Gold is probably the world's real base reserve currency. Because
if you look at what the actual global reserve currency is, historically, over
the last 3,000 years, it's probably been gold. The other way to assess the
strength or weakness of the US dollar is the dollar index. If it drops below
100, it's showing weakness. And if it rises above 100, it's showing
strength. If you look at whether a currency is becoming more valuable or
less, the first way to assess it is to assess it against other currencies. It's
called foreign exchange, okay, FX. The second thing to understand is the
purchasing power of the US dollar. That's the difference. I'm Lloyd James
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Gold's at record highs, the Fed's keeping rates steady at
4.5%, and the dollar index has slipped under 100. What
does this all mean? I'll explain in a second. But what I want to ask is, does
this mean that the US dollar is finally collapsing?
First, let's understand what collapse actually means. In plain English, a collapse isn't
just a dip, it would mean countries and companies stop trusting the
U.S. dollar and U.S. trade, right? There'd be like a global run
on the dollar, but that's not what's happening right now. So what we're seeing is
weakness in the U.S. dollar compared to 2022 highs, but
where does it stand? How do we assess the weakness or the strength
of the U.S. dollar? So let's understand some things. Firstly, the
U.S. dollar is a world reserve currency, okay? So
what that means is most of the countries around the world have,
let's say their FX reserves or their own emergency funds.
They've got FX reserves of US dollars of about 57%. And
to that matter too, most of the world's trade is
done in US dollars, between 48% if you don't include Europe, and
then about, I would say 60% if you include Europe. So
by and large, It's the reserve currency still very
strongly. It doesn't look like it's going to get toppled at
all. So that's the first important thing to understand. So
if it was collapsing, you would
start to see people moving and shifting their US dollars
into, say, euros, because that's the second strongest
currency in the world in terms of a reserve currency. So
most countries keep their money in US dollars. And
it does have payment dominance. Alright, so again, all the
transactions you're seeing or into effectively international transactions through
SWIFT, which is the payments, global payments system, the
plumbing for payments around the world. It is in U.S. dollars, all
right? So half the world's money transfers are still happening in
U.S. dollars and are settled in U.S. dollars. And if we saw the U.S.
dollar actually collapsing, we'd see that starting
to unravel, all right? And that's not actually happening in massing countries,
so it's not happening, okay? Now, the other way to assess the strength or weakness
of the U.S. dollar is the dollar index, the DXY. You'll see this
on the financial news, like the DXY did this. So if it
drops below 100, it's showing weakness. And
if it rises above 100, it's showing strength. So what is
the dollar index? It's basically like a scorecard that
compares the US dollar to other big currencies in the world. It's
the euro, the yen, which is the Japanese money, the pound, which is
UK. and then Switzerland and there's a couple of others. So
they assess the US dollar against the strength of those core five
or six currencies. And if it's again, at a
hundred, it's neutral. If it's below a hundred, it shows that
the US dollar is weakening. And if it's above a hundred, it shows that there's relative
strength against other currencies. So there's two things happening
here, just to clarify. When I say the US dollar collapsing, what
we have to understand is, is it weakening or strengthening against other
currencies? Because if you look at whether a currency
is becoming more valuable or less, the
first way to assess it is to assess it against other currencies. It's called foreign
exchange, FX. The second thing to understand is
the purchasing power of the U.S. dollar. That's different. So
whether the U.S. dollar can purchase things in other countries relative to
their currency is the effects and whether the U.S.
dollar can continue to purchase things inside the United States or things
denominated in U.S. dollars is the actual value.
of the US dollar. And as we're seeing, there might be a bit of
relative weakness in the US dollar against other currencies, which is what we're seeing because
the DXY is actually at about 90. So we're seeing that against other
currencies, the US dollar is weakening a little bit, which is fairly normal, definitely not
collapsing against other currencies. However, what
people are frightened of is if the
federal funds rate drops and
inflation continues to tick up beyond 3%, which is what it's
at at the moment, They're afraid that
the US dollar's ability to buy more things in their home country will
go down, meaning inflation gets out of control and
the currency devalues, which by the way, it's been devalued for
the last hundred and however many years. It gets devalued through
inflation, which usually is caused by government spending, but
what's happening at the minute is by and
large, the US dollar is losing some purchasing power, right?
And that's why, again, things like crypto and certainly real estate transactions
and certain companies and businesses you buy, and gold, which is
why gold's gone parabolic this year, over 40% returns year
to date, is because people are afraid that the value of
their US dollar is going to fall, right? So not against other currencies, but
generally speaking, in terms of what it can purchase. So
if we see CPR inflation tick up any further, we are
going to see the value of the US dollar start
to collapse even faster in terms of what it can buy, which
is why at the moment in the United States, People
are giving Jerome Powell right? Who's the
head of the Federal Reserve? They're giving him a bit of a pat on the back because
they're like listen, man You're what stands between us torching
the US dollar and not the reason why is because he's
currently keeping rates steady at four and a half percent Which he
should to curb inflation which is working but
what people are worried about is they're gonna go into a massive recession which may happen
and But it's certainly better than inflation. And so
on one side, you've got Donald Trump, the president, aggressively,
very aggressively with Scott Bennett, his right-hand
man, Jaw-boning or telling Jerome Powell
to drop rates right because inflation is back in the steady
band But is it really in a steady band or
they're just wanting to stoke the economy and crank it up again and
I actually feel like Jerome Powell's being the most responsible
Federal Reserve chairman because He's staying
staunch. He's not letting Donald Trump Influence
his decision as he should which is why there's a separation of powers between
the executive and the Federal Reserve So I think it's
a wonderful thing that he's keeping it four and a half percent Because the last thing
you want is to drop it down to three again, and if Donald Trump had his
way I don't mind I don't mind Donald but if he had his way he drop
it to one or zero and that would absolutely Torch
the US dollar and if that actually happened you'd see gold would
probably go up another 50% It would just go ballistic because if you look
at what the actual global reserve currency is Historically, over
the last 3,000 years, it's probably been gold. And that's
why China is buying so much gold. Because if you look
at the fiat currencies, by and large, they
can be printed into infinite. So they can actually be printed
away into nothingness, because there's no supply
constraint. There's basically just
unlimited supply. Whereas gold, there's a supply constraint
in terms of how much can be produced by the earth over time. and how much can
be mined. So that's a supply constraint. You don't get that with fiat, which
is why gold is probably the world's real
base reserve currency. The trade currency, obviously,
is the US dollar. So the commerce currency is the US dollar, but
the real global reserve currency is probably gold. And people
are now trying to replace that with Bitcoin as
this online version of or coded version of
wealth, right? So that's why people are
worried. Just quickly, if you're ready to take control of your finances but feel
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your copy via the link in the show notes and let's get your money working for
you. Now back to the episode. Are there any other risks that kind of
create this problem and exacerbate this
US dollar value journey, right?
Or misadventure that it seems to be on? So if you look at those three big
things happening as well, the reason why Donald Trump is
passing bills and trying to drop rates is
because he also wants to have GDP grow. He wants to see
the country grow at a certain pace so that it
can earn enough money, here's why, to pay off
its $37 trillion in debt. There's
two ways to pay off debt. And if you think of the United States or any country
as a big household, it's the same thing. In a household, there's two ways to pay off
debt. Either you go to austerity measures, meaning you start to cut costs and
you take it on the chin like a boss. And you know what? We've been very, very
naughty. We haven't got control of our debt. We've got too much credit
card debt. Honey, we need to tighten our belt. No
more Netflix, no more this, no more this. So you start to cut costs.
That's what the government could do. And that's why Elon Musk decided to
bail because when they put that big bill through that was like 5 trillion
or something of spending, he went, oh my God, that is like the most
irresponsible spending ever. On the other side,
they thought, well, we've got to earn our way out of this. So they're
not doing the austerity thing like a household would if they were in credit card
debt. They're actually going to go earn more money. And you can do both, right? You
could actually do both at the same time, but it's very difficult because to
make money, you've got to spend money. So on the opposite side, the
Trump administration is saying, hey, we're going to earn our way out
of this problem. So the reason he wants to drop rates is to crank up
GDP, to earn more money. And of course, pay
off the 37 trillion in debt. That's one part of it. The
other part of it is this, the tariffs that have been put in place. with
other countries, the tariff deals that have happened between the United States, they're starting
to raise tariff income in the US. Now,
in the short term, that will probably stoke inflation. So Jerome Powell's
like, listen, man, if you have tariffs being put in place,
and we're getting all this new income, and it's creating price rises in
products that are tariffed, we're going to see an uptick inflation. So
while the tariffs are being swallowed by the economy, I'm not going
to flip and drop rates, man. Just hold up your horses. Let's let the tariffs
be digested by the economy. Let's see the impact on inflation there,
the impact on people's pockets, and then let's assess the
federal funds rate. But Trump's like, you know, no, let's get
tariffs. Let's get the drop. Let's play. But he's like, let's make money,
right? And so that you're having this kind of war going on between him and Pal
and it's it's it's pretty gnarly But I commend Pal for staying staunch on
this because we don't want to see the US dollar torched Okay, all
the Bitcoin is in the comments be like, yeah, we do. We want to see
it torched And everyone who owns gold they want to see it
torched too. But by and large we don't really want to see the trade
currency torched Okay, we don't want to see that again. You'll
leave a comment below if you if you don't feel the same way So the question is,
is the US dollar collapsing? It seems to be weakening against
other currencies. And as long as Jerome Powell is
holding rates at four and a half percent, I
don't think we're going to see US dollar collapse. Much to the dismay and
discomfort of the gold holders and the Bitcoin
holders, right? Crypto holders. However, and I know there's a
difference between Bitcoin and crypto. I get it. I know, I just put it in the comment. But
hopefully, Cooler heads prevail. Hopefully
Trump doesn't get his way to drop rates down to 1% or
2% again and stoke inflation. Hopefully the tariffs
don't cause too much inflation. But it really does rest
on Jerome Powell saying, hey, let's just put out, let's just draw a line in the sand here.
And I think what's promising is you're seeing housing start to fall
and collapse in the United States. And this is a byproduct of what happens
when you hold rates steady, which is why I feel in Australia we need to do it.
4.5% is where they should be, because we'd start to see the falling
of real estate prices. It's not a bad thing. It
resets the real estate market, resets the economy, and
they're able to do it in the States. Although in the
United States, you have non-recourse loans and all these wonderful things you can
rely on. In Australia, we have full recourse, meaning that will come after your last dollar
to get that loan repaid. So I can understand the apprehension. So
I don't feel like what we're seeing in the signal wise and with Jerome
Powell and the rates and the housing market, that the dollar is
collapsing. We're seeing some weakening, which is fairly normal as
well because, you know, we're paying the
US dollar is... succumbing to
some inflation because of tariffs. So we're going to see it weaken. We're
probably not going to see it strengthen, particularly if rates start to fall again in
the United States in the future. And we'll probably see a bit of an equalization
of other currencies against the states, where we're not going to
see it dislodge as a reserve currency, primarily too, because it's backed
by the world's most powerful military. People say,
oh, the currency is not backed by anything. It's kind of backed by all the natural resources
and all the land and all the military might the United
States has. and its contract. So it is backed
by something. And we're not going to see that dislodged. So
straight up, we're not going to see it lose its reserve status. It
doesn't look like that's happening at all on mass. If it did,
the next currency in line to take over would be the Euro and
maybe down the line, the digital RMB with China. I
can't see any crypto or Bitcoin taking reserve status at all. It's
just, it just wouldn't, it's so untested. It would be a huge risk
for the world to do that. And I think
we're going to see cooler heads prevail in the States and
a steadying out of the value of the US dollar. And
that's what I think is the outcome. So is the US dollar collapsing? I
don't think so. It's just weakening. But I'd love to know your comments, good,
bad, or indifferent, pop them below. What are your thoughts? Do
you think the US dollar is collapsing? What do you think is going to happen with the
federal fund rate over the next few months? Do you think that
the US is going to pull out of this $37 trillion debt hole? If
it is, how will it do it? And what happens if it doesn't? Everybody
knows they're probably gonna print their way out of it, which will stoke inflation
Which is why we need to keep the rates higher. And so keep an eye
out for the US dollar, but of course hedge against currency
inflation It would be crazy to keep your
money under your mattress in US dollars for obvious reasons. That's
why investing in assets, real estate, good
quality businesses with pricing power, which includes some stocks, and
of course, if you needed to, you could probably consider maybe
gold. But again, not financial advice. It's just
a lesson or a principle to say, hey, I'm not going to hold currencies. I'm
gonna hold assets that are a hedge against inflation. All
right, so I hope that makes sense and give you something to think about. Can't wait to talk
to you in the comments and I'll see you in the next episode. Thanks for listening to Money Grows on Trees.
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