Over the last decade, our economy has become increasingly unstable. Global debt has risen to new highs, while inflation keeps decreasing the value of your savings.
Pair this with the introduction of quantitative easing and you probably start to wonder how to protect yourself from dollar collapse. While this may seem unattainable to some, it is a very realistic scenario given the global situation.
In our efforts to help you understand the “safe” options you can utilize to protect your wealth, we created this blog post. But before we delve into the strategies you can follow to become immune against financial disaster, let’s start by explaining the reasons that could lead to the collapse of the US dollar.
Topics we'll cover
- What could lead to dollar collapse?
- When Will the Dollar Collapse?
- How to Protect Yourself from Dollar Collapse
- What happens if the US dollar collapses?
- Wrapping up
- Frequently Asked Questions
What could lead to dollar collapse?
Up until 1971, the US dollar was backed by the country’s reserve in gold. What was more commonly known as the gold standard would give real value to money, as each and every dollar was reflecting a certain amount of gold.
The public would deposit the precious metal in the bank and receive paper certificates indicating the value they had safely stored. It as the earlier version of cash, only with a “gold certificate” step on the left side of the bill.
These paper representations of value could be used in trade, similar to how we use cash today, and eventually given back to the bank to redeem gold.
But, in the early 70’s, President Richard Nixon changed this model, by removing convertibility of dollars into gold. Economist will forever remember this day as the biggest and most risky experiment of money.
In one instance, the most powerful currency of the world was backed by nothing but blind trust from the public. At that point, the US started printing large amounts of “unbacked” money and continues to do so ever since.
Many people rightfully wonder if this move was the beginning of the end for the US dollar. Expert investor and world-renowned author Robert Kiyosaki does a great job explaining the effects of this decision.
In the video below, he talks about what happens when the Fed prints too much money (“fake money” in his words) and how to protect yourself from dollar collapse.
When looking at the issue in question, there are two conditions that need to be met before the dollar collapses:
- There must be a weakness in the value of the dollar
- There must be a viable and more promising alternative
In short, there needs to be a valid reason for the public to drop the US dollar and there must also be an alternative option for value storage. If these conditions are not met, the dollar will remain the leading currency in the global economy.
Why currencies collapse
The stability of a currency is directly related to its trust from the public. A lack of faith in a certain currency (whether it is for stability or usefulness) leads to an eventual collapse.
And we can see this theme repeat in history. Since the early 1900s, several countries have experienced currency collapses.
Once lack of faith starts to become prevalent, trouble entails. And, at the moment, the US dollar is in an unfavorable position. To understand this statement, let’s explore the pros and cons of the US dollar.
Strengths of USA Dollar
- Being a reserve currency, the US Dollar is the primary currency used in trade and international transactions. It was only a few years ago (2016) when the International Monetary Fund (IMF) qualified 4 more reserve currencies (EUR, JPY, GBP).
- Most currencies are pegged to the value of the US Dollar. This does not only show how powerful the American economy currently is but it also proves how badly the global economy would suffer if the dollar collapses.
- When the US dollar strengthens against competing currencies, import becomes cheaper and so does foreign travel.
Weaknesses of USA Dollar
- The main disadvantage of the U.S. dollar is that it only exists through government fiat. This is a major issue for most major national currencies and is seen as normal nowadays since they are no longer backed by gold. However, the USA is by far the country that takes the most advantage of this situation, by printing way more money than other countries.
- Emerging market economies are at risk, given that they require US dollar reserves and end up paying more to obtain them. This issue is especially prevalent in emerging market economies.
5 Reasons dollar could collapse
So what could trigger an actual collapse of the US dollar? Let’s take a look at some of the most realistic scenarios.
1. Printing money
The US has been printing its way out of financial troubles for the last half-century. And while most people were unaware that this is even possible, the COVID-19 pandemic exposed just how easy it is to create money out of thin air. From March until June 2020, the US printed more than $20 trillion and bankers are concerned that the amount won’t resolve the damage done to the economy.
To understand what exactly happens when new money is printed and why it is a recipe to disaster, make sure you watch the video of Robert Kiyosaki, listed above.
2. Giving money away for free in USA
A few months back, every adult US citizen received an “airdrop” of $1200 USD. This cheque was meant to ease the difficulties created due to a nation-wide lockdown. Several countries followed suit, each offering stimulus cheques to citizens that were unable to work.
In order to absorb this emergency measure, the US dollar with experience a decrease in value (inflation), and US citizens will most likely witness unfavorable changes in their tax system.
3. Other currency alternatives
From the recent interest rates cuts to the enormous devaluation of savings, people have started to realize that the financial system is rigged. It takes from the poor and gives even more to the rich – we have seen the narrative repeat over and over.
As a result, the public is starting to look for alternatives to protect its value.
We previously described that, for the dollar to collapse, there must be a viable and more promising alternative. So, when trying to understand how to protect yourself from dollar collapse, you may discover other viable options to protect your wealth, like Bitcoin.
Of course, Bitcoin is still in its infancy and this is only an example. However, it shows the need for a financial system that is not controlled by central banks.
4. Economic events that could trigger dollar’s collapse
Geopolitical uncertainty is always an issue. The potential of a next financial crisis could be the turning point in the global economic order. The real question is what kind of event could act as the tipping point. World wars, pandemics, and an uncontrolled money-printing mentality could all trigger the collapse of the US dollar.
5. Foreign countries drop the US dollar
A complete collapse is more likely to occur due to events that crush the world’s confidence in the US dollar.
In total, foreign countries own more than $6 trillion in U.S. debt. China and Japan own the majority of this debt. If they decide to drop their holdings, they could cause a global panic which would lead to a major recession.
When Will the Dollar Collapse?
When looking at the instability of the global economy today, a financial collapse could occur at any moment.
Before you panic, keep in mind that this is not the first time we experience an economic “reset”. Throughout history, these types of major changes in the monetary system occur on a regular basis. The world always adapts and eventually returns to normal.
Each time we find ourselves in a situation like this, there are great opportunities to be utilized for those who read the signs and find ways to protect their assets.
What makes this time different is that the financial reset will occur on a worldwide level. Thus, the opportunity to prosper is bigger than ever before.
The main questions, in this case, is how to protect yourself from dollar collapse and how to use this opportunity to grow your wealth.
The answer is quite simple, and we will do our best to give you a good overview.
How to Protect Yourself from Dollar Collapse
In order to protect the value of your assets and thrive in an economic downturn, there are a couple of things you need to remember. These mainly come from the advice of experienced investors who saw an opportunity when others saw a dark future.
1. Don’t put all your eggs in one basket (a.k.a. Diversify)
The best way to lower risk and protect your valuables is through diversification. What you may want to do is find a few promising investments and spread your savings among them. Here are some of our favorites:
For hundreds of years, gold has been one of the most recognized investment options. When looking at its price performance over the past 20 years, we can quickly understand why people love it. The precious metal has grown more than 250% in value in the last two decades alone, and is known to be one of the best stores of value for centuries. We have written an article that will help you learn more about gold and how to invest in it.
Bitcoin was created just over a decade ago, to help people protect their funds from the government and the banking system. Over its lifetime, it has seen an incredible appreciation in value, going from just a few cents to almost $20.000 per coin. At the moment, Bitcoin is approximately 50% below its peak price and has just gone through a halving. Based on these facts we are very confident that Bitcoin will help you not only protect your money, but also multiply it.
Federal Bond funds
There are certain types of bond funds that are more popular with low-risk investors. One of the safest options to protect your money are funds comprised of US Treasure bonds. Investors that choose this option are practically immune to credit risk. This happens because of the government’s systems that eliminate the risk of default (money printing, tax levy, etc.). Keep in mind that this option is applicable to US citizens only.
Many people are unaware of the opportunities that lie in the collectibles market. Baseball cards, factory-sealed video games, and limited edition items are something to keep your eye on. Not only do they preserve (and grow) your value but there is a huge demand to obtain them, which makes them easy to trade.
Antiques & paintings
These are not meant for the small-time investor but rather for people that are looking to protect significant amounts of value. It is also a lot harder to find and purchase these types of items. Ideally, you’d want to consult with an expert that has experience in the sector and is able to help you find the best deals.
Finally, one of the strategies that entail the lowest amount of risk is real estate. When you buy a fixer-upper or a rental property, people will need a home no matter how the economy performs. So consider using this option to ensure steady recurring cash flow.
2. Buy using DCA strategy
Dollar Cost Averaging (DCA) is one of the best investment strategies when it comes to risk management. We have previously detailed the strategy in one of our blog posts so if you’re unfamiliar with the term make sure you check it out.
Essentially, DCA is a strategy that involves buying small amounts of a particular investment (Bitcoin, Stocks, etc.) over a long period of time. Doing so has generally shown to be a great way to avoid market volatility and minimize the risk involved.
The reason why many people dislike this strategy is that it requires a lot of patience and focus on a particular end goal. It’s the exact opposite of a “get rich quick” mindset.
To understand how rewarding DCA can be, you would need to understand how effective it is for very volatile assets. This website provides an interesting tool to help you calculate how much your Bitcoin investment would have grown in value if you invested at an earlier point in time.
The image above shows an example of a successful DCA strategy. An investor who, over the past 3 years, has been investing $10 per week would have grown the value of their funds by 119,49%.
If you are interested to learn how this same strategy applies to the stock market, make sure you watch the video below:
3. Avoid going into debt
This one is a no-brainer and yet so underestimated. Since 80% of Americans are in debt this advice may feel more like a guilt-trip that valuable advice.
If you belong to the majority, don’t worry. Just make sure to pay off your debts as soon as possible. Being caught in the chains of debt could send you in a downward spiral if the economy suddenly collapses.
The less you are dependent on the banking system the easier it will be for you to store your wealth into a diverse range of safe assets.
What happens if the US dollar collapses?
In the unlikely case of a full-blown US dollar collapse, the global economy would suffer. Investors would quickly try to protect their wealth by investing in commodities, diverse asset classes, and other currencies.
Apart from the above, it is safe to assume that demand for Treasurys would drop. Also, any import would become massively overpriced unless the foreign party’s currency is pegged to the US dollar. In short, the USA would experience hyperinflation, as previously seen with countries like Venezuela.
You should now have a better idea of how to protect yourself from dollar collapse. In this article, we discussed why, when, and how the financial system could potentially experience a major “reset”. More specifically, we looked into the following:
- The reasons that could lead to dollar collapse
- How soon we may experience a dollar collapse
- How to protect yourself from dollar collapse
- What happens when (and if) the dollar collapses
With this new information, you will be able to make better decisions for your savings. Make sure you pay special attention to the alternative options you should consider, in order to protect and hopefully grow your wealth.
Keep in mind that nothing in this article consists of financial advice. We share this information to help you educate yourself and give you direction to further continue your research.
Frequently Asked Questions
In this section, we will answer some of the most commonly asked questions when it comes to wealth protection.
Will gold price go up in 2020?
Many experts believe that gold is about to increase in value, given the current instability of our economy as a result of the coronavirus pandemic.
More specifically, the Bank of America predicted back in April that gold’s price could nearly double to $3000 by the end of the year, while other parties are calling for a more moderate price increase.
What happens to gold if stock market crashes?
To better understand the answer to this question we would need to look back in time and explore how gold and other precious metals performed during all previous stock market crashes. The following table illustrates all big declines of the S&P500 and how precious metals responded:
Overall, the value of gold increased during most of the “crashes” experienced in the stock market.
Why is the dollar falling?
The US dollar experiences a long-term change in value which is more commonly known as inflation. After Nixon’s decision to “unpair” the dollar from the gold standard, inflation became relative to the new amount of US dollars being printed. The more money being printed, the less valuable this money becomes.
An interesting (but scary) thing you can do to better understand the effect of inflation on the economy is to use this calculator. It perfectly illustrates the change in the buying power of the US dollar.
What is the safest currency?
When looking at the historical performance of existing currencies, the safest option would be the Norwegian krone. Here are a few reasons why:
- The central bank of Norway, which is the issuer of new NKR, holds 23.3% of the capital ratio, which is among the highest in the world (when compared to other central banks)
- Norway has zero net debt, unlike most other countries.
- Since Norway is not part of a supranational body (e.g. European Union) it is not responsible for bailing out other countries.
- Finally, NKR is not pegged to other currencies, so it remains unaffected in case other currencies go bust.
Keep in mind that we are simply pointing out the currency that we believe has the lowest risk. We do not present this information as financial advice for investment and speculation. But it might be worth considering moving part of your funds into NKR if you are still looking on how to protect yourself from dollar collapse.
Will gold be worth anything if the economy collapses?
To better understand the answer to this question, you will first need to understand how the economy was built. Before the creation of money, as we know it today, the world exchanged goods and services. Trade was based on barter. And, at this point in time, gold is one of the most valuable items to trade with.
We can’t be certain about gold’s performance in case of a complete economic collapse. What we do believe is that barter would once again become a norm in society. This would make precious metals more valuable due to high demand. As such, we believe that the price of gold would increase multifold.