The slow-motion slump of fiat money
Countries are turning away from the greenback, but other currencies look vulnerable too, says Dominic Frisby
In 2004 James Turk and John Rubino published
The Coming Collapse Of The Dollar And How To Profit From It: Make A Fortune By Investing In Gold And Other Hard Assets. Amazon tells me that I “purchased this item on 18 Feb 2006”. Isn’t digital record keeping amazing?
It remains one of the best books about gold and gold investing that I have ever read, beautifully articulating the anti-dollar, anti-fiat, anti-money printing, progold narrative. Those that followed the advice of the book will have made good money – as long as they got out in 2011.
There’s just one thing: the dollar never collapsed. Sure, its purchasing power has steadily eroded. Each year it buys you 10%-15% less house, less S&P 500, and less goods and services than the previous year. If you compare 2004 prices with today the dollar buys less than half as much house or S&P 500 as it did then.
Have US wages more than doubled by way of compensation? No. They have gone from $60,000 to $75,000. The taxes you pay on them have gone up too. Sterling has been even worse. In the early 2000s a pound got you two dollars and some people could actually afford a house.
But does a 55% loss of purchasing power over 20 years count as a collapse? Not really. Currency collapses happen over quicker time frames, as in Weimar Germany, Zimbabwe or Venezuela.
The dollar-is-going-to-collapse narrative really got going around the global financial crisis in 2008 and with all the money printing that followed. In a way, it spawned bitcoin. (If you think gold bugs are extreme in their anti-fiat narratives, go and have dinner with some bitcoin maximalists.)
A shift in the narrative
But then, after 2011, gold went into a bear market. “Bear market” isn’t strong enough to describe what happened to gold mining. Gold mining really did collapse. The dollar, meanwhile, actually strengthened. Not versus stuff we actually buy, like houses, equities or cars, but versus other currencies.
I’m saying this because I have noticed a discernible change in narrative over the last year. No longer do we hear about the imminent collapse of the US dollar or of fiat currency. Now the buzz word is “de-dollarisation”.
The US dollar is the global reserve currency. It is the default for international trade. Participants trust Swift and the international banking system enough to use them for payment. But there are many nations who would prefer, if they could, to use something else. China would, I’ve little doubt, like to see its yuan replace the US dollar. Russia would rather use roubles. And so on.
The de-dollarisation theme took hold in the wake of Russia’s invasion of Ukraine, when the US weaponised its financial might to confiscate Russian dollars and freeze Russia out of international trade. At the
St. Petersburg International Economic Forum – dubbed the Russian Davos – eminent attendees from more than 70 nations around the world regularly talk about a new system of international settlement. There was an India-Russia business forum last month, where Russia’s State Duma deputy chairman Alexander Babakov stated that an alliance of Brazil, India, Russia and China was working on a new currency secured by gold and other commodities. On a visit to China a fortnight ago, France’s President Emmanuel Macron told President Xi Jinping: “I want to take the opportunity to insist on one point: we should not depend on the extraterritoriality of the US dollar.”
We know that China has in recent weeks made trade deals with major international commodity suppliers Russia, Brazil and Saudi Arabia to bypass the dollar altogether and trade using the Chinese yuan.
We also see nations increasing their gold holdings at the fastest rate since the 1960s. They are not just increasing their gold holdings, but they are increasing their gold holdings relative to other assets. Gold is occupying a larger portion of their portfolios, in other words. This is de-dollarisation in action.
People like talking about crashes. Crashes sell. But they are for the media. De-dollarisation is becoming very much a theme now, a mainstream narrative, in a way that collapse never could be. I think it’s only going to become more of a theme.
But what of James Turk and John Rubino’s collapse? That was not a single event, but a gradual process, even if the net result, a 50% loss of purchasing power, is similar. And what of the next 20 years? Do I think it’s possible that houses, cars or equities will cost less than they do now? I don’t think there’s a chance in hell. In fact, I’d be surprised if they are only double what they are today.
Your wages, or your children’s wages, might be a bit higher. Your taxes? They’ll be higher. Your government, or your state as we tend to call it in the UK? That’ll be a lot bigger. While many nations are taking steps to de-dollarise, I would take steps to avoid the constant erosion of fiat money, whether pound, dollar or euro. De-fiatise. I don’t think that’s going to catch on as a term. But combating the erosion of your purchasing power is very much the focus.
Dominic Frisby writes the newsletter The Flying Frisby: theflyingfrisby.com
“Some countries are increasing their gold holdings at the fastest rate since the 1960s”