Is the U.S. Dollar Collapse Imminent?

The truly epic rally in silver continues, and it appears there’s no way out of talking about it. I almost don’t want to write about silver because it seems like people misunderstand what I’m trying to say. What I say next will probably be selectively ignored once again, but let me just repeat: Most of my net worth is in silver! I believe in silver. I enjoy looking at my profits every day. I think the dollar is in trouble. I think our government has no clue what they’re doing. I think riots and protests are coming to America. What more can I say? My public position on what the future holds hasn’t really changed for 2 years.

Understanding the U.S. Dollar

Let me take some time to talk about the U.S. dollar, since most people invest in silver as an anti-dollar trade. Going over the future of the dollar will clear up a lot of issues concerning silver.

The U.S. dollar is the reserve currency of the world, and there’s little doubt in my mind that it will lose this status within the next 10 years. People seem to think the collapse of the dollar is imminent, but I don’t think so for a number of reasons. Let’s think about what has given the U.S. dollar lasting power as a reserve currency. One factor is obviously the fact that the U.S. has had the largest economy. Well the U.S. still has the largest economy. In fact, the U.S. has the same GDP as the 3 next largest economies (China, Japan, and Germany) combined.

U.S. military supremacy has also kept the dollar afloat over the years. While other countries around the world are catching up in this regard, there is no question that we are still the top military power. We still have a strong presence in all the important waterways. Sure other countries can give up using the dollar, but there will likely be repercussions. We have gone to war for far more dubious reasons than having one of the most important sources of our power- the reserve currency status of the dollar-  being taken away.  I’ll leave it at that.

The U.S. dollar has also remained the global reserve currency because of the lack of a viable alternative.  Following WWII, all of Europe was decimated. Right when Japan started looking like it might overtake the U.S. in the 1980′s, they experienced a Depression that is still ongoing. The Euro came onto the scene and everyone predicted it would overtake the dollar. Well we all know that’s not happening anytime soon. And the Chinese yuan? It is not ready to overtake the dollar just yet. Let’s be real here: most people in the world don’t even know how the Yuan looks like. It will probably take around a decade for the Yuan to overtake the dollar.

In response to these points, a lot of people will say gold and silver are going to take over as the currencies of choice. Well this is true to an extent. The free markets are obviously choosing gold and silver as an alternative to the dollar. But going to a gold or silver standard will not happen overnight. First of all, our genius leaders will have to figure out we’re in a crisis in the first place. Then they’ll have to come together and come to a solution. The solution I see them coming to is not a gold or silver standard. It is far more plausible that global leaders will create a new global reserve currency overseen by a transnational organization. We already have the IMF; trust me, a global currency is not far away.

Finding the Right Balance

I recently read that Jim Rogers said gold and silver are probably going much higher, but you shouldn’t buy now, you should have bought 5 to 10 years ago. Well this is basically what I’ve been trying to say. I understand that this seems like a contradictory statement to a lot of people, but it really isn’t. People who initiate positions right now do not have a margin of safety in case they are wrong. If you missed out on the entire gold bull market, I’d suggest buying a modest position as insurance, but that’s it.

The dual debt and dollar crisis will eventually arrive, but I don’t think it’s here just yet. Heck, we haven’t even seen any states default. Treasuries are still trading near their all-time highs. Wait for at least something along the lines of 4% on the 10-year before getting really bearish. Wait for the interest payments on our debt to reach record levels. Wait for the dollar index to reach all-time lows. Since we are all subject to being controlled by our emotions, we should try to let metrics besides the price of gold and silver dictate our level of bearishness.

To conclude, I would really love to get a rational discussion going about gold/silver. If you think silver is going straight to $100, give me some data points. Explain why the crisis is here right now even though Treasuries haven’t broken down yet. Explain why our debt situation is going to explode now even though interest payments on our debt have fallen due to abnormally low interest rates. I’m not saying this facetiously- I really want to see nuanced analysis beyond unsubstantiated comments that the dollar is collapsing right here, right now. I am keeping an open mind.

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