I promised in my Monday newsletter that I would cover the dollar crisis topic in its own post, so here we are.
This all really started to escalate back when the Fed kick-started what many on Reddit have deemed the “magic printer”. In The Fed’s frantic scramble to save the U.S. economy, the central bank broke out the ultimate superpower. It works like magic. With a few strokes on a computer, The Federal Reserve can create dollars out of nothing absolutely nothing. Virtually “printing” money and then injecting it into the commercial banking system. Much like an electronic deposit half of Americans have been getting on a weekly basis through their unemployment debit cards. By the end of the year, the Fed is projected to have purchased over $3.5 trillion in government securities with these newly created monopoly coupons. Now if you’re unfamiliar to supply and demand, you cannot have a supply that is made out of nothing, while also having a monetary value behind it. That’s as good as people backing bills from the game monopoly and one of bitcoin’s greatest assets. but America has been doing since we abolished the gold standard in 1933. By doing this Americans are accepting dollars on the faith that the U.S. government says they have value. After 87 years investors and foreign governments are being to notice. The DXY is the U.S. dollar currency index. The index is already down over 3% this month. This is leading owners of the dollar to sell their dollars for everything from gold to bitcoin. Gold, Silver, Platinum, even Copper have been up sharply in the past week. Two leading factors to this gain are, one the dollar weakening which only makes these metals more expensive; the second is a flux of new money being poured into these commodities from the investors worried about the standing of the dollar along with the US economy. Gold is at an all-time high, levels we haven’t seen since late 2011. While bitcoin jumping to 11.2k in just the past couple days from its break out of 10k.
Peter Schiff mentioned an interesting even scarier topic last week on his podcast, based on the rest of the world has enabled America to “live beyond its means” by using the U.S. dollar as a primary reserve currency and loaning money to the U.S., but it’s all “going to come to an end.”
“I think we’re going to see a collapse in the value of the dollar, and when the dollar does collapse, America’s power is going to dissipate,” Schiff said.
This is because the only way the Fed can make sure that government checks don’t bounce, the only way the Fed can continue to suppress interest rates. Is if the dollars that their printing and that they’re using to buy bonds to fund government spending, is if the dollar still has value. only If foreigners are willing to accept the US dollar and hold on to it as we keep printing will it hold value. But the fact that gold is soaring and the dollar is falling should be indicative that we have a problem here. So as our foreign creditors wake up to the reality that the dollar is going to keep declining are they gonna want to hold on to their dollar-denominated debt instruments? America has sold a lot of bonds to foreign savers, foreign investors, not just the US government. Although corporate America and a lot of corporate debt is held by Europeans is held by Asians and the percent returns are not that high. In fact, they are pretty low. If the dollar is losing 5-10% of its value over the next year or two. Why would you want to hold on to a US dollar pod bearing 3-5% interest rate or a US Treasury with the coupon even smaller than that?? The US T-bill isn’t even 2% right now. This is going to lead to everyone around the world to start selling US dollar-denominated bonds. Here’s the kicker! Well, who’s going to buy them? Americans don’t have the money to buy them. The Federal Reserve is going to have to buy them. They’re gonna have to print even more money to buy all the bonds that nobody wants. Which means that the dollar is going to be even lower! The Fed is going to create even more money than they already have. They’re gonna have to do an even bigger QE program to monetize all of that international selling because if they didn’t do that it would cause interest rates to surge. So The Fed will have to go and try to manipulate it. this will be the downfall of it all because as the dollar starts to plunge then not only is there upward pressure on interest rates but upward pressure on consumer prices.