USD Currency Collapse – Possible?

[GuestUser4aMPs1]

It's 2020...

– The Federal Reserve is set to borrow a record $3 Trillion in this Quarter alone.
– The FED has also printed and thrown trillions of dollars at the COVID problem.

The USD has been fiat since 1971 when the FED took it off the gold standard.

The dollar is backed by...drumroll...nothing!

...Meaning, the government can keep inflating its currency until it's worthless, and/or write new monetary policy.

My understanding of this subject is limited, but I know @Kak holds Gold as a currency hedge, and people like @JScott might have $0.02 to share...

Does anyone believe we have a currency crisis on our hands within a short-term future?

 

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[lowtek]

There are a number of possible scenarios for the 2020s, but I don't see the United States as we know it surviving to the end, in any of them.

Massive debt, social unrest, an ambitious China, aging population and a weak populace all spell trouble.

I'm betting a currency crisis is part of our next decade, but I'm far from an expert on the topic. It just seems to me that mathematics dictates this can't go on forever, and the coronachan seems to have accelerated the process.

 

[JamesQB8]

Pretty much every country in the world is printing money and the USA may be one of the cleaner shirts in the dirty laundry basket.

Dollar could collapse in 10-15 years but probably not anytime short term. Could definitely see high levels of inflation soon though.

Could buy some Gold/Silver and BTC (speculative) to hedge yourself somewhat against inflation.

 

[Deleted78083]

Great question, to answer it, we need to understand what makes a currency desirable and that has a lot to do with what the economy is as well as the political system.

The economic importance:
Let's imagine that country A is the only country where you have oil and all the other countries need it. Country A's currency is highly unlikely to crash because everyone needs country A's currency to buy oil → the importance of a currency has a lot to do with (1) what the economy makes, (2) the size of the economy.

Brazil, for example, mainly exports raw materials. If Brazilian currency gets more expensive, I'll go get raw material where it's cheaper → Brazilian currency is not worth much because there is nothing in Brazil that I can't get elsewhere. The US, however, is not like that, there are many services or products I can only get there, which makes the dollar an important currency.
Indeed, it is simply almost impossible for anyone in the world to avoid the US economy because it is so big and produces so much. It is that big in fact, that the US dollar makes about 70% of world currency, and it is not rare to see two companies from two different countries that have nothing to do with the US selling and buying goods in USD. Why? Because (1) they know they will need USD at some point and (2) they probably sell in the US, get paid in USD and therefore have USD to buy stuff with.

"But Monfi, what about China then?"
Are you familiar with the impossible trinity? The impossible trinity is a macro-economic theory that says that a country can choose between three artifacts for its economy:
1. free capitals entering and leaving the country
2. fixed foreign exchange rate (deciding that your currency is worth x USD, for example, and maintaining it that way through currency volume control)
3. free monetary policy (printing money, or burning it at will).

While most of developed economies chose to have free capital flows and free monetary policy, it means they won't be able to control the price of their currency against other currencies. China is different, they want to control the price of their currency, they want to keep it cheap so the economy can export and the CCP can buy social peace. Since they want a fixed exchange rate and free monetary policy, they have no choice but to control capital: you can't randomly come to China with money, nor can you leave China with money. Since China is artificially lowering their currency (China IS indeed a currency manipulator, and has been so since Mao), no one wants to trade in renminbi because, well, its worth depends on the mood of Xi. There is though, with China, another element: the renminbi you have doesn't belong to you, but to good ol' uncle Xi, and that is because the inextistence of rule of law.

The political importance:
You won't have passed off the fact that China is not a democracy, that the judiciary, the executive and the legislative are all in the hands of the CCP and that if China wants to seize any house/company in China tomorrow, they can. That's because in China, there is no rule of law. It means that what Chinese have in China does not actually belong to them it belongs to everyone because we are a communist country, and private property doesn't exist. Ha, you wish. The part where I say that Chinese's assets don't belong to Chinese is correct, but it's not because it belong to everyone: it belongs to the government. As such, the Chinese government can seize any Chinese' assets at any time. That explains Chinese's propensity to invest oversea (Aussie, Kiwi and Canada's real estate greatly suffered from it). If a Chinese buys an appartment in Sidney, that appartment belongs to him/her. Chinese's assets oversea are a guarantee against a potential seize of assets in China, provided, of course, that you manage to escape the country before uncle Xi catches you.

In the US, there is rule of law, and the government can't just come seize your house because you uploaded a Winnie the Pooh meme on Weibo, and even if they do, you can go to a judge and the judge will look at the law and say "the US government can't do that". Rule of law is a beautiful thing, it protects you against your own government.

So what it means is that when I own renminbi, they don't belong to me because that's what China prints, and that belongs to China because there is no rule of law. When I own US dollars, I own them, no one can take them away from me, not even Xi.

What happened when the stock market crashed
When the stock market crashed, JPow rolled up his sleeves and got to work by pushing on the "on" button of the money printer. His unlimited money printing (fancily called "Quantitative Easing") bailed out the financial market (which is illegal, but well, we'll talk about it another time) and US companies at the same time. Now, you might think that with unlimited printing, the volume of USD increases and it must therefore lose value...well, yes, the volume of USD increases, but no, it doesn't lose value.
As we said, the value of a currency depends on the extent to which how many people want it, and how much they want it. When worldwide markets crashed, there was a shortage of USD, everyone was looking for them because the economy had virtually stopped. The fact that the world uses dollars and that the world was looking for dollars allowed JPow to order an unlimited amount of ink and paper on Amazon, which is why the Amazon stock shoot to the stars like that (i'm kidding). I mean that it allowed JPow to print a lot of money without fearing devaluation because the entire world was looking for dollars anyway, even more than usual because financial markets had crashed, and when everything is crashing, people have more faith in the US economy than in their own economy → while most currencies lost value, the USD gained value (and has since slightly decreased) during the months of March and May.

What now?
The USD is unlikely to lose value, unless the world loses faith in the US economy which it won't because in times of crisis, 'merica looks safer than all the others (well, unless JPow prints really too much money).

In terms of other currencies, the Pound will crash because of Brexit, Scottish independence, negative balance account, mismanagement and very soon, social unrest. The Japanese economy is not growing as the country battles with a tragic lack of demography renewal. As for the Euro, there is always the problem that it is a currency adopted by a bunch of sovereign countries that could tomorrow decide to leave it or worse, expel a country from it. As such, the Euro is only as strong as EU countries (*cough* Germany *cough*) keep it. In fact, things are about to get ugly as a very big f*cking meteorite called "Italy's debt" is approaching the Old Continent at light speed, but well, that story will be for another time.

Edit: If I forgot something, please tell me, I only know as much as I read

 

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[Niels PL-89]

In fact, things are about to get ugly as a very big f*cking meteorite called "Italy's debt" is approaching the Old Continent at light speed, but well, that story will be for another time.

Great read.
Looking forward to this story!

 

[Tipoki13]

Great question, to answer it, we need to understand what makes a currency desirable and that has a lot to do with what the economy is as well as the political system.

The economic importance:
Let's imagine that country A is the only country where you have oil and all the other countries need it. Country A's currency is highly unlikely to crash because everyone needs country A's currency to buy oil → the importance of a currency has a lot to do with (1) what the economy makes, (2) the size of the economy.

Brazil, for example, mainly exports raw materials. If Brazilian currency gets more expensive, I'll go get raw material where it's cheaper → Brazilian currency is not worth much because there is nothing in Brazil that I can't get elsewhere. The US, however, is not like that, there are many services or products I can only get there, which makes the dollar an important currency.
Indeed, it is simply almost impossible for anyone in the world to avoid the US economy because it is so big and produces so much. It is that big in fact, that the US dollar makes about 70% of world currency, and it is not rare to see two companies from two different countries that have nothing to do with the US selling and buying goods in USD. Why? Because (1) they know they will need USD at some point and (2) they probably sell in the US, get paid in USD and therefore have USD to buy stuff with.

"But Monfi, what about China then?"
Are you familiar with the impossible trinity? The impossible trinity is a macro-economic theory that says that a country can choose between three artifacts for its economy:
1. free capitals entering and leaving the country
2. fixed foreign exchange rate (deciding that your currency is worth x USD, for example, and maintaining it that way through currency volume control)
3. free monetary policy (printing money, or burning it at will).

While most of developed economies chose to have free capital flows and free monetary policy, it means they won't be able to control the price of their currency against other currencies. China is different, they want to control the price of their currency, they want to keep it cheap so the economy can export and the CCP can buy social peace. Since they want a fixed exchange rate and free monetary policy, they have no choice but to control capital: you can't randomly come to China with money, nor can you leave China with money. Since China is artificially lowering their currency (China IS indeed a currency manipulator, and has been so since Mao), no one wants to trade in renminbi because, well, its worth depends on the mood of Xi. There is though, with China, another element: the renminbi you have doesn't belong to you, but to good ol' uncle Xi, and that is because the inextistence of rule of law.

The political importance:
You won't have passed off the fact that China is not a democracy, that the judiciary, the executive and the legislative are all in the hands of the CCP and that if China wants to seize any house/company in China tomorrow, they can. That's because in China, there is no rule of law. It means that what Chinese have in China does not actually belong to them it belongs to everyone because we are a communist country, and private property doesn't exist. Ha, you wish. The part where I say that Chinese's assets don't belong to Chinese is correct, but it's not because it belong to everyone: it belongs to the government. As such, the Chinese government can seize any Chinese' assets at any time. That explains Chinese's propensity to invest oversea (Aussie, Kiwi and Canada's real estate greatly suffered from it). If a Chinese buys an appartment in Sidney, that appartment belongs to him/her. Chinese's assets oversea are a guarantee against a potential seize of assets in China, provided, of course, that you manage to escape the country before uncle Xi catches you.

In the US, there is rule of law, and the government can't just come seize your house because you uploaded a Winnie the Pooh meme on Weibo, and even if they do, you can go to a judge and the judge will look at the law and say "the US government can't do that". Rule of law is a beautiful thing, it protects you against your own government.

So what it means is that when I own renminbi, they don't belong to me because that's what China prints, and that belongs to China because there is no rule of law. When I own US dollars, I own them, no one can take them away from me, not even Xi.

What happened when the stock market crashed
When the stock market crashed, JPow rolled up his sleeves and got to work by pushing on the "on" button of the money printer. His unlimited money printing (fancily called "Quantitative Easing") bailed out the financial market (which is illegal, but well, we'll talk about it another time) and US companies at the same time. Now, you might think that with unlimited printing, the volume of USD increases and it must therefore lose value...well, yes, the volume of USD increases, but no, it doesn't lose value.
As we said, the value of a currency depends on the extent to which how many people want it, and how much they want it. When worldwide markets crashed, there was a shortage of USD, everyone was looking for them because the economy had virtually stopped. The fact that the world uses dollars and that the world was looking for dollars allowed JPow to order an unlimited amount of ink and paper on Amazon, which is why the Amazon stock shoot to the stars like that (i'm kidding). I mean that it allowed JPow to print a lot of money without fearing devaluation because the entire world was looking for dollars anyway, even more than usual because financial markets had crashed, and when everything is crashing, people have more faith in the US economy than in their own economy → while most currencies lost value, the USD gained value (and has since slightly decreased) during the months of March and May.

What now?
The USD is unlikely to lose value, unless the world loses faith in the US economy which it won't because in times of crisis, 'merica looks safer than all the others (well, unless JPow prints really too much money).

In terms of other currencies, the Pound will crash because of Brexit, Scottish independence, negative balance account, mismanagement and very soon, social unrest. The Japanese economy is not growing as the country battles with a tragic lack of demography renewal. As for the Euro, there is always the problem that it is a currency adopted by a bunch of sovereign countries that could tomorrow decide to leave it or worse, expel a country from it. As such, the Euro is only as strong as EU countries (*cough* Germany *cough*) keep it. In fact, things are about to get ugly as a very big f*cking meteorite called "Italy's debt" is approaching the Old Continent at light speed, but well, that story will be for another time.

Edit: If I forgot something, please tell me, I only know as much as I read

Yup USD is the reserve currency of the world and there was (and still is) a major shortage of it.

Also Germany is beginning to buckle now too. The German economy is heavily reliant on one industry, the automobile industry. And when you factor in that 70+% of car sales go to China, and these sales dried up immensely over Covid, it's not going to end well.

For anyone interested in the macro economy follow Jeff Snider, he's a genius. He has an excellent series on YouTube called "Making Sense of Eurodollar University". I highly recommend

 

[GuestUser4aMPs1]

Great question, to answer it, we need to understand what makes a currency desirable and that has a lot to do with what the economy is as well as the political system.

The economic importance:
Let's imagine that country A is the only country where you have oil and all the other countries need it. Country A's currency is highly unlikely to crash because everyone needs country A's currency to buy oil → the importance of a currency has a lot to do with (1) what the economy makes, (2) the size of the economy.

Brazil, for example, mainly exports raw materials. If Brazilian currency gets more expensive, I'll go get raw material where it's cheaper → Brazilian currency is not worth much because there is nothing in Brazil that I can't get elsewhere. The US, however, is not like that, there are many services or products I can only get there, which makes the dollar an important currency.
Indeed, it is simply almost impossible for anyone in the world to avoid the US economy because it is so big and produces so much. It is that big in fact, that the US dollar makes about 70% of world currency, and it is not rare to see two companies from two different countries that have nothing to do with the US selling and buying goods in USD. Why? Because (1) they know they will need USD at some point and (2) they probably sell in the US, get paid in USD and therefore have USD to buy stuff with.

"But Monfi, what about China then?"
Are you familiar with the impossible trinity? The impossible trinity is a macro-economic theory that says that a country can choose between three artifacts for its economy:
1. free capitals entering and leaving the country
2. fixed foreign exchange rate (deciding that your currency is worth x USD, for example, and maintaining it that way through currency volume control)
3. free monetary policy (printing money, or burning it at will).

While most of developed economies chose to have free capital flows and free monetary policy, it means they won't be able to control the price of their currency against other currencies. China is different, they want to control the price of their currency, they want to keep it cheap so the economy can export and the CCP can buy social peace. Since they want a fixed exchange rate and free monetary policy, they have no choice but to control capital: you can't randomly come to China with money, nor can you leave China with money. Since China is artificially lowering their currency (China IS indeed a currency manipulator, and has been so since Mao), no one wants to trade in renminbi because, well, its worth depends on the mood of Xi. There is though, with China, another element: the renminbi you have doesn't belong to you, but to good ol' uncle Xi, and that is because the inextistence of rule of law.

The political importance:
You won't have passed off the fact that China is not a democracy, that the judiciary, the executive and the legislative are all in the hands of the CCP and that if China wants to seize any house/company in China tomorrow, they can. That's because in China, there is no rule of law. It means that what Chinese have in China does not actually belong to them it belongs to everyone because we are a communist country, and private property doesn't exist. Ha, you wish. The part where I say that Chinese's assets don't belong to Chinese is correct, but it's not because it belong to everyone: it belongs to the government. As such, the Chinese government can seize any Chinese' assets at any time. That explains Chinese's propensity to invest oversea (Aussie, Kiwi and Canada's real estate greatly suffered from it). If a Chinese buys an appartment in Sidney, that appartment belongs to him/her. Chinese's assets oversea are a guarantee against a potential seize of assets in China, provided, of course, that you manage to escape the country before uncle Xi catches you.

In the US, there is rule of law, and the government can't just come seize your house because you uploaded a Winnie the Pooh meme on Weibo, and even if they do, you can go to a judge and the judge will look at the law and say "the US government can't do that". Rule of law is a beautiful thing, it protects you against your own government.

So what it means is that when I own renminbi, they don't belong to me because that's what China prints, and that belongs to China because there is no rule of law. When I own US dollars, I own them, no one can take them away from me, not even Xi.

What happened when the stock market crashed
When the stock market crashed, JPow rolled up his sleeves and got to work by pushing on the "on" button of the money printer. His unlimited money printing (fancily called "Quantitative Easing") bailed out the financial market (which is illegal, but well, we'll talk about it another time) and US companies at the same time. Now, you might think that with unlimited printing, the volume of USD increases and it must therefore lose value...well, yes, the volume of USD increases, but no, it doesn't lose value.
As we said, the value of a currency depends on the extent to which how many people want it, and how much they want it. When worldwide markets crashed, there was a shortage of USD, everyone was looking for them because the economy had virtually stopped. The fact that the world uses dollars and that the world was looking for dollars allowed JPow to order an unlimited amount of ink and paper on Amazon, which is why the Amazon stock shoot to the stars like that (i'm kidding). I mean that it allowed JPow to print a lot of money without fearing devaluation because the entire world was looking for dollars anyway, even more than usual because financial markets had crashed, and when everything is crashing, people have more faith in the US economy than in their own economy → while most currencies lost value, the USD gained value (and has since slightly decreased) during the months of March and May.

What now?
The USD is unlikely to lose value, unless the world loses faith in the US economy which it won't because in times of crisis, 'merica looks safer than all the others (well, unless JPow prints really too much money).

In terms of other currencies, the Pound will crash because of Brexit, Scottish independence, negative balance account, mismanagement and very soon, social unrest. The Japanese economy is not growing as the country battles with a tragic lack of demography renewal. As for the Euro, there is always the problem that it is a currency adopted by a bunch of sovereign countries that could tomorrow decide to leave it or worse, expel a country from it. As such, the Euro is only as strong as EU countries (*cough* Germany *cough*) keep it. In fact, things are about to get ugly as a very big f*cking meteorite called "Italy's debt" is approaching the Old Continent at light speed, but well, that story will be for another time.

Edit: If I forgot something, please tell me, I only know as much as I read

Dang; what an extensive write-up. Thank you so much!

The general consensus is USD is in shortage globally...meaning the FED still has headroom?

 

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[Deleted78083]

Dang; what an extensive write-up. Thank you so much!

The general consensus is USD is in shortage globally...meaning the FED still has headroom?

If we talk in strict financial and economic terms, it does. Now, the biggest problem in America at the moment is the social unrest, the lack of competency from the political class (in both parties) and societal divide.

These are the trends that will influence the price of the US $ because they influence the economy. However, since the social situation seems (a bit like in the 30s) to deteriorate everywhere, the US$ doesn't really have to worry for another state currency to replace it. I'd say the most likely alternative is crypto, but that's my opinion only.

 

[Kevin88660]

It's 2020...

– The Federal Reserve is set to borrow a record $3 Trillion in this Quarter alone.
– The FED has also printed and thrown trillions of dollars at the COVID problem.

The USD has been fiat since 1971 when the FED took it off the gold standard.

The dollar is backed by...drumroll...nothing!

...Meaning, the government can keep inflating its currency until it's worthless, and/or write new monetary policy.

My understanding of this subject is limited, but I know @Kak holds Gold as a currency hedge, and people like @JScott might have $0.02 to share...

Does anyone believe we have a currency crisis on our hands within a short-term future?

All currency today are paper money and the historical track record of that has been good.

I believe China has substantial undeclared gold holdings to back their rmb if they need to.

Russia already sold all their dollar and move them into gold.

RMB seems to be the likely contender for global reserve currency, but I think we need a great geopolitical catalyst to move things or else the status quo (dollar domination) will remain here for the time being for the following reason.

1) U.S. still run one of the best “casino” in the world, dollar denominated financial market in the world. Even if you are a Worldclass Chinese company doing IPO You need to issue your stocks in dollar to have access to the best capital in the world.

2) U.S. remains the largest economy and consumer in the world. To be a reserve currency you need to run big deficit so that other countries can have your dollar circulating around.

3) China does not have a developed bond market. This means that if you hold rmb cash as reserve you got nothing safe to invest In.

 

[consignia]

I think it will collapse eventually but not any time soon. I can't see it happening within the next 15 years but this world is moving so fast so I wouldn't be surprise

 

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[ReeZ]

An excellent analysis by @mon_fi
Thank you!

I'd say there are still some years "in it" for the dollar standard. But I'm not sure how long we'll have the current currency system. I do think we'll be seeing some sort of blockchain or digital currencies coming soon from the central banks.

 

[Deleted78083]

RMB seems to be the likely contender for global reserve currency, but I think we need a great geopolitical catalyst to move things or else the status quo (dollar domination) will remain here for the time being for the following reason.

As long as China remains a dictatorship, that will never happen.

EDIT: should the EU become a federal state (highly doubt it, but who knows anymore), the € would be a great contender for global currency. While I do believe that the dollar will weaken in a distant future, I don't think it'll be replaced that easily. Who knows, maybe crypto will...

An excellent analysis by @mon_fi

My pleasure! : )

 

[Vigilante]

Great question, to answer it, we need to understand what makes a currency desirable and that has a lot to do with what the economy is as well as the political system.

The economic importance:
Let's imagine that country A is the only country where you have oil and all the other countries need it. Country A's currency is highly unlikely to crash because everyone needs country A's currency to buy oil → the importance of a currency has a lot to do with (1) what the economy makes, (2) the size of the economy.

Brazil, for example, mainly exports raw materials. If Brazilian currency gets more expensive, I'll go get raw material where it's cheaper → Brazilian currency is not worth much because there is nothing in Brazil that I can't get elsewhere. The US, however, is not like that, there are many services or products I can only get there, which makes the dollar an important currency.
Indeed, it is simply almost impossible for anyone in the world to avoid the US economy because it is so big and produces so much. It is that big in fact, that the US dollar makes about 70% of world currency, and it is not rare to see two companies from two different countries that have nothing to do with the US selling and buying goods in USD. Why? Because (1) they know they will need USD at some point and (2) they probably sell in the US, get paid in USD and therefore have USD to buy stuff with.

"But Monfi, what about China then?"
Are you familiar with the impossible trinity? The impossible trinity is a macro-economic theory that says that a country can choose between three artifacts for its economy:
1. free capitals entering and leaving the country
2. fixed foreign exchange rate (deciding that your currency is worth x USD, for example, and maintaining it that way through currency volume control)
3. free monetary policy (printing money, or burning it at will).

While most of developed economies chose to have free capital flows and free monetary policy, it means they won't be able to control the price of their currency against other currencies. China is different, they want to control the price of their currency, they want to keep it cheap so the economy can export and the CCP can buy social peace. Since they want a fixed exchange rate and free monetary policy, they have no choice but to control capital: you can't randomly come to China with money, nor can you leave China with money. Since China is artificially lowering their currency (China IS indeed a currency manipulator, and has been so since Mao), no one wants to trade in renminbi because, well, its worth depends on the mood of Xi. There is though, with China, another element: the renminbi you have doesn't belong to you, but to good ol' uncle Xi, and that is because the inextistence of rule of law.

The political importance:
You won't have passed off the fact that China is not a democracy, that the judiciary, the executive and the legislative are all in the hands of the CCP and that if China wants to seize any house/company in China tomorrow, they can. That's because in China, there is no rule of law. It means that what Chinese have in China does not actually belong to them it belongs to everyone because we are a communist country, and private property doesn't exist. Ha, you wish. The part where I say that Chinese's assets don't belong to Chinese is correct, but it's not because it belong to everyone: it belongs to the government. As such, the Chinese government can seize any Chinese' assets at any time. That explains Chinese's propensity to invest oversea (Aussie, Kiwi and Canada's real estate greatly suffered from it). If a Chinese buys an appartment in Sidney, that appartment belongs to him/her. Chinese's assets oversea are a guarantee against a potential seize of assets in China, provided, of course, that you manage to escape the country before uncle Xi catches you.

In the US, there is rule of law, and the government can't just come seize your house because you uploaded a Winnie the Pooh meme on Weibo, and even if they do, you can go to a judge and the judge will look at the law and say "the US government can't do that". Rule of law is a beautiful thing, it protects you against your own government.

So what it means is that when I own renminbi, they don't belong to me because that's what China prints, and that belongs to China because there is no rule of law. When I own US dollars, I own them, no one can take them away from me, not even Xi.

What happened when the stock market crashed
When the stock market crashed, JPow rolled up his sleeves and got to work by pushing on the "on" button of the money printer. His unlimited money printing (fancily called "Quantitative Easing") bailed out the financial market (which is illegal, but well, we'll talk about it another time) and US companies at the same time. Now, you might think that with unlimited printing, the volume of USD increases and it must therefore lose value...well, yes, the volume of USD increases, but no, it doesn't lose value.
As we said, the value of a currency depends on the extent to which how many people want it, and how much they want it. When worldwide markets crashed, there was a shortage of USD, everyone was looking for them because the economy had virtually stopped. The fact that the world uses dollars and that the world was looking for dollars allowed JPow to order an unlimited amount of ink and paper on Amazon, which is why the Amazon stock shoot to the stars like that (i'm kidding). I mean that it allowed JPow to print a lot of money without fearing devaluation because the entire world was looking for dollars anyway, even more than usual because financial markets had crashed, and when everything is crashing, people have more faith in the US economy than in their own economy → while most currencies lost value, the USD gained value (and has since slightly decreased) during the months of March and May.

What now?
The USD is unlikely to lose value, unless the world loses faith in the US economy which it won't because in times of crisis, 'merica looks safer than all the others (well, unless JPow prints really too much money).

In terms of other currencies, the Pound will crash because of Brexit, Scottish independence, negative balance account, mismanagement and very soon, social unrest. The Japanese economy is not growing as the country battles with a tragic lack of demography renewal. As for the Euro, there is always the problem that it is a currency adopted by a bunch of sovereign countries that could tomorrow decide to leave it or worse, expel a country from it. As such, the Euro is only as strong as EU countries (*cough* Germany *cough*) keep it. In fact, things are about to get ugly as a very big f*cking meteorite called "Italy's debt" is approaching the Old Continent at light speed, but well, that story will be for another time.

Edit: If I forgot something, please tell me, I only know as much as I read

@MJ DeMarco Thought you would enjoy seeing this gold post

 

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[Andreas Thiel]

A little surprised that supply and demand don't play a bigger role in the replies.
If the supply chain issues actually lead to shortages of products, then the money that is currently on the sideline could elevate prices.

The awesome post by mon_fi says that the dollar does not lose value. I wonder about the long term devaluation of currencies compared to gold. Is that graph misleading? Is there something else that I need to understand to read that chart correctly, or were there events that changed the equation?

 

[Kak]

I have too much to say about this to do it from the iPhone, but yeah. You can call me bearish on all things “The United States of Karen’s Demands.”

If you search my posts from years and years ago. I have been consistent in the opinion that this can only end one of two ways, default or hyperinflation.

Look up Peter Schiff and his take on the dollar. I am 9/10 of the way there.

 

[Raoul Duke]

View: https://www.youtube.com/watch?v=MeRWfRZp_rg

 

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[Deleted78083]

The awesome post by mon_fi says that the dollar does not lose value. I wonder about the long term devaluation of currencies compared to gold. Is that graph misleading? Is there something else that I need to understand to read that chart correctly, or were there events that changed the equation?

Tl;dr: gold is not a currency, you need to measure its price in time adjusted for inflation, which i do not believe your graph shows.


Good question.
I didn't say that the dollar did not lose value, I said that the dollar had not lost value when the market crashed because there was a shortage of USD, because everyone was (and is) using it. I also explained the value of the USD measured against other currencies. When we talk about gold, it is different: gold is not a currency.

It is a precious metal that has value because...well, it has always had value. A bit like bitcoin or worse, paintings, these things have value because people believe they have value. The price of gold depends on several things: supply and demand, and these supply and demand are influenced by a looooot of factors: to put it simply, mining + central banks selling (supply); people/central banks buying (demand); industry (there is gold in your phones and tablets, demand); fear on the markets (gold is a "safe heaven" for the defensive investor. Hell, even Dalio buys gold → demand ); inflation (explained below).

Now, you can't compare gold/currency to currency/currency, for one main reason: inflation. Whether you talk about USD, pound, swiss franc, turkish lira or smidgens, all currencies experience inflation as time goes by. Gold doesn't, because it is not a currency. Why is there inflation? I can refer you to this beautiful video:

View: https://www.youtube.com/watch?v=PHe0bXAIuk0&t=2s


I have also summarized it somewhere in the random chat, post etc thread.

If you don't want to watch it, keep reading:

There is inflation (money losing value over time as prices AND salaries going up) because governments print money and because the economy grows. But why is that?

→ Central banks print curencies and lend them to banks that lend them to people, businesses and the government so that they can buy stuff or invest → buying + investment create economic activity → the economy grows. "But Monfi, why do businesses need to invest??? Why isn't there enough money"? Ok, I don't know for sure, but I have a theory. Mind that I have never read it anywhere, it is something I came up with after some deep thinking, and yes, if you want to propose me for the Nobel price, you can, thank you very much : D. Having said that, take the following with skepticism:
We need to increase the supply of money because there are more people that use the money because there are more people that are born everyday than people that die: explanation: if you print 100 dollars in a village where there are 100 people, everyone is going to get 1$ to start a business. When there will be 150 people in the village (because people doing naughty things during the night somehow creates more people in the village, i know, crazy right?!), there will be more demand for products (more people to dress/feed/etc), so prices will de facto rise, so people will have to be more productive to respond to the demand, borrow and invest in their business, so the village will print not 50 more dollars, but maybe 70, depending on the importance of the inflation. So, more people →more demand → prices going up + need to be more productive → printing due to borrowing due to investment → economic growth. I belive this is the reason why the Japanese economy doesn't grow, there is not enough people to make it grow, but well, that's a whole other topic. Trump shouldn't say "make america great again", but "make babies to make america great again". Anyway.

All currencies experience inflation because all governments print more money
because everyone consumes, which leads everyone to make a bigger salary because everyone is more productive because there is always more people "to serve". Mind that inflation is not a consequence of too much printing. "WHAT??? But Monfi, what about Zimbabwe? What about 1930's Germany, or 2016 Venezuela"? I maintain: inflation is not a consequence of too much printing, it is a consequence of "too much spending". If a country decides to print, let's say 10 000€ per inhabitant and gives these 10 000€ "for free" to all inhabitants, and the inhabitants are afraid of what might come in the future and therefore decide to hide these 10 000€ under their matress, will there be inflation? Will there be currency devaluation? No! Inflation happens when demand for products/services is superior to supply AND if supply of the currency is superior to demand in the forex, but that is another story for another time. Coming back to gold....

Gold, does not grow as fast as "the amount of money" does (especially after this corona period of mad printing), so when you say that money depreciates against gold, or that gold increased in value against money, you need to compare it to the value of the dollar at the time you compare the value of gold.

Example: I think we can establish that 1 USD today worth much less than 1 USD in the past. Let's imagine that in a perfect world, hypothetically, 100 years ago, 1 USD = 1 gram of gold. Let's say that since 100 years, we experienced 1000% of inflation, which means that 1 USD 100 years ago is worth 10 USD today. If we're being told that the price of gold did in fact not change when adjusted for inflation, 1 gram of gold should be woth 10 USD today → Gold did not appreciate nor depreciate in value, it is worth the exact same price it was worth 100 years ago, but with the price adjusted for inflation.

That's a hypothetical situation, I have no clue of the price of gold adjusted for inflation, but that's the key to your graph: you need to take inflation into account because all currencies lose value over time. Gold could be compared to some extent to oil: oil is as we speak, super cheap, because 20$ of today is worth much less than 20 dollars of 50 years ago.

I hope this was understandable!

M.

PS: It's quite late where I am, i'll probably wake up tomorrow, re-read the post and edit a couple of points.

 

[JordanK]

I think there is a big awakening going on right now. Here in Ireland during lockdown the government are paying somewhere between 70-80% of the population on a weekly basis (between the covid emergency payment, wage subsidies for companies employees and their own civil service).

People who have been working their whole lives for a modest paycheck are now still receiving it for doing absolutely no work.

Others who are still working are actually sometimes even receiving less than those on the lucrative emergency benefits.

A LOT of people are beginning to question the dollar to hours worked formula that they have had in their head all their lives.

They are getting paid while they sleep and while they pursue hobbies etc.. and they like it.

Who knows what influence it will have on everyone as things return to ‘normal’ but its definitely got more people questioning if their previous existance is what they want.

INFO:

I have come to this conclusion from
talking to college students who suddenly feel they have won the lottery getting fulltime salaries from govt when they were only working part time before lockdown.

From my parents in their 50’s who both are being paid to stay at home and suddenly they are enjoying life together a lot more.

Friends who are still working in essential or in low paid jobs and people still working fulltime in the home office.

Fellow business owners.. some who want to shut up shop and move into more profitable ventures, people who barely survived 08’ and dont have the heart to rebuild again. Other owners who are better off financially with the subsidies and other businesses who are booming because of whats happening.

 

[daniel_m]

if the USD collapses, the world will have bigger problems to deal with and more than likely all other major currencies would collapse as well. Also I don't agree with the sentiment that the US dollar is backed by 'nothing'. It's backed by one of the strongest economies in the world and some of the worlds largest businesses.

 

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[Sanj Modha]

The Fed was printing money long before Covid. Lots of it.

Inflation hasn't been a problem in the short term but never say never.

Great write up @mon_fi

 

[YanC]

As long as China remains a dictatorship, that will never happen.

EDIT: should the EU become a federal state (highly doubt it, but who knows anymore), the € would be a great contender for global currency. While I do believe that the dollar will weaken in a distant future, I don't think it'll be replaced that easily. Who knows, maybe crypto will...

My pleasure! : )

I highly doubt it as well and wouldn't bet on the Euro. It is a Frankenstein currency that has no sense, basically ruins Southern Europe and profits Northern Europe. Italy lost something like 20% of its industry since the Euro. No wonder they are pissed.
This is what happens when you give the Deutsche Mark to the Spanish or the Italians whose productivity is much lower, or to the French who have 70% more state workers (adjusted to both populations) than Germany.

It still exists only because it is part of the ideology of those in power (and by the way, at the European level they are not elected. Wonderful democracy, isn't it).

 

[maverick]

Highly recommended overview of how the economic system works by Ray Dalio (also good to show your kids):

View: https://www.youtube.com/watch?v=PHe0bXAIuk0

 

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[Andreas Thiel]

I highly doubt it as well and wouldn't bet on the Euro. It is a Frankenstein currency that has no sense, basically ruins Southern Europe and profits Northern Europe. Italy lost something like 20% of its industry since the Euro. No wonder they are pissed.
This is what happens when you give the Deutsche Mark to the Spanish or the Italians whose productivity is much lower, or to the French who have 70% more state workers (adjusted to both populations) than Germany.

It still exists only because it is part of the ideology of those in power (and by the way, at the European level they are not elected. Wonderful democracy, isn't it).

Getting a little sidetracked, but I think it is important to differentiate between companies and households.

The frankenstein currency also means German households don't have the buying power that they would otherwise have.
Spanish and Italian households are a lot healthier than German households, at least if you look at the median net worth. The big German companies are where the money ends up.

But I don't think it is fair that Italy is pissed. They wanted the strong, shared currency and they have profited from converging (low) interest rates for decades. They should at least acknowledge that their demands have been met and it did not work out for them.

 

[Kevin88660]

Tl;dr: gold is not a currency, you need to measure its price in time adjusted for inflation, which i do not believe your graph shows.


Good question.
I didn't say that the dollar did not lose value, I said that the dollar had not lost value when the market crashed because there was a shortage of USD, because everyone was (and is) using it. I also explained the value of the USD measured against other currencies. When we talk about gold, it is different: gold is not a currency.

It is a precious metal that has value because...well, it has always had value. A bit like bitcoin or worse, paintings, these things have value because people believe they have value. The price of gold depends on several things: supply and demand, and these supply and demand are influenced by a looooot of factors: to put it simply, mining + central banks selling (supply); people/central banks buying (demand); industry (there is gold in your phones and tablets, demand); fear on the markets (gold is a "safe heaven" for the defensive investor. Hell, even Dalio buys gold → demand ); inflation (explained below).

Now, you can't compare gold/currency to currency/currency, for one main reason: inflation. Whether you talk about USD, pound, swiss franc, turkish lira or smidgens, all currencies experience inflation as time goes by. Gold doesn't, because it is not a currency. Why is there inflation? I can refer you to this beautiful video:

View: https://www.youtube.com/watch?v=PHe0bXAIuk0&t=2s


I have also summarized it somewhere in the random chat, post etc thread.

If you don't want to watch it, keep reading:

There is inflation (money losing value over time as prices AND salaries going up) because governments print money and because the economy grows. But why is that?

→ Central banks print curencies and lend them to banks that lend them to people, businesses and the government so that they can buy stuff or invest → buying + investment create economic activity → the economy grows. "But Monfi, why do businesses need to invest??? Why isn't there enough money"? Ok, I don't know for sure, but I have a theory. Mind that I have never read it anywhere, it is something I came up with after some deep thinking, and yes, if you want to propose me for the Nobel price, you can, thank you very much : D. Having said that, take the following with skepticism:
We need to increase the supply of money because there are more people that use the money because there are more people that are born everyday than people that die: explanation: if you print 100 dollars in a village where there are 100 people, everyone is going to get 1$ to start a business. When there will be 150 people in the village (because people doing naughty things during the night somehow creates more people in the village, i know, crazy right?!), there will be more demand for products (more people to dress/feed/etc), so prices will de facto rise, so people will have to be more productive to respond to the demand, borrow and invest in their business, so the village will print not 50 more dollars, but maybe 70, depending on the importance of the inflation. So, more people →more demand → prices going up + need to be more productive → printing due to borrowing due to investment → economic growth. I belive this is the reason why the Japanese economy doesn't grow, there is not enough people to make it grow, but well, that's a whole other topic. Trump shouldn't say "make america great again", but "make babies to make america great again". Anyway.

All currencies experience inflation because all governments print more money
because everyone consumes, which leads everyone to make a bigger salary because everyone is more productive because there is always more people "to serve". Mind that inflation is not a consequence of too much printing. "WHAT??? But Monfi, what about Zimbabwe? What about 1930's Germany, or 2016 Venezuela"? I maintain: inflation is not a consequence of too much printing, it is a consequence of "too much spending". If a country decides to print, let's say 10 000€ per inhabitant and gives these 10 000€ "for free" to all inhabitants, and the inhabitants are afraid of what might come in the future and therefore decide to hide these 10 000€ under their matress, will there be inflation? Will there be currency devaluation? No! Inflation happens when demand for products/services is superior to supply AND if supply of the currency is superior to demand in the forex, but that is another story for another time. Coming back to gold....

Gold, does not grow as fast as "the amount of money" does (especially after this corona period of mad printing), so when you say that money depreciates against gold, or that gold increased in value against money, you need to compare it to the value of the dollar at the time you compare the value of gold.

Example: I think we can establish that 1 USD today worth much less than 1 USD in the past. Let's imagine that in a perfect world, hypothetically, 100 years ago, 1 USD = 1 gram of gold. Let's say that since 100 years, we experienced 1000% of inflation, which means that 1 USD 100 years ago is worth 10 USD today. If we're being told that the price of gold did in fact not change when adjusted for inflation, 1 gram of gold should be woth 10 USD today → Gold did not appreciate nor depreciate in value, it is worth the exact same price it was worth 100 years ago, but with the price adjusted for inflation.

That's a hypothetical situation, I have no clue of the price of gold adjusted for inflation, but that's the key to your graph: you need to take inflation into account because all currencies lose value over time. Gold could be compared to some extent to oil: oil is as we speak, super cheap, because 20$ of today is worth much less than 20 dollars of 50 years ago.

I hope this was understandable!

M.

PS: It's quite late where I am, i'll probably wake up tomorrow, re-read the post and edit a couple of points.

Jim Rickards wrote about hyperinflation driven by money velocity.

PY= MV

p: price
Y: real economy
M: money supply
V: money velocity

Slow economic growth can suppress inflation even if money has been printed as they are not circulating.

Why is the global economy a lot slower after 2008?

Too much productive capacity in overcrowded area. A lot of manufactured products are hard to digest.

Globalization and financialisation of the economy has led to greater wealth concentration. Many people do not have stable income to consume.

A lack of innovation and technological progress to serve underserved need. Cheaper food, cheaper TV/phone, cheaper taxi ride..thanks but what about cure for cancer..drugs that make people look better, smarter and enhance life.. 30 years we thought we might have them by now but there has been little progress.

 

[Sanj Modha]

Highly recommended overview of how the economic system works by Ray Dalio (also good to show your kids):

View: https://www.youtube.com/watch?v=PHe0bXAIuk0

This video is INCREDIBLE. I watch it at least once a quarter.

 

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[Deleted78083]

But I don't think it is fair that Italy is pissed. They wanted the strong, shared currency and they have profited from converging (low) interest rates for decades. They should at least acknowledge that their demands have been met and it did not work out for them.

Indeed, they failed to engage with reforms similar to the ones that Germany engaged with in the early 2000's. Italy remains inefficient and the south is still very poor and highly corrupted.

Yet Italy does not worry me as much as France, because there is this very strong social tension in France that makes the country a likely contender for the next US-like social unrest.

Tbh, the € is kinda f*cked up, you can handle your economy and finance well, like the Netherlands did, and still get f*cked by countries like Greece. To think that Slovakians, which have lower standards of living than the Greeks, had to make financial efforts to help their Hellenic neighbors...that's real socialism, and it did not please many. But we're getting political, so i'll stop right here.

 

[Lyinx]

I think there is a big awakening going on right now. Here in Ireland during lockdown the government are paying somewhere between 70-80% of the population on a weekly basis (between the covid emergency payment, wage subsidies for companies employees and their own civil service).

People who have been working their whole lives for a modest paycheck are now still receiving it for doing absolutely no work.

Others who are still working are actually sometimes even receiving less than those on the lucrative emergency benefits.

A LOT of people are beginning to question the dollar to hours worked formula that they have had in their head all their lives.

They are getting paid while they sleep and while they pursue hobbies etc.. and they like it.

Who knows what influence it will have on everyone as things return to ‘normal’ but its definitely got more people questioning if their previous existance is what they want.

INFO:

I have come to this conclusion from
talking to college students who suddenly feel they have won the lottery getting fulltime salaries from govt when they were only working part time before lockdown.

From my parents in their 50’s who both are being paid to stay at home and suddenly they are enjoying life together a lot more.

Friends who are still working in essential or in low paid jobs and people still working fulltime in the home office.

Fellow business owners.. some who want to shut up shop and move into more profitable ventures, people who barely survived 08’ and dont have the heart to rebuild again. Other owners who are better off financially with the subsidies and other businesses who are booming because of whats happening.

I seen a report somewhere that they are having problems finding workers in Canada due to this, is this also a problem in your area?
Did the wage rate go up as a result of this? Price increases?
In the US, they have sent out one payment of $1200, they keep talking about another one...

In our area, they have problems finding workers for the meat processing plants (licensed workers, because they need to be certified to do some of the jobs) and workers are calling in "sick" because they're scared to go out (or that was the theory I was told by someone involved) and since they are getting paid to stay at home, why would they work?

I'm legit scared that we will have a famine, not because we don't have enough food, but because we don't have enough people to process food. Companies will (most likely) run to automation as fast as they can, I'm thinking this would be a good industry to go into (automation) at the moment...

Also, side note, pool installers, shed shops and lawn furniture businesses are BOOMING like they haven't seen it ever in their lifetimes, people are staying at home and fixing up the place, putting in pools, patios, and such and it's crazy!

 

[Everyman]

The dollar is backed by...drumroll...nothing!

11 carrier groups I think?... it suffices.

Meaning, the government

FED is a private cartel, closer to mafia than government (if gov is not mafia...)... so governments are paid by FEDs and other central banks and they nominate who is in the government and what they do.

You also need to take into consideration other central banks - BOJ, EBC etc... they work together from Basel in Switzerland. So it's not only FED dollar here....

Great question, to answer it, we need to understand what makes a currency desirable and that has a lot to do with what the economy is as well as the political system.

I think you also omitted this important part of politics, which is war.

US enFORCES using FEDs. Libya wanted to go to gold dinar... bumm... democracy... Iraq same. Started trading petrol in euro. 2 years later... democracy.... ahh....

I would look at petrodollar system. But also who is FED, who is behind it. How they operated before and during the First and Second World War (they basically financed all sides). This will give more understanding of what is happening today and what might happen.

 

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[Xeon]

The only way for the USD to collapse, since it's enforced by the US military, is when the military + economic gap between the US and her largest adversary China gets so large to the point that the US would not even consider war as an option, because it'll be like the US vs Iraq (except that this time, the US will be in Iraq's position).

Don't think this will happen in the next couple decades, but after that, it's kinda hard to predict. And this is assuming the trend continues as it is now.

 

[YanC]

Getting a little sidetracked, but I think it is important to differentiate between companies and households.

The frankenstein currency also means German households don't have the buying power that they would otherwise have.
Spanish and Italian households are a lot healthier than German households, at least if you look at the median net worth. The big German companies are where the money ends up.

But I don't think it is fair that Italy is pissed. They wanted the strong, shared currency and they have profited from converging (low) interest rates for decades. They should at least acknowledge that their demands have been met and it did not work out for them.

Agreed, it is a very important distinction ! The Euro benefits businesses from Northern Europe and households from Southern Europe, to the detriment of Northern Europe households and Southern Europe businesses.

Hence why there are too many houses in Spain and too many factories in Germany. I'll stop here as the thread is not about the Euro...