Transcription
President Trump and his tariffs will accelerate dollarization. So that means that other countries will walk away from the US dollar and the dollar system. So it's not going to happen overnight, but it's already been happening, and this is just going to make it happen more quickly. So Trump's tariffs sparked a crisis of confidence in the US dollar.
And I want to explain to you what happened last week. So, as you know, President Trump's reciprocal tariffs sent the stock market plunging. So normally investors react by flocking towards US treasuries for safety, and the dollar strengthens, but this time that did not happen.
Now I want to show you this video clip of the co-founder of BlackRock saying that this is not normal. So please take a look. "Uh, what's very different here is normally when uh stocks go down uh as much as they have, there's a flight to quality, and quality becomes defined as US treasuries and the US dollar. Uh, in this particular uh downdraft in the market uh we're seeing treasury yields go up and the dollar weaken uh those that's kind of an alarming uh trend to me that's flashing yellow that something is going on here more than just deleveraging." Okay.
So now you have people asking the question, is the dollar no longer the reserve currency of the world? And my answer is that the dollar is still the reserve currency of the world. However, it is losing ground. So here's the dollar share as a global reserve currency since 2016. So, as you can see, it's been a steady decline. So here's a 25-year chart, and it's the same thing: a steady decline from 72% to now 58%. And the fear is that we're going to see an acceleration of this dollarization.
Okay, but I want to show you this so that you don't misunderstand the situation. You don't misunderstand what's going on here. So in second place is the euro. Okay, but look at the percentage change. In 2009, it had a 28% share of the global reserve. Now it's around 20%. So it's actually fallen. So it's not like the US dollar is being replaced by the euro. No. Nor is it being replaced by the Chinese RMB. No, that's not happening either.
So who is the dollar losing ground to? So the dollar has been losing ground to a little bit of multiple currencies. So all these currencies have slightly been gaining since 2016: The Japanese yen, the British pound, Canadian dollar, Australian dollar, Chinese RMB, Swiss Franc, and others. So this light blue line, that's a mixture of other currencies. So essentially what's happening is that the dollar is not being replaced by another currency. Rather, the dollar is being replaced by baskets of multiple currencies.
Now somebody needs to explain this to Treasury Secretary Steven Mnuchin because he's saying that we don't have to worry about the dollar being replaced by the Chinese RMB, but that is not the issue at hand. So please take a look at this video clip. And again, you, when I, when I hear all these stories that the dollar is no longer going to be the reserve currency, you know, if you end up with the Chinese who are willing to use their currency as a trade tool, that doesn't seem like a very good reserve asset to me. "Yeah, very good point. But the dollar has been plummeting. You know that. What's the impact of that?" "Yes. Uh, well, you know, again I want to reiterate the US has a strong dollar policy, and part of it is the the overall some of the bilateral the the dollar versus the euro, the dollar versus the yen."
Okay. Now it's very important that you understand this, and I'm going to tell you what you can do to protect yourself. I'm going to tell you what I'm doing personally to protect myself in this situation of dollarization. So you have to understand that having the dollar as the world's reserve currency comes with many benefits, and that includes lower borrowing costs for the US government. So what's happening is the world has trust in dollars and the US government. So countries are willing to lend money to the US governments at lower interest rates, which makes it cheaper for the US government to borrow money.
Now another benefit that we receive is what they call exorbitant privilege. So this term was coined by a French official and simply means that Americans get to consume more than we produce without a currency collapse. Again, this is another perk of being the world's reserve currency. And we also get increased financial influence. So being the reserve currency gives us some serious geopolitical leverage. For example, we can impose or threaten countries with economic sanctions. Okay, so we get some good perks for being the world's reserve currency.
However, countries have been losing faith in the US dollar. But why? Why is this happening? Why is there a loss of faith? I'll tell you, it's for many reasons, but here are some. So first of all, it's because of the fiscal irresponsibility. Basically, the government in conjunction with the Federal Reserve has been printing trillions of dollars to finance government overspending. I mean, we're still running a deficit of 7% of GDP. It needs to be at 3% to be reasonable. That's the second reason is the US debt crisis. So the US government is now at a critical point in an unsustainable debt crisis with worsening interest expense. And as if those weren't bad enough to make other countries walk away from the dollar, President Trump imposes tariffs, which is upsetting our allies. And consequently, countries are further encouraged to dollarize, and we will be losing our perks that many of us have taken for granted, which means higher borrowing costs and higher inflation.
So here's a recap of what happened when Trump initiated the reciprocal tariffs. It's not just the stock market that started crashing. The bond market did as well. So the bond market had its worst week in decades. And again, this is not normal. And when bonds go down in value, we're talking about US treasuries, the yields rise. In other words, interest rates go up. And we have not seen interest rates shoot up this quickly since 1982. But to clarify, we are not at the highest interest rates right now. The concern is how quickly interest rates are rising. Anyways, because interest rates on US treasuries are shooting up, it's been affecting everything. Mortgage interest rates have shot up. It's going to be more expensive for the US government to borrow money, and higher interest rates put a drag on the stock markets.
So the bond market selloff rattled the financial markets, and President Trump took notice because he understood the implications that his tariffs shook confidence in the US, which hurts the demand for US treasuries. So this was another reason for President Trump to pause the reciprocal tariffs for 90 days because if the bond market crashes or becomes dysfunctional, then it's going to be like 2008 all over again. But President Trump denies that this was the reason for the pause. Please take a look at this video clip. "The bond markets that um persuaded you to um reverse. I was watching the bond market. The bond market is very tricky. I was watching it. But if you look at it now it's uh it's beautiful. The bond market right now is beautiful. Uh but yeah I saw last night where people were getting a little queasy. I think everything had uh well the big move wasn't what I did today. The big move was what I did on Liberation Day."
And I also want to show you this video clip of Treasury Secretary Steven Mnuchin saying that the bond market crashing had nothing to do with their 90-day pause. Of course, it's up to you whether to believe him or not. So please take a look. "How much of this decision was driven by the bond market cratering overnight? What is happening with bonds is China selling their bonds? The I I have nothing that says that. And we actually had quite a good tenure auction today, and all this was again this was driven by the president's strategy. He and I had a long talk on Sunday, and this was his strategy all along, and that you know you might even say that he goated China into a bad position. They they responded. They have shown themselves to the world to be the bad actors." Okay.
But I'll tell you this to help you understand the situation, how this works. So if you're a different country and you want to trade with the US, then you need dollars, but you're not going to hold literal US dollars; you're going to hold US treasuries. But if there are tariffs, then you're going to do less trade with the US. And if you're going to trade less with the US, then you're going to need fewer dollars. And if you need fewer dollars, then you're going to sell your treasuries. And that's going to crash treasuries and cause interest rates to go up.
And for a high-level overview, I want to share with you this quote. So according to currency strategist George Cavallo from Deutsche Bank, he said that the market is reassessing the structural attractiveness of the dollar as the world's global reserve currency and is undergoing a process of rapid dollarization.
Okay, so me personally, what am I doing to protect myself from dollarization? And this is something that you can do as well. So I've said this for years, and it's very straightforward. This is nothing fancy. You must diversify with gold and silver. So you can have stocks like I do, but also just diversify with gold and silver. So personally, I like silver better than gold, but I own both. So you can buy gold or silver on the stock market or in its physical form. So personally, I prefer the physical. You can call me old school like that, but I understand that that's not practical for everyone. So it depends on your situation. On the stock market, gold is GLD; silver is SLV. So I'll write those down for you down below. So these precious metals, they're going to benefit as dollarization progresses. But if you're going to buy gold or silver, I recommend that you go in with a long-term mindset, please. I hope this information helps. Please subscribe. I'll keep you updated on this whole situation. Thank you for the support, and I wish you a very nice day. Take care.