Death of the Dollar is Becoming One of the Big Stories of the Year
The US dollar has suffered its worst run since the perilous Nixon dollar days that came about in 1973, which precipitated out of Nixon’s decision to end the backing of the dollar with gold in 1971. That ended the Bretton Woods international monetary system that formed right after WWII. There have rarely been worse years for the dollar than this one, but what is the dollar’s decline being credited to?
How are tariffs burning up the value the dollar?
The president’s stop-start tariff war, the US’s vast borrowing needs and worries about the independence of the Federal Reserve had undermined the appeal of the dollar as a safe haven for investors.
And how is the dollar traded as a safe haven by investors? The safe-haven trade is almost entirely by US Treasuries. Now, this, I pointed out yesterday, as I have pointed months ago to my paying subscribers, is THE KEY to understanding the most cataclysmic risk to the Trump Tariff Wars.
As I have also noted along the way, no one else that I’ve heard is talking about what tariffs will do to destroy the dollar. However, if you read here months ago as a paying subscriber, you knew the likelihood of the worst possibilities to come. If you read here as a free subscriber now, I’m giving you this major key now that word is coming in. I shouldn’t but, but I’m like that. I write more because I want people to understand what is happening to them than I do for the money (but, I’ll tell you, the money would be nice should you decide to reward my efforts to play it straight all the way, whether it helps me or hurts me ; ) I’m mission driven
Why is this likely the worst thing that could happen? The dollar is crashing like it hasn’t since Nixon removed it entirely from the gold standard because Treasuries are no longer the world’s most appealing safe-haven investments (outside of metals). The logic behind my prediction was so simple and basic, I’m surprised I still hear no one warning about it; but you are getting the warning if you read here, and I hope you’ll share it with others.
The simplicity of it, to repeat it in case you didn’t see those articles or in case you share this one, is that, if foreign trade is shrinking because of sudden massive tariffs all over the world (and the shrinking trade is the normal purpose of tariffs), then why on earth do you need a trade currency? If you don’t need a global trade currency, why do you need US dollars? So, fewer Treasuries are traded, meaning the dollar drops in international value.
That has two natural outfalls: one is that interest rises on the US debt as the demand for US debt (Treasuries) falls. The other is that the crashing dollar makes all imports higher in price in the US, and that comes on top of whatever price increases we see directly from tariffs. In short, if the international value of the dollar drops (which does not happen as a factor of US inflation but as a factor of of supply of dollars internationally and demand for those dollars—mostly in Treasuries), then businesses have to fork over more of those dollars when buying goods or services from foreign suppliers because of the exchange rate. That, in turn, however, has an amplifying affect on US price inflation because wholesalers and retailers are pressured to make up those higher dollar prices on their purchases. So, the damage to the dollar exchange rate adds to the price pressures that the tariffs directly add to the cost of goods sold.
It is the debt bomb or death spiral that I am most concerned about.
US inflation could become quite hot, but, if US debt interest rises quickly due to declining demand for dollars, all other interest rises more quickly; and the only way the Fed can try to fix that is to print massive amounts of money into the already scorching inflation. Yikes! Bad all the way around—higher interest for everyone on everything, slower economic growth because of the higher bond-market-driven interest rates, and force-Fed money printing right into the existing flames of all of that inflation plus the tariff inflation.
The alternative to the typical Fed money printing is that the recession becomes so deep we someday call it a depression. If the Fed finally resists the path of trying to print our way out of every problem, which would be the right decision for it to make, but not one it ever seems inclined to make, then we have to go through a very deep recession because the federal government will be pressed to raise taxes to pay for its debt and hugely cut Big Beautiful Blob or default; either of which would turn the present yawning recession into The Second Great Depression when those massive budget cuts and tax increases (or default) happen inside of an existing recession during a time of stagflation (as I’ve always said this would be), made worse by retaliatory tariffs damaging US export trade. There is a major bad chain reaction that can happen there. Trump, of course, has been trying strenuously to get the Fed to shove coal into the flames of inflation ever since he became president again.
So, this is the big risk you need to think about if you are to understand the major forces that are likely coming down on us. There was, of course, always a chance, though it would make no sense to me, that the tariffs wouldn’t cause that damage; but today’s article about the worst decline of King Dollar under King Trump clearly says it IS happening.
Now, do you think Big Beautiful Blob, piling even more mountains of debt rapidly on top of that is going to help the equation? I don’t. And, if you understand those forces, you understand why I have been so tough on Trump for his hugely misguided and mistimed tariff policies and on all Republicans for becoming such traitors to their claim for decades of the being the spending hawks in budgeting.
What a laugh! Of course, I’ve always argued their presence at being budget hawks was a total façade in this uni-party system because the only difference between Dem’s and Repubs when it has come to deficit spending has been what they are willing to spend the new debt on each year. True to form, they are now tripping all over themselves in a rush to spend more debt than ever on the biggest military buildup we’ve seen since, at least, Nixon’s Vietnam adventure, if not since WWII (adjusted for inflation). What idiots!
Also, highlighted in the following headlines today is another good article that also back to the Nixon days on why this stagflation is not going to feel like the 70s, but is going to be its own kind of slow slog through the swamps of dollar death. Remember, too, I am the guy who was never wringing my hands about the dollar’s collapse UNTIL the new Trump Tariff Wars. That’s when I said the mechanics for the dollar’s destruction clearly came into existence. The dollar would not die due to CBDCs, though its eventual attempt at salvation may come through a CBDC, or die due to the BRICS nations undermining it. However, it can certainly die due to massive global US tariffs killing any need of it as a global trade currency!
So far, we’ve seen the US trade deficit with other nation widen as US imports remained flat, but exports got crushed. Likely, imports were spared due to front-running of US import tariffs, while other nations have exacted retaliatory tariffs on our exports that have not seen much front-running in other nations because the rest of the world is not as stupid as we are: they are not launching tariff wars with the entire world at once; so … they have many products they can import from all over the world that are not impacted by their retaliatory tariffs on the US. We, on the other hand, have inflicted ourselves with major tariffs on just about everything we import. That makes us the biggest losers.
Anyway, I recommend reading the highlighted article on stagflation to get a good sense of what the last major experience with stagflation was like and how this time might be different. I’ll note, though, that the article states a major difference is that last time we had an embargo on oil created by OPEC. This time we are the world’s biggest oil producers, so we don’t have an embargo. That, however, will not be the balm for our pains the article may think it is because this time we have an embargo on everything else, which we created for ourselves! Even Treasury Secretary Scott Bessent chose to use the world “embargo” when describing the highest tariffs the US exacted on China, explaining they effectively ended all trade with China. Now, we’ve dropped those rates, but they are still high enough that we can say we have a partial embargo. In fact, they may be high enough that they still turn out to be, effectively, an embargo on trade with China—our major trading partner for something like 60% of everything we buy.
Wolf Richter also has an article in the headlines below (boldface) about the new slow rise in inflation and how there is no evidence of tariff inflation in that. I would tend to agree with him, but will add the caveat, which my predicted inflation has always had, which is that tariff inflation will not start to show up until tariffed products hit the shelves in the early summer, and that will not show up much in statistics until July get reported in August. You’ll see it on the shelves before you read about.
Now, I’ll close with this comical note from the Financial Times article quoted above about the dollar’s decline:
The currency’s slide has confounded widespread predictions at the start of the year that Trump’s trade war would do greater damage to economies outside the US while fuelling American inflation, strengthening the currency against its rivals.
It didn’t confound predictions here. It only confounded them everywhere else because no one saw the obvious key relationship between global trade and the global trade currency, which is exchanged via Treasuries. If you read here, you saw only predictions that the tariffs would weaken the US dollar against its currency rivals because no one wants it when there isn’t much trade to exchange for.
Economists in all their fancy metrics often miss common sense.
The following video may be too religious for some of my readers who are just here for economics, but the pathway this near-death experience reveals regarding how the oppressive global system that will eventually replace the dollar comes about is probably similar to what many of you have been sensing is coming. It is certainly similar to the dangers and the addictive path of dependency I’ve written about from the trends and stories documented here over the years. I won’t vouch for it being revealed by Jesus, but you might find it interesting: (Nor will I say it didn’t come from Jesus. Either way, the stepping stones to acceptance of this kind of “Deep Domination,” as I’ve been calling it, are what I, too, see as the likely pathway, albeit without any claims of divine revelation on my part.)