As the US undergoes political and economic reconstruction, the fear of the average consumer is rising. Global lockdowns, stimulus checks; near-zero interest rates; we are just getting started.
Just in 2020, the uncontrollable money printing has peaked will over $3 trillion dollars, and inflation rates are expected to be higher than any other year before.
Amidst all this chaos, you might start wondering where all this is going. If anything, this year showed us that we need to be ready for everything. And that includes a potential collapse of the global reserve currency. While this scenario seems unlikely, it is important to learn how to protect yourself from dollar collapse. This way, you will not only retain the value your hard-earned money, but you will manage to grow your wealth as well.
In this article, we discuss the reasons, timing, and effects of a potential dollar collapse, and give you a list of tactics to consider.
- 5 Reasons dollar could collapse
- What would happen if the dollar collapses
- When will the dollar collapse? Realistic scenarios
- How to protect yourself from dollar collapse
- Wrapping up
5 Reasons dollar could collapse
While there are many reasons that could lead to a potential collapse of our economy, the following are the most realistic:
- Lack of public trust – The continuous money-printing practices have exposed the ease and bias of money printing. By injecting more money into the economy, the US government decreases the value of money over time, which in turn makes the public lose trust in the currency’s power. And since the only thing that gives the US dollar value is the public’s trust towards the government, it could be a real reason that causes dollar collapse.
- Lack of technologic adaptations – Over the past two years we have repeatedly seen congress categorically oppose new financial technologies. This includes the most recent Libra project by Facebook, as well as the digitization of the US dollar. Meanwhile, other countries are actively innovating in the space giving more leverage to their currencies.
- Geopolitical uncertainty – The pandemic-related issues escalate to larger geopolitical situations which negatively affect the economy. For example, a future financial crisis, or a civil war.
- Better alternatives – Both individuals and US-based companies are already actively looking for alternative options to store their value. There is a dire need for decentralized money that performs better than our current options, and there are already several alternatives that are starting to emerge as potential solutions (e.g. Bitcoin).
- Foreign decoupling – If Asian countries (China, Japan) decide to drop the US debt they are owed (±$6 trillion), global panic and eventual recession would occur. In this case, the US dollar would no longer be seen as the global reserve currency.
What would happen if the dollar collapses
In the case of a sudden USD collapse, the economy would suffer on a global scale. The value of US dollars would suddenly experience a massive drop, which in turn would lead to a series of reconstructive events:
- Cash reserves will become worthless – Investors will seek refuge in commodities, cryptocurrencies, collectible assets, and other reliable stores of value. It’s safe to assume that Bitcoin’s value will experience a massive increase.
- The global reserve currency will change, and will most possibly become the Chinese Yuan. The main reasons behind this are China’s massive influence on global trade and its development of the digital Yuan, which is currently still in its testing phase.
- Imports to the US would become very expensive (relative to the size of the “collapse”) and the USA would experience the effects of hyperinflation. In short, the value of money would drop so much that it would make money irrelevant. An example of hyperinflation can be seen with Venezuela.
- Enter a new state of global depression – Consumers and merchants will be hit heavily by the devaluation of the dollar. This could lead to a nationwide and, eventually, global depression, similar to the one that occurred in 1929.
When will the dollar collapse? Realistic scenarios
No one can predict when a collapse in the US dollar will occur. However, we can make a series of vague scenarios based on historic events and by looking at the dynamics of our economy.
- Scenario #1 – Collapse in less than 2 years: This scenario is somewhat unrealistic. For this to occur, a geopolitical event would need to make the public lose trust in the US dollar instantly, seeking immediate refuge in other currencies or investments with low US-influence. For example, a large-scale catastrophic event (e.g. a war) that expedites the money-printing practices, and thus inflation rates, to unprecedented levels.
- Scenario #2 – Collapse within 2-5 years: A continuous effort to destabilize the economy (e.g. lockdowns due to COVID-19) could soon lead to an unbearable global debt. If the right measures are not taken to prevent the problems, the public will lose trust in the US dollar, which eventually will lead to a collapse of the dollar’s value.
- Scenario #3 – Collapse in 5+ years: The US government resolves the pressing issues that endanger the US dollar (e.g. they create a digital USD). By doing so, debt is easier to control and the economy is temporarily safe. However, with the average consumer more aware of the way money works, trust keeps on decreasing over the long term. Eventually, the public abandons currencies that base their value on central authority trust. In this scenario, a new alternative will already exert massive influence over the global economy before a collapse occurs.
How to protect yourself from dollar collapse
Before you start imagining the worst possible scenarios, remember that the global economy has undergone several financial crises. When looking at recent history, we can see these types of “shifts” occuring regularly.
When major financial instability occurs, experienced investors find and benefit from opportunities that help them make more money. The main question, therefore, is not only how to protect yourself from dollar collapse, but also how to grow your wealth through it.
The following points outline some strategies you can explore in order to set yourself up for success:
1. Make intelligent and responsible investments
Warren Buffet said it best: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. In short, it is important to keep a level headed approach and build up emotional intelligence.
The ability to profit from long-term investments comes with experience, education, and diversification. To help you get there, we compiled a small list of investment options and resources you should explore.
Investing part of your savings in Bitcoin is certainly a smart move at the moment, and many public companies are already doing so. The popular cryptocurrency underwent its 3rd halving earlier this year and has been steadily growing in value ever since. Bitcoin is not controlled by any government or financial institution, making it an excellent amidst somewhat risky choice for long-term capital growth. If you are not familiar with Bitcoin, make sure you watch the following video:
For those who are not familiar with the crypto markets, Ethereum is one of the most popular alternative cryptocurrencies (altcoins), that aim to decentralize the internet. They do this by allowing developers to build their own decentralized applications (dapps), which in turn makes them an important building element of the whole industry. ETH, or Ether, is the cryptocurrency that fuels Ethereum’s network, and the one we refer to when discussing investment opportunities.
Ethereum is set to release ETH 2.0, its proof-of-stake consensus model, in less than a month, offering passive income opportunities to all investors. This does not only make ETH a great store of value, but it also makes those who invest right now much more likely to benefit from its growing price value. With interest rates dropping to zero, Ethereum could become the go-to alternative to make your money work for you.
Gold, silver, and platinum are more traditional investment options when it comes to storing your value away from the banking system. Their price experienced a sharp decline earlier this year, due to the COVID-19 lockdowns, which makes it a great opportunity to enter while the price is still recovering.
Keep in mind that there are two types of precious metals you can invest in:
- Tanglible precious metals – This means that you actually purchase and store the bars of coins in a secure location. This can be somewhat complex compared to other investment options, but one that you fully control.
- Intangible precious metals – This is a common alternative, and refers to the process of buying “virtual” gold or silver, through financial applications, banks, and online platforms. The so called “paper” precious metals are more convenient, but might not be the ideal option when looking how to protect yourself from dollar collapse.
For those with a keen interest on future technologies, stock trading might be a great way to hedge against risk. While, in recent times, we observed that Black Swan events do have a negative effect on the market, we also saw that governments inject funds to quickly recover any losses.
At the moment of this writing, we are experiencing stable growth in FAANG stocks, as well as alternative options related to AI, EV, renewable energy sources, and tech software.
The easiest way to invest in the stock market is through handy mobile banking apps, like Revolut, Freetrade, and Robinhood. Keep in mind that, similar to cryptocurrencies, stocks trading can be seen as safe or risky depending on your level of experience.
Another option to consider is liquid collectibles and art. While these can be more expensive (only whole units can be purchased), they are worth exploring in terms of investments. More specifically, consider learning more about the following:
- Non-fungible tokens (NFT) – Digital art placed on the Ethereum blockchain.
- Art pieces – Paintings, sculptures, accessories, antiques, and more.
- Sports cards – High demand football, NBA, and baseball trading cards
- Pokemon cards – Hyped up in 2020 and growing in value very fast.
Check these resources to get started
The following videos, podcasts, and books will help you learn how to protect yourself from dollar collapse.
- Investing in sport cards by Gary Vaynerchuck (2hrs, 39 mins)
- Why Bitcoin will explode by Robert Kiyosaki & Anthony Pompliano (32 mins)
- Beginner’s guide to investing in Pokemon cards
- The Pomp newsletter by Anthony Pompliano
- Capital University by Bryce Hall & Anthony Pompliano
- Rich Dad, Poor Dad by Robert Kiyosaki
2. Avoid debt at all costs
According to recent reports, the average Millenial in the US has about $27,251 in non-mortgage debt. The average home-owner on the other hand, has an average mortgage balance of $232,372. These numbers are larger than ever before in the history of the United States, and they keep on growing.
Debt has become a norm, and many people unconsciously choose to lock themselves up in mandatory monthly payments that make the bankers richer.
The main point is simple – do not buy what you cannot afford. While there are some exceptions linked to high-level education or business development, you have no business buying things you don’t have money for. This includes real estate. While most people think of the homeowner title as an investment opportunity, not many talk about the loss of freedom that comes with it. Every time you borrow money from the bank, you give up a small part of your freedom.
The best way to protect your wealth is to live below your means for an extended period of time, and invest your savings responsibly. While it may take a few more years to materialize your ideal lifestyle, you will eventually do so with significantly less stress. And while the value of other homeowners may decrease while they struggle to make payments, you will have the freedom to allocate your funds on money-making opportunities.
You should now know how to protect yourself from dollar collapse. By understanding how the current financial system is set up, you are more likely to see the upcoming opportunities to grow your wealth.
Keep in mind that the information in this article does not constitute financial advice and should only act as a starting point for further educational research.