As Glenn Beck and I spoke about last week (interview here), we are on the cusp of a new financial world order, one in which the U.S. dollar no longer reigns supreme.
When you hear the phrase “new financial world order,” it may sound like a conspiracy theory. But much like every so-called conspiracy theory of the past several years, it’s very predictable, based on history and human nature. This is something that Glenn and I have both researched extensively for our two books coming out this summer (“Dark Future” and “You Will Own Nothing,” respectively).
Most of us have lived through an incredible period of prosperity, one in which the United States has been at the center of the global economy. Americans have been granted for most of this time incredible financial and wealth-building opportunities.
But students of history know that financial empires rise and fall. Whether it was Rome or, in recent times, the U.K. or the Netherlands, being at the economic center of the universe doesn’t last forever. The Dutch guilder was considered the first “country” global reserve currency, meaning one issued by a country vs. traditional precious metals, like gold and silver. After that, the British pound sterling reigned supreme.
Then, late in World War II, Bretton Woods cemented the U.S. role in the global economy with the U.S. dollar as the world’s reserve currency. Crazy fact: The architect of Bretton Woods for the U.S., the chief economist at the U.S. Treasury, Harry Dexter White, was found in the 1990s to have been a Stalinist agent who was given the mandate to create a system that would destroy the British Empire. This is relevant in terms of who may be behind the scenes directing what’s to come for the global economy.
So, the U.S. has only been the true center of the global economy, holding the world’s reserve currency, for about 80 years. But for many, it is difficult to imagine us not having this privilege. I would imagine that during their respective “reigns," the Dutch and the British also felt some invincibility.
Being the world’s reserve currency has its pros and cons. On the cons side is the “Triffin dilemma,” in which noted Belgian-American economist Robert Triffin explained the challenge of the country that issues the world’s reserve currency in balancing the interests of policy that benefits its own domestic economy with the responsibility of keeping that currency “as good as gold” for the countries around the world that depend on its stability.
Additionally, Triffin believed that being the reserve currency holder and having to supply the world with ample dollars meant that the issuing country (such as the U.S.) would be required to run trade deficits.
On the pro side, the U.S. dollar’s status as the world’s reserve currency has been called an “exorbitant privilege,” referring to the benefits extended for being the financial center of the universe. Because countries around the world need to pay in dollars and therefore keep dollar-denominated assets like Treasurys in reserve, interest rates are suppressed within the U.S. system. That gives the U.S. an arbitrage opportunity, in which Americans can use their low-cost capital to invest in higher-yielding assets, including abroad.
Nobody benefited from this arrangement more than the U.S. government, which used this “privilege” of cheap debt to finance its unwieldy spending and massive government expansion.
But the Fed and the government have been derelict in their duty of protecting the global reserve currency for the world (and, frankly, for the U.S. also). Government expansion, too much debt, and currency debasement have weakened America’s financial standing at home. On the global stage, when dollars become more expensive, the same U.S. dollar buys less today than it did in the past, and critical commodities like oil and food are priced in dollars, it threatens various countries’ food and energy security.
Moreover, while the U.S. has long used its currency as a weapon of sorts, events last year under the Biden administration pushed that effort to the point of no return when the U.S. froze Russia’s access to its reserves.
It’s hard to be the world’s reserve currency when you can restrict access to reserves at your whim. What major economies want to give the U.S. that power?
All of this means that countries around the world are incentivized to find other solutions.
Central banks bought record amounts of gold last year (1,136 tons per the World Gold Council). Countries around the world are finding ways to price major commodities and trade in currencies other than dollars. One major example is China, the world’s largest net oil importer, which has been putting more pressure on Saudi Arabia and other oil exporters to allow China to pay for oil in yuan, not dollars.
The crumbling of “King Dollar” doesn’t mean that the dollar necessarily goes away; it may mean that its role is demoted in the global economy and, in the process, creates chaos and destruction of your freedoms and wealth creation opportunities.
Guggenheim Partners' late chief investment officer, Scott Minerd, said in 2018, according to an article in Quartz, that the dollar losing reserve status would have “big implications on a defense and quality-of-life level.” He also noted that “if we wish to continue down that path, Americans will slowly surrender their standard of living. We will ultimately become a second-rate power, and we will cede our position of military superiority to other nations.”
This means that when the dollar loses reserve status, Americans will pay a price in terms of our financial standing and quality of life.
So, what do you do today?
Make sure you keep your financials tight for the short and the long term, as we never know exactly what catalyst may change the macroeconomic environment. Lean out of spending, and take any overage and consider investing that in hard assets where you can.
If you haven’t had an opportunity to hedge your own portfolio, or haven’t hedged enough, consider looking to physical precious metals, including gold and silver, as part of your strategy.
None of this is fun to think about and it is hard to come to terms with. But we must pray for calm and prepare for chaos. The trajectory is set, so don’t be caught up in a timing issue, because once a new financial world order begins, there will be no turning back.