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from Peter Schiff to billionaire Ray doio numerous prominent figures in finance have suggested or outright predicted the downfall of the US dollar today questions surrounding the stability and future of the US dollar have become increasingly urgent are country's abandoning will it collapse are we about to lose our Global influence by forfeiting the world's Reserve currency status to address these concerns we must begin with a bit of historical context the US dollar has been the world's Reserve currency since the Bretton Woods agreement in 1944 this agreement pegged the dollar to Gold while other world currencies were pegged to the dollar essentially the United States was given control over the Global Financial system and that is no exaggeration holding the status of the reserve currency enables a country to wield significant influence over global Finance trade and economics it has allowed the US to borrow money more easily run trade deficits and exert considerable economic power internationally over the past 80 years the US has not only enjoyed the status but also exploited it many people criticize economists like Peter Schiff for their persistent predictions of economic collapse and to some extent these criticisms hold Merit however schiff's main argument which I refer to as the dollar abuse Theory remains crucial historically every Empire that holds the reserve of currency Begins by using it responsibly Over time however power often leads to corruption resulting in the currency being misused the US is no exception whether it takes one year 10 years 100 years or even 1,000 years Empires tend to fail when they misuse their currency this might sound abstract so let's delve into the specifics one of the primary ways the US has misused its currency is through quantitative easing Q think of QE as a drug that temporarily alleviates symptoms similar to alcohol over the past 20 years the US has essentially outlawed recessions by masking them with this economic alcohol Whenever there is economic trouble the response has been quantitative easing this term might sound complex but it essentially means printing money to buy government bonds and other Securities this increases the money supply leading to inflation and devaluing the dollar over time we can observe the extent of the federal reserve's asset purchases by examining the total assets graph published by the St Louis fed despite the graph being titled total assets it effectively shows how much money the US has printed following the 2008 recession the Federal Reserve assets increased dramatically multiplying by nine times compared to pre2 2008 levels if that isn't startling enough the period after 2020 shows an even more significant surge in less than 2 years the Federal Reserve essentially tripled its total assets taking its intervention to unprecedented levels this isn't the only factor that supports the ideas proposed by people like Peter Schiff there's also the issue of government expenditures and national debt government expenditures have skyrocketed in recent years driven by significant spending on economic stimulus and public services according to the Federal Reserves data total federal government expenditures have increased substantially particularly following the 208 financial crisis and the pandemic one major consequence of this growing debt is the rising cost of interest payments as the debt grows so do the interest payments which are projected to become a significant portion of the national budget if current trends continue we may soon find ourselves in a situation where a large part of our budget is dedicated solely to servicing the debt leaving less room for essential programs and services the Peter G Peterson Foundation conducted a study projecting our future trajectory and the results are alarming in 2023 the federal government spent $ 58 billion on interest a 38% increase from 2022 if this trend continues interest costs will soon become one of the largest categories of federal spending potentially outpacing expenditures on education research and infrastructure combined according to their analysis there is a structural mismatch previously deficits and debt increases were linked to Temporary events like Wars and economic crises now persistent deficits are due to a fundamental imbalance between federal spending and revenues simply put the government spends more than it brings in the Congressional budget office projects that this Gap will widen with federal spending expected to rise significantly as a percentage of GDP by 2054 while Revenue growth will be much slower many people ignore this issue but it's a massive ticking time bomb that boils down to two choices we either cut back on spending which would require politicians and leaders to make tough choices cutting programs increasing taxes and essentially scaling things down for an elected leader who is in a four or 8-year term this strategy doesn't align well with career objectives imagine your Congress person publicly advocating for increased taxes cuts to Social Security a decreased defense budget and higher interest rates that would be political suicide but it would be the long-term solution instead what we are likely to see is more money printing to pay off these debts leading to more inflation and a larger gap between the halves and Have Nots politicians tend to focus on short-term gains which which creates an environment where we're constantly printing money for short-sighted ideas that please the public this can lead to a severe economic situation known as a debt squeeze you can hear billionaire investor Ray doio discuss exactly this in an interview with fin news it's a detailed explanation but it's relevant to our discussion and what he says at the end is quite shocking and so what do you think will happen in the in the US with the debt problem is there going to be a turning point where there's going to have to be a reset or do you have confidence that the politicians are going to figure out a way to get out of the situation or where do we go from here I think that um you're going to you're going to encounter we are going to encounter um a debt squeeze and the question is how long it's going to be before um there is the selling of bombs by the owner so let's let's say and just just for those who when you say debt squeeze what if you could just explain what you mean by that well that Debt Service payments by the government is going to um increase and there'll be a need to deal with that while at the same time the government is selling a lot more debt and what that means is that we're going to see um squeezes in the budget deficits so they're going to either deal with issues like entitlements very big political issue you know entitlements um and or they're going to encounter that kind of debt squeeze in the best case possible debt squeeze means um okay they lose they can't increase the budget and they have to decrease the budget and when we're dealing with the geopolitical world that we're in um that means you can't increase the defense budget you can't increase other um forms of spending climate and so on so the squeeze means you either cut that down or you have to print a lot of M money the question this as I say the second part of that question that's the best case scenario the worst case scenario is that they actually uh sell too much debt relative to the world's desire to buy that debt which is a real risk because a lot of the holders of that debt have lost money in that debt and they're also in other countries and those in other countries are increasingly concerned they're concerned about sanctions a number of these countries uh could be sanctioned sanctioned means that their debt Holdings are um not are frozen in much the ca way that Russia were frozen you could see that concern in China you can see it in other countries so there's not only a fact that they are owning a lot of bonds that have cost them a lot of money and then they have to buy a lot more at a fast pace but there's also those geopolitical concerns and then there's concerns in other countries like there are concerns at home about how things are going in the United States how we are with each other how we're managing the situation the political aspect is important if those things lead to then the selling or not buying enough bonds then what that means is that interest rate go up in other words there's not enough demand relative to the supply and rates rise because it C it curtails that rate rise curtails private borrowing and that would mean an economic weakening would take place because the interest rates rise that would put the FED in a very difficult position because the FED would then have to choose about buying those bonds printing money where do they get it from print money and they buy the bonds printing money and buying the bonds to hold those rates down which is why I mentioned the two things that that's called quantitative easing and so if we see quantitative easing and you see uh that kind of behavior uh then a big red flag should rise and one should realize that there's a real risk of the of the big leg down in the value of money and uh debt this is Doo's worst fear and given the current trends it's a legitimate concern thank you for watching as always please make sure you hit that like And subscribe button if you enjoyed it and let me know in the comments below if you think a debt spiral is a possibility during our lifetimes here in the United States
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