Hello Trader,
For decades, people have been coming up to me and asking me about the collapse of the dollar.
They hear and see articles from many market letters and gurus saying the dollar is about to collapse.
They hear that the collapse of the dollar is imminent and that all their wealth will disappear.
They tell me that China could just sell all their Treasury bonds and the dollar would collapse. Oh, I remember when they used to say Japan would sell all their bonds and the dollar would collapse.
Of course, the solution is to buy gold or a newsletter or whatever.
There is no question that a collapse in the dollar would be terrible for Americans…and the rest of the world.
But for decades I have said that there will be no collapse in the dollar and that the Japanese/Chinese will not sell all their bonds to crush the dollar.
Here's why.
First, the dollar is the world's reserve currency. It has about a 65% market share. The rest is SDRs, issued by the IMF, and gold. The euro and yen have a small share. Wait, there is NO Chinese yuan. Why?
Because the Chinese government will not allow the yuan to become convertible into other currencies and that is a key requirement of being a reserve currency. The Chinese government is not going to allow foreigners, particularly speculators, run an important part of their economy.
The interesting thing is that the US dollar is actually gaining a slight amount of market share in reserves. It is slight but growing. The doom and bloomers are wrong. The world likes King Dollar as the reserve currency.
Why?
It is liquid and safe. 90-95% of all foreign exchange transaction contain USD in the name. I personally have traded billion dollar trades and I'm sure there are others who have traded much larger than me.
Liquidity is important to major market participants because they can get the trades done that they want at the cheapest price and quickest execution. That reduces friction in the global economy and makes it work better.
A second factor is that the market figures that the US will never default on their debt so King Dollar is safe if you hold treasuries. I hear some people chuckling. Theoretically, the US government could default on their debt but why would they? It costs nothing to create dollars to pay off that debt. After all, they are just electrons now!
The world financial system requires a safe liquid dollar at this point.
Oh, and if the world didn't want the dollar as the reserve currency, what would take it's place?
Gold? Not in a million years. Why would any central bank or government give up control of their money supply to a third party. Get real. It will never happen.
Chinese yuan. As I pointed out above, they won't give up control of their currency.
SDRs. Possible but unlikely. Generally, people trust the US more than the IMF.
Oh, and by the way, to quote Chairman Mao, power grows from the barrel of a gun. And the US has the mightiest army on earth. In the past, the reserve currency was associated with being the world's greatest power. Think back to England and Spain. Unfortunately, that is a sample of two but still telling.
Currently, the dollar will be strong because they are the only country that is actually tightening monetary policy and tend to have the strongest economy. So the dollar is not going to collapse any time soon.
But let's be clear. ALL currencies are going down in value every day all the time. It's called inflation. Governments love inflation because it is a hidden tax on the people. So all government and central banks create inflation. Inflation is not the price of things going higher, as governments want you to believe, but the value of the currency going lower.
So when I say that the US dollar should be strong over the short run, I am actually saying it sill go down at a slower pace than other currencies!
So don't worry about a dollar collapse. Isn't going to happen in the foreseeable future. Instead, worry about inflation in all countries.
The doom and bloomers always want you to buy their book, newsletter, or gold. So I figure it is only fair that I ask you to check out my weekly video newsletter, Wall Street Winners!
Go to wsw2021.com to learn more.
The difference between me an them is that I want you to make money and have been doing it for 50 years!
Thanks!
Good Trading!
Courtney
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