Disclaimer: I am not a financial planner nor an investment expert and I am not qualified to give investment advice. I’m just a guy who has never lost money in an investment in my entire life, and makes economic observations as a laymen. Please seek a finance professional for advice on how to invest your money. Don’t take financial advice from business consultants or dating experts.

The US Dollar is in for a very interesting future over the next several years. It’s also unlike any other currency in the world, making things a little complicated.

The US Dollar is an extremely flawed currency. There are many reasons for this, but here are a few:

1. The Federal Reserve over-printing the Dollar in order to prop up big government and temporarily stave off a huge recession (which is guaranteed to come anyway). As you can see from the above chart, the US Dollar has lost 95% of its purchasing power since 1913 when the Federal Reserve was created. Great. Thanks, jerks.

2. Other major nations getting upset that the US Dollar is the only world-recognized reserve currency, and they’re attempting to replace it, which eventually they will. The Chinese, Russians, Brazilians, and several other nations have made it their goal to go into direct competition with the US Dollar on the world stage. (Guess which one I’m betting will eventually pull it off? China of course.)

3. Competition for the dollar in the form of cryptocurrencies like bitcoin and Ethereum.

4. More and more people and nations purchasing mass amounts of gold as a hedge against the Dollar (and for other reasons).

On the flip side, the US Dollar still is the world’s reserve currency, more or less forcing you to use US Dollars if you make major transactions on the world market, including oil purchases from the Middle East which (so far) require dollars.

More importantly, while the US Dollar is heavily flawed, most people in the world are idiots and don’t know this. Historically the US Dollar has been a safe haven in times of trouble, so in the near future, if/when the world experiences major economic problems (and it will), hordes of people all over the planet will flock to the US Dollar. They will think the Dollar is safe. It won’t be, but that’s what they’ll think.

This will actually increase and strengthen the value of the Dollar. At least for a while.

That’s why, strangely, a good investment right now is the US Dollar even though it sucks. At some point soon, the world will be having major economic problems, people will buy dollars, and the price of the US Dollar will rise sharply, possibly even becoming a bubble.

Then, likely, like all bubbles, the US Dollar will crash, and investments like gold will soar. This could possibly cause Scenario 3 I’ve discussed before, a currency crisis.

When problems occur and the Dollar rallies, gold prices will likely fall. Gold usually moves in inverse proportion to the US Dollar (though not always). People who hate gold will say, “Ha! See? Gold sucks! Told ya!”

They will be temporarily correct, until the Dollar crashes. Then gold will rise. A lot.

I can’t advise you, but I can tell you what I plan on doing:

1. Currently, invest in US Dollars via non-leveraged ETFs. (But I’m not selling the gold I already own.)

2. When the Dollar rises in price and gold collapses, sell my dollars, take my profit, and buy lots of gold. I may not be able to time things as close as I would like, but likely it’ll be good enough to make a nice profit.

3. When the Dollar collapses and gold rises, make a huge profit again, and throw a big party in Vegas with all the money I’ve made. (Just kidding on that last part. The money I make will stay where it belongs: in my long-term investments.)

When will these things happen? As usual, I have no idea, and anyone who tells you they know when these things will occur are full of shit. As has always been the case with me and investments, I always accurately predict what is going to happen, but I never know when it’s going to happen, and whenever I guess I’m always wrong. So I stopped guessing a long time ago.

Will I be right? Will this happen as I’m describing? We’ll see, but I think so.

22 thoughts on “The Coming Roller Coaster Of The US Dollar

  1. On a happier note, this has been the most entertaining election in history. Who cares about economic and societal collapse when you have Russians hacking the DNC and dank Trump memes. Hopefully I have time to finish up school and establish myself somewhat before shit starts getting too bad.

  2. this has been the most entertaining election in history

    By far. And it keeps getting more and more crazy. When I see the evil and incompetence on both sides, I don’t know whether to laugh or cry. (Mostly laugh.)

  3. Are you a fan of Martin Armstrong’s work? I’ve been researching this for a year or so and I’m in total agreement with you (i’m not quite sure gold will rise too high, cryptocurrencies might replace it as they are more convertible, but generally you’re spot on). Good work!

    Quick question – would civil disturbances and possible state secession / huge government changes make you speed up your “get out of america” timeline? Is the timeline purely based on your reading of the economy, or are you tied to the USA for the next few years because of investments, etc?

  4. Are you a fan of Martin Armstrong’s work?

    I’ve heard his name but I don’t know anything about him.

    would civil disturbances and possible state secession / huge government changes make you speed up your “get out of america” timeline?

    Civil disturbances, no. I’m prepared for those if they actually happen in my sleepy suburban area (which I very much doubt).

    Huge goverment changes, no, unless it was something truly horrific, like tax rates for small business owners going to 70% or something. Again, unlikely in the next 9 years (but with Bernie Sanders types gaining more popularity you never know).

    Secession, yes. I’ve said before that if a state actually seceded from the US, I would probably move there instead of to another country. Left-wingers don’t believe in secession so it would likely be a state that leaned in the direction of smaller government, thus I would probably go there instead of South America.

    Is the timeline purely based on your reading of the economy, or are you tied to the USA for the next few years because of investments, etc?

    My 2025 timeline is based on many factors, including:

    – My reading of the economy.
    – A few of my investments but not most.
    – My current business structure. I’d like a shore up a few things before I leave. It’s not mandatory but I’d like to.
    – My kids. They’re 18 and 24, and I want to make sure they’re a little older and nice and set in their lives before I leave.
    – Any possible grandkids that may appear in the next 9 years.
    – Giving a possible future girlfriend/wife (OLTR) time to adjust logistically and emotionally before we make the big move.
    – Adherence to my long-term goals and Mission, which shifts focus around 2024-5.

  5. What’s interesting about the dollar, is that it isn’t losing that much purchasing power when compared to other currencies, because *all* of the Central Banks are printing money like it’s going out of style. I agree with Jim Rogers in that this is an unsustainable model and when it collapses, the central bankers will be out of tools to manage a crisis.

    It seems to me that everything since the tech bubble has lead to the repeated attempt to create never-ending good times in the markets. People don’t seem to want to accept that recessions and market pull backs are inevitable. Instead, they rely on all of these artificial things to prop up the markets. Then when the inevitable crash comes (it always does) everyone acts shocked. And it always ends up being worse the more over inflated the bubble is.

    What scares me right now, is the fact that banks are gobbling up negative interest rate bonds. The market for those bonds was at zero not too long ago. Now it’s a 40 *trillion* dollar market. That is a sign that something in the world of finance is fundamentally broken.

  6. Thanks, as always, for the great advice! Do you mind if I ask what US dollar ETF you use? Thanks again!

  7. I think I might have said this here before, but an important aspect of the dollar is that debts and obligations against the US government are all denominated in US Dollars, something that the US Government controls (at least indirectly.) So although their balance sheet looks terrible, you have to remember that they can easily devalue all those debits, in fact they have done so many times, and have done so with the economically ignorant public applauding rather than revolting.

    This is very different than, for example, Argentina or pre WWII Germany. In each case the debts were denominated in currencies they didn’t control (for example, Germany’s war reparation debts were denominated in gold) and consequently the only currency manipulation they had was via arbitrage, which was the direct cause of the hyperinflation.

    For those of your readers unfamiliar with some of that economic jargon, let me explain — The US Government’s net worth is about negative 20 trillion dollars, If you create $2 trillion out of thin air, then your net worth is now negative $18 trillion. How does that work? By printing the extra money you devalue all dollars, so this is effectively taking money from everyone who owns dollars and transferring it to the government to pay their debt — effectively a large stealth tax on wealth. In fact from the point of view of the government it is better than that. Because you printed more money each dollar is worth less, and so your original $20 trillion dollar debt is also worth less meaning you need to produce less value to pay it off. Or to put it another way, it is like cutting the amount you pay retirees in social security without changing the actual number that is on their monthly check.

    So printing money is a way to make everyone poorer, but make the government look richer. The downside is that printing money produces inflation which makes the government look bad, but they fix that by fiddling the way inflation is calculated. (For example, government inflation figures exclude the cost changes in food and gasoline prices, even though, for many people on the lower end of the income scale these are the two biggest marginal expenses they have.) There are other ways they fix this related to commercial money, but that is story for another day.

    If you look too at the crash of the British pound that made George Soros rich, this was again due to the fact that the currency was pegged to the Deutschemark, which the British government did not control. Almost always these types of massive crash are due to the inability of the government to control the debt instrument. (And BTW, the crash of 2008 was not massive by any measure.)

    Which is to say the American economy is not, in my view, due a massive crash with hyper inflation. Rather it will be a slow, lingering and painful poverty induced over a much longer period of time no doubt punctuated by mini panics, as economies always are.

  8. What’s interesting about the dollar, is that it isn’t losing that much purchasing power when compared to other currencies, because *all* of the Central Banks are printing money like it’s going out of style. I agree with Jim Rogers in that this is an unsustainable model and when it collapses, the central bankers will be out of tools to manage a crisis.

    Correct and correct. Every major nation has lost its mind regarding this issue, and will eventually pay a huge price.

    People don’t seem to want to accept that recessions and market pull backs are inevitable.

    It’s not “people” so much as the elites. They don’t want things crashing on their watch. They want things crashing on the next guy’s watch. So they do their best to keep pushing these crashes into the future without actually solving anything.

    The market for those bonds was at zero not too long ago. Now it’s a 40 *trillion* dollar market. That is a sign that something in the world of finance is fundamentally broken.

    I know. It’s fucking hilarious!

    Normally I like bonds, but today I have no money in them.

    Do you mind if I ask what US dollar ETF you use?

    I don’t give specific personal financial information over the internet (and neither should you). Just do a Google search. Since it’s an index fund it doesn’t really matter which one you use, as long as its from a big firm (Vanguard, Fidelity, Schwab, etc).

    This is very different than, for example, Argentina or pre WWII Germany. In each case the debts were denominated in currencies they didn’t control (for example, Germany’s war reparation debts were denominated in gold) and consequently the only currency manipulation they had was via arbitrage, which was the direct cause of the hyperinflation.

    Correct, more or less. I could nitpick that but you’re generally correct.

    However, this “everything is perfectly okay because we owe it to ourselves” argument that some make (I don’t think you’re making it) doesn’t mean we can just keep printing trillions of dollars forever. Just as you stated at the end of your comment, the BEST CASE SCENARIO if we keep doing this means all Americans get poorer and poorer until America becomes a shithole several decades down the road. This is “Scenario 2” I talked about, the “Slow Decline Into Irrelevance”: http://calebjonesblog.com/how-bad-will-it-get-what-exactly-will-happen/

  9. @Way_of_Man says
    > What’s interesting about the dollar, is that it isn’t losing that much purchasing power when compared to other currencies,

    Although I broadly agree with your underlying sentiment this really isn’t true. It depends on which currency you look at. For example, look at this graph of the USD to Swiss Franc exchange rate:

    http://www.xe.com/currencycharts/?from=USD&to=CHF&view=10Y

    In ten years the dollar has lost 30% of its purchasing power against the Franc, and at one point, when Obama decided to shred the dollar, it was down over 50%. That’s not nothing.

    In the same time frame the USD/.RMB in China was also down about the same. These numbers are less reliable since the Chinese fiddle the rate by various means. But instructive even so. You can see the fiddling btw in the 2008-2010 timeframe which is completely flat, since the Chinese manipulated the supply of yuan to peg it to the dollar, which was in freefall at that time. However, even the Chinese can sustain that only for a limited amount of time.

    http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

    FWIW,, in the same time period gold is up 100%.

    I mention this again not because I don’t broadly agree with your point that all governments are terrible, I certainly do agree with that, but to offer a ray of hope — some are WAY better than others.

  10. Are you saying that gold will stop the rallying trend as of late and crash in the next few years?

  11. Are you saying that gold will stop the rallying trend as of late and crash in the next few years?

    That’s very hard to predict, but my guess is that gold won’t “crash,” but will likely drop below 1200 or 1100 per ounce when the next big problem / recession hits the world and everyone foolishly flocks to the dollar. Of course I could always be wrong.

    I was planning on making a big move into gold this summer, but I’ve postponed that, instead I’m buying a little bit per month over the next few years to dollar cost average the investment, while still speculating in USD.

  12. Consider the production of bread. From farms to bakeries to stores, at each step a reserve of grain or flour or the end product has to be stored because production and transportation aren’t perfect, aren’t instantaneous and occur in large chunks. So at any moment there are heaps of grain that aren’t being milled, tanks of flour that isn’t being baked, and trays of bread that isn’t being eaten. This is inescapable.

    The same currently applies to money flowing in the direction opposite of that of the goods. There are huge amounts of money stuck in the traffic jams of securities, derivatives and so on.

    The purpose of money, when invented, was to simplify trade. I have grain and want sheep, you have sheep but want wine, whoever has wine doesn’t want either sheep or grain etc. Lots of unnecessary trades had to be made to get what one wanted. But with the advances in IT, money is no longer necessary at all. Computers have no problem handling 1000-party contracts. If enforcement is a problem, trade things in tiny batches as is done anyway with the high-frequency trading of today.

    With trade growing, there’s demand for more money to get stuck in the system, and governments, particularly that of the US, gladly oblige. But when the system is reorganized the sensible way, and no uber-wealthy luddites can stop that, the money will be freed up and cause global inflation the like of which has never been seen.

    Maybe that won’t be the very next crisis, maybe we’ll experience some old-fashioned crises first where something devalues, money holders fearfully withdraw their money and all trade stumbles without the reserves. But I’m pretty sure there will be one final crisis where money itself will be the thing to get devalued.

    Thoughts?

  13. But when the system is reorganized the sensible way, and no uber-wealthy luddites can stop that, the money will be freed up and cause global inflation the like of which has never been seen.

    It really depends on the catalyst of such reorganization, how it’s reorganized, and who does the reorganizing. Again, it’s so hard to predict specifics.

    That’s why I always go back to my standard prediction: I am 100% confident that something very bad is going to happen to our economies at some point soon, I just don’t know exactly what or exactly when (beyond some basic guesses that may or may not be right).

  14. @Anon. says
    > The purpose of money, when invented, was to simplify trade.

    At its most simple, the idea of money is to have a fungible intermediate way to store and transfer “value”.In the past that store of value was very real. We used rare metals in our coins, and we ensured their purity and weight by the issuance of certification such as government minting. This was later replaced by certificates that transferred title to some amount of that metal, which were the earliest bank notes. In the 20th century the connection between bank notes and money was removed and so the value stored in those notes now has nothing to do with any actual commodity value. American bank notes are valued based on the faith and credit of the Unitied States, and what that specifically means is the ability of the government to tax future generations to support the debt.

    By disconnecting money from real physical property it allowed the government to manipulate the money supply in all sorts of ways. Today the vast majority of money is made out of thin air. It is this fake money that causes all these strange derivative instruments and various other massively overleveraged bets. It is the manipulation of the money supply that is at the root of all modern financial crises. (For example, despite what you might have heard, it is indisputably true that the Federal Reserve caused the 1929 stock market crash and its subsequent fall out, though like a latter day Obama, FDR did massively extend and deepen that recession by his interventions.)

    So I’m afraid your idea would just make a bad situation worse. Money needs to be issued against in some coordinated way, not at the caprice of the government or unelected patsies at the Fed/Bank Of England/ECB.) For example, what I would favor would be that the government issued 4% new money each year and used that money to pay for their operations. However, that will never happen, there are too many people getting WAY to rich off the massive overleveraging that the current system allows.

    Back in the days of old when money was entirely based on coins and metals there were various techniques used by people to game the system. Coin clippers shaved off the edges of coins to get some of the gold or sliver (that is why most modern coins have milled edges), or they struck coins themselves with the gold or sliver alloyed with lower cost metals.

    This was considered such a crime that the worst punishments were reserved for coin clippers and forgers. Typically they were hung drawn and quartered in England for example (hung by the neck until almost dead, then they had their balls cut off, and their intestines removed and burnt in front of them while still alive, finally their bodies being quartered and distributed around the nation.) Clipping coins was considered the worst kind of treason.

    Do you think we should bring that back from the guys at the fed who make these puny little coin clippers look like a bunch of amateurs. After all, what they do amounts to the systematic robbery of everyone in America.

  15. That’s not quite what I meant, or only part of it.

    One side of the problem is uncontrolled printing of the new money. But the other side is that the current financial system slows down the circulation of money, so much of it is out of sight at any given moment. This postpones, but in no way prevents the inflation. (And let me be clear, I see no sinister will behind this, I find the current state of things to be the natural product of evolution of global trade.)

    My understanding of the 2007-08 crisis is that after all the problems with mortgage-based securities in the US, people with the money withdrew their investments from that sector, ripples ensued and prices of other things fluctuated, other people with the money withdrew their investments from other sectors just to be safe, and global trade suffered because of its reliance on all the loose money. So this is what happens when there’s too few money. Too much free money doesn’t sound good either.

    By the way, mortgage-based securities…
    Money = promise of goods
    Mortgage = promise of money = promise of promise of goods
    Buying someone’s debt = promise of promise of promise of goods
    Stock in a company doing the latter = promise of promise of promise of promise of goods
    And so on : )

  16. Hi Caleb, first time poster here. I know you stated you aren’t a financial advisor but I’m really intrigued by these comments:

    “I’m just a guy who has never lost money in an investment in my entire life”

    “I always accurately predict what is going to happen, but I never know when it’s going to happen”

    Not losing money is quite doable with a highly diversified portfolio and a long investment horizon, such as buying an S&P 500 ETF and holding it for 30 years, resisting the urge to sell during times of panic and recessions (although in this century an ETF of China would probably be a better idea).

    On the other hand, never losing money when investing in individual assets, such as the dollar and gold, is quite remarkable. Do you mean that you have sold at a profit every stock, currency and commodity ETF you have ever bought? If this is the case, is there a method you use which gives you an edge, like when you play blackjack?

    If anybody else on the internet made this claim I would think its BS but you are possibly the most rational person I know and a big influence in my life so I have to ask.

  17. Do you mean that you have sold at a profit every stock, currency and commodity ETF you have ever bought?

    Yes, however:

    1. I’ve never purchased an individual stock in my entire life. Too dangerous.

    2. I very rarely invest in currencies of any kind. Usually too complicated.

    3. I haven’t owned very many ETFs. A few, but not many. For most of my adult life I’ve focused on real estate, commodities, long-term bonds, and cash.

    If this is the case, is there a method you use which gives you an edge, like when you play blackjack?

    Not specifically. Just a mindset I have. My operating model when it comes to investing is to NEVER LOSE MONEY. That was a lesson I learned from one of my mentors, Brian Tracy, when I was in my early 20s. When it comes to investments, my goal is not make a lot of money. It’s not to get a great return, but to NEVER LOSE MONEY. Not one dollar.

    So, because I’m so conservative, there have been many years where my returns were 5%, 7%, etc. But at the end of the year my investments always make money. Always. (At least so far). If you pursue 10% or 20% returns on your money, there will be times you will lose, and lose big (like when you own stocks). Just like in dating, relationships, business, and blackjack, I don’t like to lose, even if that might make my wins a little smaller sometimes. I don’t see the point of losing.

    Note that in my business life, my goal is to make a lot of money. But that’s not the job of my investments. Their job is to be there in my older years when I need them. My businesses will make me rich, not my investments.

  18. That’s a good philosphy and anyway, a consistent return of 5%-7% will compound quite nicely over time, specially if you continue reinvesting and adding new savings.

  19. Hi Caleb,

    I think I remember one time you said that your investing strategy is a variation of the Permanent Portfolio by Harry Browne. Could you explain how it varies? and also how you would work the plan you’ve laid out in this article into your portfolio (ie increase cash allocation from 25 -> 35% because your betting on the dollar?). Thanks.

  20. I think I remember one time you said that your investing strategy is a variation of the Permanent Portfolio by Harry Browne

    That is one of my strategies. Not the only one.

    Could you explain how it varies?

    I don’t understand the question.

    also how you would work the plan you’ve laid out in this article into your portfolio

    It would not work based on what I said in this article.

    To summarize, you have two separate buckets: “Never touch it / never lose it bucket” and a “get me rich” or “speculation” budget. The above article is about speculation; you might win big, you might lose big. The Permanent Portfolio is about never losing money. Different bucket.

  21. “I don’t understand the question”

    What I meant was: if you use a variation of the permanent portfolio, then your strategy must be different in some way than the permanent porfolio; I was wondering how it differed.

    Ok, so when you say that a PP variation is one of your strategies, does that mean that your “never lose it” bucket has a bunch of “sub-buckets” all or most of which are conservative, low-volatility strategies?

  22. if you use a variation of the permanent portfolio, then your strategy must be different in some way than the permanent porfolio; I was wondering how it differed.

    That would require me to publicly disclose details about my financial life. Maybe in a future post I can give some generalities.

    If you really want more detail you should join my membership program:

    http://www.sovereignmaninnercircle.com/join.html

    so when you say that a PP variation is one of your strategies, does that mean that your “never lose it” bucket has a bunch of “sub-buckets” all or most of which are conservative, low-volatility strategies?

    Not a bunch, but a few, yeah.

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