While I would have preferred a gold or platinum coin with Harriet Tubman I think putting Harriet Tubman on the $20 is a fine idea and should be done without delay.
The $20 bill would have honored Ms. Tubman and reminded everyone how far the United States has progressed–going from having slave owners such as Thomas Jefferson and George Washington on money to emancipated slaves like Harriet Tubman on money.
Harriet Tubman was a woman who didn’t wait for emancipation, she escaped from slavery and risked her life and her liberty to help others to escape as well.
However, I view the whole Harriet Tubman $20 bill outrage as just virtue signaling and/or political posturing. Maybe Donald Trump is a racist even though no one accused him of being racist prior to his run for president.
Trump with Jesse Jackson
Frankly I think Trump is stupid for NOT putting Harriet Tubman on the $20. It’s not worth the optics of not doing it. But given my views of the United States dollar, I think that Harriet Tubman would be better honored via other methods.
Harriet Tubman deserves better than the $20 bill
Why is Jackson on the $20 Anyway?
I strongly suspect Andrew Jackson would have been horrified if he knew he was on a Federal Reserve Note.
I’m not a huge Andrew Jackson fan, but he was very much opposed to a central bank (a topic on which we agree), so it is ironic he was ever “honored” by being put on a Federal Reserve Note in the first place.
President Andrew Jackson on a tirade against central bankers
President Andrew Jackson actually shut down the United States Bank that was a predecessor to the Federal Reserve Bank the US is stuck with now.
Were the central bankers getting back at Jackson by plastering his visage on the $20? I don’t know but it is ironic either way.
Here is Trump with Dr. Ben Carson, M.D., a neurosurgeon, aka brain surgeon. If Trump were racist I think Dr. Carson would know it.
A Better Way to Honor Harriet Tubman
I propose a 1 ounce solid gold coin to honor Harriet Tubman
As previously noted, Harriet Tubman was a woman who risked her life, and risked being forced back into slavery to save others.
You don’t put this kind of tough woman on a piece of paper. I think an even better approach would be to issue a gold coin in her honor.
I wanted to flesh out the idea that my Caribbean Cruise was a microcosm of the global economy.
Basically Americans spend US dollars to consume goods and services while the rest of the world works to provide those goods and services in exchange for dollars.
One problem with this arrangement, at least for the people of the world who aren’t US citizens, is that the US dollar is no longer backed by a solvent and productive economy.
Another problem is that a lot of the loans American use to acquire dollars are provided by the very countries who also provide the goods and services.
In other words what are these countries getting in exchange for providing goods and services? IOUs.
These IOUs are promises to pay from a group of people and a country that has more debt that any country or people in the history of finance.
In the movie Dumb and Dumber, main characters Harry and Lloyd spend hundreds of thousands of other people’s money. But hey, they kept IOUs so they could pay them back! (both were unemployed)
This has been happening for a while, but people still have faith in the dollar and the other fiat currencies around the world are being devalued by their respective government even faster than the dollar.
So dollars are the cleanest dirty shirt.
But will this continue forever? Will Americans be able to continue to borrow at low rates and live beyond their means while the rest of the world foots the bill?
I doubt it.
The World Reserve Currency
The US dollar is the world reserve currency which means that many things that are traded on the global market are priced and bought and sold with US dollars.
It also means I was able to buy a Hawaiian shirt in Honduras, go snorkeling in Belize and buy drinks in Mexico at a low cost using US dollars.
Using China as an Example
Why do countries put up with this lopsided arrangement?
It has everything to do with history and perception. I touch on this some in another article downfall of the US dollar. But the short version is that the US was the most powerful and dominant country after World War II and the currency reflected this strength.
The result was that critical goods like oil were priced in dollars.
Countries like China therefore need dollars in order to buy oil.
Meanwhile the American consumer wants goods and services.
So in order to get dollars China produces goods and services that are then sold to Americans for dollars.
Back when the majority of Americans had a lot of savings and the dollar had more value this worked fine.
But the US began producing less while simultaneously consuming more resulting in trade deficits.
In 2015 the US imported $497.8 billion in goods and services from China and exported $161.6 billion to China. Thus the U.S. goods and services trade deficit with China was $336.2 billion.
You can’t consume more than you produce (which is what a trade deficit is) without losing money and as time passed the US consumer found his savings depleted.
But China has an large portion of it’s economy built around American consumption and the world associated dollars with strength and prosperity.
So China loans money to the American consumer to pay for the American to buy the things China produces.
This works for the time being because the US is the most powerful economy in the world and the dollar is the world reserve currency.
So of course the American will pay back the Chinese producer! Or so the thought goes.
It’s the ultimate vendor financing: China provides the goods and services as well as the loans to pay for the goods and services.
Meanwhile the US government has also taken on monstrous amounts of debt and has devalued the dollar.
So the IOUs the Chinese producer already has are worth less and less each year.
How long before the Chinese producer begins to seriously doubt if the US consumer will ever pay back the IOUs?
Once this doubt takes how long before the Chinese producer stops providing the loans to buy the goods and services?
When this happens prices will have to rise and it will be harder for Americans to buy goods and services.
This process is explained in more detail in an excellent book that I recommend. The book is written by Peter Schiff and is called “How an Economy Grows and Why It Crashes“.
Two beers, four mixed drinks and chips and salsa for under 20 USD. Compliments of El Cial La Ceiba in Cozumel, Mexico. It wasn’t just the two of us imbibing though!
This is basically what I was witnessing on my Caribbean Cruise.
I was able to spend my higher valued US dollars for goods and services provided by peoples outside the US who wanted dollars.
It is a great benefit that Americans have had for some time but will it continue forever?
I don’t think it will.
I think there are lots of opportunities to position oneself to avoid getting destroyed as the dollar continues to lose value.
I recently got back from a Caribbean cruise I took with my family. It was a wonderful time of relaxation, adventure and reconnecting.
But since I’m often thinking about economics and finance it was also a proxy for the global economy.
The first stop of the cruise was Roatan, an Island in Honduras. We drove from the port (pictured below) to the other side of the Island to go snorkeling.
Roatán Island, Honduras
Driving around the Island I saw mostly what I would have described as lower income areas if I’d been back in the United States.
I’ve certainly seen worse neighborhoods in the US.
I still got LTE mobile phone coverage with data (made a few stock trades), we drove by pharmacies, gas stations, supermarkets, a bank with rifle toting guards outside and a modern looking power plant.
One of the houses we drove by had some chickens in the front yard which at first seemed quite rustic until I remember I’ve seen that same thing an hour south of Columbus, Ohio.
The people I encountered were very friendly. I didn’t know what to expect but it was fascinating to spend time in another country.
Spending US Dollars outside the United States
My sister and I at Roatan. The Hawaiian shirt shows my commitment to leisure.
We returned to the port after snorkeling and I walked around the shops near the ship.
I bought a Hawaiian shirt for 22 US dollars (USD) as well as a small hand carved mahogany box that cost 45 USD.
The next day the ship stopped off the coast Belize and we took a tender into the City of Belize.
From there we went on a semi-guided snorkeling tour in which we got to swim with stingrays and nurse sharks.
It was incredible.
Afterwards we stopped at an Island called Caye Caulker for lunch. I could get a burger and fries for about 10 USD (Hey! Lobster wasn’t in season!).
It was on the Island of Caye Caulker that I first saw a Belize dollar. We paid for lunch in cash and the waitress gave us change in a mix of Belize dollars and USD. All the other transactions both on Roatan in Honduras and Belize up to that point were solely in USD.
This restaurant on Caye Caulker, Belize accepted dollars
It was the same in Cozumel, Mexico. The vendors priced items in dollars. One hotel we stopped at had drinks priced in pesos, but they accepted dollars without question.
US Dollars as the World Reserve Currency
Even on the relatively remote Isle of Caye Caulker the vendors on the street took US dollars as if I was in the US. And goods were priced in USD.
Welcome to the Caribbean love. – Captain Jack Sparrow
It struck me as odd that I was transacting in dollars in other countries. If someone came to the US and wanted to pay me in Belize dollars I probably wouldn’t accept them.
Part of the reason why the people of Honduras, Belize and Cozumel accepted dollars is likely because dollars still are the reserve currency of the world.
I doubt they think about world reserve currencies (I wouldn’t if I didn’t really enjoy this stuff) but the people I encountered who accepted dollars know that dollars are valued and can be used to buy useful things.
A Microcosm of the Global Economy
On the ship itself the vast majority of crew members are not from the United States. Amongst the crew there are around fifty home countries, such as Mauritius, Hungary, Ukraine, India, Romania, France, United Kingdom, Canada, Nicaragua, Philippines and dozens more.
I did find a couple US crew members as well as one from Canada, and the UK. But the majority of the home countries in my informal assessment of the crew were Philippines, India and Mauritius.
The passengers, while not wearing name tags with their nationality listed on it, seem to be mostly from the United States.
I think this trip represents a microcosm of the global economy.
The US dollar is strong, it’s accepted by other countries, and people from the US participate in a lot of consumption and spending of US dollars. People from other countries work to provide goods and services for the Americans and accept these dollars.
My brother and I outside of El Cid La Ceiba in Cozumel, Mexico.
This is a great deal for the Americans.
But the fundamentals of the US dollar are not strong.
Even when it isn’t bullying foreign banks the US government has made no serious effort to balance the budget, reign in entitlement spending or reduce the debt. A few quarter point hikes notwithstanding the Federal Reserve has not seriously attempted to reduce it’s balance sheet or normalize interest rates.
The United States dollar has the privilege of being a widely used currency even outside the US. However, over a hundred years of failed policy, bad laws, and poor decisions have primed the downfall of the US dollar.
The World Reserve Currency
The US dollar is often referred to as the “world reserve currency”. For example, if a company in Canada were to buy something from China, it would not be uncommon for the exchange to be priced in dollars.
Oil is priced in dollars and despite efforts to move to renewable energy the world economy is (and will continue to be for some time) very reliant on fossil fuels.
This dollar dominance has given the United States a great advantage.
The global demand for dollars has helped keep the value of greenbacks up despite unprecedented US central bank manipulation in the form of trillions of new dollars being created.
Normally the creation of new dollars (inflation) would cause a great deal of upward pressure on consumer prices once these newly created dollars find their way into the real economy.
But because of the global demand for US dollars and US government debt these newly created dollars are exported throughout the world lessening the impact of inflation.
The Dollar Doesn’t have the Fundamentals it once did
There are a variety of historical reasons why the United States dollar was made the “world reserve currency”.
The 5,000 foot view is that at the end of World War II the United States had the most productive and largest economy in the world and US dollars were backed by gold.
I would venture to say that none of these reasons apply anymore.
The United States defaulted when President Richard Nixon took the gold backing from the dollar.
The United States effectively defaulted when it went off the gold standard in 1971 in what is known as the “Nixon Shock”.
Depending on what metrics you look at China has surpassed the United States as the largest economy in the world.
Dollars are not a good store of value and the US banking system is a pain to deal with. As an example, French bank BNP Paribas was fined $9 billion for violating US laws regarding who they could do business with.
There is Nothing Exceptional about the US Dollar
In history there are other examples of dominant countries with the privilege of internationally recognized currencies.
Dating back to first century Rome and the aureus, the solidus of the Byzantine empire, the Spanish dollar backed by the mighty Spanish fleet, the dominance of the British pound in the 19th and 20th centuries, and now the US dollar in the 20th century. Each of these powerful empires rose and fell and with it went their currencies.
The Days of the Global US Dollar are Numbered
The days of the US dollar as a world reserve currency are limited.
The United States was once a business friendly environment that allowed entrepreneurs to thrive and bring unheard of prosperity. The United States of today has a labor force participation rate at multi-decade lows, a lack of manufacturing, stifling regulations, the highest corporate tax rate in the world and a hopelessly manipulated fiat currency.
Countries are Already Looking for Alternatives to US dollars
German economist Ernst Wolff has talked about how smaller countries already tried to break from US dollar hegemony with lethal results.
Saddam Hussein of Iraq wanted to sell his oil for euros. Muammar Gaddafi of Libya wanted to introduce a gold backed currency. These men ended up dead.
Russia and China and other “BRICS” nations would benefit from moving away from dollars. They have already moved to trade more in the ruble and yuan rather than the US dollar. No doubt China and Russia would love to see the downfall of the US dollar.
It’s also possible, although this is just my own speculation, that China is positioning its national currency, the Yuan, as the replacement to dollars as the world reserve currency.
China’s documented actions, like importing and mining metric tons of gold and lobbying for and inclusion in the International Monetary Fund’s (IMF) basket of currencies, support this belief.
Because the dollar is a fiat currency it’s value is dependent on the strength of the United States economy, the political stability of the country, and the military power of the US armed forces. All of these factors are in decline.
As flawed a metric as it is, it’s worth noting that US average annual GDP growth has been on a downward trajectory for some time.
This election has surpassed the last presidential election in divisiveness. The level of political discourse seldom gets above name calling and personality. Discussing ideas and principles is an afterthought. Corruption and cronyism are rampant.
The United States military is a bloated mess. The US spends more on defense than the next seven combined. Despite this the military is bogged down in failed projects like the F-35 and hopeless engagements in the middle east.
The process of US decline has been ongoing. The downfall of the US dollar is not because of one particular event, but the cumulation of many bad policies and decisions.
One can look at a variety of events, the creation of the Federal Reserve in 1913, the Federal income tax, growing national debt, the post World War II perpetual warfare state, the Nixon Shock of 1971, the Iraq war fiasco, Federal Reserve actions in 2000 and 2008. Historians will debate what went wrong.
Don’t expect the fall of the US economic might to happen overnight. It’s been an ongoing process where one bad decision leads to another.
As the United States’ economy continues to decline, as the US government debt continues to grow unabated and as the US Federal Reserve continues to debase the dollar, more and more countries will move away from US dollars.
As this happens it will cause increased price inflation in the United States and the impact of US Federal Reserve recklessness will be more keenly felt.
It could be that 10, 20 or 50 years from now people look around and realize the United States is no longer the superpower it once was.
How I Protect Myself from the Downfall of the US Dollar
The downfall of the US dollar informs some of the investing decisions I make. I’m investing in physical gold, gold mining stocks, and quality foreign stocks trading at a discount. I’m also dabbling in blockchain investments, despite the added risk in that arena.
One of the easiest and in many respects best ways to buy and store physical gold is by opening up a Goldmoney personal account. To learn more about this opportunity and sign up for account, click here.
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There are a variety of historical reasons why the United States dollar was made the “world reserve currency”.
In history there are other examples of dominant countries with the privilege of internationally recognized currencies.
Russia and China and other “BRICS” nations would benefit from moving away from dollars. They have already moved to trade more in the ruble and yuan rather than the US dollar. No doubt China and Russia would love to see the downfall of the US dollar.
The downfall of the US dollar informs some of the investing decisions I make. I’m investing in physical gold, gold mining stocks, and quality foreign stocks trading at a discount. I’m also dabbling in blockchain investments, despite the