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The Future of the USA Dollar

 Copyright © October 1, 2022 by Robert Wayne Atkins, P.E.
All Rights Reserved.

Introduction

In a few of my other articles I have mentioned that the USA dollar has both strengths and weaknesses.
    100 Dollar Bills
  1. Strengths of the USA Dollar:
    • For many years it has been used by nations all around the world as the currency of choice when negotiating contracts with other nations, and for paying for the products purchased from other nations.
    • A significant amount of dollars can be stored as a digital number in a microscopic part of one tiny little chip in a computer's memory.
    • Digital dollars can be transferred easily and instantly between bank accounts. This allows for purchase transactions to be paid for promptly.

  2. Weaknesses of the USA Dollar:
    • The USA dollar is nationally and internationally backed by faith in the integrity of the leaders of the USA.
    • The USA dollar is printed (created) by an organization that is not an official part of the government of the USA.
    • The total amount of dollars in circulation is determined by an organization that is not an official part of the government of the USA.
    • There is no official exchange rate for dollars that will be honored by the government of the USA. In other words, a dollar will purchase whatever a dollar will purchase and the government of the USA does not guarantee the value of a dollar in any way.
    • Unlike gold or silver, a dollar does not have any value as an object by itself. Gold and silver can be made into objects of value and the value of those objects is related to the amount of gold and silver in the object. However, a dollar is simply a number that is printed on a piece of paper ($1, $5, $10, $20, $50, or $100) or a dollar is a digital number in a computer.
    • Digital dollars can be illegally and instantly stolen from a bank account by a computer hacker. Or a bank can freeze a bank account and not allow any dollars to be withdrawn from that bank account even by the legal owner of that bank account. Or a bank can file for bankruptcy and the digital dollars in the accounts of their depositors will simply vanish.

Discussion

The Prime Interest Rate

The USA Federal Prime Interest rate was increased on September 21, 2022 to 6.25 percent. This is the fifth increase in the Prime Rate since the beginning of 2022 when the Prime Rate was 3.25 percent. Therefore the Prime Interest Rate has been increased by 92% in just 9 months. This will have the following significant ramifications:
  1. Real Estate: Low interest rates allowed people to purchase more expensive homes because they could afford the monthly payment on the loan. Higher interest rates result in higher monthly payments and this means people can only afford a less expensive home. My daughter sells real estate and until this year she was very successful. However she didn't sell any real estate during the first five months of 2022. She had a good summer business because many people relocate while their children are out of school so their children can begin the next school year in their new school. But since the middle of August real estate has not been selling very well.
  2. Adjustable Rate Mortgages (ARM): An ARM allows a finance company to link their mortgage rates to the current market interest rates so they can change the interest rate on their existing loans as the market interest rate changes. This is creating significant hardships on everyone who has an ARM. For example, if the interest rate increases 3% then a family's monthly mortgage payment will increase by $250 per month on a $100,000 loan, or by $500 per month on a $200,000 loan, or by $750 per month on a $300,000 loan. This is causing significant problems for many families because their property taxes are also increasing, and the cost of electricity and natural gas is also increasing, and the cost of food is also increasing. But their paychecks are not increasing. (NOTE: I have always recommended a fixed rate mortgage and I have always recommended that a person avoid an ARM.)
  3. Bond Prices: Bonds pay a fixed interest rate. The current market price of a bond is linked to its fixed interest rate. If the market interest rate is higher than the fixed interest rate of the bond then the bond loses some of its value. This means that people and organizations that own bonds are watching the value of their bond assets decline in value each time the prime rate increases. If people and organizations believe that interest rates are going to continue to increase then the smart investors will realize that the market value of their bonds is going to continue to decrease and they will sell their bonds immediately and move their money into a better investment that is not going to fall in value, such as an interest paying bank account or a money market account. Bank accounts and money market accounts become more attractive when the interest rate that is paid on those accounts increases. This assumes that banks remain solvent and that banks do not go bankrupt.
  4. Stock Prices: The price of a company's stock is determined by a lot of different factors. One of those factors is supply and demand. When more people are selling stocks compared to the number of people who want to buy stocks then the price of those stocks decline. At the current time many people and many organizations need money to remain solvent and they are selling their stocks to raise that money. This is just one of the many, many reasons that are causing stock prices to decline and it is one of the many, many reasons why stock prices are going to continue their downward spiral.
  5. Digital Money Prices: Many people are beginning to realize that the value of "digital money" is based on what other people are willing to pay for that "digital money." In other words, digital money does not have any intrinsic value of its own. Digital money only has value in the minds of people. And it has value when it is used to buy something that has value, such as warm blanket, or a pair of new shoes, or a handgun (and ammunition for that handgun). But a digital electron that is inside a computer chip that is inside a computer somewhere does not have any value as a digital electron. Digital money only has value if someone somewhere is willing to sell something they own that has real tangible value for that digital electron. Digital money is just a "Ponzi scheme" that millions of people have bought into and the majority of those people are going to be left holding a bag that contains nothing but air. However, a few of the smart people that have been deceived into buying digital money will immediately convert all of their digital money into something that has value, such as a bank account that pays interest or a money market account. This assumes that banks remain solvent and that banks do not go bankrupt. (NOTE: I have never recommended the purchase of digital money even though almost everyone else encouraged people to buy digital money.)
  6. Asset Prices: In my opinion, asset prices are going to continue to decline and asset prices have not yet reached bottom. Therefore it would probably not be a good idea to buy stocks, bonds, real estate, and similar assets at this time. In the not too distant future these assets will probably be a lot cheaper than they are today and if you are solvent and if you have money in gold, silver, or a bank account then you may be able to buy the assets you desire for a lot less money than they would cost you today.
The Nation of China

The nation of China has been having financial problems for more than a year. On Saturday, October 1, 2022 the nation of China began to liquidate a huge number of their USA bonds in order to raise money. Although China owns a significant amount of gold they decided to sell their bonds instead of their gold for two reasons:
  1. Interest rates have been increasing and this means the market value of bonds has been decreasing because a bond pays a fixed amount of interest. Since the interest rate will probably continue to increase significantly in the months ahead China decided to sell their USA dollar bonds now before the value of those bonds continues to decline in value as the interest rate continues to increase.
  2. The market price of gold is currently so low that anyone or any nation that owns gold does not want to sell their gold if they have something else of value that they can sell to raise the money they need. Most smart people and most nations know that the "official" price of gold is currently being kept low for a variety of reasons but that the price of gold is going to increase as the value of paper money decreases.
China's liquidation of a significant amount of their dollar bonds has several extremely important implications:
  1. This will put more dollars into circulation and it will cause prices to increase in terms of USA dollars. And there will be nothing that anyone or any government can do about it. If any government freezes the price of anything, such as the price of gasoline at the gas pump, then gas stations will go out of business and people will only be able to buy gas in a "gray or black market."
  2. If China significantly reduces their holdings of USA dollars, then the USA will have significantly less influence on any decisions that will be made in the future by China.
  3. Products made in China will become significantly more expensive as time passes.
  4. If the USA dollar loses a significant percent of its value then China may eventually refuse to accept dollars and Euros for the products made in China. If that happens then people in the USA and Europe will not be able to buy products made in China after the products that are currently "in transit" from China have all been delivered and purchased. This includes repair replacement parts for all the things that were made in China.

Conclusion

Paper Money The above are just a few of the reasons why the fiat currencies of the world, including the USA dollar, will continue to decline in real value.

A fiat currency is:
  1. Any metal money that is not made of a precious metal, such as gold or silver.
  2. Any paper money that is not redeemable by a government for a specified fixed amount of a precious metal, such as gold or silver, and the amount of gold or silver does not change with the passage of time.
All fiat currencies are losing value and it does not matter if one currency loses its value slower than the other currencies. Therefore please do not believe the propaganda that one fiat currency is "strong" because it has not lost as much value based on its exchange rate into other currencies. All fiat currencies will eventually fail and become worthless in the long-term.

The above are also a few of the reasons why a worldwide "meltdown" is inevitable.

As I have mentioned in some of my other articles, whatever you own when the "meltdown" begins will probably be all that your family will have for many, many years.

If it is possible then you should only spend a portion of your money on the things that your family needs right now to stay alive. And you should spend some portion of your money on things that would make life possible for your family after the "meltdown" begins. This would include the following:
  1. Invest in some emergency foods that have a long-shelf life, and that are high in calories and nutrition, and that do not need to be refrigerated or frozen.
  2. Decide on how you will provide water for your family when your current source of water is no longer working.
  3. Acquire a self-defense weapon so you can protect your family from people who want to harm your family members and who want to take whatever your family has.
  4. Improve your family's relationship with God by reading the Holy Bible with your family every day.
May God Bless,
Grandpappy.

Grandpappy's e-mail address is: RobertWayneAtkins@hotmail.com

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