Why The US Dollar Is Doomed (Triffin Dilemma)

In this video, I discuss why the US dollar (as a world reserve currency) was doomed from the start by the Triffin dilemma.

Bretton Woods and the US printing more US dollars than it had gold to back it virtually ensured huge outflows of gold from the US, and the eventual abandonment of the gold standard by Nixon in 1971.

Since then, the US has mostly run huge trade deficits and current account deficits in an effort to "spray" its dollars around the world. In order to run trade deficits, the US government must encourage its citizens to spend a lot, save very little, borrow a lot, and otherwise live lives of empty consumerism.

Unfortunately, running a persistent trade deficit ensures that most manufacturing jobs will be lost overseas, thus disproportionately hurting the working and middle classes. This ultimately leads to increased populism and even socialism in politics. Having all of your supply chains overseas also poses national security risks, as we have seen during the COVID crisis.

Encouraging a low savings rate makes a society more fragile and dependent on government largesse during times of crisis.

Having the reserve currency allows the US to print money for oil, other commodities, and warships, which it then uses to ensure that world trade is conducted in dollars through military pressure, and possibly military force. Anyone who questions this system (like Saddam Hussein) is eventually eliminated. The country with the world reserve currency will have to fight a lot more wars than it normally would.

A world reserve currency contains the seeds of its own destruction. By running persistent current account deficits, the country eventually ends up selling larges swathes of its economy to foreign investors (leading to a large negative net international investment position-- NIIP), as well as running up an unsustainable debt load that must be subsequently sterilized by the central bank through money printing and quantitative easing. This results in the weakening of the currency and the move towards the setting up a new world reserve currency.

As the US dollars continues to weaken, these assets should do well: gold, Bitcoin, scarce real estate, and to a lesser degree stocks. Bonds and cash will be the worst places to be.

Not investment advice! Consult a financial adviser.

Britain left bankrupt after World War II:
https://en.wikipedia.org/wiki/British_Empire#Decolonisation_and_decline_(1945%E2%80%931997)

The Bretton Woods system:
https://en.wikipedia.org/wiki/Bretton_Woods_system#Previous_regimes

Charles de Gaulle sends the French Navy to pick up his gold:
https://en.wikipedia.org/wiki/Exorbitant_privilege#Opposition_in_France

Nixon ends the convertibility of US dollars into gold:
https://en.wikipedia.org/wiki/Nixon_shock

Saddam Hussein gets himself in trouble selling his oil for Euros:
https://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/#:~:text=CNN.com%20%2D%20U.N.%20to%20let,not%20dollars%20%2D%20October%2030%2C%202000

https://www.theguardian.com/business/2003/feb/16/iraq.theeuro

Watch this video as a fun and easy way to learn about trade deficits and current account deficits:
https://www.youtube.com/watch?v=eAeiIVp-Tjg

The Triffin Dilemma:
https://en.wikipedia.org/wiki/Triffin_dilemma

Matthew Kratter is the author of the Amazon best-seller "A Beginner's Guide to the Stock Market":
https://www.amazon.com/Beginners-Guide-Stock-Market-Everything-ebook/dp/B07S31TBF5

If you like my teaching style and would like to learn more about investing and trading stocks, options, and futures, be sure to check out my online courses here:
https://www.trader.university/join

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