“In the business world, the rearview mirror is always cleaner than the windshield.” — Warren Buffett
Has the dollar collapse already started?
We recently saw this article about China and Brazil striking a deal to trade with each other using their own currencies.
They currently trade about $150 billion a year.
Not trading in the US dollar would benefit both countries.
A question that keeps coming up is:
What is happening when these countries go away from the dollar?
Is the dollar losing its status as the number one reserve currency?
Today, we’re talking about the ramifications and what you can do to prepare yourself as well as take advantage.
1. Why Is This Important?
When we see the dollar not being used as much internationally, it’s natural to have questions.
Currently, the dollar is the global reserve currency.
It used to be the British pound until the US took over with the Bretton Woods Agreement in the 40s.
Since then, America has had an incredible advantage.
What would happen if that advantage went away?
People in the US would pay 2x to 3x times as much for goods, particularly imported goods.
There are negatives to this, but there are also positives.
My friend Mark Moss recently mentioned something called Triffin’s Dilemma
Triffin’s Dilemma talks about a world power losing a lot of their manufacturing overseas.
While this isn’t ideal, there is an advantage: buying cheap products.
Despite this, no one really wants the Dilemma to happen because they lose a lot of manufacturing jobs.
It’s good if you have money, but if you’re middle class and lost your job, you’ll probably suffer.
If you’re American and have resources, you may not know what to do and don’t want to lose the money you have.
What can you do?
How risky is this situation?
This chart shows the global GDP in dollars, which is about 20%.
This means the global trade right now is around 20%.
The global reserves are also dollar dominated at 60%.
This means governments, wealthy individuals, and sovereign funds primarily store their wealth in dollars.
That’s pretty significant!
So, why do countries want to shift away from the dollar?
There are a few reasons.
One is that the US has weaponized the dollar.
A recent example is the war in Ukraine when the government sanctioned Russia.
If you’re a punished country, you have to find an alternative like gold.
Another reason countries may be shifting away from the dollar is America’s mismanagement of their currency.
The US has created so much currency.
This M2 chart shows a 40% increase in the money supply between 2020 and 2022.
This includes money in bank accounts as well as money in government accounts.
It actually plateaus at the end, which looks good at first glance.
This M1 chart shows the money that people have (not including the Fed or banks).
This does not include money in the Federal Reserve or money that is in governmental type of accounts.
There is a huge pop at the end!
That doesn’t bode well for the plateauing in account money.
One of the reasons we’re seeing inflation is because of a huge increase of currency.
With all of these things happening, the question then becomes:
What is happening to the dollar?
2. What is Happening to the Dollar?
Where is this all headed?
The truth is we don’t know exactly what the dollar will look like in the future.
Typically, when one power switches to another, it usually takes 10 to 30 years.
It doesn’t happen immediately.
There’s no other reserve currency that everyone will start using internationally.
The dollar is here to stay… for now.
Along with that comes inflation.
Inflation will continue eroding the power of your dollars.
Remember: There’s a big difference between dollars and money.
The Big Mac index shows exactly that.
If you’re not familiar, the Big Mac index measures purchasing power between nations using the price of a Big Mac as the benchmark
The data comes from different parts of the world.
It’s a good tell of how inflation is actually going.
If you look at this chart from 2012, the Big Mac index is much higher than reported inflation.
The price of the Big Mac has increased at least 40% to 60% over the last 10 years.
We’re seeing inflation spread at a rate of around 15% (according to Shadow Stats).
If you’re sitting in cash, you’re losing money.
Savers are losers.
This isn’t because they’re terrible people.
It’s because their money is losing value perpetually over time.
There’s talk of creating a gold-backed cryptocurrency, which will be interesting to see.
China has already started to shift away from the dollar.
Russia and India ditched the dollar a year ago.
The BRICS have started to join forces to create an alternative currency.
On top of all that, there was a recent Cambridge study that said BRICS nations have 24% of the world GDP and 16% of the world trade.
If you look at the last 20 years, 75% of international trade transactions were settled in dollars.
Now it’s 65%.
As these decreases happen, we’re going to feel changes.
We need to be aware of them so we can prepare.
Some of this may feel like just noise.
Seeing articles about countries shifting away from the dollar is different than feeling the impact.
What does that mean for you?
What does that mean for your money in the US?
What does it mean for your business, kids, or legacy?
The really big thing is to prepare yourself.
Don’t stick your head in the sand and be an ostrich.
I know some wonderful people who lost everything in the 2008 financial crisis because they were only paying attention to one asset class.
3. Think Outside the Dollar
Let’s talk about how you can approach the changing value of the dollar.
You need to think outside of the dollar.
My friend Chris Martinson has said that wealth is not how many dollars you hold.
It’s having productive assets to actually help you.
Currency is just a printed dollar.
I have a 2008 printed currency from Zimbabwe that was once worth $100 trillion.
It was only valid for a little bit and then it was out.
Metals have a 5,000-year history of being money.
Having actual physical gold or silver can be a real benefit because they can’t create anymore.
It costs money to mine it from the ground.
There’s an international demand for both gold and silver.
The more currency they print, the more valuable real assets will be.
Don’t sit in cash.
Buy real assets that pay you to hold them.
I do a lot of this for liquidity.
Instead of holding cash, I’ll hold metals in third-party vaults.
You can actually borrow against the value of the gold or silver.
I put the bulk of what I have into productive assets.
We do ATM machine funds and car washes.
We’re doing private equity deals.
We have investments in oil and gas.
These are all assets that pay you to hold them.
We know there will always be demand for oil, housing, and car washes – even in a recession.
The biggest thing is to have a plan.
Make sure you don’t have your head in the sand.
Don’t get caught up with the noise that the dollar is going away.
Find something to help your wealth grow in any sort of economic environment.
Now I want to hear from you!
What is your plan to navigate the changing role of the dollar?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
