In my post The US Dollar Is Screwed there are a couple of reasons why I firmly believe we're going to see a significant decline in the value of the dollar: Massive trade deficits and enormous debts.
This post will lay out on how I think things are going to play out, and what I'm doing to protect myself from the imminent collapse.
You may hear people say fiat currencies are backed by nothing. While it's understandable why they'd say that, I'd contest they're backed by one thing. Trust. As long as I trust that I can go buy food with a $20 bill, I will accept that $20 bill as payment. The day that trust goes away is the day that the dollar collapses. In my view, the world has no reason to trust the dollar, but nonetheless, it is a perceived safe haven.
In times of economic turmoil, people flee to safe-haven assets. Therefore, if people think the dollar is a safe haven, it's possible that it will see a temporary rise. If this happens, I don't think it will be sustained very long.
What assets will people flee to?
My research tells me to buy things like:
- Fine art
- Land/Farmland/Mines
- Commodities (cattle, oil, industrial metals, sugar, corn, etc.)
- Precious Metals
I can't afford a farm or a Degas, so the first two options are out of the question. And, I'm not knowledgeable enough when it comes to most commodities.
I don't invest in something without a deep understanding of it, so that leaves precious metals, specifically gold and silver.
I'll come back to the metals in a moment, but let's talk about crypto first.
Will people flee into cryptocurrency?
Since crypto is quite new relative to these other investments, we don't have any historic episodes to judge its performance in times of a collapsing currency.
I suspect we will see scared money flowing into crypto, with one vital caveat:
When this time of economic turmoil comes, if crypto has recently experienced a significant crash, I don't think said scared money will find its way into crypto. Most people don't like to make investments when there's blood in the streets.
Why I'm buying precious metals
Gold and silver have always preserved purchasing power in times of high price inflation. But, that's not the only reason I'm buying.
I believe the metals are highly undervalued, which means it's not only a safe bet, they also have significant upside potential. The market has priced too many rate hikes into the price of gold/silver. We're not going to see as many rate hikes as the market thinks we are. We're going to see rate cuts, and this time around, the cuts aren't going to stop at 0%; rates are going negative. We're not only going to have QE4 (or whatever the Fed calls the next round of monetary stimulus), we're also going to see fiscal stimulus. All of these things are horrible for the dollar and great for the metals.
I believe the economy is littered with bubbles - in the automobile sector, real estate, stock market, student loans, bond market, and the dollar. The problems that caused the 2008 crash not only still exist, they're worse today, much worse. I believe there's significant economic chaos in our future, and the metals perform well in these times of turbulence.
Be informed and be prepared.
Agree? Disagree? I'd love to hear your thoughts.
Disclaimer: These are just my thoughts about what's going to happen and what I'm doing to protect myself. This is not investment advice.
Totally agree here, Gold has been used for Centuries. It's just endless Economic Cycles, however this one is going to be a bad one! A lot of individuals who think they were Rich are going to end up broke, because they don't know the real value behind money. People are going to learn the difference between Store of Value & Currency. Great Read!
Couldn't agree more! Thanks for checking out my post.
Great transfer of wealth coming: https://steemit.com/silver/@hgmsilvergold/if-you-are-a-silver-and-gold-stacker-this-is-for-you
In a currency crisis, people will buy anything, even toilet paper, to get out of their dollars. I think crypto will do better than you think. Similar to your caveat for crypto, let's say gold/silver experience a significant crash just before the dollar. Would people avoid those for the same reason? Or is it more of a concern with not having something tangible to flee into? Personally, I think the rise/fall of the price of alternate assets will have little impact on people fleeing the dollar.
BTW, I heard something interesting recently. Someone suggested the price of gold/silver will initially go down if there is a Dollar crisis. Why? Because everyone will be selling their gold/silver initially to cover their shortfall due to decreased value of their dollars. But once that initial selloff passes, then gold/silver will take off.
Thanks for your thoughts; I appreciate you adding to the discussion. In regards to this question:
Many people's confidence in crypto was destroyed for a period of time after the last Bitcoin bubble burst. I think there are getting to be more and more strong hands holding crypto as time goes on, but I do believe that another crash will destroy the vast majority of confidence once again.
I think a huge crash in the price of the metals is highly unlikely, but if that were to happen, I think there'd still be a lot of buyers considering it's history - 1000s of years being a store of value.
Seems plausible. I'll have to think about that one some more.
The metals could be ready for a big run. The CFTC just laid the smack down on a crooked metals trader for the first time in 37 years (actually first time ever since 37 years ago it was the Hunt brothers who were really just trying to stack). The press release indicates they are going to be going after manipulators.
That's great news, I hadn't heard that.
Ted Butler was having us write the new commisioner, but was not really hopeful about something happening RE: manipulation. After 2 decades he had learned to moderate expectations. Now he is excited.
https://steemit.com/money/@natxlaw/the-best-silver-news-in-37-years-trader-goes-down-for-silver-gold-manipulation-and-he-s-singing
I ACTUALLY HEARD THIS BEFORE.GOOD REASON TO BE DIVERSIFIED AND HAVE SOME CASH PUT ASIDE
So crypto would be the safest way for poor mortals like us right?... I mean, if could buy an oil industry or a farm i would, but lets be realistic... How can we protect our self?
Crypto could be a good bet, but I think things are getting a little bubbly in the space. I'm in the process of limiting my exposure to crypto. For the average person like me, I'd be buying silver bullion. It can be acquired in small quantities, I don't think it has much downside risk, and has tremendous upside potential.
cool thanks!... So you think there is much bubble in crypto right now?... everything is going up and down lately...
When you zoom out on the crypto price charts, most look like the shape of a hockey stick. Charts that look like this are usually not sustainable. It's a revolutionary technology, and I think they could go a lot higher, but I'm not betting on it.
MUCH POTENTIAL UPSIDE;AFTER ALL IT HAS HOW MANY HUNDREDS OF INDUSTRIAL USES?(NOT TO MENTION THE THEORY OF SHORT SUPPLY)
PS I'M MAKING REFERENCE TO THE COMMENT ON SILVER STACKING AND OR MINING STOCKS NOT CRYPTOS
Outstanding analysis. I also like precious metals but supplement
my stacking with base metals (regular coins). I also agree with
@infinite-monkey that people will move to anything that will return fair value like: toilet paper, drugs, bandages, food, water, booze, cigarettes, feminine products, etc. Digital cash in paper wallets will be viable for making escapes over borders. In closing, allow me to echo your sentiment, "Be informed and be prepared." @demandpeace
I also agree with that move to anything, but I think that comes further down the road. I believe that will come at a time when/if inflation gets really out of control. I think people will be moving into metals before moving into any goods they can get their hands on. Thanks for reading, and remember to follow me if you want to see more posts like this in the future.
Right on the money mate good article thanks
Thanks for reading. I appreciate the follow.
Excellent post @shenanigator - my kind of theorist ! I have a unique situation in that I have been unemployed effectively a year, seeking a job in 3 different states to no avail. Since I have no family or substantial financial responsibility, I went all in trading credit for metals (primarily silver) and items with real world value, electric bike, solar generator set up, etc. I will let the default chips fall where they may and let whatever QE4-ish scheme that's cooked up next take care of that... Good Times & STEEM On Brother...
Good luck with the job hunt, wishing you the best. Sounds like you're prepared for what's coming our way.
LOOK,IT'S AMERICA'S BIG BEN
he would be throwing gold, and the Chinese throwing fiat back at him.
You are correct! It's that bad sadly . . .
I agree-- on the whole-- but I think it also depends on who "people" are, in context. There ARE people who can afford to buy half of Kansas or a couple of Picassos as a store of value... personally, I happen to be a rare stamp collector, and I have often found that old rare stamps are a good store of value when the economy heads south. And they can be acquired in small "units" so a "moderately broke" person can get in. Where the value of collectibles matters to me is that they have both an "intrinsic" value, as well as an "expert" value... that is, I can add to the value of my holding through having expertise others don't have.
I'm a proponent of investing in what you know. I don't know a lick about stamps (yes, pun intended). But if that's what you know, you think they're a good store of value, and your expertise helps you add value, it sounds like it could be a good bet.
If I'm understanding you correctly, the innate value of precious metals will (in theory) go up as the trust in the dollar goes down. Is that right?
It's scary to imagine what will happen if the dollar experiences a serious long-term decline in value - so many people in my family and friends are fully reliant on USD.
I've never quite described it in that way, but yes, that's more or less what I believe.
Yeah, it is scary. If you earn dollars, have savings in dollars, a pension, annuity, social security, bonds, or other dollar-denominated assets, I think you'll see a significant decline in your purchasing power. The groceries that cost you $100 today, could cost $200 in a few years.
The average person is already stretched to their last dollar, so one can imagine what that would do to them.
IT'S ALREADY LOST 96% OF IT'S VALUE SINCE IT'S INCEPTION IN 1908(OR 1913 I'M NOT SURE WHICH ,BUT IT WAS THE YEAR THAT THE EARLY VERSION OF THE US FEDERAL RESERVE BEGAN CONTROLLING IT
I'M NOT AN ECONOMIST NOR HAVE I SEEN A DOLLAR CHART RECENTLY; BUT I'D SPECULATE THE DOLLAR 'S DEMISE BEGAN WHEN IT WAS DEPEGGED FROM THE GOLD STANDARD BY PRES. NIXON IN 1971.
SOME SAY HE HAD TO DO IT IN ORDER TO PAY OFF FRANCE AND WHOEVER ELSE WE WERE INDEBTED TO AT THE TIME.
I am a silver guy, never really got into gold, probably because of the price or the fact that right now the gold to silver ratio is 73 to 1. I have been stacking for the past few years and feel that i am in a pretty good postion should such crash happen (which it will). Once that ratio gets to at least 40 to 1 I will sell half of my silver and move it to gold. Thanks for the share .....resteemed for awareness.
Thanks for the resteem! I think that's a pretty good plan. I do think that a lot of people put too much emphasis on the gold/silver price ratio though. A lot of things can change in the market, which would permanently change the "correct" ratio. For example, let's say engineers figure out that using more silver in a cell phone allows the battery to last twice as long. This discovery increases the demand for silver tremendously, and now the "right" gold/silver price ratio is way different. Examples like this one that effects the gold and silver demand probably happen on a daily basis, changing the "right" ratio a little at a time.
People will go for crypto for sure. Also precious metals and I feel that land is a good investment when the economy implodes as long as people have enough to make it through the tough times and then sell at the peaks.
If you are still in AZ they signed a law in where you don't have to pay captial gains on Gold. Which is super cool!
https://www.usnews.com/news/best-states/arizona/articles/2017-05-23/ducey-signs-tax-cut-on-gold-coin-sales
I did see that law passed. A few states have done that now. Great news!
YUP! Are you still in AZ these days or did you move?
Still here. I have reasons why I don't want my location on my profile, so I changed it.
I feel ya! I'm still in Tucson sweating my ass off!
Great article! I'm in the same camp as you. When the day comes where metals SKYROCKET past cryptos, that will be the day I turn in some of my metal for land. Precious land....30 acres and a mule. Maybe some sheep? Naaaaahhhhhhh...lol. But definetely some chickens and goats.
Believe it or not, that's pretty much my plan as well. I think the cost of real estate, at least in terms of the metals, will fall significantly.
Interesting post. I agree that we are in different bubbles and the PM are undervalued. I have done some posts into this matter.
My most recent post is about gold vs. bitcoin.
Cool, I'll check it out.
Cacao, Classic cars (especially Porches), Cryptocurrency and put all the big money in properties to rent out and so you always have a place to live. Overtime the value will always increase unless you bought a house top of a active volcano.
If those are the things you well, then absolutely. Investing in things you thoroughly understand will allow you to know things that the market doesn't.
In addition to finding ways to secure your wealth that you discussed, I'd also add doing everything you can to increase your self-sufficiency. The more that you can make, repair or do for yourself, the less you'll have to spend your wealth obtaining from someone else.
It's definitely valuable to be self-sustaining. If you're able to do this with life's necessities (think food), that's even better. I do believe that trade will always be a way to add value to your life, and doing what you're good at allows you to trade for more things. But, with that said, knowing how to do things yourself cannot hurt.
By the way, I saw you've been commenting more and have been gaining followers faster. I'm glad to see that. https://steemdb.com/@jenncapestany/followers
Yes, I believe that your tips are working! Woohoo!!
My biggest fear with Gold and Silver has always been that I think one day people will be synthesizing gold (as a believe they already have). I know it's a scarce in this universe but there still is a lot of gold out there. Imagine if a meteor with thousands of kilograms of gold came crashing in from space?! Talk about a bad day for gold investors.
Why do you believe gold/silver to be undervalued? They've been traded for millennia and as such have found an equilibrium price. If anything, I believe them to be significantly overvalued, as their electronic properties are outweighed by jewelry and "safe investment" buyers. Their lack of practical uses outside of electronics means precious metals may just be one of the largest ongoing bubbles in history.
I appreciate your comment. To name a few of the reasons:
Their way to "fix" the economy is to force interest rates down and create obscene amounts of currency units.
Total agree - but only silver on my part as it is the most undervalued
I agree that it's probably the most undervalued. Storage can be cumbersome, so that's one downside about it.
I believe in hard assets and the precious metals is my number one choice. Thought about something this morning, with all of the cryptos advancing, will the bankers unleash the prices of silver and gold so they can get the narrative back and have a bit more control of the financial system? Bankers own tons of gold...just a thought. Great post!
I'm not sure I follow. Can you be more detailed about how unleashing the prices would help them get the narrative back?
If they own lots of gold, they could back a currency with some kind of gold and silver backing. I'm not saying this will happen, however can you imagine if one of the currencies would be backed by gold? I would think people would flock to that currency. Maybe the whole plan is to create a gold backed cryptocurrency and have us become a cashless society. In a cashless society they would take back control.
I think governments will do all they can to avoid issuing a metal-backed currency. They don't like it because it limits their power. Fiat currency allows politicians to promise free stuff to the people without having to pay for it. With fiat currency, they can pay for the "free stuff" by issuing more currency.
With that said, if a country backed their currency with gold, I think people would flock to it.
Precious metals will prove to be a great store of wealth especially when you think about whats coming down the road. I own gold and silver and continue to buy more. It's a good way to diversify away from the U.S. dollar. And now we see the rise of the cryto's. Another way to store wealth away from all the manipulation. All these years of cheap money will come back to haunt us and we should do what we can to protect ourselves. Precious metals and cryto's are great ways to diversify your assets.
Completely agree, thanks for reading!
Yes, dollar is about to take a big hit. Gold an silver offers ideal protection.
Interesting read. Watching and learning!
Thanks for reading!
Thanks, heard this all before. Kinda scary times if you have to rely on phyz though. We are sitting like kings with everything local and easy.
Sorry, but what is phyz?
hard currency gold silver etc..
I'm glad i invest my money on crypto!
It has certainly been a solid investment in the past year.
it means So crypto currency would be the safest way for people like us?
It could be. But I'm limiting my crypto exposure at the moment because I think prices are a little high. I think they rose too fast and too quickly to maintain these levels.
Agree. The dollar is doomed. As velocity of this fact increases through society, the rise in prices of everything cheap dollars compete for will accelerate, reaching point where sellers will no longer sell metals at any price.
There will certainly be strong hands holding metals when other prices are rising rapidly.
When the next financial crisis hits, crypto will endure a first test: safehaven asset or asset that capital will flee from? I still think the latter and think that will only change once crypto is used for daily purchases. Crypto needs a bigger base to convert from novelty darling to broad perception of 'money'.
In other words: we are still searching for that killer app.
You could be right. Time will tell. I tend to think it'll be the former.
I think silver and gold may be ready to start moving up again. Here is an article I wrote breaking down some mining companies, the better of which should outperform the metals themselves by a wide margin. https://steemit.com/money/@motowngold/i-think-gold-and-silver-are-staging-for-a-run-here-are-some-mining-stock-ideas
I disagree about the fine art, agree about the others.
I think it's a good preservation of purchasing power in an inflationary environment. But really, it's only for billionaires. There are better options if you don't have enormous amounts of money you have to preserve.
Even if I had that amount of money, not sure I would buy the art to preserve purchasing power. I haven't however done any research into it.
Upvoted and followed. Couldn't agree with you more. Check-out my post https://steemit.com/stock/@lucky.digger/who-is-richard-fuld and others relating to Poloniex as well as how I use the BRK annual report to beat the market.
Yeah it is always good to prepare for the usd potential crisis through any alternatives to store value of our wealth
I like your approach!! I believe precious metals are a great store of wealth that one can personally and physically control, which is a huge asset in uncertain times. However, I wonder if we are seeing cryptocurrency and the associated blockchain technologies provide actual free markets for investors, with more risk, but more upside potential, similar to venture capitalism for the masses, and an answer for individual investors fed up with negative interest rates and market manipulation.
We might be seeing that. I think there's a bubble in crypto at the moment, but I could be wrong.
I think you are right. I expect there will be multiple market corrections in BTC, ETH, and all the other cryptos. The question is what happens next after the bubbles pop? Buying opportunity? As exciting as cryptocurrencies are, I think it makes sense to diversifying across multiple assets, precious metals included.
Great post, this information needs to get out there so good for you. In your part 1 you said there are only 2 options to this debt problem, default or inflation. I would like to add that there is a third way out of this massive debt problem. The US treasury could print there own currency notes, just like the Fed does and pay off all the government debts and make a clean start. I think the last time this was contemplated was by non other than the great JFK, and we all know how that ended. Cheers @silverbug
Thank you, I appreciate it.
Regarding this point:
How is that different than inflation?
It's not inflationary because it go into the Fed and cancels the debt, not into the economy. It will be inflationary when they spend it into the economy but at lest there is now interest attached, so there is no need for tax either.Cheers