Collapse of the Dollar
People comment on the website from time to time and I usually get back to them within a couple of days. It typically has to do with the topic of the article and I ignore it when it does not. This comment has been sitting there for over a month and it’s a deep subject far off the topic of the post. Normally I’d just let it go but several others have asked about this and some clients are genuinely curious if not concerned about what it could mean. Is anyone else worried about what will happen if the dollar collapses?
Here’s the comment:
What’s your take on the rise of the Brics nations & currency, the decline of the dollar, the lack of a solid backing of the dollar (ie: gold), out of control inflation due to the uncontrolled printing of fiat currency. Are assets consisting of fiat currency the way to preserve wealth?
There are a few parts to this and I’ll hit all of them with my thoughts but I’m going to try to stay away from conspiracy theories. Of course, for those interested, you will probably see the entrance to a lot of rabbit holes in this. It’s all speculation but I don’t think it should be played off as no big deal. The amount of leverage in the financial system will lead to larger corrections. Past interventions in the system done to “save capitalism” have only created a bigger bubble.
Then come the BRICS (Brazil, Russia, India, China, South Africa plus a few more) nations and the creation of an international trading system that doesn’t rely on the US Dollar for the exchange. Those countries didn’t want to have to convert currency to dollars before converting it back to the currency of the trading partner because they could get screwed on the exchange rate. It makes sense from their perspective but seems a little odd because it is mostly used for each of these countries to trade directly with China. The other countries do little trading among themselves so it puts more power in China’s hands.
While a threat to reserve currency status for the US Dollar, the dollar is still used in a little more than half of all international trades and sits on at least one side of the transaction about 90% of the time. How do you like my googling skills? Maybe you can take some solace in the fact that without the American consumer then none of those countries would have much of an economy. We spend a lot of money so keep doing it and pay cash whenever possible so we don’t have to go fully digital. There’s another rabbit hole so let’s just move on…
Fiat currency is basically fake money and it’s all we have. Don’t get me started on Bitcoin. It’s been nearly a hundred years since we left the gold standard and it has worked fine so far but has gotten exponentially worse over time. Deficit spending is obviously cause for great concern but it has also provided a standard of living we wouldn’t have otherwise. You can complain about Federal deficits and inflation but not without giving it credit for the large investment balances you enjoy. Yes, much of the fiat currency is tied up in investments, bank accounts, and real estate. Everyone from the top to bottom has benefited from welfare in one way or another.
The US Dollar collapsing is a catchy way to talk about it but it really means the bubble popping on every single asset you can think of. Every major corporation is leveraged so what’s the stock really worth? Every bank has a fraction of deposits on hand for the liabilities they carry. Owning your own home is a good thing but you still have to pay property taxes. How do you suppose officials will try to collect if there’s no dollar? Even precious metals have values expressed in dollars so the actual value of that will be determined by its tradeable value with another person. Well I suppose you can transfer all assets to another currency if that’s your concern but China’s the frontrunner so I hope you’re ready to get on board with communism.
Financial assets held with insurance companies by way of fixed/indexed annuities or cash value life insurance are the only thing you can have that isn’t leveraged. Solid backing, dollar for dollar, make these products the best thing to hold for security in a financial system that seems compromised. It won’t be completely immune from a total collapse but these assets will be the last to fall and the best chance at maintaining previous value if or when a new system is created.
If the dollar collapses then it won’t be a pleasant day for any of us. Forget about your money and make sure you’re the first one to loot the grocery store… ha ha! Tangible assets will be the best if this happens but you still need to have cash. Absolutely everyone should own some gold and silver just to use in a pinch and the safest place to hold cash is with an insurance company. While everyone is getting drunk on the stock market and hoping and looking to get an even bigger share of fiat welfare, prudent individuals would be wise to get some cash with insurance companies.
Assets based on fiat currency are nothing more than fiat wealth so preserving it within the same system it was created is likely the only way to do it. Anything else would carry an incredible amount of risk. If you decide to stockpile tangible assets then you’d better have a way to protect and/or transport it and a few willing trading partners. No matter how you look at it, if the dollar collapses we’re all looking at a very different way of life and I’m not so sure that a bunch of money will make a difference.
Let me know what you think…
Bryan
Podcast Episode 156: Collapse of the Dollar
Last Updated on October 19, 2024 by Bryan Anderson
Hello Bryan I hope the day never comes “Collapse of the Dollar” but we never know. You mention owning some gold & silver. What do you recommend as far of form, actual or e traded funds etc? Appreciate your knowledge and willingness to share. I find your newsletter informing.
Physical precious metals is the only way. Any other path requires participation the the fiat system. Buy a safe and/or hid it where no one else can find it.
“Financial assets held with insurance companies by way of fixed/indexed annuities or cash value life insurance are the only thing you can have that isn’t leveraged.”
Hi Bryan. I understand the insurance company asset might not be directly leveraged (i.e. from ‘borrowed’ capital). However, the bonds held by the insurance company that back the asset’s future payments would be leveraged since those bonds are IOUs from other (leveraged) companies and from the federal government (which depends on the ‘value’ of the dollar). If the US dollar were to collapse, wouldn’t that also make those bonds backing the insurance asset less valuable and therefore the annuities and cash value life insurance also less valuable/worthless?
It would be a mess no matter how it happens but bonds at least sit in senior position to stock so any valuation of a company in a new system would favor bonds. Plus, the reserves of insurance companies would create an even bigger advantage.
When should I be looking for the opening of “BRYAN’S GOLD & SILVER BROKERAGE”??
I actually looked into that a few years ago but the company I found required me to put a markup on the price and it felt usurious on my part to do it that way.
But Bryan, how would one benefit from owning precious metals of silver and gold? What could you buy?
Save the physical product to trade in exchange of some new currency? Or even use to barter?
I am essentially saying that the value of silver and gold would only be available for barter. It’s a worse case scenario and not something that should be considered a primary strategy but I know that some people do it that way.
History shows that dynasties come and go…………and thats where the U.S. is now on its way out. Last one was England
So its just the cycle that life goes thru till a stable world is created. Until then, unfortunately, the cycle will repeat.
Unfortunately, this time we have weapons that are much more dangerous than in the past. Right now we are witnessing
the weaponization of the fiat currency. And hopefully thats as far as it goes. But we will be using another currency once
the dollar is dethroned and something takes its place to take us into another currency cycle. Or maybe we will grow up and learn to get along and not have to repeat the cycle. Its not really about a financial question and answer.