For our entire lives, it has always been assumed that the United States Dollar, the greenback, was so strong it would be the unquestionable reserve currency of the world. Other countries around the globe transacted in the dollar because it held a position of prominence. When the economies of other countries stumbled or failed, the US economy kept chugging along. There is no need to go into a history lesson about leaving the gold standard entirely in 1971. There is no need to discuss the Federal Reserve lowering interest rates, ordering the printing of more money, and selling debt to foreign countries. There are other videos I and others have done about this. Suffice it to say that the added pressure of borrowing and printing more money today and swelling the balance sheets to bail out businesses and citizens compounded by a dramatic decrease in production and a slow recovery time have combined to threaten the greenback’s strength and longevity dramatically. Add to that what the rest of the world perceives as a coup attempt, and the dollar’s position shrinks a little more each passing day.
In this blog, we will examine the aftermath of the dollar, losing its reserve status. We will explore some of the possibilities leading up to this, the growing elements that bring this closer to reality, but I want to examine the aftermath and how you might protect yourself and prep. While many experts believe that the dollar will inevitably retain its vaulted status, there are more than a few who are warning that it will not. We need to prepare for the worst and hope for the best. Even if it doesn’t fully play out, we can better see the effects of an economic collapse, and we will be prepared accordingly.
1- Hoarders & Movers
In any currency’s decline, there are two types of people- Hoarders and Movers. Hoarders are the type who are left holding the bag. Though that bag may be stuffed with currency as they collect even more cash cheaply on its decline, the money becomes worthless if the bottom ultimately falls out. Anyone even remotely versed in history and understanding the Weimar Republic will understand this hoarder mentality. It is exemplified by what turns out to be misplaced confidence in a currency fated to perish. If you don’t know what I am talking about here, I would invite you to look at some of my other videos on the dollar, hyperinflation, or just google the term “wheelbarrows of money.” Your hoarders don’t need to be trying to accumulate more money as a currency evaporates in value. They could just sit on their money. This has the effect of slowing the flow of money and increases the drag on an economy since economies thrive on transactions. Either way, the hoarder is typically the person with a bunch of worthless currency.
More exciting is the Mover. This person finds ways to pull their money out of the fiat currency and translate it to other mediums perceived to have more value. That could be anything really with value, but it has traditionally been gold or long term bonds. Unlike in prior years, more than one alternative to the dollar exists. Gold and other precious metals were once the go-to alternatives for investors, and many have gone that route since Goldman Sachs issued their bold warning in July of 2020 that the dollar was in jeopardy of losing its vaulted status. Gold has always been the alternative because it can be converted back to any country’s currency with just a short lag time. If the dollar collapses but the British Pound or even the Zambia Kwacha is healthy, an investor could transfer their ounces of gold to that currency in a few days. In a way, gold is a global currency. You may have a hard time realizing its full value if you walk into a market to buy groceries with an ounce of gold; however, it is so valued and respected, you could probably find someone willing to pay in the local currency for all your groceries in exchange for that one ounce. The problem, of course, is that the speed of conversion is slow by today’s standards.
The second problem with gold is related to this. It’s the velocity of money. A one-hundred-dollar bill, for instance, can change hands from transaction to transaction. Precious metals, though, are usually housed by a third party and sold or exchanged on another platform. Transactions seem relatively instantaneous, but they are slow by today’s standards, and the possessor of the precious metal is indebted to both the holder and the transacter of their metals. If a large sell-off occurs, your transaction could be delayed as larger holders are serviced. This is true for people trying to convert dollars that are rapidly losing value into gold. By the way, when people leave the dollar, the cost of gold increases dramatically. This has been happening steadily for quite some time now. The government and banks can throttle back or halt transactions if they observe a large scale exodus that could lead to an economic collapse. They’ve done it before. So, while both the dollar and gold have some velocity, that velocity can be stopped completely. Picture it similar to how the stock market will halt trading during periods of large scale sell-off. Even currency to currency exchanges can be suspended or slowed by the enormity of clamoring investors and competing transactions.
Since 2009 there has been a new player on the block, though, that functions predominantly outside of many government regulations and prides itself on being outside the slow-moving banks. The new kid on the blockchain is cryptocurrency. Governments have been trying to regulate it while not impeding its progress. Like any disruptive technology, there is an adoption life-cycle that begins with innovators, then early adopters, then early majority, then the late majority. Cryptocurrency, in my opinion, is somewhere in the early majority phase. In just the last year, it has been given more validity through extensive platform adoption, allowing everyday citizens to make transactions. Still, it has cost the currency some of its users anonymity in exchange. Now, though, anyone can purchase vetted cryptocurrency through their PayPal account. Some pending lawsuits will determine whether cryptocurrency gets inevitably treated as a security or not, like stocks, but this is just part of the regulatory apparatus of governments trying to reign in the rampant growth and adoption of nearly instantaneous transactions conducted anonymously outside of acceptable banking practices. It ends up not as relevant to us as the fact that it isn’t going to go away, even with a growing regulatory climate.
Cryptocurrency plays a critical role in the decline of the dollar because it allows for vast amounts of money to leave the dollar and move to virtual currency that can then be converted into other securities or other currencies. A departure from the dollar that may have taken days can be completed in just a few hours and at a much larger scale. In June of 2020, the 2,000 cryptocurrencies accounted for 121 billion dollars. That is a mere 2.4% of all physical fiat money. Bitcoin alone has grown almost 400% in value since that time, so are we now already at nearly 10% of all physical fiat currency in less than a year? Add to this that there are thousands of cryptocurrency coins in a market that tops one trillion dollars, and it is clear to see that investors and holders of fiat currency in governments they have shaky confidence or trust in can rapidly move their money out of those fiats exacerbating the fiat currency’s decline in value. One final cryptocurrency threat to consider is that the currency owners, not any central bank, determine the currency’s course and regulations. If a cryptocurrency is tied or pegged to the dollar in any way, it would be a challenging but not an impossible task to peg it relatively quickly to any other global currency that most of the cryptocurrency’s holders deemed to be more reliable. And, just like that, the greenback could be thrown over a cliff.
Whether the movers choose bonds, other currencies, gold, or crypto, if they smell blood in the water, they now can move vast amounts of money in very little time outside of the US government’s ability to pump the breaks. Never before has there been the ability to convert as rapidly in such vast quantities and mostly outside of the government’s ability to control it. When the low-pressure system is on its way, more rain is in the forecast, the news predicts the storm of the century, and the dams are already brimming with previous rain. Do you stay in your home on the low plains or get to higher ground for a little while?
2- How It Will Play Out
To know how it will play out, one only needs to look at how it is currently playing out and extrapolate that out further. Already Gold went from $1500 to $1900 since the start of the pandemic crisis. As a measure of all cryptocurrency, Bitcoin moved from eight thousand dollars to just shy of forty-thousand dollars. The DJIA went from a low of 18,591 to over 31,000. Movers of money, both everyday people with a little extra cash to invest and outright whales, found solace in securities over merely leaving cash in their bank accounts. They found comfort in gold and cryptocurrency. They set the course for abandoning the dollar. In essence, they tested their escape routes in numbers never seen before. If these escape routes off the dollar’s ship continue to increase, and if complications like a lasting pandemic and civil unrest continue to drag on the US economy, the dollar could eventually collapse.
Watch for gold and cryptocurrency to rise in price. Yes, also watch for investors flocking to bonds, but in a collapse, I think this will be less pronounced. Watch for any country’s central bank to make a large declaration away from the dollar. Watch for the United State’s credit rating to get slashed again. Watch for a large scale cryptocurrency rise, which we know is an exodus. Watch for prices suddenly to jump or a freeze on loans and credit. Any of these may be an indicator we are on a precipice. Several of them together indicate we are already over the precipice and in free fall.
The dollar is held in massive quantities by central banks worldwide and is used for large transactions, such as oil, grain, manufactured goods, and raw materials. The dollar becomes stronger when central banks and investors acquire dollars in exchange for other currencies. As countries face their health crises and slow their production, their transactions outside their country become fewer. They turn to their own fiat currency. Their citizens, just like Americans, are looking around for a stable currency if they perceive their currency is weakening. The difference now, though, is America’s monetary policy hasn’t been that great over the last few decades. America is engulfed in political strife that has risen to the level of armed citizens attempting to kidnap leaders, riots in the streets, the burning of state buildings, occupations of state and federal buildings, and agitators bent on stopping the processes of government. You would be naive to think that foreigners who once would invest in the US dollar are inclined to do the same in the current climate, and the strength of the American greenback is built upon those foreigners willing to invest. So, expect central banks worldwide to seek to move off the dollar and dump their practices of buying up US debt. When that stops or even slows dramatically, the greenback will be in a death spiral, and the Fed is entirely out of options to stop it, having opened all the valves and used all the tools in its inventory to get to this point. When interest rates are so low already, where does one go? We saw a similar death spiral when oil dropped into negative numbers on the world stage.
At home, interest rates skyrocket. When interest rates go up, people can no longer get loans. It costs more to borrow money. The economy slows further as a result. When farmers and producers can no longer sell their product at home or abroad for a reasonable price, they are more inclined to let it go to waste. Look up what the Milk Strikes of 1933 to get the context of that. The fact is, though, if farmers cannot profitably harvest their crops, they are more inclined to let it rot and take the insurance and government assurances. That’s great for them, but it leaves you without milk or food in your market.
This final point is inflation. Many will argue between the exact type of inflation that would occur. Personally, I don’t think the type matters much because the effect on the consumer is mostly just bad. Stagflation, walking inflation, core inflation, asset inflation, even deflation on a large scale are all bad for you and me– everyday joes. As consumers who expect some regulated prices and confidence of distribution, any “flation” is bad. The most likely occurrence in a spiraling dollar is deflation where an asset bubble falls, as in the housing market of 2008. Or, it’s hyperinflation, where prices skyrocket more than 50% in one month. That would be like the price of milk going from 3 dollars a gallon to 4.50 a gallon. It’s not unimaginable.
These two factors of inflation, however, can spiral around in the same universe. If the dollar loses all value, there is a world where dairy farmers cannot sell their products, and the price of milk skyrockets. Then, milk becomes unavailable altogether. Finally, there’s stagnation where the economy is stagnant, and the prices rise. Prices are going up despite low demand. It happened in the 1970s when the United States abandoned the gold standard. Once the dollar’s value was no longer tied to gold, it plummeted. At the same time, the price of gold skyrocketed. That’s pretty similar to what we would be seeing with the dollar collapsing. Regardless of the type of “flation” you get, it spells bad for food and staple product prices. It threatens the easy flow of systems from farm to table. It’s even worse and drawn out longer when there is large-scale unemployment like we are experiencing today.
The fact is that when we lose a system, we have relied upon since birth, we have to struggle to find our footing. It is incredibly likely that the dollar could lose its vaulted status this year. If it does, the impact on our markets could be unprecedented. The strength of the dollar worldwide is tied directly to other countries around the globe willing to use it. If you have a choice between two or more roads to get to the same destination, but one of those roads that used to be a highway hasn’t been maintained in years, has deep potholes and an occasional washed-out place, and it just rained, which route are you going to want to take? Which road would an investor take if there are no smoother options?
3- Preparing for the Worst
Prepare for the worst, but hope for the best. Here, too, we have to adopt that philosophy. It is very late in the game for our leaders and politicians to avert the path that the dollar has been on for several years. We will all suffer to some extent if the dollar free falls. How much you suffer in that crisis is up to you.
If you have money in your bank account that you are just sitting on, you may find yourself in the hoarder category I mentioned earlier. I am not a financial advisor, so I can only tell you what I and many preppers I know are doing. You can use this video and this channel as one of the sources you consider to educate yourself on the best path to take with your money. I have other videos on this channel on how and where to get precious metals. I have videos on alternatives to the dollar and even cryptocurrencies. Use those to learn how to insulate yourself. If you have the money you want for when you finally get to the recovery phase, whatever that looks like, you should have some in cryptocurrency and some in precious metals. You won’t be able to use an ounce of gold or an Etheruem crypto token to buy a can of beans at the store. However, you may still be able to convert those to any other country’s currency or back into the dollar during the recovering phase and re-establish yourself better than ever.
This is assuming you have investable money on hand. Many Americans don’t. Many Americans are living paycheck to paycheck and don’t have enough cash on hand to cover rent, utilities, and food for three to six months. That is the reality we live in today. For those people, you will still want to look at those videos in this channel’s archive, as I try to advise the average person learning to prep and the long-time prepper seeking to expand their knowledge. Whatever money you have on hand, you will want to invest it in durable goods or free yourself from indebtedness if a death spiral of the dollar is on the horizon. Paying off a car you may find yourself living in will be a better return on investment than hoarding your money in your savings account that pays you barely any interest. If we ever get to the point where you have a wheelbarrow full of worthless dollars, remember that your loans are not typically scaled. If you owe 100 thousand on something, the dollars may not be worth the paper they’re printed on, but they will still be capable of paying off that loan statement. The bank loses out, not you.
So, what can you do? First and foremost is always to have your food and water prepped. Have an alternative means to collect and purify water if your area’s water system is ever compromised or stops altogether. Remember that these critical systems require regular maintenance and monitoring. When people are laid off and that monitoring and maintenance fall off, the systems are more likely to fail catastrophically. Add to that the regular natural disasters we face every year, and you could see less of a nudge and more of a push towards failure. Second, understand how to barter and what supplies have more value than others. When the dollar fails, some items will skyrocket in value and demand. When the food or fuel lines are long, you may get a whole lot more in trade value with a mason jar full of beans or rice than you will with all the cash you can muster.
Next, develop a reusable mentality. Use strong, durable goods, and figure out how to repurpose items. Stop throwing things out. You will have to stretch any item’s use out well beyond its normal life expectancy in a total economic collapse. Cultivate your talents. If you find yourself without a job, what other skills can you bring to bear that can get in either money or goods in payment. Can you sew or fix an engine? You need to look for opportunities to do those things that will keep resources coming into you. Learn to hunt, fish, garden, or forage. If the dollar spirals down to worthlessness, you will still need to bring food to your table. Just like cooking, these are not prepper skills you can pick up overnight. If you don’t know how to fish or where the fish are, you will likely not catch anything. If you don’t know where that wild berry patch is, you may have trouble finding food.
My final tip for you is to begin now to cultivate a sense of community. Whether that is a network of friends, a mutual assistance group, or getting to know your neighbors on your cul-de-sac, or burying the hatchet with people you may have fallen out with in the past and striving to find common ground. Your odds of survival increase exponentially when you band together. Neighbors sharing resources for a potluck can lead to further exchanges and barters that can lead to everyone having what they need to survive a long period of economic decline. A united cul-de-sac or apartment floor can keep the wolves at bay and provide support for many. I always have to put the caveat on this one that you should never reveal the extent of your stores and prepping, lest you become the sole provider for everyone. Use your resources strategically and if you want to give any of them away, make sure you get something in exchange and demand confidentiality.
As a prepper, we don’t need a crystal ball or precise forecasting of the future to know what we need to prep for right now. Will the dollar lose its value this year? We can’t say with certainty. It has survived before; but, we can say with confidence that there have never in the past been so many other viable options. There have never been such rapidly accessible transactions available to people around the world. Such a perfect storm has never been accompanied by such a long and horrible monetary policy period, a global recession, and an ongoing pandemic. Will the storm hit us directly, or will we be spared its fury? Again, we don’t know, but we would be foolish not to prepare when we see such massive storm clouds on the horizon.
As always, please stay safe out there.