A Dollar Collapse is Inevitable
A collapse of the U.S. dollar and the global fiat currency system is inevitable.
It’s not a matter of if, but a matter of when.
And if history is any guide, there isn’t much time left.
Let me take you back a few decades, back to when the hippie movement was fading out and the disco era was on the rise...
August 15, 1971.
It was a 90-degree day on Capitol Hill — one of the hottest days of the summer that year in D.C.
President Richard Nixon appeared on live TV to make an unprecedented announcement to the world and change the face of the global financial system forever.
Gold bugs know this day all too well. It was the day Nixon took the U.S. dollar off the gold standard.
The gold standard is something known by many but really understood by few. In 1944, representatives for 44 countries met in Bretton Woods, New Hampshire, to develop a new international monetary system.
Under this new system, countries would settle all international accounts in U.S. dollars. This gave the United States a significant advantage over all other nations as it created a permanent demand for the greenback.
In exchange for this advantage, the American government agreed that U.S. dollars could be converted into gold at a fixed exchange rate of $35 per ounce.
At first the plan worked well. Following WWII, Asian and European countries were rebuilding and needed U.S. dollars to buy American goods and settle accounts with each other. And because the United States owned half the world's gold reserves at the time, the Bretton Woods system seemed secure.
But as the rest of the world recovered in the mid-century, America's share of global economic output significantly dropped. By the 1960s, a negative balance of payments, growing public debt from military spending on the Vietnam War, and monetary inflation by the Federal Reserve caused the greenback to become increasingly overvalued.
By 1966, foreign central banks held $14 billion in U.S. dollars. But the United States had only $13.2 billion in gold reserve. The United States simply didn't have enough gold to convert all the dollars it printed.
Foreign countries rightfully began to become concerned. And by the early 1970s, they began demanding the gold.
In July 1971, Switzerland exchanged $50 million in U.S. dollars for gold. Then France redeemed $191 million. Something had to be done.
In steps Nixon...
On the afternoon of Friday, August 13, 1971, President Nixon, Federal Reserve chairman Arthur Burns, U.S. Treasury Secretary John Connally, and 13 other high-ranking White House and Treasury advisors secretly met at Camp David to decide what should be done.
There was a lot of debate. But ultimately, Nixon decided to break up the Bretton Woods system by suspending the convertibility of the dollar into gold.
Two days later, Nixon announced the decision to the world: The U.S. dollar would no longer be backed by gold, turning it into a fiat currency.
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The Oxford English Dictionary defines “fiat” as:
A formal authorization or proposition; a decree. [from Latin, 'let it be done']
A fiat currency is one that exists as money only because the government says it is so. So instead of being backed by gold, the U.S. dollar would now be backed by “the full faith and credit” of the United States.
But history has a message for us about fiat currencies: eventually, they all implode.
Resource investor Chris Mack writes:
According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.
The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month.
By this measure, the U.S. has experienced a remarkable run. This year will mark the 48th that the U.S. dollar has been fiat. It’s living on borrowed time.
What will replace the dollar, or how it will be retooled, remains unclear. But given the undeniable track record of fiat currencies, it’s clear that the U.S. dollar will eventually collapse. And there's really only one place to hedge your wealth in the face of fiat currency collapse: gold
When the fiat currency system falls, it will be unlike anything we've ever seen before. Panicked investors will move into the safe-haven gold market in record numbers and send prices soaring.
Right now, less than 5% of the entire U.S. population holds gold investments. Just imagine what will happen when the rest of the population moves into the gold market.
Do yourself a favor: Start buying gold now if you haven't already. Don't be left behind.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reaches hundreds of thousands of investors every day. Luke is also the investment director of Angel Publishing’s new Secret Stock Files newsletter, which helps investors leverage the future supply/demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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