Governments are borrowing vast amounts of money. Central banks are buying that government debt. And so, governments are borrowing even more. Allowing central banks to load up again. Around and around we go. But what is the endgame?
That’s what Fortune & Freedom reader D.L. wants to know:
I trust the Mr Hubble is aware he is writing for people not involved in high finance – except via bank loans etc. So being one of the ignorant many, I wonder if Mr Hubble would answer – in simple terms please:
According to “Truth in Accounting” on Google, the total USA debt is now over $134 trillion and rising by $2 million a second. Can this debt go on rising indefinitely or is there a point at which the US Dollar must collapse? Before that happens, presumably one must get out of money entirely.
My question is: should one get out of money now (maybe buy gold), or is there nothing to worry about regarding the possibility of a Dollar collapse?
Collapse against what? And why focus on the US dollar? The problem of unsustainable debt and debt growth is a problem in all sorts of places around the world. And the United States is not the worst in that respect.
Historically, nations tend to go financially rogue at different times, leading to a plunge in their currency in foreign exchange markets. The Argentine peso, the Zimbabwe dollar and the German Papiermark all tumbled in foreign exchange markets, thereby revealing what was going on, even to government economists charged with collecting inflation statistics.
But what happens when everyone goes mad at the same time because of a pandemic?
The collapse of the US dollar is one of those phrases into which anyone can read whatever aspect they like to focus on.
Although I do expect the US dollar to collapse and disappear, as all fiat currencies in history have eventually done, what this actually looks like is hard to know.
It could fall in value in exchange markets. Or it could be replaced with a different currency that has different mechanics, such as gold backing or a central bank digital currency (CBDC). Or we could get high rates of inflation. Or the Chinese could call into question the US dollar’s role as the global reserve currency, dramatically reducing demand for it and thereby its value. Or the US dollar could be subsumed into an international currency based on SDRs. Or its collapse could be in slow motion – its purchasing power has already fallen 96% since the inception of the Federal Reserve in 1913.
The irony is that, because the United States is considered a safe haven for capital, the US dollar is likely to surge in value on exchange markets in the event that currencies do begin to collapse and economic turmoil spreads,.
Many who predicted the financial crisis of 2008 expected the US dollar to take a tumble during the crisis. They recommended investing outside the United States to avoid the sub-prime crash.
But the opposite happened. Despite the sub-prime crisis occurring in the United States, the US dollar surged. Despite the Federal Reserve engaging in QE, the US dollar surged. Despite US banks needing vast bailouts and the US economy needing vast stimulus, all financed with vast government debt, the US dollar surged.
Imagine being an investor who correctly spots such a vast crisis coming and positions themselves to profit, only to lose money in the end because of the exchange rate…
Gold is the asset which offers an opt-out from all national currencies. That is its allure. So… perhaps the US dollar will crash against gold. But that is more commonly thought of as a rising gold price.
Besides, there may be a better option than gold these days…
My best answer to D.L.’s question can be found here. It’s probably the most important video I have ever made. I hope you’ll take the time to check it out.
We explore what happens when governments realise that, if the central bank is willing to print money to finance deficits, there is no longer any fiscal constraint on spending. Until the currency collapses.
So, which nation’s politicians do you think are most and least likely to overspend now that they have the backing of their central banks in financing deficits?
For what it’s worth, I think that there might be a few currencies which collapse before the US dollar…
Editor, Fortune & Freedom