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#267 - Is The US Dollar Collapsing? · Money Grows on Trees

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Gold is probably the world's real base reserve currency. Because
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if you look at what the actual global reserve currency is, historically, over
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the last 3,000 years, it's probably been gold. The other way to assess the
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strength or weakness of the US dollar is the dollar index. If it drops below
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100, it's showing weakness. And if it rises above 100, it's showing
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strength. If you look at whether a currency is becoming more valuable or
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less, the first way to assess it is to assess it against other currencies. It's
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called foreign exchange, okay, FX. The second thing to understand is the
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purchasing power of the US dollar. That's the difference. I'm Lloyd James
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Ross, seven-figure investor and entrepreneur, and I've helped thousands of
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Gold's at record highs, the Fed's keeping rates steady at
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4.5%, and the dollar index has slipped under 100. What
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does this all mean? I'll explain in a second. But what I want to ask is, does
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this mean that the US dollar is finally collapsing?
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First, let's understand what collapse actually means. In plain English, a collapse isn't
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just a dip, it would mean countries and companies stop trusting the
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U.S. dollar and U.S. trade, right? There'd be like a global run
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on the dollar, but that's not what's happening right now. So what we're seeing is
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weakness in the U.S. dollar compared to 2022 highs, but
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where does it stand? How do we assess the weakness or the strength
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of the U.S. dollar? So let's understand some things. Firstly, the
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U.S. dollar is a world reserve currency, okay? So
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what that means is most of the countries around the world have,
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let's say their FX reserves or their own emergency funds.
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They've got FX reserves of US dollars of about 57%. And
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to that matter too, most of the world's trade is
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done in US dollars, between 48% if you don't include Europe, and
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then about, I would say 60% if you include Europe. So
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by and large, It's the reserve currency still very
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strongly. It doesn't look like it's going to get toppled at
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all. So that's the first important thing to understand. So
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if it was collapsing, you would
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start to see people moving and shifting their US dollars
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into, say, euros, because that's the second strongest
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currency in the world in terms of a reserve currency. So
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most countries keep their money in US dollars. And
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it does have payment dominance. Alright, so again, all the
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transactions you're seeing or into effectively international transactions through
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SWIFT, which is the payments, global payments system, the
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plumbing for payments around the world. It is in U.S. dollars, all
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right? So half the world's money transfers are still happening in
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U.S. dollars and are settled in U.S. dollars. And if we saw the U.S.
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dollar actually collapsing, we'd see that starting
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to unravel, all right? And that's not actually happening in massing countries,
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so it's not happening, okay? Now, the other way to assess the strength or weakness
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of the U.S. dollar is the dollar index, the DXY. You'll see this
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on the financial news, like the DXY did this. So if it
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drops below 100, it's showing weakness. And
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if it rises above 100, it's showing strength. So what is
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the dollar index? It's basically like a scorecard that
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compares the US dollar to other big currencies in the world. It's
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the euro, the yen, which is the Japanese money, the pound, which is
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UK. and then Switzerland and there's a couple of others. So
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they assess the US dollar against the strength of those core five
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or six currencies. And if it's again, at a
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hundred, it's neutral. If it's below a hundred, it shows that
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the US dollar is weakening. And if it's above a hundred, it shows that there's relative
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strength against other currencies. So there's two things happening
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here, just to clarify. When I say the US dollar collapsing, what
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we have to understand is, is it weakening or strengthening against other
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currencies? Because if you look at whether a currency
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is becoming more valuable or less, the
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first way to assess it is to assess it against other currencies. It's called foreign
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exchange, FX. The second thing to understand is
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the purchasing power of the U.S. dollar. That's different. So
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whether the U.S. dollar can purchase things in other countries relative to
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their currency is the effects and whether the U.S.
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dollar can continue to purchase things inside the United States or things
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denominated in U.S. dollars is the actual value.
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of the US dollar. And as we're seeing, there might be a bit of
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relative weakness in the US dollar against other currencies, which is what we're seeing because
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the DXY is actually at about 90. So we're seeing that against other
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currencies, the US dollar is weakening a little bit, which is fairly normal, definitely not
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collapsing against other currencies. However, what
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people are frightened of is if the
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federal funds rate drops and
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inflation continues to tick up beyond 3%, which is what it's
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at at the moment, They're afraid that
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the US dollar's ability to buy more things in their home country will
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go down, meaning inflation gets out of control and
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the currency devalues, which by the way, it's been devalued for
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the last hundred and however many years. It gets devalued through
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inflation, which usually is caused by government spending, but
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what's happening at the minute is by and
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large, the US dollar is losing some purchasing power, right?
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And that's why, again, things like crypto and certainly real estate transactions
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and certain companies and businesses you buy, and gold, which is
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why gold's gone parabolic this year, over 40% returns year
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to date, is because people are afraid that the value of
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their US dollar is going to fall, right? So not against other currencies, but
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generally speaking, in terms of what it can purchase. So
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if we see CPR inflation tick up any further, we are
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going to see the value of the US dollar start
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to collapse even faster in terms of what it can buy, which
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is why at the moment in the United States, People
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are giving Jerome Powell right? Who's the
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head of the Federal Reserve? They're giving him a bit of a pat on the back because
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they're like listen, man You're what stands between us torching
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the US dollar and not the reason why is because he's
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currently keeping rates steady at four and a half percent Which he
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should to curb inflation which is working but
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what people are worried about is they're gonna go into a massive recession which may happen
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and But it's certainly better than inflation. And so
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on one side, you've got Donald Trump, the president, aggressively,
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very aggressively with Scott Bennett, his right-hand
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man, Jaw-boning or telling Jerome Powell
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to drop rates right because inflation is back in the steady
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band But is it really in a steady band or
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they're just wanting to stoke the economy and crank it up again and
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I actually feel like Jerome Powell's being the most responsible
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Federal Reserve chairman because He's staying
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staunch. He's not letting Donald Trump Influence
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his decision as he should which is why there's a separation of powers between
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the executive and the Federal Reserve So I think it's
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a wonderful thing that he's keeping it four and a half percent Because the last thing
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you want is to drop it down to three again, and if Donald Trump had his
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way I don't mind I don't mind Donald but if he had his way he drop
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it to one or zero and that would absolutely Torch
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the US dollar and if that actually happened you'd see gold would
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probably go up another 50% It would just go ballistic because if you look
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at what the actual global reserve currency is Historically, over
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the last 3,000 years, it's probably been gold. And that's
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why China is buying so much gold. Because if you look
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at the fiat currencies, by and large, they
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can be printed into infinite. So they can actually be printed
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away into nothingness, because there's no supply
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constraint. There's basically just
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unlimited supply. Whereas gold, there's a supply constraint
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in terms of how much can be produced by the earth over time. and how much can
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be mined. So that's a supply constraint. You don't get that with fiat, which
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is why gold is probably the world's real
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base reserve currency. The trade currency, obviously,
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is the US dollar. So the commerce currency is the US dollar, but
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the real global reserve currency is probably gold. And people
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are now trying to replace that with Bitcoin as
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this online version of or coded version of
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wealth, right? So that's why people are
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worried. Just quickly, if you're ready to take control of your finances but feel
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stuck on where to start, I have a solution. My book, Money
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Bias Happiness, simplifies investing and wealth building with
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practical steps to help you achieve financial peace. Get
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your copy via the link in the show notes and let's get your money working for
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you. Now back to the episode. Are there any other risks that kind of
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create this problem and exacerbate this
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US dollar value journey, right?
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Or misadventure that it seems to be on? So if you look at those three big
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things happening as well, the reason why Donald Trump is
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passing bills and trying to drop rates is
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because he also wants to have GDP grow. He wants to see
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the country grow at a certain pace so that it
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can earn enough money, here's why, to pay off
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its $37 trillion in debt. There's
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two ways to pay off debt. And if you think of the United States or any country
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as a big household, it's the same thing. In a household, there's two ways to pay off
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debt. Either you go to austerity measures, meaning you start to cut costs and
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you take it on the chin like a boss. And you know what? We've been very, very
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naughty. We haven't got control of our debt. We've got too much credit
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card debt. Honey, we need to tighten our belt. No
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more Netflix, no more this, no more this. So you start to cut costs.
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That's what the government could do. And that's why Elon Musk decided to
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bail because when they put that big bill through that was like 5 trillion
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or something of spending, he went, oh my God, that is like the most
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irresponsible spending ever. On the other side,
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they thought, well, we've got to earn our way out of this. So they're
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not doing the austerity thing like a household would if they were in credit card
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debt. They're actually going to go earn more money. And you can do both, right? You
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could actually do both at the same time, but it's very difficult because to
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make money, you've got to spend money. So on the opposite side, the
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Trump administration is saying, hey, we're going to earn our way out
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of this problem. So the reason he wants to drop rates is to crank up
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GDP, to earn more money. And of course, pay
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off the 37 trillion in debt. That's one part of it. The
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other part of it is this, the tariffs that have been put in place. with
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other countries, the tariff deals that have happened between the United States, they're starting
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to raise tariff income in the US. Now,
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in the short term, that will probably stoke inflation. So Jerome Powell's
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like, listen, man, if you have tariffs being put in place,
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and we're getting all this new income, and it's creating price rises in
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products that are tariffed, we're going to see an uptick inflation. So
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while the tariffs are being swallowed by the economy, I'm not going
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to flip and drop rates, man. Just hold up your horses. Let's let the tariffs
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be digested by the economy. Let's see the impact on inflation there,
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the impact on people's pockets, and then let's assess the
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federal funds rate. But Trump's like, you know, no, let's get
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tariffs. Let's get the drop. Let's play. But he's like, let's make money,
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right? And so that you're having this kind of war going on between him and Pal
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and it's it's it's pretty gnarly But I commend Pal for staying staunch on
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this because we don't want to see the US dollar torched Okay, all
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the Bitcoin is in the comments be like, yeah, we do. We want to see
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it torched And everyone who owns gold they want to see it
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torched too. But by and large we don't really want to see the trade
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currency torched Okay, we don't want to see that again. You'll
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leave a comment below if you if you don't feel the same way So the question is,
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is the US dollar collapsing? It seems to be weakening against
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other currencies. And as long as Jerome Powell is
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holding rates at four and a half percent, I
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don't think we're going to see US dollar collapse. Much to the dismay and
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discomfort of the gold holders and the Bitcoin
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holders, right? Crypto holders. However, and I know there's a
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difference between Bitcoin and crypto. I get it. I know, I just put it in the comment. But
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hopefully, Cooler heads prevail. Hopefully
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Trump doesn't get his way to drop rates down to 1% or
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2% again and stoke inflation. Hopefully the tariffs
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don't cause too much inflation. But it really does rest
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on Jerome Powell saying, hey, let's just put out, let's just draw a line in the sand here.
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And I think what's promising is you're seeing housing start to fall
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and collapse in the United States. And this is a byproduct of what happens
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when you hold rates steady, which is why I feel in Australia we need to do it.
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4.5% is where they should be, because we'd start to see the falling
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of real estate prices. It's not a bad thing. It
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resets the real estate market, resets the economy, and
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they're able to do it in the States. Although in the
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United States, you have non-recourse loans and all these wonderful things you can
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rely on. In Australia, we have full recourse, meaning that will come after your last dollar
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to get that loan repaid. So I can understand the apprehension. So
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I don't feel like what we're seeing in the signal wise and with Jerome
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Powell and the rates and the housing market, that the dollar is
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collapsing. We're seeing some weakening, which is fairly normal as
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well because, you know, we're paying the
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US dollar is... succumbing to
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some inflation because of tariffs. So we're going to see it weaken. We're
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probably not going to see it strengthen, particularly if rates start to fall again in
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the United States in the future. And we'll probably see a bit of an equalization
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of other currencies against the states, where we're not going to
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see it dislodge as a reserve currency, primarily too, because it's backed
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by the world's most powerful military. People say,
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oh, the currency is not backed by anything. It's kind of backed by all the natural resources
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and all the land and all the military might the United
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States has. and its contract. So it is backed
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by something. And we're not going to see that dislodged. So
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straight up, we're not going to see it lose its reserve status. It
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doesn't look like that's happening at all on mass. If it did,
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the next currency in line to take over would be the Euro and
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maybe down the line, the digital RMB with China. I
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can't see any crypto or Bitcoin taking reserve status at all. It's
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just, it just wouldn't, it's so untested. It would be a huge risk
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for the world to do that. And I think
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we're going to see cooler heads prevail in the States and
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a steadying out of the value of the US dollar. And
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that's what I think is the outcome. So is the US dollar collapsing? I
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don't think so. It's just weakening. But I'd love to know your comments, good,
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bad, or indifferent, pop them below. What are your thoughts? Do
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you think the US dollar is collapsing? What do you think is going to happen with the
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federal fund rate over the next few months? Do you think that
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the US is going to pull out of this $37 trillion debt hole? If
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it is, how will it do it? And what happens if it doesn't? Everybody
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knows they're probably gonna print their way out of it, which will stoke inflation
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Which is why we need to keep the rates higher. And so keep an eye
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out for the US dollar, but of course hedge against currency
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inflation It would be crazy to keep your
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money under your mattress in US dollars for obvious reasons. That's
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why investing in assets, real estate, good
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quality businesses with pricing power, which includes some stocks, and
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of course, if you needed to, you could probably consider maybe
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gold. But again, not financial advice. It's just
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a lesson or a principle to say, hey, I'm not going to hold currencies. I'm
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gonna hold assets that are a hedge against inflation. All
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right, so I hope that makes sense and give you something to think about. Can't wait to talk
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to you in the comments and I'll see you in the next episode. Thanks for listening to Money Grows on Trees.
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