the

Will the US Dollar Collapse?

welcome back friends to another weekly

video we are in the middle of the corona

virus pandemic and the US has been

issuing massive stimulus bills

now these stimulus bills are huge in

March the u.s. passed the cares act with

2.2 trillion dollars in stimulus just

last week Congress passed a new stimulus

bill for four hundred and eighty four

billion dollars in stimulus and there's

discussions of another stimulus bill in

the works the United States does not

have excess money coming into the budget

so the question is whenever there's

these big stimulus bills who's paying

for them what happens is the Federal

Reserve prints more money to send more

US dollars into the economy to generate

more growth now whenever the Federal

Reserve prints more money there's a

general concern about inflation and

there's a lot of people out there with

concerns over the stability of the US

dollar I've been noticing a bunch of

videos go on YouTube lately about people

raising these issues so I wanted to make

this video and explain how currency

markets really work now I'm going to be

giving you a lot of information very

fast so just sit back relax and we're

going to talk about the US dollar

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the most important thing in any

discussion about currencies is that the

real issue is about pricing this is a

practical day-to-day problem everyone

faces in the real world when you go to

the store and you buy a loaf of bread

you want that price to be fairly

consistent so imagine you go to buy a

loaf of bread let's say it is about two

dollars and fifty cents you're going to

pay for that bread with some currency if

that currency is unstable the price of

the bread is going to fluctuate wildly

so suddenly that loaf of bread might be

four dollars one day or one dollar the

next day that is why it is so important

to have stable currency markets without

it your simple day-to-day activities

become almost impossible many of you

will know the history of the Federal

Reserve the goal of the Federal Reserve

is to manage inflation of the currency

and maintain stable prices the u.s. used

to be on what's called the gold standard

meaning the US dollar was tied to the

price of gold gold is a commodity which

fluctuates wildly so your currency then

fluctuates wildly and the price of bread

fluctuates wildly the u.s. abandoned the

gold standard in 1971 which makes the US

dollar a fiat currency this means it is

not backed by anything other than the US

government this allows the Federal

Reserve to manage inflation of the

currency without having to worry about

fluctuations in the price of gold the

result of all of this is that you can

then go to the store and buy a loaf of

bread with some confidence that the

prices are going to be fairly stable

somewhere around two dollars and 50

cents I cannot emphasize enough how

important it is to manage inflation you

can look at many examples throughout

history that when currencies become

unstable revolutions happen people

become very upset when their money

suddenly becomes worthless governments

are overthrown things become violent and

the most famous of these examples

is the massive inflation that Germany

experienced right before World War two

they had massive inflation and this was

one of the main drivers that enabled the

Nazi Party to come to power the Federal

Reserve in the United States knows this

and you can see this in the importance

they have placed in policy decisions on

managing inflation the most important

thing is maintaining the stability of

the currency the proof of this is that

the US dollar is what is called the

reserve currency of the world this means

there are institutions around the world

that have money in their savings account

a lot of this money around the world is

kept in US dollars as the reserve

currency this is done because the US

dollar is known as a stable currency

it's not going to fluctuate wildly in

value now the currency market is the

largest financial market in the world it

is much bigger than the stock market

so let's take a look at a chart this is

from the Bank for International

Settlements and this shows the volume of

trades as a percentage and you can see

that the US dollar makes up 88% of the

currency trades the US dollar is by far

the most used currency in the world this

also shows what are considered the top

four most attractive currencies the US

dollar the Euro the Japanese yen and the

British Pound Sterling so if you're

going to hold money in your savings

account you are generally going to hold

one of those four currencies because

they are generally accepted as the most

stable we also see on this chart the

Australian dollar the Canadian dollar

the Swiss franc and the Chinese renminbi

an important feature when you discuss

currencies is that strategically they

are a zero-sum game there is always a

winner and a loser because you're always

transferring from one currency to

another we're talking about your savings

account so it needs to exist in some

form of currency if you wanted to get

out of US dollars you would convert them

to euros or you would convert euros to

pound sterling or some other currency so

the question

we are looking at is whether the u.s.

stimulus bills will make the US dollar

unattractive so on a practical level

what's going to happen here if it's

unattractive you're going to take your

US Dollars and convert them into some

other form of currency probably one of

the other three of the top four major

currencies so let's go down the list and

talk about each of the other three main

currencies the euro is a fairly young

currency the euro started in 1999 so it

has only been around about 20 years the

point of the euro is that by combining

all of Europe you would have an economy

that could rival the United States but

unfortunately the Euro has had a lot of

currency issues over the last twenty

years we have seen that it is difficult

to coordinate monetary policy across

different countries that have their own

governments their own government debt

and her own social policies in

comparison with the u.s. the US dollar

is more attractive the Japanese yen is

generally considered as a way to get

exposure to Asian markets but obviously

Japan is just a small part of Asia so

this has its limitations also Japan

historically has made some controversial

monetary policy decisions which impacts

the currencies attractiveness in

comparison with the u.s. the u.s. dollar

is more attractive the British Pound is

usually attractive because out of the

four major currencies it has

historically been the most conservative

in terms of monetary policy

however the United Kingdom is dealing

with the brexit craziness which casts a

shadow over their currency in comparison

with United States the u.s. dollar is

more attractive looking next at the

smaller currencies they are generally

not as attractive as the top four major

currencies and on a practical level

there just is not enough volume so there

are so many US dollars around the world

you could not practically convert them

all into these smaller currencies so if

you wanted to get rid of your US dollars

you would have to convert them into one

of these other currencies so now that

we've talked about them let me ask you

the question which one of these other

currencies are you going to transfer

your US dollars into there aren't really

that many great options which is why so

many people around the world are holding

US dollars with that background how

could a currency crisis happen with the

US dollar now there have been currency

crises in the past in history and so we

know a little bit about how they work

currency is about confidence so there

would be a lack of confidence in the

u.s. ability to back their currency we

would see a massive flight from the US

dollar into other currencies probably

the pound the yen or the Euro there

would be massive inflation in the US and

people would want to use other countries

currencies to make transactions because

they would be more stable so that brings

us to our current situation with the

coronavirus the unique thing in this

crisis is that it is global every

country around the world is dealing with

the same problem so there is no

incentive to move your currency from the

u.s. to England Europe or anywhere else

they are just as bad as us so from a

currency standpoint they're even less

attractive so in a crisis that affects

the entire globe people actually want

more US dollars so all of this u.s.

stimulus is actually being paid for by

demand for u.s. dollars around the world

people want US dollars people want to

buy US debt because in comparison to

other countries it is considered the

most stable it is supply and demand the

Federal Reserve is printing more money

to supply the global demand for more US

dollars this is the

benefit of being the reserve currency of

the world the world's demand for your

currency pays for your country's

stimulus bill so what is the proof of

all this well we see it in financial

markets if there was a loss of demand

for the US dollar we would see it in the

currency markets we would see it in

interest rates and we don't see that we

see more demand for the US dollar even

if there was a drop in demand we would

see it and then the u.s. would just

change their policies to strengthen the

US dollar and that is the whole point of

the Federal Reserve the Federal Reserve

is a bunch of really smart people who

just sit there and watch financial

markets and they increase the supply of

dollars or decrease the supply of

dollars to maintain this stable currency

that is why the US dollar is the reserve

currency of the world now I'm not saying

that the US dollar could never suffer a

currency crisis of course currencies can

collapse but the current coronavirus

pandemic is not one of the scenarios

that leads to currency collapse because

everyone is suffering the same fate

around the world the scenario you have

to worry about is let's say the United

States was suffering from the corona

virus and there was no corona virus in

Europe that would create a huge economic

disparity and you would start to see

currencies move around the currency

markets but that's not the that's not

the case today because everyone is in

the same boat everybody is suffering and

so there is no incentive to move your

currencies around so what about gold and

silver a lot of people think about gold

and silver as protection against

currency collapse or protection against

inflation this is based on a

hypothetical scenario that I find very

unlikely this is assuming that there is

no other currency in the world that you

could move your money into because even

if the dollar collapsed you could just

using euros so why do you need gold and

silver so this scenario with gold and

silver really assumes that every single

central bank and currency in the world

collapses at the exact same time there

would be no currency available to use so

people would fall back on gold and

silver I find this idea of very unlikely

because realistically there would be

some currency or some government in the

world that would be able to stabilize

their currency or some new currency

would just take its place I really find

it very unlikely that people would start

walking into the grocery store and

buying their loaf of bread with a bar of

gold the other problem is that gold and

silver are completely different asset

classes from currency with different

risk profiles gold and silver are

commodities which fluctuate wildly

because the price is driven by supply

and demand when there is high demand for

gold the prices shoot up when the demand

goes down the prices shoot down so you

have to be careful with using a

commodity to hedge against a currency

that is designed by its very nature not

to fluctuate wildly it is a completely

different risk profile so that's not

really the most effective way to hedge

what about crypto currencies this is a

question that's asked a lot now I am NOT

a fan of crypto currencies if you

watched my channel I have made a video

about the problems with Bitcoin that you

can watch if you're interested in

hearing about that but the essential

issue is that currencies are backed by a

government whereas Bitcoin is not backed

by a government with currencies there's

a physical location somewhere in the

world where people own property people

own businesses and are making

transactions in that currency with

Bitcoin there is no physical location so

there's no place you can go to

physically spend your money so if I'm

holding a bunch of British pounds I know

I can jump on an airplane fly to England

and actually spend my money there to buy

food to buy clothes to buy a house to

whatever if you take all your money and

you put it into bitcoins someone on the

other end can pull all of their bitcoins

out and convert them into US dollars

meanwhile the Bitcoin market collapses

and you're left holding a bag full of

worthless bitcoins and there is nowhere

in the world you can go spend that money

ultimately the strength of a currency is

about the people that currency

represents the real reason the US dollar

is the most attractive currency in the

world is because Americans work hard we

work the longest hours we have the

shortest vacation we make a lot of money

and we spend that money in US dollars so

the reason why there is so much

confidence in the u.s. dollar is that

even if the US economy is bad and even

if US debt is growing there is

confidence that the American citizen

will be able to work their way out of it

thank you so much for watching I hope

this discussion about currency was

helpful to you i'm zack from wolves and

Finance let's go out and make some money

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