In my post The US Dollar Is Screwed there are a couple of reasons why I firmly believe we're going to see a significant decline in the value of the dollar: Massive trade deficits and enormous debts.
This post will lay out on how I think things are going to play out, and what I'm doing to protect myself from the imminent collapse.
You may hear people say fiat currencies are backed by nothing. While it's understandable why they'd say that, I'd contest they're backed by one thing. Trust. As long as I trust that I can go buy food with a $20 bill, I will accept that $20 bill as payment. The day that trust goes away is the day that the dollar collapses. In my view, the world has no reason to trust the dollar, but nonetheless, it is a perceived safe haven.
In times of economic turmoil, people flee to safe-haven assets. Therefore, if people think the dollar is a safe haven, it's possible that it will see a temporary rise. If this happens, I don't think it will be sustained very long.
What assets will people flee to?
My research tells me to buy things like:
- Fine art
- Land/Farmland/Mines
- Commodities (cattle, oil, industrial metals, sugar, corn, etc.)
- Precious Metals
I can't afford a farm or a Degas, so the first two options are out of the question. And, I'm not knowledgeable enough when it comes to most commodities.
I don't invest in something without a deep understanding of it, so that leaves precious metals, specifically gold and silver.
I'll come back to the metals in a moment, but let's talk about crypto first.
Will people flee into cryptocurrency?
Since crypto is quite new relative to these other investments, we don't have any historic episodes to judge its performance in times of a collapsing currency.
I suspect we will see scared money flowing into crypto, with one vital caveat:
When this time of economic turmoil comes, if crypto has recently experienced a significant crash, I don't think said scared money will find its way into crypto. Most people don't like to make investments when there's blood in the streets.
Why I'm buying precious metals
Gold and silver have always preserved purchasing power in times of high price inflation. But, that's not the only reason I'm buying.
I believe the metals are highly undervalued, which means it's not only a safe bet, they also have significant upside potential. The market has priced too many rate hikes into the price of gold/silver. We're not going to see as many rate hikes as the market thinks we are. We're going to see rate cuts, and this time around, the cuts aren't going to stop at 0%; rates are going negative. We're not only going to have QE4 (or whatever the Fed calls the next round of monetary stimulus), we're also going to see fiscal stimulus. All of these things are horrible for the dollar and great for the metals.
I believe the economy is littered with bubbles - in the automobile sector, real estate, stock market, student loans, bond market, and the dollar. The problems that caused the 2008 crash not only still exist, they're worse today, much worse. I believe there's significant economic chaos in our future, and the metals perform well in these times of turbulence.
Be informed and be prepared.
Agree? Disagree? I'd love to hear your thoughts.
Disclaimer: These are just my thoughts about what's going to happen and what I'm doing to protect myself. This is not investment advice.
