The U.S. is an empire in decline. Real wages are falling. Productivity has flatlined, manufacturing companies aren't competitive in a global market, and white-collar jobs lack security. Roads, bridges, and rail systems are failing.
The federal deficit is soaring, the health care system is broken, schools produce uneducated dolts…
Drug addicts stagger down Main Street. Criminals are let lose as soon as they are caught.
Cities are unsafe, hollowed out, and dirty. Office towers sit empty.
The government is corrupt, the media are owned, and the culture has fallen into debauchery.
Lastly, the rich are getting richer while the poor fall further behind. Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
End of an Empire
There is a case to be made that the United States peaked in 1980, when it went from a creditor nation to a debtor nation. Since then, our debts have climbed to over 120% of GDP.
It is no wonder that many countries around the world are seeking a new global trading mechanism rather than the dollar. But it’s not just debt and inflation that worry foreign leaders. It's also the use of currency as a weapon.
Last week economist Peter St Onge, put out a video saying that "de-dollarization is real and is happening fast.”
He pointed out that the dollar share of reserve currencies was 73% in 2001 and just 55% in 2020. However, things sped up from 55% to 47% after Biden launched sanctions on Russia.
Elon Musk responded in a tweet: "If you weaponize currency enough times, other countries will stop using it."
And as the bard says, therein lies the rub.
The dollar is backed by the full faith and credit of the United States and 11 aircraft carrier strike groups, but no longer is it backed by gold or anything of intrinsic value.
When Biden banned Russian banks from using SWIFT, that not only froze $300 billion in Russian dollar-based assets, but it also put a big dent in that full faith and credit. People who store dollars in reserve want to be able to use those dollars when times get tough. That is sort of the definition of a reserve currency.
Now countries are thinking, Well, if it happened to Russia, it could happen to us. This is why Brazil, Russia, India, China, and South Africa are creating an alternative system called BRICS.
Money goes where it is treated best. When you devalue a currency by printing money, creating inflation, and then use it as a weapon, holders of that currency will look for something better. It’s why countries around the world are buying gold and selling dollars.
Why It Matters
Being a reserve currency has a number of benefits.
Increased demand for the currency. It makes it stronger.
Lower borrowing costs: Countries that issue reserve currencies can often borrow money at lower interest rates than other countries. This is because investors have confidence in the stability of the reserve currency and are willing to lend money at lower rates.
Reduced exchange rate volatility: Reserve currencies tend to be more stable than other currencies, which can help reduce exchange rate volatility and make international trade and investment less risky.
Increased economic power: A country that issues a reserve currency has significant economic power and influence in the global economy. This can give the country greater leverage in international negotiations and make it easier to promote its interests on the world stage.
Improved access to goods and services: A strong dollar makes it easier for Americans to access goods and services from other countries. This is because foreign suppliers are more likely to accept the reserve currency, which can help reduce transaction costs and make trade more efficient.
It took more than a century for the U.S. to build a strong and stable dollar. Don't get me wrong, the dollar won't collapse like Argentina's, Venezuela's, or Zimbabwe's currencies (that is, unless the government decides to take drastic measures and ban it). But it will continue to decline to the point where it makes up about 25% of the global currency reserves, which is the U.S. share of global GDP. The effects might not be quantifiable or come soon, but Americans will feel them eventually, and it will hurt.
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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