S2 E11: The US Dollar - Exposed as "The Emperor Has No Clothes"

The "Twin Towers" are gone, but never forgotten. Greg worked in Four WTC for several years, and in the adjacent World Financial Center as well, so it is with all humility and respect that he discusses the macro-economic version of the "Twin Towers", because they are back, standing taller than ever, and putting the US Dollar in harm's way. Greg speaks to the records being set within BOTH the US Federal Budget data, and the US Trade data, as the Twin Tower DEFICITS are a BIG problem, again.

Throw in a discussion of how the Fed is behind the "monetary curve", and how the stock market faces an "economic reality check", let alone detailing the RAPID evolution of a viable and wholly credible BRICs Unit as an alternative to the USD as the "currency" used to transact/facilitate global trade ...

... and the greenback is about to be exposed, as the "Emperor Has No Clothes".
So, what to do, investment wise, to protect yourself? 

Greg answers that question, in today's episode of "Money, Markets & New Age Investing". 

Transcript

The Demise of the Dollar

Speaker 1 0:00

Hi, I'm Greg Weldon, your host of Money Markets and New Age Investing. This is season two, episode 11. Man, am I excited because there's a lot going on and there's a lot of opportunities coming as a result of it. And you say new age and yet it's old school. Some of what we're going to talk about today it's just in this new age of polarization, of enlightenment, of kind, of the elevated frequencies and resonance of the planet. You know, it's about the old school being exposed for what it is. In this case it's the dollar being exposed as the emperor with no clothes. Let's talk about why that is here now all of a sudden, seemingly at least, it's not all of a sudden. This is four to five decades in the making.

Speaker 1 0:53

The demise of the dollar, the demise of seniorage, which simply means the dollar won the right to seniorage. The Bretton Woods, you know, powwow, you know granted that right to the dollar as a result of us helping France and the UK win World War II. And in that case the dollar became the petro currency, the means of global trade. And in 1971, when Nixon closed the gold window, meaning he took the dollar off the gold standard, that's when the US was able to borrow as much money as they wanted, given that they are the currency of trade, of global trade, they are the reserve currency. Well, the simple fact that it's the reserve currency is really what's going to change here, and it's already happening. In terms of China, in terms of the BRICS countries wanting a currency other than the dollar, the biggest mistake the US made was seizing assets from the Russian central bank. Now all these central banks dumping dollars because they don't want to be subject to the US hegemony. If you will kind of this military police to the world, what did I say at the beginning of this year? If you will kind of this military police to the world, what did I say at the beginning of this year? One of my top three things that were going to happen this year was that the US would realize we're no longer, will be or wanted to be by the rest of the world, the military police to the world.

Speaker 1 2:19

In terms of the dollar, what you have is the twin towers are back. No disrespect, because I mean the twin towers of deficits budget deficit, trade deficit, both at records. This is not good for the dollar. And when we look at the dollar, the dollar index, which is admittedly a little more weighted in European currencies than I would like to measure the dollar, but we measure the dollar against every currency in the world. We look at it every day, against every single currency, and what's interesting right now is that the currencies linked to resource trade with Russia and or China are the currencies strengthening the most against the dollar. And in the case of two of them in particular, one linked to Russia, when we're talking about the Polish Zloty, and one linked to China, the Indonesian Rupiah and both of these currencies are right now, as I'm talking to you, already started trading overseas, probably you know, as the NFL is on here in the US breaking through 20-year downtrends against the dollar both currencies the dollar is on the verge of its own major breakdown here. The July 2022 low of 99.22 is only a tick and a half away, 150 pips away.

Speaker 1 3:47

The entire rally in the dollar that began in 2022 really dates back to 2008, 2009, because that was the low of a bear market in the dollar began in 1983. The last time you had huge inflation, draconian central bank rate hikes and an economy that was rolling over. Then Reagan was able to expand the debt and deficit as much as he wanted. You are now hampered in that context. Number one, by the fact the deficit is so high. The debt is so high that, just mathematically, to get the same bank for your buck per per se in terms of stimulus, you need to print all the more money now. There was virtually no government debt, no public debt, no borrowing from the public. In 1980, when Ronald Reagan came in the last time, we had this kind of similar situation and the dollar tanked anyway. Imagine what the dollar is going to do now with debts and deficits. The trade deficit record here outside of five months in 2022. It's the sixth deepest deficit in history. All right, the budget deficit's a nightmare.

Speaker 1 4:55

I'm going to go through the numbers in about two seconds. But the bottom line is the entire rally from 2008 low to the 2022-23 high of 114 was an ABC 50% correction of the 1983 to 2008 bear market. Perfect, I mean, you can't make this stuff up. This is textbook technical analysis 101 course material. All right, we're going to talk more about this. But the bottom line here is the dollar is already down 4% year over year. You have the 2018 low would be the next downside. That's 10 figures away, which means you know 10, 11% on top of 14%, you could get to a 15% decline in the dollar and if that happens, you're going to get big movement in gold, like you're already seeing, and in the commodities which could then spark the inflation. What's interesting about all this is it's kind of like the Fed's going to declare victory over inflation here. Just as inflation bottoms at a lower high after the 40-year downtrend has become an uptrend now on a secular basis because of all the debt we have to reflate out.

Speaker 1 6:02

A debt deflation would be the worst-case scenario. The Fed will do whatever they have to do to avoid that. I wrote that in my book in 2006. I said when peering into a debt deflation abyss, central bankers will print money, will cut rates, will do whatever they have to do to avoid a debt deflation. And that stands the fact is. The fact is that the purchasing power of the dollar just hit a record low. How do we measure the purchasing power of the dollar? Simply by an ounce of gold and in this case the dollar. The gold adjusted value of the dollar just hit a new low below four cents to the dollar, that dollar being 1974 dollars. When the dollar index really started trading Just after they closed the gold window in 1971, the dollar was actually up a little bit at first. Four cents on the dollar relative to 1974 is the purchasing power of the US dollar.

Speaker 1 7:03

The BRICS unit Turkey wants to to join, hungary thinking about joining. These are NATO slash EU members that want to bail and join China, russia, opec in India you already have Brazil wants to be in South Africa, wants to be in Thailand, wants to be in Indonesia. Poland, the Czech are talking about maybe potentially joining. They get all of their energy from Russia. It's that side of the world versus this side of the world. It's a world war of resources already and they hold the upper cards. When you talk about what happens with a BRICS unit, it would be basically blockchain domiciled the clearing mechanisms they're already putting into place in Moscow. This is coming together so much faster than even I would have imagined. I've been looking for something like this and this is well defined as anything we've ever seen. It's going to happen. It's going to happen even to the extent that all these countries that want to join now and there's over two dozen of them want to move away from the dollar to use this means of transacting global trade, especially in resources.

Speaker 1 8:09

All right, the original proposal was the Chinese renminbi would back 30% of this currency, of this new unit let's call it a unit, all right. The gold would be 40%, 40% gold, 30% Chinese renminbi, 10% Russian ruble, 10% Indian rupee, the rest broken down into other currencies. That's already changed. That was the beginning of the year, was what the plan. But now all these countries want it. The part that we're not talking about being backed by either gold directly, the renminbi or the Russian ruble. Maybe that even gets taken out as a major backing. But if you just have China and gold, and the other 30% can be the two currencies between the countries making the trades, between the countries making the trades, every single transaction can be customized in the currency used to transact that with the individual currencies. So if Thailand wants to trade with Vietnam, they can use the baht and the dong as partial part of this currency backed fractally by gold. This means that countries like Brazil, who owns $800 billion of US Treasury debt, would theoretically sell that debt, use the dollars to buy gold to back their portion of the currency in this BRICS unit. It's going to happen.

Economic Indicators Highlight Dire Situation

Speaker 1 9:40

You need to be prepared because when the dollar cracks it's going to have dramatic implications for everything in this country, particularly inflation. Let's talk about the numbers, of where we're at now, before any of this, because I really was going to end with this, but I have to start with this because it really is the most important thing. The dollar right now is the key to everything. Stocks can go up if the dollar goes down, but I think the dollar goes down right now because stocks go down, because stocks are out of touch with the underlying economy. Stocks are in touch with what's good for companies right now, which is AI margin expansion, all this spending they can do stock buy, all the things that's going on. Of course, you have a looming atom bomb out there in terms of unrealized capital gains tax. If that happens, forget about it. You go back to my New Jersey accent. Forget about it. But if we take the bigger picture, it almost I hate to say this, but it almost doesn't matter, because things are already so bad and have gotten so bad in the last three years and have gotten so bad in the last two months, and really the data started getting bad when, in may, we started talking about this.

Speaker 1 10:55

What was may? May was a year from when the fed actually got restrictive with policy. It wasn't 2022 when they raised rates the first time, the second time, the third time, the fourth time, the fifth time. That wasn't restrictive because inflation was 9%. They were still very stimulative, with a negative real interest rate, in other words, fed funds versus the rate of inflation by 2023,. Last May and June, you finally got inflation below the Fed policy rate enough so that policy became restrictive.

Speaker 1 11:24

There's a 12-month lag on the economy. Every economist will tell you this. The 12-month lag put us in June of this year, which is exactly precisely the timeframe in which this economic data started to really roll over, especially in terms of the labor market. We already had a real bad housing mortgage market. We already had a stealth recession in retail sales, because retail sales were up, but not by more than the price increases. All of the increase in retail sales this year is because of price increases. None of it is because of increased demand for more stuff.

Speaker 1 12:00

But let's talk about the budget deficit just posted this week Literally $380 billion for the month of August. $380 billion. They spent more than twice what they took in. That's the third month in this fiscal year they've done it. They spent $687 billion and only took in $307. It's more than two times. Not only that the $380 billion deficit compares to a surplus of $90 billion last year. It's almost a half a trillion dollar turnaround.

Speaker 1 12:37

Here's where it even gets more interesting. Social Security when you talk about retirement taxes and these kinds of things, taking into social security was 131 billion, social security out 124 billion. What are you doing? You're taking in money from new investors and giving it to the investors who have cashed out. We know what we call. That starts with a p, ends with an I. All right. The year-to-date deficit now at 1.897. Let's round it, just simple math 1.9 trillion dollars up 24 percent from a year ago. All right, so we're talking about you know, I mean just a huge increase, let alone the fact that you you now have, in this last few months, deficits of $380, $372 billion. I mean $314 November of 2023, $296 billion in February, when you spent twice as much as you took in May was $347 billion, then August at $380. It's the sixth deepest deficit on a month ever, excluding the pandemic. The only worst deficit was in september of 2022. This is the second deepest deficit in history outside of four months in the pandemic. The second deepest deficit ever just.

Speaker 1 14:03

And they want to say Trump would increase the debt more. Biden just did it to the tune of just shy of half a trillion dollars in a single month. Versus August of last year, spending of $686 billion was up from $193 billion. I mean, come on, you can't make this stuff up. It's more than three times as much as it was last year, whereas revenue was up by $17 billion. You were up four. What was this number? You were up something like $450 billion. It was like a half a trillion dollars 493. 493 billion Up a half a trillion dollars in spending this month alone. Versus last month, or versus, yeah, versus last year's same month. I mean, that's just mind blowing.

Speaker 1 14:54

The ratio of that growth is out of control. If this was a household, all right, making $120,000 a year, 10k a month coming in, $120,000 a year, 10k a month coming in the equivalent numbers would be you're earning 10K a month but spending $22,420 a month, and now, all of a sudden, you're going to increase spending to $70,900 a month. You're making 10K, you're spending $71,000 a month. That's the numbers equivalent to where you are trending here in this monthly number relative to where you've been when the year to date is 11 months. Well, a year ago, september was 170 billion. That projects a fiscal year debt deficit of 2.1 trillion. Biden promised us it was going to be smaller. It is not smaller.

Speaker 1 15:47

Borrowing from the public is almost the entire debt deficit. All right, only 81 billion of 1.9 trillion is not borrowed from the public. I mean that ratio is historic. In terms of borrowing from the public the record of borrowing from the book. It didn't start till 2009. They terms of borrowing from the public the record of borrowing from the public. It didn't start till 2009. They didn't borrow from the public till the crisis 2008, 2009. In the period through to 2019, okay, 10 years there were only six times that. The debt the excuse me, the public borrowing for the year excuse me, for the month was over $200 billion. Between $200 and $300 billion, there was only three times it was above $300 billion. April of 2020, in the middle of pandemic, it was $1.4 trillion. They borrowed from the public. But most recently now you have 11 months over $300 billion since 2021. You have nine months over $200 billion. You have three months over $700 billion. You have a month over half a trillion. They're borrowing from the public at an unprecedented and gross rate.

Speaker 1 17:01

One last thing on the deficit and debt. The interest cost now to carry the $35 trillion in debt is equal to a number that would have been bigger than the entire year's deficit until 2019. Until 2019. It's the fifth highest deficit ever. I mean it would be the fifth highest deficit ever right now, I mean. So that's mind-blowing that the interest alone is bigger than any deficit Actually prior to 2008. I'm sorry, so you know that's just mind-blowing. Then you talk about so that's the budget deficit, that's the debt. Let's talk about the other tower. That's tower number one of the Twin Towers is budget deficit. The other one is trade deficit.

Speaker 1 17:53

Numbers released last week US imports rose to their second highest level ever $345 billion in a single month. I mean it's equal to our deficit. Think about that, man. All right, you're up 9.4% in imports in the last 13 months, when you bottomed at $315 billion in June of last year. You're now at $345 billion $30 billion increase. 9.4%. That's huge. You think, okay, well, that's a good sign. I actually heard someone say this on CNBC. You know well, it's a sign of a healthy economy and good consumer final demand. It's like no, it isn't.

Speaker 1 18:33

Try looking at something besides the headline. Look at page two of the report. Okay, look at page two of the report. Okay. Capital goods up $3.3 billion this month. Industrial supplies up $2.8 billion. Gold imports up $1.1 billion. Think that's a sign of anything healthy that gold imports were up $1.1 billion in the month of July? Trade data has always lagged a month, so instead of August, it's July data. The metals other than gold was up 0.9, 900 million.

Speaker 1 19:05

What were consumer goods? The lowest of any category, up only 0.6. It's not consumer goods. It's not a sign of consumer strength. In fact, the goods deficit 102.7 billion, worse than 96.6 a month ago. The sixth deepest excuse me, the sixth deepest deficit ever. The sixth time it's below $100 billion. In other words, the deficit worse than $100 billion. The other five times were January to May of 2022. So you exclude the first half of 2022.

Speaker 1 19:44

You just posted the largest trade deficit in US history, one of the highest trade deficits ever, one of the highest budget deficits ever and the highest consumer credit and consumer borrowing ever. Consumer credit of $25.5 billion. Also, july lagged a month. The trade and the consumer credit data from the Fed are both lagged a month. All right, you were expecting 12.5. You got double that. This is five times June's total. All right, it's the highest since November of 2022. And, excluding the pandemic, it's the fourth highest in the last 10 years, fourth highest borrowing. The annual flow is $305 billion, the second highest ever, and total consumer credit is a new all-time high at over $5 trillion.

Speaker 1 20:35

I remember when they said a trillion for the first time. It wasn't that long ago, it really wasn't. I mean, you're talking about outrageous numbers. I mean, on the other hand, you have some signs of some problems, and that is that the 12-month gain now is starting to roll over, and this has happened in a similar way in October of 2008, March of 1997, january of 1987, and February of 1990. All of those times all four of those times, presaged a major recession, a major downturn in the stock market.

Speaker 1 21:10

What's interesting here is, you know, you say well, the consumer number balance sheet is really strong. I heard this from the banks. Several banks linked to credit cards are insisting everything's fine, and I think of kevin bacon in animal house. Remain calm, all is well. This is what the ceo of the major banks are telling us that their stocks got wasted last week because the government says you need to put more money away for loan losses. Why? Because delinquency rates are rising like we haven't seen since 2007. Why? Because the consumer has just borrowed the record amount the most ever, at the highest cost ever to borrow, and in fact the Fed stopped publishing the average interest rates on credit cards two months ago. So last we have. They're not putting it in there anymore out of the blue, just stopped publishing it two months ago. And you say well, why? Why are they borrowing such money? It's a sign of strength, right? The consumer is strong. No, it's a sign of stress, of desperation. Let's walk through the balance sheet of the consumer.

Speaker 1 22:12

Savings are depleted. The last savings number is $598 billion. It's down 89.5% from the high in March of 2021 at $5.7 trillion. It's down. 90% of savings have been spent $5.1 trillion spent in the last three years. You're talking about levels that we haven't seen since November of 2013, and before that, 2009, in savings, total savings. So there's no savings.

Speaker 1 22:46

How about wages? You know people got jobs and the labor market was strong and wage growth was strong. The problem is, wage growth was strong percentage-wise, but so was inflation. Core PCE is 3.2. Average weekly earnings is 3.5. That's 0.3 real earnings. That's not enough. The Chicago Fed, the Atlanta Fed, the Cleveland Fed all done studies on this, say you need 3.5 to 4% wage growth. This is consistent with our 2% inflation target because it creates 1.5 to 2% real wage growth above inflation, and that is what drives consumption. You don't have that. The economy is lacking 70% of the consumption it would normally have. The only thing keeping it up is the stock market, and that's only because it's good for companies, not good for mom-and-pop kettle out there. I mean, you know?

Speaker 1 23:35

Now let's look at the labor market and say, well, the labor market, no, all right. This is stress, man, I'm telling you. It's desperation, it's stress, and the economy hasn't even hit its worst point yet. It's only rolling over now. The worst point is probably in the late first quarter, early second quarter of next year, based on the timelines that always are associated with these kinds of things. Could those timelines be different? Now? They could be, but I don't think so. It doesn't look that way. There's nothing that tells me they're going to be different. Everything says this is the way it's going to go, all right. And when we look at the labor market, it's stress, stress, stress.

Speaker 1 24:07

The number working part-time for economic reasons because of slack work available, rose 318,000 in August. The payroll employment gain was what 140? I mean, that's twice. The payroll gain was part-time for economic reason. All right, now let's break it down, because what's interesting too is part-time obviously pays less. You know who else makes less money? Those with the less of an educational attainment, those with high school or less, jobs rose 544,000. Those with some college to a master's degree jobs fell by 144,000. That's a $700,000 person swing. And what is it? People that don't have a high school education, don't have a high school diploma, make a lot less money than someone with a PhD or in a doctorate. It's just that simple. So that's another knock on the whole wage thing. All right, now. And again you had one third of the headline gain in jobs. 46,000 was leisure and hospitality, the second lowest wage industry behind retail. And finally, the total unemployment rate. The U6 rate is 7.9. It's almost 8% and it's up 80 basis points in the last 12 months. That is always a recession.

Speaker 1 25:29

I could sit here and talk about inflation coming back. I really could. I mean, energy is down. Gas was down 10.3 year over year. Energy was down 4%. Food was negative and is now back to two. Food away from home is 4.

Speaker 1 25:41

So where's this great inflation number? Services, excluding energy 5%. Electricity 4%. Shelter 5%. Transportation 8%. Medical care 3%.

Speaker 1 25:53

What's interesting is a big reason that this inflation number seemed benign was because of vehicle prices were down big, all right. Well, I told you right here on the last episode that the inventory of used cars for sale was up 21% year over year. Well, prices of used cars fell 1% in August, fell 2.3% in July, fell 1.5% in June. Since I gave you that number, you've had three straight declines in used car prices to where they're down 10.4 percent year over year. The problem is, you might buy the car for a little less money, but the cost to insure it, the cost to maintain it, the cost to repair it, all three of those categories are in double-digit inflation. You can't win right now.

Speaker 1 26:39

And you talk about cities, the city, some of the cities, they're all over 3% Chicago 3.8. New York 3.7. Detroit 3.5. St Louis 3.3. Seattle 3.1. Baltimore 3. Philly 3.4. Where is it low? Atlanta 1.7. Houston 1.7. Why? Because it was so high, particularly in Houston. It's a calendar effect.

Speaker 1 26:58

Inflation is not dead. And what's going to happen here? The Fed's going to acquiesce to protecting the economy and acquiescing to higher inflation. They're going to shift policy here and they are going to move. The problem is they're at 5.5 and inflation's at let's call it three. They need to get to four, four and a half. You know at least a 4% to be neutral, which is what they need to be. They're not going to do that quickly enough. The lag time in the economy is right there. This puts the dollar in harm's way. All of it does, and I think, while a lower dollar will ultimately be bullish for stocks, this is a problem for stocks too. All right, you have no momentum here.

Speaker 1 27:34

In this latest rally, all the tech names are vulnerable. Here. You're going to see rotation and I think that one of the things I see is like the GDX, the gold mining share ETF, breaking out against the S&P, newmont Mining at one of its cheapest levels relative to the market ever. Nobody owns gold in the passive investment index Wall Street world. I mean, it's really way under owned. You'll be chasing it higher. It's up eight months in a row. That's unprecedented, unprecedented. It's never done that before since 1971 when they floated it.

Speaker 1 28:12

So what do you do? Our portfolio is, you know me, is the mortgage bonds, which have exploded. Mbb the shy, which is the short-term, which have exploded. Mbb the SHY, which is the short-term treasury, has exploded. We own the two-year and five-year notes in the futures market. We're futures traders. But we also do the portfolio playbook where it gives you how to kind of be your own hedge fund, be your own CTA Curve. Steepening in Europe's a play. You can play these currencies in the stock market through the ETFs Swiss franc, british pound, aussie dollar and even the Japanese yen. I mean Japan wants to kind of keep inflation down so they don't want the yen lower. Okay, they own the most bonds of any country now that China's liquidated half of their holdings of US treasuries. So Japan owns something like $1.14 trillion worth of bonds. They can sell and bring the yen home de facto intervention Plus the yield differentials favored owning the yen right now, like one of the first times in the last 15 years.

Speaker 1 29:04

So when we talk about, you know all of my picks in the mining shares in particular, I do publish a research piece that's mostly you know for individual investors, called the Gold Guru Report. I welcome you to shoot me an email at gregweldon, g-r-e-g, weldon, w-e-l-d-o-n, at weldononline one word, weldononlinecom to get some copies of that. I actually just did a two-part special last Thursday, friday, on the metals, on the mining, on the gold and silver first, and then all the mining shares and all the rest of the metals. So if you want that, I'd be happy to send that to you. Follow us on Twitter. I'm Weldon Live. We have the podcast at money underscore podcast. I'm on YouTube free videos on YouTube, gregory underscore, weldon, and then, of course, on Facebook.

Speaker 1 29:55

You can find us in money markets and new age investing. We offer a couple other products. The portfolio playbook is like what I just said, you know, allowing individual investors and we even have some institutional clients for that one. And then a global macro strategy report is our main product. We do manage money, but it's a really high minimum because these markets, the risk is very high here and I'm a low risk guy, so we have to have a high minimum so we can manage the risk very precisely.

Speaker 1 30:22

But our returns are pretty stellar and I think that going forward, this environment where the dollar is going to get whacked and even without the brick story it's going to get whacked you throw the brick story into this it could be a massive 10 to 15 percent decline in the dollar. You're going to want to be positioned in different things besides just passively invested in stocks. Stocks are going to have an economic reality check. You got five weeks between the Fed meeting and the next Fed meeting. If they move only 25 and they need to get 150 basis points lopped off this thing as soon as possible, that's going to be a real problem for stocks. So I think stocks going down could be a catalyst for the first next wave of the dollar down. And then all these other things play in and all of a sudden the dollar is exposed as the emperor with no clothes. Thanks for listening. Come back next time. Greg Weldon. Host of Money Markets and New Age Investing.