Time in the Market
               Not Timing the Market

A GOLD-BACKED CURRENCY: A POTENTIAL SOLUTION TO THE CURRENCY WAR

I’m so surprised that some people are STILL SURPRISED to hear we face a biblical imminent global recession. While mainstream media is doing what it can to conceal the real monster coming, it’s clear the diluted numbers can’t hide the fact that ‘The Financial Gruffalo’ is set to walk through the deep dark woods.

In recent weeks, the U.S. has experienced a credit crunch that is notably more severe than those of past recessions, and while it’s not been reported as vocally as it should have done, some more switched-on individuals are beginning to witness events reminiscent of the 2008 crisis, and this has understandably caused growing concern in the markets. Banks collapsing like a pack of cards should be a sign, no?

Unfortunately, the global economy is already grappling with inflation rates similar to those of the 1970s, leading to the potential collapse of economies, particularly in the U.S.

The U.S. holds significantly more debt than in 2008 and exponentially more than in the 1970s. Consequently, there is mounting apprehension that a hybrid crisis resembling the 1970s may emerge before the upcoming elections. This could create an opportune moment for political figures like Donald Trump to come in and save the day, ‘Bruce Willis’ Style.

Predicting the exact response of the market has turned everyone and their mother into Nostradamus, but one thing is sure is that we can anticipate volatility. While some may find excitement in fluctuating markets ( I know I’m enjoying myself ), most prefer stability and peace of mind. Investments in assets like gold, real estate, or defensive stocks ( one of my steady assets ) can offer lower volatility than alternatives.

But as a ‘Bitcoin Bull,’ this presents a unique blend of risk and inflation hedging, making it an exciting consideration. However, nearly all investment options carry some risk due to the constant flow of capital. Maintaining a diversified portfolio is crucial for mitigating risk and navigating these uncertain times.

The amazing policymakers that dawn the corridors of power in the U.S. are again exercising their continued and world-famous established strategy of injecting billions, or even trillions, of dollars to counteract any emerging crisis.

It’s like applying a plaster to a deep wound requiring medical attention. At first, the application is doing its job, concealing the damage and stopping the bleeding. However, as time goes by, the underlying injury remains untreated and continues to fester. Eventually, the plaster( Money Printing ) will become ineffective, and the wound( Economy ) will require more drastic measures, such as stitches or surgery ( A Global Distraction ).

Look what’s happening to the First Republic Bank as an example; this only remains afloat due to its access to substantial funds generated by the Federal Reserve. The creation of this currency, however, raises legitimate concerns about its authenticity and legitimacy.

While the above Netflix saga continues, investors are looking for a ‘flight to safety’ in the U.S. which is seeing an increase in money market funds,  which inadvertently has a deflationary effect. As funds are withdrawn from banks and transferred to non-fractionally reserved money markets, each dollar removed from a bank ultimately extracts an additional three dollars over time. Although deflation is a topic of debate, any occurrence could prompt the Fed to increase money printing, potentially leading to a temporary surge in inflation, a movie we’ve all seen many times.

The Fed’s efforts to flood the market with MORE money might provide temporary relief for the financial system, but these actions can also produce unintended consequences. Inflation, currency devaluation, and income inequality may be side effects of these monetary policies.

Investors, therefore, must carefully consider the risks and rewards associated with different assets and adopt a long-term investment perspective to navigate these uncertain times successfully. As Warren Buffett said: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

Bertrand Russel once said, ‘War does not determine who is right – only who is left.’ and with the ongoing currency war has seen the U.S. dollar steadily lose its share over the past 80 years, ever since the establishment of the Bretton Woods system.

This decline has accelerated significantly in the last year and a half, with the U.S. dollar’s price-adjusted reserve assets dropping by 8%, from 55% to 47%. This erosion can be attributed to the impact of sanctions.

The sanctions imposed on Russia involved confiscating approximately $300 billion in sovereign dollars held by the Russian Central Bank. This unprecedented action effectively wiped out the reserve assets that supported the Russian economy, a tactic that was not even employed even during the height of the Cold War.

Historically, the U.S. had always allowed the Soviet Union, China, Venezuela, and other countries to use the dollar without interference. But The weaponization of the U.S. currency through sanctions has raised the alarm among nations worldwide. Then they’re surprised by the uprising of the BRICS NATIONS.

Presently, 19 countries have formally expressed interest in joining BRICS, with numerous others seeking to distance themselves from U.S. influence. China has been courting these nations with substantial financial incentives, while the U.S. offers little more than admonition.

BRICS currently represents approximately 40% of the global GDP and most of the world’s population. As more countries align with this organization, an increasing trade volume is being conducted without using the U.S. dollar.

In summary, the currency war has led to a gradual decline in the U.S. dollar’s share over the past 80 years, which has recently accelerated due to the imposition of sanctions. As more countries join BRICS and engage in trade beyond the reach of the U.S. dollar, its influence continues to wane.

It is worth noting that after being the dominant currency for nearly eight decades, relinquishing the world’s reserve currency title will take much work for the United States. Well, not without a fight, anyway. But let’s also avoid jumping to conclusions that the YUAN will take over.

In terms of a potential successor to the U.S. dollar, it is improbable that a currency backed solely by a single nation’s central bank would gain the global community’s trust. Should the BRICS nations create a new currency, a more reliable foundation would need to support it. Backing the currency with gold could be a game-changing strategy on the global stage. A gold-backed currency would not be susceptible to political manipulation or weaponization and would likely maintain its value more effectively than a currency supported by a single central bank. However, establishing trust in this new currency would take time and need to be tested extensively before achieving widespread adoption.

If allowed to advise former President Trump, I suggest that rather than relinquishing the U.S. dollar’s status as the world’s reserve currency, he should prioritize regulating cryptocurrency within the U.S. borders and concentrating on the MAGAAT (Make America Great Again at Tech) initiative.

The United States is facing significant challenges in the technology sector, with potentially severe consequences for the nation. For years, the U.S. has relied on its legacy of free-market principles, built-in cluster effects, and relatively open immigration policies to attract top talent worldwide. However, this system shows signs of strain, particularly in regulatory approaches to emerging technologies like cryptocurrency.

Unlike the early days of the internet, when regulators largely adopted a “move fast and break things” mindset, the U.S. government has taken a more heavy-handed approach to cryptocurrency regulation. Instead of fostering innovation, regulators are misinterpreting laws and using the SEC to target those involved in the cryptocurrency space. This approach could drive crypto and other decentralizing technologies out of the country, along with the entrepreneurs who champion them.

Competing nations such as Abu Dhabi, Hong Kong, and even Europe have adopted more intelligent regulatory frameworks, attracting industries that might otherwise have remained in the U.S. China, in particular, has positioned itself as a rival in the technology sector, leveraging Hong Kong to develop its thriving tech ecosystem.

Artificial intelligence (A.I.) represents another area where the U.S. risks falling behind. The development and control of A.I. will likely be determined by either Silicon Valley or its Chinese equivalent, with both options ultimately under their respective governments’ influence. As the U.S. struggles with innovation and regulatory approaches, it risks ceding dominance in this critical field to China.

The consequences of the U.S.’s current approach to technology regulation, particularly in cryptocurrency, may be felt for years. If the nation does not adapt its policies to nurture innovation and protect its technological edge, it may regret these decisions in the future.

The global recession, currency war, and U.S. technology struggles challenge investors and policymakers. Long-term thinking and a commitment to innovation and regulation are crucial. Remember the lessons of the Financial Gruffalo and maintain a diversified portfolio. The Gruffalo himself may emerge to offer sage advice.

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