#267 - Is The US Dollar Collapsing?

Gold is probably the world's real base reserve currency. Because if you look at what the actual global reserve currency is, historically, over the last 3,000 years, it's probably been gold. The other way to assess the strength or weakness of the US dollar is the dollar index. If it drops below 100, it's showing weakness. And if it rises above 100, it's showing strength. If you look at whether a currency is becoming more valuable or

less, the first way to assess it is to assess it against other currencies. It's called foreign exchange, okay, FX. The second thing to understand is the purchasing power of the US dollar. That's the difference. I'm Lloyd James Ross, seven-figure investor and entrepreneur, and I've helped thousands of business owners and professionals turn financial stress into success. If you're stuck in old money habits, overwhelmed by investing,

or unsure where to start, this is for you. I'll give you the mindset and strategies to take control, grow your wealth, and achieve financial freedom. It's time to make your money work for you. Gold's at record highs, the Fed's keeping rates steady at 4.5%, and the dollar index has slipped under 100. What does this all mean? I'll explain in a second. But what I want to ask is, does this mean that the US dollar is finally collapsing?

First, let's understand what collapse actually means. In plain English, a collapse isn't just a dip, it would mean countries and companies stop trusting the U.S. dollar and U.S. trade, right? There'd be like a global run on the dollar, but that's not what's happening right now. So what we're seeing is weakness in the U.S. dollar compared to 2022 highs, but where does it stand? How do we assess the weakness or the strength of the U.S. dollar? So let's understand some things. Firstly, the

U.S. dollar is a world reserve currency, okay? So what that means is most of the countries around the world have, let's say their FX reserves or their own emergency funds. They've got FX reserves of US dollars of about 57%. And to that matter too, most of the world's trade is done in US dollars, between 48% if you don't include Europe, and then about, I would say 60% if you include Europe. So by and large, It's the reserve currency still very

strongly. It doesn't look like it's going to get toppled at all. So that's the first important thing to understand. So if it was collapsing, you would start to see people moving and shifting their US dollars into, say, euros, because that's the second strongest currency in the world in terms of a reserve currency. So most countries keep their money in US dollars. And

it does have payment dominance. Alright, so again, all the transactions you're seeing or into effectively international transactions through SWIFT, which is the payments, global payments system, the plumbing for payments around the world. It is in U.S. dollars, all right? So half the world's money transfers are still happening in U.S. dollars and are settled in U.S. dollars. And if we saw the U.S. dollar actually collapsing, we'd see that starting

to unravel, all right? And that's not actually happening in massing countries, so it's not happening, okay? Now, the other way to assess the strength or weakness of the U.S. dollar is the dollar index, the DXY. You'll see this on the financial news, like the DXY did this. So if it drops below 100, it's showing weakness. And if it rises above 100, it's showing strength. So what is the dollar index? It's basically like a scorecard that

compares the US dollar to other big currencies in the world. It's the euro, the yen, which is the Japanese money, the pound, which is UK. and then Switzerland and there's a couple of others. So they assess the US dollar against the strength of those core five or six currencies. And if it's again, at a hundred, it's neutral. If it's below a hundred, it shows that the US dollar is weakening. And if it's above a hundred, it shows that there's relative

strength against other currencies. So there's two things happening here, just to clarify. When I say the US dollar collapsing, what we have to understand is, is it weakening or strengthening against other currencies? Because if you look at whether a currency is becoming more valuable or less, the first way to assess it is to assess it against other currencies. It's called foreign exchange, FX. The second thing to understand is

the purchasing power of the U.S. dollar. That's different. So whether the U.S. dollar can purchase things in other countries relative to their currency is the effects and whether the U.S. dollar can continue to purchase things inside the United States or things denominated in U.S. dollars is the actual value. of the US dollar. And as we're seeing, there might be a bit of relative weakness in the US dollar against other currencies, which is what we're seeing because

the DXY is actually at about 90. So we're seeing that against other currencies, the US dollar is weakening a little bit, which is fairly normal, definitely not

collapsing against other currencies. However, what people are frightened of is if the federal funds rate drops and inflation continues to tick up beyond 3%, which is what it's at at the moment, They're afraid that the US dollar's ability to buy more things in their home country will go down, meaning inflation gets out of control and the currency devalues, which by the way, it's been devalued for

the last hundred and however many years. It gets devalued through inflation, which usually is caused by government spending, but what's happening at the minute is by and large, the US dollar is losing some purchasing power, right? And that's why, again, things like crypto and certainly real estate transactions and certain companies and businesses you buy, and gold, which is why gold's gone parabolic this year, over 40% returns year to date, is because people are afraid that the value of

their US dollar is going to fall, right? So not against other currencies, but generally speaking, in terms of what it can purchase. So if we see CPR inflation tick up any further, we are going to see the value of the US dollar start to collapse even faster in terms of what it can buy, which is why at the moment in the United States, People are giving Jerome Powell right? Who's the

head of the Federal Reserve? They're giving him a bit of a pat on the back because they're like listen, man You're what stands between us torching the US dollar and not the reason why is because he's currently keeping rates steady at four and a half percent Which he should to curb inflation which is working but what people are worried about is they're gonna go into a massive recession which may happen

and But it's certainly better than inflation. And so on one side, you've got Donald Trump, the president, aggressively, very aggressively with Scott Bennett, his right-hand man, Jaw-boning or telling Jerome Powell to drop rates right because inflation is back in the steady band But is it really in a steady band or they're just wanting to stoke the economy and crank it up again and I actually feel like Jerome Powell's being the most responsible Federal Reserve chairman because He's staying

staunch. He's not letting Donald Trump Influence his decision as he should which is why there's a separation of powers between the executive and the Federal Reserve So I think it's a wonderful thing that he's keeping it four and a half percent Because the last thing you want is to drop it down to three again, and if Donald Trump had his way I don't mind I don't mind Donald but if he had his way he drop it to one or zero and that would absolutely Torch

the US dollar and if that actually happened you'd see gold would probably go up another 50% It would just go ballistic because if you look at what the actual global reserve currency is Historically, over the last 3,000 years, it's probably been gold. And that's

why China is buying so much gold. Because if you look at the fiat currencies, by and large, they can be printed into infinite. So they can actually be printed away into nothingness, because there's no supply constraint. There's basically just unlimited supply. Whereas gold, there's a supply constraint in terms of how much can be produced by the earth over time. and how much can be mined. So that's a supply constraint. You don't get that with fiat, which is why gold is probably the world's real

base reserve currency. The trade currency, obviously, is the US dollar. So the commerce currency is the US dollar, but the real global reserve currency is probably gold. And people are now trying to replace that with Bitcoin as this online version of or coded version of wealth, right? So that's why people are worried. Just quickly, if you're ready to take control of your finances but feel

stuck on where to start, I have a solution. My book, Money Bias Happiness, simplifies investing and wealth building with practical steps to help you achieve financial peace. Get your copy via the link in the show notes and let's get your money working for you. Now back to the episode. Are there any other risks that kind of create this problem and exacerbate this US dollar value journey, right?

Or misadventure that it seems to be on? So if you look at those three big things happening as well, the reason why Donald Trump is passing bills and trying to drop rates is because he also wants to have GDP grow. He wants to see the country grow at a certain pace so that it can earn enough money, here's why, to pay off its $37 trillion in debt. There's two ways to pay off debt. And if you think of the United States or any country

as a big household, it's the same thing. In a household, there's two ways to pay off debt. Either you go to austerity measures, meaning you start to cut costs and you take it on the chin like a boss. And you know what? We've been very, very naughty. We haven't got control of our debt. We've got too much credit card debt. Honey, we need to tighten our belt. No more Netflix, no more this, no more this. So you start to cut costs.

That's what the government could do. And that's why Elon Musk decided to bail because when they put that big bill through that was like 5 trillion or something of spending, he went, oh my God, that is like the most irresponsible spending ever. On the other side, they thought, well, we've got to earn our way out of this. So they're not doing the austerity thing like a household would if they were in credit card

debt. They're actually going to go earn more money. And you can do both, right? You could actually do both at the same time, but it's very difficult because to make money, you've got to spend money. So on the opposite side, the Trump administration is saying, hey, we're going to earn our way out of this problem. So the reason he wants to drop rates is to crank up GDP, to earn more money. And of course, pay off the 37 trillion in debt. That's one part of it. The

other part of it is this, the tariffs that have been put in place. with

other countries, the tariff deals that have happened between the United States, they're starting to raise tariff income in the US. Now, in the short term, that will probably stoke inflation. So Jerome Powell's like, listen, man, if you have tariffs being put in place, and we're getting all this new income, and it's creating price rises in products that are tariffed, we're going to see an uptick inflation. So while the tariffs are being swallowed by the economy, I'm not going

to flip and drop rates, man. Just hold up your horses. Let's let the tariffs be digested by the economy. Let's see the impact on inflation there, the impact on people's pockets, and then let's assess the federal funds rate. But Trump's like, you know, no, let's get tariffs. Let's get the drop. Let's play. But he's like, let's make money,

right? And so that you're having this kind of war going on between him and Pal and it's it's it's pretty gnarly But I commend Pal for staying staunch on this because we don't want to see the US dollar torched Okay, all the Bitcoin is in the comments be like, yeah, we do. We want to see it torched And everyone who owns gold they want to see it torched too. But by and large we don't really want to see the trade

currency torched Okay, we don't want to see that again. You'll leave a comment below if you if you don't feel the same way So the question is, is the US dollar collapsing? It seems to be weakening against other currencies. And as long as Jerome Powell is holding rates at four and a half percent, I don't think we're going to see US dollar collapse. Much to the dismay and discomfort of the gold holders and the Bitcoin holders, right? Crypto holders. However, and I know there's a

difference between Bitcoin and crypto. I get it. I know, I just put it in the comment. But hopefully, Cooler heads prevail. Hopefully Trump doesn't get his way to drop rates down to 1% or 2% again and stoke inflation. Hopefully the tariffs don't cause too much inflation. But it really does rest on Jerome Powell saying, hey, let's just put out, let's just draw a line in the sand here. And I think what's promising is you're seeing housing start to fall

and collapse in the United States. And this is a byproduct of what happens when you hold rates steady, which is why I feel in Australia we need to do it. 4.5% is where they should be, because we'd start to see the falling of real estate prices. It's not a bad thing. It resets the real estate market, resets the economy, and they're able to do it in the States. Although in the United States, you have non-recourse loans and all these wonderful things you can

rely on. In Australia, we have full recourse, meaning that will come after your last dollar to get that loan repaid. So I can understand the apprehension. So I don't feel like what we're seeing in the signal wise and with Jerome Powell and the rates and the housing market, that the dollar is collapsing. We're seeing some weakening, which is fairly normal as well because, you know, we're paying the US dollar is... succumbing to

some inflation because of tariffs. So we're going to see it weaken. We're probably not going to see it strengthen, particularly if rates start to fall again in the United States in the future. And we'll probably see a bit of an equalization of other currencies against the states, where we're not going to see it dislodge as a reserve currency, primarily too, because it's backed by the world's most powerful military. People say,

oh, the currency is not backed by anything. It's kind of backed by all the natural resources and all the land and all the military might the United States has. and its contract. So it is backed by something. And we're not going to see that dislodged. So

straight up, we're not going to see it lose its reserve status. It doesn't look like that's happening at all on mass. If it did, the next currency in line to take over would be the Euro and maybe down the line, the digital RMB with China. I can't see any crypto or Bitcoin taking reserve status at all. It's just, it just wouldn't, it's so untested. It would be a huge risk for the world to do that. And I think we're going to see cooler heads prevail in the States and

a steadying out of the value of the US dollar. And that's what I think is the outcome. So is the US dollar collapsing? I don't think so. It's just weakening. But I'd love to know your comments, good, bad, or indifferent, pop them below. What are your thoughts? Do you think the US dollar is collapsing? What do you think is going to happen with the federal fund rate over the next few months? Do you think that the US is going to pull out of this $37 trillion debt hole? If

it is, how will it do it? And what happens if it doesn't? Everybody knows they're probably gonna print their way out of it, which will stoke inflation Which is why we need to keep the rates higher. And so keep an eye out for the US dollar, but of course hedge against currency inflation It would be crazy to keep your

money under your mattress in US dollars for obvious reasons. That's why investing in assets, real estate, good quality businesses with pricing power, which includes some stocks, and of course, if you needed to, you could probably consider maybe gold. But again, not financial advice. It's just a lesson or a principle to say, hey, I'm not going to hold currencies. I'm gonna hold assets that are a hedge against inflation. All

right, so I hope that makes sense and give you something to think about. Can't wait to talk to you in the comments and I'll see you in the next episode. Thanks for listening to Money Grows on Trees. If you enjoyed the episode, leave a five-star review on Apple Podcasts and Spotify and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media

platforms at LloydJamesRoss for more. See