It seems like anywhere you look these days you’ll find articles declaring the doom of the American dollar. Of course, we’re not exactly facing an apocalypse as some clickbait titles may lead you to believe,but there is no doubt the heyday of the American dollar is coming to a close. The big news is the rapid “dedollarization” happening around the world, but international turmoil, high inflation and domestic policies are also contributing to the Greenback’s decline.
In a recent interview titled, “Gold & Bitcoin Rally in Response to Banking Crisis”, Jan van Eck discusses how “the new paradigm” is creating a bull market for hard assets like Bitcoin and gold. Fragility seems to underpin this new paradigm as we’re seeing banking crises every decade or so, with a centralized bank and governments that never worry about trying to spend their way out of every problem.
“We should question the whole structure of the commercial banking system,” said Van Eck. “Commercial banks are inherently fragile institutions.”
Defenders of the dollar might point to “unprecedented” problems that are only temporary, believing things will “get back on track” once we get back to normal. Sure, there is the Russian invasion of Ukraine still going on, and the COVID pandemic wasn’t that long ago. You’ll also hear people talk about polarization, that politics has become so extreme and so toxic, and that’s why things aren’t going well right now. When this was brought up in the interview, Van Eck responded, “We’ve had very divisive points in our history, and we’ve been able to work through them.” He brought up the Civil War as a much more divisive point in our history. And let’s not forget there was a time when politicians could duel and outright murder each other over disagreements. There’s a whole hit Broadway show about it!
So these times aren’t as unprecedented as they might seem. Our country has been through a lot, but this doesn’t mean the dollar is safe. It just means it doesn’t actually care as much as we pretend about international wars and political in-fighting. “Any believer in gold or fiat would point out that no paper currency has ever survived over a long period of time,” said Van Eck. It’s almost like there’s a fatal flaw in these systems. Van Eck gave a reason for the inevitable failures: “Governments are always tempted to spend too much money.”
Our traditional finance systems are incredibly fragile. In some ways this is the very reason they need to be centralized in the first place. Without a central authority, they’d have no authority. The house of cards would fall down before the second card is even placed, but centralized banks use the tools at their disposal to keep the whole thing standing…for as long as they can.
This could maybe work if the central authority was some all-knowing, perfect body with a wholly unbiased look at the global economy. This isn’t the case, though. Centralized banks are all based around particular countries and governments, and they carry all that innate political bias with them. Even so-called “international” organizations like the IMF still choose sides and play favorites. They have a vested interest in the success of some countries over others.
As Van Eck explained, this leads to an always-open pocketbook as these central banks have no problem using the government checkbook to pay for everything. And when this leads to high inflation, bank runs and more, the government is there to step in and bail out the financial system. It’s a game of musical chairs, and they know it, but the whole point is to just try and keep the music going as long as possible. That’s the whole game.
And if you’re like Van Eck, you realize that collapse is inevitable. The self-interest creates a kind of self-delusion, but the bill always comes due in the end. This is where assets like gold and crypto stand out, though. Being free from a centralized authority, there is no innate political or financial biases in them. They are what they are, and that’s that.
Sure, a lot can be done by individual governments to control and regulate these assets, as had been done with gold before, and regulations for crypto are underway around the world. But assets like crypto and gold have a simple advantage over any government-issued currency. It’s not dependent on or subject to that country.
Any time you’re investing in something, it comes down to whether you believe there’s a future there or not. For stocks, it’s about whether you believe in that company. If the company does well, the stock goes up. Same is true of government currency. Plenty of people invested in the Euro on the basis they believed the European Union would succeed. Every investment is placing a bet on something, but with these hard assets that don’t “belong” to any one government or country, it’s like you’re betting on civilization itself.
And in times of strife, that can be a particularly appealing option. You have to put your money somewhere after all, and if it’s sometimes looking like nothing is going to pan out, hard assets are an excellent hedge against instability. Countries may come and go, and same for companies, but global, agnostic assets aren’t tied directly to the success or failure of a single system.
As Van Eck summarized it, ““Everyone’s worried about a recession. This is my point, who knows what’s going to happen through this cycle, so just be diversified and don’t hide too much in cash.”