Category Archives: gold

The End of the Era of the Dollar as the World’s Reserve Currency

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The status of the USD as the world’s reserve currency has been a cornerstone of the global economy for decades. However, recent geopolitical and economic developments have raised concerns that the era of the dollar may be coming to an end. The US has increasingly used its dominant position to impose sanctions on other countries, weaponizing the dollar in the process. This has led many nations to seek alternative means of conducting international trade, such as barter or using other currencies like the euro, yuan, or even cryptocurrencies. The trend is a worrying sign for the US economy and the global financial system as a whole, as it could lead to a loss of confidence in the dollar and trigger a crisis of confidence.

Changing geopolitical landscape: rivals and former allies moving away from the dollar

The situation is compounded by the changing geopolitical landscape. Countries such as Russia and China, which have traditionally been viewed as rivals to the US, are increasingly asserting themselves on the global stage, challenging American hegemony. At the same time, other nations, including former allies and neutrals, are also moving away from the dollar, seeking to protect themselves from the risks associated with its use as a weapon. India, for example, has been buying Russian oil and conducting transactions in rupees, while Saudi Arabia and Iran have cooperated with China as a mediator, bypassing the dollar altogether.

Ron Paul’s views on the matter are relevant here. He has long advocated for the US to stop instigating conflicts and to focus on mutual interests and trade rather than conflict over forms of government. By following these policies, Paul believes the US could have avoided the current situation, where many countries are seeking to move away from the dollar as the world’s reserve currency. If the US had pursued a more cooperative approach to international relations, it could have maintained the dollar’s dominance as the world’s reserve currency.

Consequences of a shift away from the dollar

The consequences of a shift away from the dollar could be far-reaching. The US economy is heavily reliant on the dollar’s status as the world’s reserve currency, with around two-thirds of all foreign currency reserves held in dollars. A loss of confidence in the dollar could lead to a sharp decline in demand for US treasuries, making it more difficult and expensive for the government to borrow money. This could trigger a financial crisis, with ripple effects felt around the world. The US would also face a loss of influence on the global stage, as the dollar’s dominance has given it significant leverage in international affairs. The future of the dollar, therefore, is a matter of concern not just for the US but for the entire world.

What if all Governments ban Bitcoin?

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To me it’s silly to ban bitcoin, but history and other countries have shown that banning a useful money that holds its value is often the course domineering governments take to meet their ends. China and India come to mind when it comes to banning cryptocurrencies or even certain higher denominations of their paper money. However, there is a spectre that other countries that are purportedly free market will also follow suit. This hard cutoff supposedly will coincide with the release of CBDC’s, or Central Bank Digital Currencies. If we want to see how this might play out it may be worth looking to the past.

In 1933, four years into the Great Depression, FDR enacted executive order 6102 (image below) which required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve in exchange for $20.67 per troy ounce. It would not be until 1974 that private citizens could once again own gold. The reason for this executive order was to stimulate the economy by being able to increase money supply which was at the time backed by a gold standard. By 1974, of course, the US was no longer really on a gold standard since three years earlier in 1971 Nixon permanently ceased the convertibility of the US dollar to gold by foreign countries. At that point the US had created way more dollars than it had gold to back them, and if all the dollars were redeemed for gold at their fixed price the point at which no more gold existed the financial system at the time would collapse. For those who held onto their gold either illegally or having had jewelry or numismatic coins (which were exempt from the confiscation in 1933), they would have seen the value rise tremendously – and most likely have been able to sell their gold in countries where it was not illegal to hold.

Executive Order

Executive Order 6102 banning personal possession of gold

The same goes for bitcoin in the countries that have banned it. Online it is pretty easy to find someone who would be able to transfer money if you send bitcoin, and if you have a hardware wallet and didn’t want to transact online but needed to sell bitcoin one method is to leave the country to do so.

What is interesting to me is that bitcoin and cryptos are being targeted but real estate and other assets are not – wait, that’s not true either! Certain countries are cracking down on mom and pop real estate investors by now making it harder to get investment properties. This could be in the form of bans on owning over X amount of properties, or introducing new punitive taxes to discourage buying properties as investments. Now wait a second, stocks are still available to purchase, aren’t they? Yes, they are – and if inflation is 10% per year and your stocks go up 10% a year you are effectively keeping your net worth the same until you sell and pay taxes. What about gold? In the digital age of Amazon gold and silver, in my opinion, have been overlooked as stores of value. That being said, most young people would not accept gold/silver for cash since it is so foreign to them. They’d probably value an unopened bar or chocolate more than a silver bar (see video).

Ultimately, it will be a real test of Democracy and the free market to see which countries do not ban cryptocurrencies. Buying them is not being forced on anyone, and banning them will take away the hope millions have put into get themself closer to financial security or financial freedom.

I really hope the US does not go the way of more authoritarian countries in banning the future of money for their own hyperinflating unit that gets created in the trillions without the consent of the people who earn dollars for a living.

Inflation is More than Just Money Printing

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The inflation we are experiencing in the United States is more than just money printing. It is because of herd mentality here in the States compounded by a growing lack of trust in the US Dollar abroad.

the first thing on most people’s minds during inflation is their food prices

Demand for Benjamins Abroad

When I lived in Malaysia, each weekend there was a line that stretched for at least a few dozen people at a mall named Mid Valley in heart of Kuala Lumpur. That line was people exchanging their local currency – the Malaysian ringgit, into US Dollars. They did so to preserve purchasing power since their local currency was being devalued due to their country’s dependence on oil production for their economy. You see, when the US dollar is the world reserve currency it tends to preserve its power since everyone wants to collect them and not necessarily spend them. Imagine if everyone in the world was doing the same, and not just the mom and pop citizens but also entire governments!

This action takes circulating USD out of circulation at least temporarily, and demand of this nature makes the USD stronger versus the currency that are being exchanged out of. Even though both the US and Malaysia were making fiat (and I’m not talking about the poorly made cars) paper currency, the US benefits from strong demand from other countries continuing to prop up the dollar and wanting to sell their goods for dollars.

Herd Mentality Causing Price Spikes at Home

Now if you tune into CNN or some other popular news channel you will be told that price hikes have to do exclusively with ports being backed up due to Covid related worker shortages – this is not the whole story. Demand for goods is higher, and the desire to hoard goods hasn’t completely gone away from more than a year ago (remember when everything was rationed?). If you go to the local Costco or Sams Club here in Albuquerque they are still limiting the number of bottle water packs you can buy to two or three, people seem to still be being more toilet paper than normal, and there are folks who are already finishing up their Christmas shopping for fear of items not being available or being much more expensive come December. This spending is what I like to call velocity of money in motion, and is causing prices to go up on main street.

What about Real Estate?

The cash that the Federal Reserve created months and years ago had already funneled into the financial system first and caused companies flush with cash to go for asset buying sprees, such as real estate. Big companies like OpenDoor and Zillow bought homes over their value, in anticipation of “flipping” them and making money purely from the upward price trend that was happening since mid 2020. The only problem is individuals stopped receiving stimulus checks and companies started opening up and wanting people to get back to work – slowing down the home buying and turning the rising price trend around if even slightly.

I wholeheartedly expect home prices to fall in the hottest areas this winter, but I do think the fall will be short-lived as moderate inflation catches up. People will start to demand higher wages and the most profitable industries will be able to provide them. Industries that cannot adjust their prices very much to keep track with inflation will suffer, and their employees will suffer with stagnant wages. I expect the agriculture industry to come out of this better than before, same with companies that sell inelastic goods such as food and modest housing. Luxury housing will suffer along with luxury good industries.

What can I do?

Go back to my blog and read the article titled “How To Preserve Your Assets During 1970’s Style Inflation?”

Make sure your income keeps up with inflation, pivot to make that happen. Make sure you have skills that are in demand that are well compensated for if you’re starting out, and if you already have assets make sure they are cash flowing. Having debt during high inflation is a great thing as long as your income keeps up with inflation. For example, if you own a rental property and pay a 30 year fixed rate mortgage ideally you’ll be able to adjust your rent for inflation.

Bottom Line

Inflation is not transitory in that it will return to what it was before Jerome Powell’s speech. It may slow down and prices for certain things may decrease as supply rises to meet demand, but you shouldn’t be dormant with your cash but put it to work ASAP. Watch for a real estate correction this winter for a buying opportunity if you’ve been waiting. Don’t panic.

Let’s Talk about Bitcoin Versus Gold

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Bitcoin Versus Gold

The gist of this article is to explain in clear English why bitcoin has outperformed gold and makes a more viable currency. I’m not going to speculate on price movements rather the utility of the currency. If you’re an older reader pay closer attention, bitcoin is no longer just “an idea in a geek’s head”.

The Charts

BTC/USD

BTC/USD 1 Year to Jan 9, 2021

SPRD Gold Trust Price

SPRD Gold Trust Price 1 year history ending on Jan 9, 2021

Why has Bitcoin Outperformed?

So why has bitcoin outperformed gold in the past year? The charts above show bitcoin and a gold ETF side by side and as you can site bitcoin is the clear winner. My answer is in the form of a question.

“How would you use gold to buy what you buy in a given year?” How can you use gold to buy pizza, how can you use gold to order items online, and how can you use gold on the go anywhere you are?

The answers are clear, you can’t. If you do, you’ll probably lose value, for example you can give a store clerk a gold coin and he’ll pocket it and then pay from his pocket because he just ripped you off, but he won’t go through the rigamarole of checking the spot price of gold and empty out his cash register to make it a fair transaction. Regarding online orders, forget it. It’s really dangerous and stupid to be carrying gold coins with you everywhere you go.

Now pose the same question with bitcoin. Well, in some foreign countries such as Japan I can buy pizza with bitcoin. The US is still catching on so most restaurants and stores will not accept bitcoin.  Many websites accept bitcoin, a long time WordPress started accepting bitcoin and others followed such as Steam, Reddit, Microsoft, AT&T. The biggest news of all I think is that Paypal will allow spending in local currencies with bitcoin. So you go anywhere in the world, imagine being able to spend in local currencies being converted out of bitcoin and a real-time rate. Amazing right? All you need is your phone, something undoubtedly you have either in your hand or pocket right now. Good luck bringing gold overseas, even locally TSA questions people that move gold around but if you go overseas you may be subject to paying a tariff to bring in gold.

What should I do if I have Gold?

Two People Debating

If you have gold don’t worry, I think gold prices will keep going up in the medium and long term. A short term fall is most likely institutions rebalancing as they add bitcoin to their portfolio. Institutions need to have bitcoin in reserve if they offer their customers the option to buy bitcoin on their platform. Gold does have a few benefits over bitcoin, including it’s time earned reputation as a store of value. A digital coin that’s been around for a little more than 10 years is not going to replace gold as the “gold standard”, and you are protecting yourself against inflation. Gold also has the title of being anonymous. As long as people aren’t writing down serial numbers of coins or bars they trade, gold can be untraceable. Bitcoin used to have that distinction but since it uses a public ledger if folks reuse their same bitcoin addresses its possible to trace down where addresses belong using some tricky sleuthing. Also, many people are keeping bitcoin on online wallets that are hosted by companies rather than keeping it in cold storage on hard drives. That means users don’t really own the wallets they are using a service to manage a wallet that then creates sudo wallets when transactions are performed.

You’ll want to make precautions to make sure you don’t get your gold lost or stolen, gold thankfully has elemental properties that prevent it from decaying or becoming dull over time. That being said, I feel it’s value as a currency are less than bitcoin so treat it more as a hard asset investment (much like real estate except without the power to cash flow). I’m going to get to preferred investments later.

What should I do if I have Bitcoin?

If you have bitcoin congratulations, you’ve probably already made a killer profit. That being said bitcoin is still growing as a currency and most folks that are older and less technology savvy may be less likely to “catch on”. However, the great thing about bitcoin is it is a deflationary currency meaning it has a hard supply cap and the mining becomes more difficult over time. Higher demand with limited supply will lead to higher prices, however a pullback from the recent price spike is very possible. What I would do if I did not already own real estate is sell enough bitcoin to make sure you own your primary residence. If you have a lot of bitcoin I’d also sell more to buy rental properties which pay back the mortgage and then some. Throughout time mankind has had great success in making fortunes from supplying housing to folks for a price. You are doing tenants a service by providing housing at a price they are willing to pay and they do not have to buy an entire house or deal with some struggles that come with owning properties such as maintenance, taxes, insurance. I wouldn’t sell it all though because during a rising period it’s hard to be certain how high bitcoin will go. Will it stop at $50,000 or continue it’s way to $1,000,000? With a max supply of 21 million coins a 1 trillion dollar total capitalization would mean each coin is worth $47,619. Does the world place that much value on this cryptocurrency? My guess is yes, and if bitcoin pulls back to less than $20,000 I will be dollar cost average purchasing more with each paycheck.

The Paycheck Conversion Plan

I learned of this when I lived in Malaysia. The Malaysia ringgit was getting hit hard with low oil prices and political issues, lines would form around all the currency traders (which were prevalent also because of lots of tourism). Locals would exchange their hard earned ringgit for either USD (US Dollars), SGD (Singapore Dollars), or RMB (Chinese Money). The reason for this was to prevent their money losing value as fast as it would otherwise. Also because they trusted the other currencies more.

I think it’s a great painless and stress free way of purchasing something your brain construes as “expensive” over time. Kind of like getting into the ocean inch by inch rather than taking a dive. Budget yourself, how much you need for your life and how much you use for investing. Divide your investing into stocks,real estate, and crypto. Divide your crypto into Bitcoin, Etherium, Litecoin, and any other coins you deem worthy (read the white papers and do so checking on how easy these coins are to mine and what they are already used for). After you come up with that percentage multiply it by your  wages (be it bi-weekly, monthly, etc) and then set a recurring purchase transaction on a website like Coinbase (join using this link to get $10 free bitcoin for you and me) for all the coins you’ve come up in your list.

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