From Peter Reagan at Birch Gold Group
Former President Trump spoke from his Mar-a-Lago home recently, and during that speech he had the courage to say out loud what most has previously been only whispered in Davos and Geneva:
Our currency is crashing and will soon no longer be the world standard, which will be our greatest defeat frankly, in 200 years. There will be no defeat like that will take us away from being even a great power.
He also blamed Biden for “destroying the country,” and has been rightfully critical of the current POTUS on foreign affairs as well as government spending.
Elon Musk also blames Biden’s response to the Russia-Ukraine conflict as well as the Fed’s fiscal policy:
Combined with excess government spending, which forces other countries to absorb a significant part of our inflation
— Elon Musk (@elonmusk) March 29, 2023
I’ve already explained how Biden’s foreign policy blunders pushed nations (especially BRICS) to form payment alternatives to avoid the dollar.
But why do these BRICS and their economic decisions matter?
Group of 8, meet the BRICS
“Group of 8” or G8 refers to the most heavily industrialized (“developed”) nations in the world. Or at least it did, back in 1997. These powerhouses included the U.S. of course along with France, Germany, Italy, the United Kingdom, Japan, Canada, and Russia. With the obvious exception of Russia, all long-time U.S. allies with a vested interest in the status quo.
But thirty years is a long time! (When’s the last time anything happened in Italy or Canada that had global economic importance?) The G8, while still wealthy and powerful nations, now face new challengers: the BRICS.
BRICS is an acronym for large developing nations, up-and-coming economic leaders Brazil, Russia, India, China, and South Africa. As a group, their growth is much more rapid than the G8. BRICS include three of the world’s top ten most productive nations (the other seven are still G8 nations).
Why is Russia on both lists? No idea.
Israel’s economy is larger than South Africa – why isn’t it considered BRICS? Presumably they wanted an easier-to-pronounce acronym…?
BRICS nations have grown quite rapidly over the last few decades – and they have a lot more room to grow. They have the potential and the drive to reshape the global economy for their own benefit.
They have absolutely no interest in relying on the U.S. dollar for their global trade. Why should they? The dollar’s value is entirely contingent on Federal Reserve money-printing and U.S. government deficit spending.
The three most compelling reasons for dumping the dollar aren’t political – in fact, they’re the opposite. Here’s exactly why anyone with a calculator in their hand would make the same choice…
Why dumping the dollar makes sense (by the numbers)
Take a look at the issues with the dollar as a store of value:
- Inflation
- Deficit spending
- The enormous U.S. national debt
These matter to everyone, whether they live in Boston or Bangalore. We’ll briefly examine each.
Inflation
Wolf Richter explains why inflation was at the center of the previous de-dollarization drive:
Back in 1978, the dollar’s share started plunging from around 85% of global exchange reserves as inflation exploded in the US, and other central banks got cold feet holding securities denominated in this stuff. In the 1980s, inflation started to come down. But central banks – and the rest of the world – took a long time to regain confidence in the dollar, and the dollar’s share of reserve currencies didn’t bottom out until 1991, with a share of 46%. Then came the bounce until the euro showed up, which put a stop to the bounce. [emphasis added]
The chart below illustrates Wolf’s little history lesson nicely.
It’s obvious, right? When inflation goes up, dollars lose their value – and around the world, people get a whole lot less interested in owning or using dollars.
Today’s still-hot inflation is already causing central bankers around the world (BRICS and G8 alike) to swap their dollars for something that doesn’t constantly lose value.
Deficit spending
After inflation comes deficit spending.
The federal government is currently running a $724 billion spending deficit for this year. According to the bipartisan tracker updated on March 12, it could have been much worse:
Outlays in the first five months of FY2023 were impacted by unique timing shifts, if not for which the cumulative deficit would have been $787 billion, $311 billion (65%) more than during the same period last year.
The problem with deficit spending is twofold:
1) It requires money-printing
2) It adds to the total debt the U.S. owes
Imagine getting a personal loan from the bank to finance your spending. If you have a good credit history, they’d probably loan you the money. You even make your payments on time. Then next year, you go to the bank for another loan. And another. And another. For twenty years!
How many times could you do this before the bank finally said, “Haven’t you borrowed enough money?”
That’s the issue the federal government faces right now – after spending exceeded its income every single year since 2001!
Politicians spend money like it’s free – but it isn’t. Like any loan, borrowed money has to get paid back. (While it’s true there are no debt collectors between nations, historically, wars have started over bad loans… who needs a collections agent when you have an army?)
Furthermore, every loan the nation takes adds up to the largest debt pile in the history of civilization…
$31.5 trillion national debt (and counting)
We’re all aware of the soaring national debt.
Like anyone with a debt, our nation could choose to pay it off. Either through increasing taxes or increasing spending (obviously I’d prefer the latter approach). Eliminating the nation’s debt burden only requires the leadership and political will to make it a priority.
Unfortunately, we don’t have that. We’re stuck with an administration that believes the best way to solve any problem is to throw money at it – the more, the better! Spending a lot of taxpayer money must mean you’re really serious, right? The administration also believes that the best way to keep voters happy is to – you guessed it – throw money at them…
The more our nation’s debt piles up, the more government spends, the more a loan to Uncle Sam looks like a bad idea to nations around the world.
Politics aside, honestly, those three economic forces – inflation, deficit spending and debt – are strong arguments against owning dollars.
Fortunately, there’s an alternative.
Central banks smash gold-buying records
I hope you can understand by now why other nations are skeptical of the dollar as a store of value.
Over time, the dollar’s importance on the global stage will continue to fade. I’ve explained the reasons why. Instead of hoping for a miraculous recovery, central bankers around the world are hedging their bets, diversifying their national reserves with record-breaking quantities of gold.
As The Economist explained:
…this is because gold, snubbed in good times because it generates no yield, recovers its shine in times of volatility and high inflation. In the long run, it is seen as a store of value and, not tied to any individual economy, seems immune to local political and financial turmoil.
A store of value through volatility and high inflation – that’s not tied to the dollar’s dominance, and weathers political and financial crises? No wonder central banks historically rely on physical gold bullion as a stable foundation for their economies.
If you also think your personal economy could benefit from a more stable foundation, you can do what the world’s central banks are doing, on a smaller scale. You can diversify your savings with physical precious metals.
It’s easy to get started – you can learn more here. While you’re at it, take a moment to learn about silver, too. Wouldn’t it be nice to stop worrying about the next economic crisis and just get on with your life?
If nothing else, you’ll sleep better at night knowing your financial future doesn’t depend on the success or failure of the U.S. dollar.