocket. And you Jeroboam punched me in the face he shouldn’t be surprised when I don’t give him his money back. Seems rational. The funny thing before Jeroboam punched me in the face he knew he was going to punch me in the face. Yet he also knew I had his money. Why didn’t he get it back before punching me? Something something there are good reasons why Jeroboam had his money in my pocket before punching me and it’s very sticky.
No accounting for a risks free asset versus a hunk of metal that only has value if someone else values it. Gold is a Ponzi scheme depending on a new sucker getting talked into owning gold. The Dollar is not a Ponzi scheme. People have to use it and if they don’t use it a military takes them and puts them in jail.
Edit: Too emphasize point 2. His argument for dollar weakness is the dollars greatest strength. Russia chose to go to war with America. They fully knew we would confiscate $300 billion. And could not liquidate before going to war. I complain that Apple is incredibly sticky and people just buy IPhones so they don’t look ghetto with green text. The dollar is so sticky you can go to war with America and can’t get rid of the dollar.
T-bills never "lose" any money. If you hold to maturity you will get paid... in dollars. But tell that to the people who bought 100-year Australian bonds that are now trading 96% under what they paid for them. A promise to pay in 2050 dollars is worth only as much as the buying power of those dollars. In this case, probably not much.
But it's also rational when the other kids on the playground wonder "Why, exactly, does this other kid have MY money in HIS pocket. Let me ask for it back."
The dollar is a medium of exchange. And yes, we are mostly forced by the government to use it. But, like gold, it doesn't have intrinsic value. If the supply of dollars is increased, their value goes down. That why treasuries are not a risk-free asset. It's true that you will get paid back. In dollars. But there's no guarantee how many goods and services you can buy for those dollars.
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Re point 3
As between gold and T bills, the only asset with intrinsic value is gold (it is used frequently in electronic manufacturing).
The uses of gold can be broken down to:
A and B are of course interlinked -- gold chains make a good signal of "I am rich" because it is universally accepted as precious, and the fact that gold is both rare and in demand for jewelry makes it precious.
But if A and B were to somehow to go away, the price would tank dramatically, and industrial demand would not save you from a price crash -- especially if all the central banks were to put decades of world production on the market because gold was no longer an efficient way to store wealth.
Julia Child (in a TV documentary) once demonstrated that gold would be a great material for cookware.
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Is there not an obvious OPSEC explanation? You had a prior understanding that you and Jeroboam were in good relation and that he was literally investing in the relationship, with the expectation that it was a long-term investment. If he suddenly asks for his money back, you're gonna start wondering what he's up to, what's changed, why is he acting so weird? Imagine Avon Barksdale saying, "Yo String, I love what you've been doing with investing our money, but actually, I'd like to just withdraw my half. Cash. Right now. What am I gonna do with it? I don't know; nothing in particular. I just like looking at it." Even high-level corporate folks are often required to have significant investment in their own companies, and questions are asked if they seem to be withdrawing too much. "Do they know something? Are they thinking that this corporate partnership is becoming a bad deal? Might they jump ship?" If having the investment is essentially known to all parties to be, in part, a trust mechanism to indicate whether everything is normal and good and that defection can be "punished" by confiscating part/all of that investment, sudden withdrawal of that investment may contain a lot of signal. Maybe dude just wants to build a new mansion or buy twitter or something... but maybe...
In the international realm, there is a delicate balance between quietly trying to organize your affairs to try to make your regime more sanctions-proof and retaining enough ambiguity about the likelihood that you're going to suckerpunch someone.
Opsec explanation seems fine to me. Yes if you liquidate your dollar account the world would be asking why are you doing that and assume it’s something like war.
That being said I am not sure Russia was capable of liquidating dollars even if they wanted to.
They could have gone to Goldman Sachs and told them here is $300 billion give me gold. They would move the price of gold significantly. Then they do war. Let’s say they win war. Now they want to use the gold to buy real things. Selling 300 billion of gold would drive the price down. A second issue is now the global market doesn’t like Russia. Trading in gold gets a negative reputation. Maybe Chile’s central bank wanted more gold but now gold is known as Russian money and buying gold helps bad people.
My point is I agree their is an opsec angle but de-dollarizing into something else is perhaps impossible but definitely not easy.
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That’s also why nobody really wants to have to be tied down to you. To hand your money to another person and be tied to their rules if they want the money back. China doesn’t want dollars after seeing what we attempted to do to Russia over Ukraine. Disconnected from the banking system, assets frozen, and a massive divestment campaign were attempts to hamstring the economy of Russia once it broke the Western world’s rules. China wants Taiwan. China also known it will get similar treatment if it invades. Hence they don’t want dollars.
Gold I think is less of a Ponzi scheme than government fiat currency. Gold is an established global market, it has uses in industrial manufacturing, and in making jewelry. It’s therefore not dependent on the fiscal system of any single country the way a fiat currency would be. Not only can the country in question take your money back, but it can inflate their currency to the point of worthlessness (see Zimbabwe). They could also end up becoming a failed state if there’s a prolonged political crisis of some sort. If we end up in Boogaloo Civil War, the value of the dollar will fall by quite a lot because the USA will lose credibility as a stable country. The dollars right now is propped up by being backed as the currency that oil is traded in, but this could change and in fact both Russia and China want to change it. If that happens, you lose a major reason that people ever wanted the dollar. To cut this short, to be tied to the dollar means being tied to the fortunes of the USA, which, while it used to be a sure thing, may not continue to be as steady. Gold isn’t tied to the fortunes of any country therefore, no matter what happens, it’s not going to be devalued by the failure of that state.
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Glad we are admiting that Ukraine is just a proxy state for America. So the US can bomb, invade and occupy countries left and right and have proxy states right on Russia's border and there are no sanctions. However, other countries have no real legal protection and are left to the wims of American for whether their dollars are worth something or not.
There is a reason why this system isn't going to be stable.
Russia wanted Ukraine in its sphere, America wants it in its sphere. There's nothing original about this exact kind of proxy conflict, they've been happening between these very parties since 1945. If Russia or China (or anyone else) wanted to sanction the US and allies for supporting Euromaidan, they obviously could. They don't because it's transparently not in their interest.
In other words there is no rules based international order, there is just powergrabs. If that is the case then it is expected that other countries will be weary of the US and their power. Why be vulnerable to a country that is nothing more than extractive empire? The US has a problem and it is that the rest of the world is no longer far behind the US and therefore they can't bully countries to submission.
Yes of course. So strange that this is such a bitter pill for some people.
It's not. It's the people acting like there is such a thing that are hard to deal with.
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“Extractive Empire”
Many a MAGA and probably some leftist would argue we are the exact opposite of an extractive empire. Thru things like free trade and open borders we actually weaken our empire and act not in our own best interest. We sacrificed our industrial base to China. I myself will argue we give too good of a deal to otherwise in terms of security guarantees. I agreed with Trump when he says he would kick countries out of NATO who are not contributing to NATO military strength. America does subsidize the national security of a lot of rich nations (I am looking at you Germany).
We offer a very good deal for a country to be a country that uses dollars. We let them not spend on national defense and dump their products on the U.S. market. While America will flex our muscles with our rules at times we also offer them very good terms that are against our interests all the time.
Both can be true. The US becomes a financial empire with the rest of the world buying lots of money from the US. The rest of the world is forced to prop up American real estate markets and financial markets while the expensive dollar makes it cheap for Americans to import. The US empire is great for finance, insurance, real estate and the military industrial complex. It is not good for manufacturing. The world is has to send products to the US in order to get dollars, the US gets products for free but all the money printing makes the US too expensive for a large portion of the population.
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When people refer to US empire they aren't really referring to a traditional empire in which one country benefits off another. It's more the "globalist" empire, or stateless elite empire. American's are just as much colonists having their wealth funneled off as any of the other vassals in Europe.
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Because it's completely unclear that predation by China or (in some regional cases like Central Asia/Middle East/Caucasus/Baltics/Eastern Europe) Russia would be any better, when in fact it would likely be much worse. Sure, you can be a free agent with no permanent alliances, but that leaves you like the Philippines would be if they went full neutral; completely open to Chinese aggression. Much of the Pacific prefers the US to China. India is obviously fearful of China. In Africa and Latin America the factions are more mercenary, as we see. In Europe the bargain is that being part of the US alliance vs China is necessary to guarantee American support versus Russia.
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Can't get rid of the dollar..until you can.
For your information,Iphones are kind of rare elsewhere. ..and..green text? Wut?
Iphone is just incredibly bad value. I
Americans use traditional SMS messages to text each other, instead of Whatsapp like everyone else. When you text another iPhone from your iPhone, it actually uses a different app called iMessage that doesn’t cost money and the text appears in a blue bubble. If you text an Android user from an iPhone, the text appears in a green bubble and costs money (or consumes a bit of your plan, or whatever).
LOL i love the way you phrased this. As an Expat American it's incredibly annoying that my home country is still stuck on SMS messaging, and they just take that as a default ("texting") to where it's hard to even describe anything else to my friends back home.
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European countries do often have cheaper data than the US, but that's not the main reason why Americans use iMessage. The main reason is that early smartphone adoption in the US was extremely iPhone centric for anyone (a) under 40 and (b) not-poor. That has only grown more skewed over time. Premium Android phones in the iPhone price range are almost unheard of in the US - especially outside some first-gen immigrants from China/India (who use WeChat/Whatsapp). In Europe a lot of early smartphone adoption was HTC/Samsung/Sony Android devices; it's not uncommon for PMC types to have thousand dollar Samsung Galaxy whatever phones, although the trend is still toward iPhone in the long term. Not a single one of my American coworkers has an Android, ever.
This means that in a work group or social environment in the US for middle-class and above people, setting up a chat on iMessage is always an option, whereas in Europe even if 3/5 or 8/10 people use iPhone, you still use Whatsapp to include the others.
I don't think so. The nicer Samsung phones (S and Note) are fairly popular. At least among the people I know.
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That seems overstated. If you walk into any carrier store, at least half the shelf space is usually for higher end Samsung, Motorola, Google, or even OnePlus devices. Maybe it's because I'm in the midwest, but Android easily outnumbers iPhone among my friends and family.
iPhone has 80% marketshare among 18-24 year olds in the US, and well in excess of 80% marketshare among high income millennials too. Phone retailers (including carriers) love Android because they make more margin on their phones (a deal Samsung etc readily agree to in exchange for store space). For reference, after the iPhone X (2017), Apple cut margins for resellers (which obviously include carriers) to sub-4% in many cases. Samsung resellers make more like 6-7%, so it's a huge difference for the retailer if you sell 10,000 $1000 iPhones vs 10,000 $1000 Samsungs.
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Having friends like these compromises one's values. Marginally higher economic growth isn't worth abetting genocide. I'm quite happy to see them take their ball and go home.
Well, what is the upper bound of ideological difference that you are willing to tolerate from a trading partner? Russia is one matter in which the US is still lucky to have a great number of affluent nations sharing its majority perspective; China is frankly a wash; and on the topic of Israel, you might find yourself actually having the opposite perception on who is genociding whom from all but a small handful. It's all well if you say you will reject the sinful outside world and stay in your righteous bubble, but nations trade with each other because it's advantageous for them - moral righteousness does not on its own beget food, science or missiles, and at least the hypothetical extreme case of an isolated America-Israel alliance shunning everyone else as genocide abetters vs. the rest of the world trading freely with each other even as there are occasional local scuffles would probably not develop in the favour of the US in the long term even considering its geographical and human capital advantages.
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It would be nice if we could! Unfortunately China is embedded in every supply chain. They have us by the balls and they know it.
But that also applies vice versa no? The American market is the wealthiest in the world. Lose it and all those factories making Iphones and Temu widgets collapse. There is no other market that can match it. And given China's upcoming population problem and their huge corruption problem, I don't see much incentive for them to pull the trigger on economic MAD. Especially because many of their elites are being enriched by it.
It's kind of a weird standoff. They build all the stuff that we need. In exchange, we give them ... a place to dump their overproduction.
But somehow it does seem to work. China would probably face severe disruptions if their plastic vomit factories had to close overnight.
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I know you won't respond, but several of your justifications are humorous.
Your long-term picture argument is what undermines the broader point. If gold has outperformed US treasures for nearly 50 years, and yet US treasuries have been a preferrable investment for nearly 50 years, that in and of itself is an indication that there are factors other than performance vis-a-vis gold (or other rocks) that are driving decisions of what makes something a good or bad investment. Some of these aren't mysteries- there are reasons that no one is trying to go back to a gold standard currency, let alone China.
Your next argument also undermines the specific supporting argument of China. China isn't dumping U.S. treasuries in favor of gold because gold is a better performer- again, your 1971 gold performance argument undermining the point- but because China is preparing itself financially for a conflict with the United States to mitigate sanctions risk, despite the demonstrated preference for the sanctions risk options instead of gold when the future sanctions risk was lower.
Ultimately, the value of an investment isn't in its own return, which your argument here focuses on, but in relation to the context and the alternatives. Even an investment that loses money can still be the preferable investment if the others would lose more. This is why the 35 trillion number of US debt is a big scary number used in isolation, but less so in relation to GDP (the nominal ability to pay), and even less so in like-to-like comparisons of total debt-to-GDP ratio comparisons with other prospective poles. It's not that it's a good metric- it's that while the US is in a league of its own in the ability to have debt, it's not in a league of it's own in managing debt, especially with peer economic poles. (The PRC debt-to-GDP ratio beyond government debt, for example- the whole property market financial crisis.)
The counter-points to this is that the Americans and Europeans have been sanctioning state and non-state actors for decades now, and seizing assets of parties who declare themselves in general conflict for centuries. Anyone surprised by the Ukraine War seizures was not paying attention, either to contemporary geopolitical finances in conflict or to historical contexts.
There is nothing new about it, and just as the threat of seizure in the west for reasons of crossing Western government red lines never went away, the reasons why countries would keep wealth in the west vis-a-vis somewhere else remain the same as they did a year ago- which is to say, it's a better system to store in at scale, unless you foresee yourself coming into direct conflict with the Western countries.
Big surprise, don't park your funds with people you may go to war with, or with whom you are trying to economically blackmail with energy cutoffs. The question isn't whether the US or West would do this- they have and did- it's who you think won't do this on equivalent or even less grounds.
Both of these China proposals ignore the limits of China's abilities.
For a resource-denominated currency, the core issue here is that if you have a resource-denominated currency, you need to be able to provide it in scale at demand, which is precisely what cracked the gold standard repeatedly and broke it in favor of fiat currencies. The global financial system is too large in scale for any reasonable value-resource to be actually stockpiled and providable on demand in case of bank runs, and China in particular is a demonstration of that if you look at the recent property crisis, and then consider what would have happened if the Chinese government was legally obligated to provide X-ounces of Whateveronium.
What they'd do- or rather, what they wouldn't do- goes into the other main challenge in Chinese currency, which is the lack of liquidity due to the capital controls. China tries to lean on other countries to do business in Yuan, it makes loans more favorable on the condition that their in Yuan, but the issue with Yuan is that China runs a marcantile trade policy and makes it very hard to move capital wealth outside of the country at scale vis-a-vis using it in China to buy something for export or to reinvest. That's fine and dandy for bilateral trade, but that's antithetical to a reserve currency, which serves as a medium for countries doing trade NOT with the reserve currency country, but to move it in and out and outside of it.
A transition to a more multipolar geopolitical order is precisely what will continue to bolster the power of the American Dollar's role in the global ecosystem as the main reserve currency, while crushing the viability of a gold standard reserve currency.
Trading currencies are at the most risk if they are engaged in conflict zones, as the countries backing them have their economic environments shaped by the risk perceptions not only of the country, but what it takes for the supply chains to reach the country. The more potential conflict zones there are to intercept those links, the less stable the supply chains, and the more the capital needs somewhere relatively stable to wait.
A more multipolar world order is not a more peaceful one, and the more the Eurasian rim is broken apart by pole-on-pole conflicts, like we saw with the Suez Canal route being decimated by the broader Israeli-Iran conflict, the more the capital looks for somewhere relatively more stable. There's only one integrated continental economy with minimal external resource dependencies in the world, and that's in the north-western hemisphere.
At the same time, however, the more conflict-engaged currency blocks will run into the costs of financing and funding more conflicts, which goes to the same issue that gold-backed countries had with the much smaller economies of a century ago. WW1 costs of war and related debts snapped the gold-standard currencies, and the US dropped a gold standard because of the costs that came with having to honor that conversion while being a reserve currency.
You can be a reserve currency, or a gold-standard currency, but you can't be both unless you can actually provide the gold on demand. The US at the height of its financial supremacy over the non-Soviet block couldn't afford that for long. A financial pole of the multipolar order who tries will quickly be drained until it's no longer a meaningful pole, or it drops the option.
The simplistic and correct issue with a gold backed currency is the supply of gold does not correlate with productivity growth + population growth + 2% inflation (can ignore the inflation but I think modestly positive inflation is positive).
If the growth of the gold supply is 1% and my above equation is 5% you end up needing the risks free interest rate that balances demand for risks free savings and the demand for investment to have a positive 4% nominal rate. Historically, I actually read the book, 4% nominal rates have been mostly the peak interest rates (for govvy debts or equivalent lowest risks debt).
For whatever reason the market clearing interest rate is below 4% you will see gold being better than investing. Since the currency is backed by gold the currency becomes better than investing. Which basically causes people not to invest which causes a depression.
Alternatively you could live in a world on the gold standard where Elon Musks invents a magic gold making machine. He can increase the gold supply by 50% per year. At this point a gold standard is hyperinflation. The reverse side still indicates that there is a lack of correlation between gold supply and changes in economic activity. This scenario is roughly speaking the Spanish Empire.
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That's assuming, of course, that the US doesn't enter a spring and autumn period. It's functionally impossible to reestablish hegemony in North America after it's broken.
It also assumes that alien space bats don't replace north america, or that the Galactic Empire from long long ago and a galaxy far far away doesn't have a multi-generation death star show up and shoot down, and a lot of other ruinous things, yes.
I'll take my bets on this, for similar reasons that I don't bet that China will devolve into civil war in the next few decades, and some additional american contexts as well. This is not the first political realignment process the US has gone through, and it's not even the most turbulent period of political violence in the current leadership generation's experience, and while I am happy to note that This Time Is Different (because social media exists), I've never been convinced by arguments of civil war or equivalent options.
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Can I just post a link to a dollar vs. anything chart without that being considered rude? The dollar is as strong as it has ever been. This was a lot of wasted digital ink.
It's not doing so well against Bitcoin.
Bitcoin is a speculative investment vehicle, it has nothing to do with anything. The dollar hasn't devalued by 800000% since bitcoin came on the scene.
OK, the dollar's doing poorly against bitcoin, shares, real estate and commodities (via inflation). It's roughly even on silver and doing badly against gold.
The only thing the dollar compares well against is other currencies (which are fundamentally the same kind of thing). So a dollar v anything chart would not prove that the dollar was strong, as your argument suggests. Unless by anything you just mean currencies.
I do mean currencies, since that is what everyone uses. When was the last time you bought something with bitcoin or gold or the deed to your house?
Do you want deflationary money so that it pays to hoard it and do nothing? There is a reason we have target inflation numbers instead of target deflation numbers. What you're talking about isn't the dollar "doing poorly" it is inflation, it is a feature not a bug.
Yes, I want deflationary money. Right now it pays to leave money in the bank, not very much but it does. If everyone did that, the economy would implode. The economy works on the principle that people want more than measly 1-2% returns, they want lots more money so they invest it and lend it out, accepting some risk. Furthermore, the economy is inherently supposed to be deflationary, that's what technology does. Prices are supposed to fall.
People don't go 'oh I need a dishwasher, I will wait 6 months for them to become 1% cheaper', that's not real human behaviour. People want things now so they buy them now, often without even needing them.
Inflationary money pumps up huge asset bubbles, immiserating those of us who need homes (all but a few). Inflationary money is exploited by governments and central banks for political advantage. It funds stupid and unnecessary wars without obviously raising taxes or taking on real debt from real lenders. It is a huge boon to special interests and a cost on the general public.
Most people own a home, so isn't inflation good for more people than it hurts on the housing side? There were plenty of wars before MMT and target inflation numbers, more I would venture to say. What is a "real lender" if not the American people who voted in the reps and president who are wasting money on stupid wars of adventure and choice? Perhaps you're right and deflationary money doesn't cause recessions and depressions, but it tends to correlate with them pretty well. The reasons for that are complex and often it is demand destruction or market failure, not the deflationary nature of the currency causing the issue.
Home ownership is currently at 65% So 2 out of 3 people live in a home they "own". Mostly with a mortgage that is always getting cheaper to pay. It was at almost 70% before home prices deflated in 2009 and really caught a lot of people with their pants down.
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It would be odd if you posted such a link in response to a post that didn't make any arguments depending on dollar strength, but it might make a bit more sense in response to the OP.
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It would be rude, yes.
You'd be better off asking the question: "if the dollar is so weak, why does it compare like chart?"
It would also be odd, since not only was the strength of currency not particularly relevant to the argument, but the strength of a currency and the strength of an economy are two separate items, and have been for many a century.
No argument from me.
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jeroboam is blocking me so I had only your comment to go on. Sorry about that.
I was under the impression you can respond to people blocking you, just that they don't see it.
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The weaponization of the dollar has been one of the worse policy decisions in the history of our country. The only reason we've been able to float such insane deficits, and largely skate through innumerable corrupt bailouts or foreign wastes of lives and treasure, is because our debt to GDP ratio doesn't matter. Because the dollar isn't just backed by our own economy, but all the goods in the world that trade in dollars. It's a cushy gig if you can get it, and we've gone and made getting off the USD a national security issue to any country that values its sovereignty.
I see people mock dedollarization. That the process of getting off the USD will be so painful for these countries that they'll never do it. And I can't completely discount that. But it does stink of hubris, and countries may judge (correctly) that the pain of getting off the dollar is less than the pain of staying on it.
My main issue is that I agree with all this, but I've been crying "wolf" a long with Ron Paul for more than a quarter century now.
Our deficits and foreign policy have seemed like intractable problems to me for so long I don't understand how we're still going, that anyone can justify buying T-bills with our attitude towards spending.
It just feels all made up. At least until the military industrial complex falls a couple more notches.
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You say that weaponization of the dollar was bad policy, but then you give examples of a long list of bad policy decisions the US government would not have been able to pursue if it couldn't borrow infinite dollars.
To me it sounds like the Western governments would in general be better managed if they faced some budgetary constraints.
I sincerely hope so.
Alternately, it could result in no more Western governments. During Rome's constant decline and mismanagement, hardly anybody in any position of power ever went "Woah woah woah, we have straight up squandered our resources! This can't go on forever! We gotta get on the right track!" Of the few who tried, many were put to the sword when the dependents of the state revolted at austerity. Of the few who survived that bottleneck, their meager accomplishments were often squandered and set even further back by their unworthy successors. And eventually, at the end of it all, the empire entirely dissolved, overrun by foreign tribes with foreign customs, and a cult worshipping what arguably killed the empire was left in it's place.
I think it's far more likely there is no Unites States of America, replaced by a confederation of racialized kingdoms (none of which are white), loosely paying lip service to an institutionalized cult of woke dedicated to constant polemics about the sins of whiteness, and good riddance to them all.
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There's a joke to be made here about which historically terrible policy will be bumped out of the top 5/10/15/25, but there's too many to make it work well.
Part of the issue that leads to the mockery is framing it as 'getting off the dollar' in the first place. It treats the dollar as a mechanical instrument issue which will be resolved if your substitute the medium with something else, as opposed to a financial system issue which doesn't actually need a dollar currency to be exchanged to still work.
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USD in USA were a little fraction of it (about $10 billion IIRC), most were Euro-nominated in EU. Total value estimate in USD is just a convenience.
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Peter Zeihan thinks that dollar can't be touched easily simply by nature of the U.S. being more prosperous and stable than any other country if things go south.
https://youtube.com/watch?v=LiR54FPQiCs&t=309s
Zeihan thought that China was just about to collapse for the last 15-20 years.
Look at what he says here:
https://www.businessinsider.com/stratfor-predictions-for-the-next-decade-2010-1#iran-pacified-6
Iran pacified, China implodes, US ascendant. If you squint at it he gets some things right (India and Africa irrelevant, Russian movement towards Europe). Other things are dubious, Turkey as regional leader? Maybe, sort of? But the key trend of that decade was the continued growth of China in all domains. He was effectively all in on China shorts and should have lost all his reputational currency with that biggest and most failed investment.
He doesn't deserve any more reputational capital.
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Peter zeihan should put his money where his mouth is and demonstrate how stable Detroit and Atlanta are by riding through them on a bicycle at 1 am.
It doesn’t matter in an emergency situation. Teenagers in Detroit or Atlanta gangs aren’t the Houthis, the US government could easily pacify lawless parts of the country in minutes, not even hours.
Using Minutemen ICBM for Urban renewal is very bold but rather too expensive.
The US government doesn’t need minuteman ICBMs to pacify urban centers. The regular police could easily do it- these aren’t cartels.
Political will is the reason these places are the way they are.
That'd take months, at the very least.
And significant investment. The political will clearly is more amenable to crime increases in many places, and I'm honestly glad it's not a problem I have to solve.
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Why you gotta ruin my dreams like that man.
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My question is, so what? What do I, a retail investor pleb with barely six figures saved, mostly in things like equities and 401k, do with this information?
Do I look for Vanguard Gold funds, instead of broad market indexes? Do I take the $20k in my savings account earmarked for a bathroom remodel and convert it into gold and silver? Do I buy Bitcoin and make sure I have self custody?
These predictions have been coming for years, and I suppose they are finally coming to fruition. I remember back in 2009 I used basic macroeconomics to predict large inflation, which never really materialized until 2021, when all sorts of other factors could have been the cause.
When I dabbled in gold, and I still hold some in fact, I just bought 1 oz American Gold Eagles. Then when I wanted to sell them, I took them to my local dealer and got I think 97% of spot for them. I did this in 2020 in anticipation of buying a house (which didn't happen that year), and then again in 2021 (closed that year). I came out about $1000 ahead on $13,000 invest in 2020, and $3000 ahead on $7000 invested in 2021. On my remaining gold I'm $6000 ahead on $8000 invest.
Gold wouldn't be my first thing I'd invest in. But it worked out well enough as a hedge against inflation. That said, my BTC and my brokerage account have absolutely crushed my gold gains. But if BTC were scary to me, or I didn't have the fortitude to weather a stock crash without selling the bottom like a rube, gold has never been worth nothing. Harder to panic sell too.
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Not much. We're probably just all going to have to be poorer for awhile as stagflation bites.
Here's what I'd do. Over time, I'd stop putting new money into bonds. While I'm actually somewhat bullish on treasuries in the 2-5 year time frame, they are doomed to suck in the long run due to the massive U.S. deficits. Personally, I think a 10% allocation into precious metals (either physical or in funds) make sense and will diversify your portfolio. But over time equities have outperformed gold.
And for the love of God, do NOT buy gold miners.
What's so bad about gold miners?
Decades of horrible performance and capital destruction
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Given Burdensome's comment, I suspect this means "don't invest in the companies actually prospecting and mining for gold, gold production is near-flat and is practically a money sink."
Which, given the apparent propensity for gold to value upwards, would suggest that the amount of new gold being mined from Earth is at a trickle.
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Second this. Gold has done very well over the last few years but gold miners are basically flat. The market doesn't expect gold miners to be able to keep a lid on their production costs in the medium term (which might tell you something about other firms).
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And like the joke about predicting 10 of the last 3 recessions, that's not prediction. The large inflation in 2021 was the result of events which began in late 2019, and could not have been known in 2009.
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How about silver? There’s an interesting phenomenon where silver prices rise faster than gold ahead of anticipated inflation and rn the Shanghai exchange price for silver is higher than the western exchange.
If you like excitement, can I recommend natural gas futures?
Seriously, though, silver is very volatile. On average, I'd expect silver to increase by 7% a year as it has done since they stopped making coins out of silver. But the volatility will be very high, and I can easily see drawdowns of 50% at various points.
Im pretty heavily invested in natural gas stocks, although not as futures.
Really more interested in pointing out weird shit in the silver market consonant with a shift away from the dollar, not trying to sell anyone.
Right on. I rode the silver train in 2020 and did okay.
Gold is trading at like 80 times silver which is much greater than its historical ratio and also "God's ratio" of 10-1. It's also apparently useful in some green energy shit, not sure what. Maybe the silver bulls will have their day again.
I recall the typical ratio was more like 16:1. Of course, God would use the 10:1 ratio, but there will always be something about powers of 2 that attracts me.
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