The Dollar's Demise

Will it be a gradual weakening over many years, or will it be brought down suddenly by some unexpected surprise event?

As the US weakens, the dollar’s global dominance would be expected to weaken with it. So far, there is no significant alternative to the dollar as a reserve currency, and the dollar is also holding its own against all the other fiat currencies in the world because they are no better than the dollar; in fact, they are all still pegged to the dollar.

But in recent years, confidence in the US military, fiscal stability, and global leadership has been deteriorating. If that trend isn’t turned around, then it’s just a matter of time before the US will lose its standing as the greatest power in the world.

History is the story of the rise and fall of great nations. There are few who would argue that the US greatness has been declining.

Bill Bonner writes in Bonner Private Research, 6/14/24: “How, when, why does a great empire die? The US/Anglo/Western empire seemed to peak out around 1999. Since then, despite record highs in nominal terms, US stocks and bonds have lost ground in real terms — measured in gold. This has happened against a background of soaring debt — from $5 trillion to $35 trillion of government debt alone — which was supposed to ‘stimulate’ growth.” 

If the decline continues, sooner or later the dollar as a reserve currency will be replaced by something else, although I’m not a prophet and don’t know how many years that would take.

Stu Turley’s Energy News Beat ran a very well balanced essay on the dollar written by Mariel Alumit, 6/11/24. The bottom line is that the dollar’s status is not going to change any time soon, and this is probably right.

However, I can think of 3 things that could upset the applecart.

One was mentioned in passing by Mariel Alumit - the digitization of gold. when you think about it, about 99% of dollar transactions are digital. Gold, on the other hand, has been treated more as a physical commodity for thousands of years. It could be used as money, or a store of value, but there have always been drawbacks compared to fiat money. Things like storage and fees, inconvenience in handling, difficulty of denominating in small amounts, risk of theft, the fact that it pays no interest, and,as a commodity, fluctuations in price in relation to other alternatives.

But if it’s digitized, couldn’t it be just as easy to use as a fiat currency? The one remaining difference would be that the supply would be finite and pretty close to constant, or a slow but limited increase due to the constraints of mining.

So I see digital gold as a potential. Gold already has the advantage of global acceptance, in fact, more accepted than any currency tied to any one nation. Nations come and go, but gold endures. I realize that digital gold replacing the dollar seems a far out possibility, but it’s something to think about. No government will like the constraints of being tied to gold, but a global collapse of fiat currency or some other financial crisis could bring about the change.

That brings us to the 2nd possibility. Bitcoin. Like digital gold, BTC is not tied to any one country, so it the potential to become universal. Or perhaps some other cryptocurrency, like Ethereum (ETH) would be more suitable, because BTC currently is not scalable as a universal currency because of the slowness of transactions and the transaction fees. But the potential is there, and if the transactions difficulties could be overcome by technological improvement, it has some advantages over fiat currency. BTC in circulation is close to its programmed limit of 21 million digital coins, and after that, the quantity is fixed. Inflation, an invisible tax, would be no more. That might sound pretty good if our fiat currency morphs into runaway inflation.

The 3rd possibility that could upset the dollar’s status quo is a total transformation of the nation and its government, possibly by a coup d'état, by revolution, or by conquest. I hate to mention the unthinkable, but if the US is thusly transformed, then most likely the new nation would have its own currency with no regard for the dollar.

The new trading alliance between Russia and China, has come about as a result of the US’s foolish support of the Zelensky dictatorship and our accompanying proxy war against Russia, even now to the point of allowing US weapons to be used by Ukraine to attack Russia itself, along with the similarly foolish and reckless use of sanctions.

The G7 conference in Italy Monday and Tuesday 6/10-11/24 even went so far as to further aggravate Russia by resolving to “utilize frozen Russian assets in their continued support of the war in Ukraine”. The US, as part of the G7, promised to loan 50 Billion dollars to Ukraine, using Russian assets as collateral. That means if Ukraine defaults on the loan, and I would guess that’s highly probable, then the Russian assets will be confiscated, which would be an immoral and illegal international theft.

Russia will not be pleased. She will undoubtedly retaliate. As Jim Rickards posted 6/17/24, “Speaking the day after the G7 decision was announced, President Putin vowed that the move "would not go unpunished". This retaliation could impact the billions that European investors have in funds stuck in Russia.”

Update 6/22/24, also from Jim Rickards:

The rest of the week continued in the same vein. Stu Turley’ Energy News Beat tells how even more sanctions are being thrust at Russia. Sanctions on shipping and LNG exports. It’s all a consequence of the West’s unrelenting support of the Zelensky dictatorship in Ukraine.

Russia and China are not our allies, and together with Iran the coalition could be a formidable enemy. The US is vulnerable, having already run up so much debt that the economy is under a great strain, and having wasted our military weapons and ammunition by sending so much to Ukraine, and at the same time allowing our military leadership to be politicized and distracted by such non-military things as wokeness. Another disaster in the making is the idea of electrifying our military vehicles, if it’s carried to the extreme of weapons in the field, although I don’t think anyone is stupid enough to do that.

Doug Casey’s Take has been writing several short essays on the dollar’s demise. He reposted a chart I’ve seen before; can’t remember where - it’s a very interesting history of national currencies and how long they lasted. The dollar has been on top for about 100 years, and as Doug says, it’s getting a little “long in the tooth”.

Many bible scholars see in prophecy a coalition of Russia, China, and Iran, along with Turkey, Ethiopia and Libya launching a massive attack on Israel. (The US is not in the prophecy.) It’s in Ezekiel 38:1-6:

“The word of the Lord came to me: ² “Son of man, set your face against Gog, of the land of Magog, the chief prince of Meshek and Tubal; prophesy against him ³ and say: ‘This is what the Sovereign Lord says: I am against you, Gog, chief prince of Meshek and Tubal. ⁴  [Meshek and Tubal are believed to be Russia] I will turn you around, put hooks in your jaws and bring you out with your whole army—your horses, your horsemen fully armed, and a great horde with large and small shields, all of them brandishing their swords. [military weaponry, symbolically] ⁵ Persia, [Iran] Cush [Ethiopia] and Put [Libya] will be with them, all with shields and helmets, ⁶ also Gomer [northern Europe?] with all its troops, and Beth Togarmah [Turkey] from the far north with all its troops—the many nations with you.”

Now as I write this Tuesday 6/18/24 Vladimir Putin is meeting with Kim Jong Un of North Korea. So it is somewhat disconcerting to see Russia, China, Iran, and Turkey and North Korea meeting and trading with each other on friendly terms when none of them is fond of the US. The US may not always be the top dog in the world.

The point is that it’s not out of the question that the US could be knocked off her high horse.

So in conclusion, the US dollar could go bye-bye and be replaced by a digital form of gold, or a digital cryptocurrency, or by coup d'état, revolution, or conquest.

Just as there is no such thing as an investment without risk, it’s also true that there is no absolute security in this life in this world. Put your faith in God.

“It is better to take refuge in the Lord Than to trust in man.” Psalm 118:8

“When I am afraid, I will put my trust in You.” Psalm 56:3

“The steadfast of mind You will keep in perfect peace, Because he trusts in You.” Isaiah 26:3

“Blessed is the man who trusts in the Lord And whose trust is the Lord.” Jeremiah 17:7

“The Lord is good, A stronghold in the day of trouble, And He knows those who take refuge in Him.” Nahum1:7

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