The Dollar’s Doing Fine Until It’s Not

Our representatives in Washington are willfully allowing the dollar to decline on the international stage. With the Chinese Yuan poised to take over as global reserve currency, here’s what you can do.

us dollar versus chinese yuan

From L. Todd Wood

It’s been a while since gold has been in the headlines of mainstream news. Somehow the precious metal tends to be like flood insurance; you forget about it until you need it.

Think about this scenario: One day a few years from now, you wake up and realize that China has been hoarding gold for decades and the United States is approaching $30 trillion in debt. What’s the global reserve currency now? A fiat American Dollar that is worth only the millions and millions of pieces of paper that it’s printed on, or a Chinese Yuan that is backed by gold?

Yes, my friends, it could happen. Of course, no one knows exactly when. But we may be closer than any one of us think…

Bloomberg recently reported on China’s buying of U.S. Treasuries on China buying U.S. Treasuries:

China’s stockpile, the world’s largest since 2006, will be $3.5 trillion to $4 trillion or lower at the end of 2015, according to 12 of 18 economists in a Bloomberg survey. Eleven said the $3.99 trillion posted on June 30 was the peak. As it moves towards a more market-driven economy, China has stopped regular foreign-currency purchases and is freeing up restrictions o the flow of money in and out of the country.

In other words, the Chinese, one of the major buyers of U.S. Treasury securities over the last several decades, will not need to buy as many dollars in the future.

As demand for the dollar softens, with China leading the charge, we’ll likely see interest rates spike. The United States will be still spending more than it takes in and borrowing huge sums of money annually, so at some point, the world will finally wake up and ask the question, “Can the United States really pay back all of this debt?”

When this happens, the world will flock to the Yuan and the “mighty dollar” will be dethroned from the global reserve currency pedestal it has sat upon since the end of World War II. Borrowing costs will spike and the stock market will tumble.

Gold is fast becoming the asset of choice as the world wakes up to the reality of the global security and financial situation. In the face of Russia’s meltdown, as the Eurozone is poised to break up, and with ISIS prancing around the Middle East, all of those tin-foil-hat doomsayers who have been warning us for years about what is to come suddenly don’t look so crazy.

As the Russian ruble crashes due to poor fiscal and economic decisions, the Kremlin at least made one good decision – to keep buying gold, and lots of it. Now they have a partial hedge against further currency weakness.

This is how gold works; when your economy and your currency melt down, you have a historical store of value that is proven to stand the test of time.

And guess who else has been buying gold? Yep, you guessed it, our friends in the Middle Kingdom – China. They actually restrict the export of gold in addition to encouraging their citizens to buy it.

The problem for the United States is that we are reducing our gold reserves as we spike the amount of sovereign debt we have to eventually pay back. So at the exact time we will need gold to survive an economic cataclysm, we won’t have enough to save us from our myriad of bad economic, fiscal, and monetary decisions.

Make sure you don’t make the same mistake as our government. If at least some of your savings aren’t protected by the longest standing form of money in the world, it’s time for you to move into gold.

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Photo Credit: Silent.bill via Compfight cc

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