The history of money is the history of failed currencies. From the Roman denarius to the German Goldmark to the Zimbabwean dollar, currencies across the world have collapsed and failed. Just because a currency is the preferred currency for world trade or the world’s reserve currency does not mean that it is immune from collapse either. And that’s just what could happen to the US dollar.
The US dollar has served as the world’s reserve currency since the end of World War II and the adoption of the Bretton Woods system. Even when that system collapsed in 1971 with President Nixon’s closure of the gold window, the dollar remained the world’s reserve currency. But with developments in the world economy since the fall of the Berlin Wall and the end of the Cold War, the dollar is facing new threats to its prominent status.
China’s economy continues to grow, and the Chinese government is trying to position the yuan as a rival to the dollar. The European Union created the euro with a mind to compete against the dollar and rival it in international trade. And since the post-1971 monetary order is the first time in history that the entire world has been on a fiat paper currency system, there’s every possibility that gold or a gold-backed currency could reassert itself in the future after a dollar collapse.
US investors have taken for granted the continued dominance of the US dollar and its status as the world’s reserve currency. It has meant that US investors haven’t had to deal with issues of currency risk that plague investors in other countries. But it has also made US investors complacent. In the event of a future dollar collapse, millions of investors could find themselves unprepared, unless they take steps today to hedge against that possibility.
What Could Cause the Dollar to Collapse?
Throughout history, currencies have come and gone, with their demise largely being self-inflicted, the result of the desire of monetary authorities to inflate the money supply to enrich themselves at the expense of others. During the Roman Empire and other periods of precious metal money, the demise of currencies was the result of purposeful debasement.
The Roman denarius, for instance, saw its silver content decrease over time, going from 95% silver and 5% alloyed metal during the Roman Republic to only 5% silver by the end of the Roman Empire. Other currencies in history have suffered similar debasement, with modern convertible currencies often seeing governments printing more paper currency units than they had gold backing to redeem. It was that kind of debasement that dethroned the British pound sterling from its position as the world’s reserve currency after World War I. Today, currency debasement takes the form of creating money out of thin air, something that is easy to do with the ease of creating paper money and electronic bank deposits.
We’re all familiar with the case of Weimar Germany and its hyperinflationary period, in which it took wheelbarrows full of paper money to buy a loaf of bread. But today the process to inflate currencies doesn’t even take paper. It can all be done electronically, dramatically raising the risks of hyperinflation and a dollar collapse.
The likeliest cause for a US dollar collapse would be if the Federal Reserve were to allow monetary inflation to spiral out of control. And that could be likelier than many people realize.
Will the US Dollar Collapse?
The past year has seen monetary policy so extraordinarily loose that it makes the quantitative easing of the 2008-2013 era seem like a drop in the bucket. The Federal Reserve increased the size of its balance sheet by over $3 trillion, from $4 trillion to over $7 trillion, and it could get even larger this year. With the federal government set to spend trillions of dollars that it hadn’t budgeted, it will have to issue trillions of dollars of debt that it hadn’t planned to, and that markets likely won’t be able to absorb.
The Fed is essentially being forced to monetize this newly issued debt, making it complicit in this unbalanced spending. But by doing so it is also losing its supposed independence, since it isn’t saying no to the government’s spending habits. If the government continues to spend, and the Fed continues to monetize that new debt, the money supply could spiral out of control, leading to rising inflation and possibly even hyperinflation. That could very well spell the end of the US dollar’s role as the world’s reserve currency, leading to a dollar collapse and the rise of some other currency as the dominant currency in international trade.
Looking at money supply figures today is very worrying. Growth in the money supply has been nearly vertical, with the slow but steady monetary inflation of the past giving way to massive increases. Policymakers in Washington trust the Fed not to let anything get out of control, but we’re in uncharted waters here. If the Fed isn’t careful, it could very easily allow inflation to spiral out of control, and dollar collapse could become all but certain.
How to Protect Your Finances If the Dollar Collapses
In the case of dollar collapse, the value of anything that depends on the dollar for its value or that is denominated solely in dollars will be at risk of collapse too. Bonds denominated in dollars will become worthless, as bondholders will be paid back in increasingly worthless dollars. Stocks, too, risk becoming worthless, as prices may continue to rise, and investors who sell their shares see the dollars they receive become worthless as the dollar collapses. If you can’t sell your shares because the dollars you receive won’t be worth anything, what point is there to owning stocks?
In most cases of currency collapse, those who fare the best are those who own tangible assets. Among those tangible assets that perform well are precious metals such as gold and silver. Owning physical gold and silver coins or bars can be an effective hedge against dollar collapse, and a way to ensure not only the preservation of your wealth in the event of a US dollar collapse but even the preservation of your way of life.
During the Weimar hyperinflation, those who held gold and silver coins, or foreign currencies convertible into gold and silver, were able to survive the hyperinflation after the currency collapsed better than those who didn’t own gold and silver. And in the event the US dollar collapses, those who own physical gold and silver coins and bars will be similarly well positioned to protect themselves.
The weaker the dollar becomes, the stronger gold and silver should perform. That’s because these precious metals maintain their purchasing power even when the purchasing power of the dollar decreases.
Among the most powerful investment assets available to protect yourself against a dollar collapse are precious metals IRAs. Whether you’re investing in gold through a gold IRA or investing in silver through a silver IRA, precious metals IRAs allow you to invest in physical gold or silver coins and bars that you own and control. And when you want to take a distribution from your precious metals IRA, you can take that distribution either in cash or in physical gold or silver.
Even better, you can use existing retirement assets to make your investments in a gold IRA or silver IRA. So if you already have a 401(k), IRA, TSP, or similar retirement account, you can roll over or transfer assets from those accounts into a precious metals IRA, and normally without tax consequences. That gives you the same tax benefits as your existing retirement accounts while simultaneously giving you the benefits of an investment in physical gold or silver.
Don’t leave your retirement assets at risk of losing value in case of a dollar collapse. Contact the experts at Goldco today to find out how gold and silver can protect your wealth no matter how weak the dollar gets.