Last week I explained how "inflation" is actually "depreciation" of your dollar's buying power caused by the constant printing of new currency backed by nothing at all.
Now, there has been a huge development which I believe spells the death of the dollar as the world's reserve currency in the near term and will cause immense pain to American consumers and business owners alike as our buying power accelerates it's toxic death-spiral downward to zero. The fact is, we don't have very far to go since the dollar's purchasing power has already fallen 98% (that's right!) since 1971 when then president Nixon defaulted on the rest of the world by unilaterally de-coupling the dollar from the Gold standard (known as the Bretton Woods Accord) and allowing new dollars to be issued out of thin air with no physical asset connected to it.
For example, one dollar bought 10 bottles of beer in 1933; 20 bottles of Coca Cola in 1944; 10 bags of pretzels in 1953; 17 Oranges in 1971; 2 boxes of crayons in 1987; 4 Grapefruits in 1997; 2 Lemons in 2008 and just one McDonald's Coffee in 2020.
This drop in purchasing power has been happening now for generations but last week a few things happened which will accelerate the drop dramatically: First, Saudi Arabia agreed to sell Oil to China in exchange for Yuan and then the knockout punch came from Russia who is demanding payment for their Energy in Rubles and publicly announced they were considering accepting, wait for it......BITCOIN!!
The significance of these developments cannot be overstated: The only reason the dollar has remained (relatively) strong for the past few decades is that every single country in the world required dollars to buy Oil. In short, the dollar is toast along with our purchasing power. This sure sounds bad and it will be for many folks however, there is an opportunity to not only survive but actually prosper.
Some of the business owners I work with are adjusting their business models to take advantage of the new landscape. Last week I had a call with an entrepreneur who is seeking investment capital; he’s developed patented intellectual property that solves a major challenge in the transportation industry that can help clear up some of these bottlenecks. He already counts some of the world’s largest companies as his customers.
So far it’s going very well. And if his solution continues to be successful, he’ll not only fix a massive problem, but he’ll stand to make an enormous amount of money. His investors will too.
Some businesses are accepting other forms of payment like Bitcoin which offers an alternative to steadily depreciating dollars.
One way to take advantage is to use borrowed dollars to purchase hard assets; This can work especially well for small businesses who purchase materials like lumber, base metals, chips, plastics. These items are exploding higher so, using borrowed dollars at fixed rate gives you an actual profit since the assets you purchase will be worth more dollars in the future. Meanwhile, you will only be required to returns the same dollars that you borrowed.
Financial traders call this strategy "shorting" the dollar - that is, they borrow depreciating dollars, purchase appreciating hard assets and return the same dollars keeping the difference as profit.
My advice is this: Wherever possible exchange your dollars for hard assets and only keep whatever amount handy for cash-flow and current expenses.