Is the US Dollar on the Verge of Collapse? 7 Vital Signs to Consider

There are seven critical indicators to monitor as the US government sinks deeper into a self-perpetuating debt spiral, which could possibly result in the collapse of the US dollar.

Indicator #1: Federal Budget Deficits

The following diagram illustrates the actual and projected federal budget deficits. It's crucial to highlight that these projections are based on an unrealistic assumption that there will be no wars, recessions, or other events that necessitate additional federal spending. Even with this optimistic forecast, the US government is expected to have a cumulative deficit of over $22 trillion over the next decade, which will need to be financed by issuing more debt.

Indicator #2: The Federal Debt

The federal debt has surpassed $35 trillion, which is over 123% of the Gross Domestic Product (GDP). However, GDP as a measure is flawed since it counts government spending as a positive. A more accurate measure would consider government spending as a significant negative as it exacerbates the debt spiral. In the US, government spending accounts for at least 37% of GDP. This implies that the debt relative to the productive economy supporting it is much higher than most people realize.

Indicator #3: The Federal Interest Expense

The annualized interest on the federal debt has exceeded $1 trillion for the first time this year and continues to rise. The interest cost on the federal debt is now the US government’s second-largest expenditure, surpassing even the defense budget. In the coming months, interest expense is set to exceed Social Security and become the largest federal expenditure.

Indicator #4: The Federal Funds Rate

In response to the 2008 financial crisis, the Federal Reserve (Fed) reduced interest rates to roughly 0% and maintained them at that level for years. Then, in late 2015, they initiated a rate-hiking cycle that lasted until the repo market turmoil in late 2019. After the Covid pandemic hit in early 2020, the Fed brought interest rates back down to around 0%. Inflation subsequently hit 40-year highs in 2022, pushing the Fed into another rate-hiking cycle, one of the steepest in history. In just 18 months, the Fed hiked rates from around 0% to over 5%. The Fed has now pivoted back to monetary easing and rate cuts without having defeated inflation. This is because the soaring interest expense threatens the solvency of the US government and forces the Fed to cut interest rates and keep them artificially low to try to control interest costs.

Indicator #5: Money Supply

The soaring interest expense compels the Fed to implement interest cost control policies, which inflate the money supply. These include buying Treasuries with money the Fed creates out of thin air and similar measures. Regardless of what the Fed calls it, the only way they can try to control interest costs is to inflate the money supply. Since 2020, the US money supply has skyrocketed by 37%, a significant change in such a short period. If your after-tax wealth has not increased by 37% since 2020, then you are not keeping up with the Fed’s monetary debasement. You are losing ground and on the road to serfdom.

Indicator #6: Consumer Price Index

The Consumer Price Index (CPI) is the most politically manipulated statistic in all of government. The CPI is a basket of prices trying to measure the average price changes for 340 million Americans. It’s an impossible task because every individual has a different price basket. Further, the government gets to cherry-pick what items go in the CPI basket and their weightings. In short, the CPI is misleading government propaganda intended to conceal the government’s atrocious currency debasement. However, it is useful to monitor the CPI, not as a meaningful metric to gauge inflation, but as a metric to analyze the Fed’s actions and gaslighting.

Indicator #7: The Gold Price

Gold has been mankind’s most enduring form of money for over 5,000 years due to its unique characteristics that make it best suited to store and exchange value. Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities. That makes gold an excellent store of value and gives the yellow metal its superior monetary properties. From a historical point of view, using fiat currency as money is a relatively new concept. As it fades, people will likely rediscover the world’s premier money: gold. This trend is already well underway. The price of gold, which is already hitting record highs, is expected to soar as this all plays out.

Bottom Line

While these indicators paint a concerning picture of the US economy, it's crucial to remember that they are just indicators, not definitive proof of an impending collapse. However, they do suggest that the US economy is on shaky ground and that proactive measures may be necessary to mitigate potential fallout. What are your thoughts on these indicators? Do you believe the US dollar is on the verge of collapse, or do you think these concerns are overblown? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.