Rich Currency, Poor Currency: Why the U.S. dollar will remain as the REAL reserve currency in years to come! [Wednesday: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Happy midweek, everyone!
Welcome to today’s edition of “The Independent Investor.”
Every Wednesday, we publish articles about basic investing tips. Our goal is to help you strategically think about your financial decision-making and achieve true wealth in the long run.
Today, let’s focus on an important investment insight from my friend and colleague, Professor Joel Litman.
Continue reading to know why the U.S. dollar will remain as the REAL reserve currency in the years to come.
UPCOMING EVENT ALERT:
I have written articles about my friend and colleague, Professor Joel Litman, a preeminent accounting expert whose investment research is read and respected by thousands of investors worldwide, including most of the largest.
Given recent financial tumult, bank failures, and levels of fear and panic I haven’t observed since 2008, I asked Joel about his outlook and what worries him most. His answer: Nobody is talking about it.
Joel says every signal points to a looming stock market crash. Worst of all, Wall Street knows about this—they just haven’t told you yet. This piece of news will likely not see any mainstream coverage until it’s too late to do anything about it.
I invite you to join Professor Litman at 8:00 PM EDT today. Joel will discuss the looming crash and outline what investors should do to protect their investments and get ahead of this massive catastrophe.
Visit this link to register for the event.
I hope you can join!
The Independent Investor
Are you familiar with the book, “Rich Dad, Poor Dad”?
This book was written by Robert Kiyosaki and Sharon Lechter, and advocates the importance of financial literacy, financial freedom, and building wealth through investing in assets, starting and owning businesses, and increasing one’s financial intelligence.
Early in 2023, Kiyosaki had been all over the media warning that the U.S. is doomed, especially the U.S. dollar.
According to the author, the country is overspending and over-levering so much that the world will flee from the U.S. dollar as the reserve currency at any minute. What’s more?
Kiyosaki points out that the development of a digital currency in China and the threat that Brazil, Russia, India, China, and South Africa (BRICS) may team up to embrace an alternative to the U.S. dollar are evidence that the nation’s days of dominance are numbered.
Well, Kiyosaki is not alone in that perspective…
Others are panicking as well. Many are rushing to buy precious metals in case things go south. Gold prices are up more than 20% since the end of October 2022.
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, the inevitable conclusion of these oracles of doom is that one should get out of U.S. markets in favor of stuff like gold and bitcoin. While there may be room for these assets in a diverse portfolio, it’s pretty far-fetched to say they should replace U.S. stocks.
Picture this: Let’s say the BRICS countries have their way and somehow agree to rely on a new currency other than the U.S. dollar… and then imagine a few other countries join them. What do you think would happen?
In another scenario, let’s say you’re the treasurer of a billion-dollar multinational business in Asia. Suddenly, your accounts are flush with buckets of this “new” reserve currency. What would you do with it?
Professor Litman says you’d probably convert it right back into U.S. dollars.
The U.S. has safeguards in place that protect the value of its currency and keep it entrenched as the foundation of the global economy. As we’ll explain today, it’s not the dollar, but what you do with it that matters more.
Reinforcing the Greenback’s Days of Dominance
Every industrialized company treats its aerospace sector as a strategic asset. That’s why every major country has its own airline company.
Professor Litman says if you add up the value of all the helicopters, drones, planes, and other aircraft in the U.S. AND bought from the U.S., you’d see that the country’s aerospace industry is larger than the entire rest of the world’s combined. If an airline has to buy planes, chances are that company will buy from the U.S.
… and it’s not just in the aerospace industry!
According to Professor Litman, the world’s total annual military expenditures are surpassing USD 2 trillion. Again, it’s the U.S. that exports more military equipment than any other country by far.
In fact, from 2017 to 2021, the U.S. had almost 40% of the global arms-export market share and the next closest country, Russia, was just less than 20%.
… and just a reminder: U.S. defense contractors operate primarily on one currency – U.S. dollars.
Professor Litman states the same is true for food. Countries need to feed their people all year round, and many countries can’t grow enough wheat, which is the world’s number 1 source of calories, to meet their needs. Guess who exports the most wheat?
Again, it’s the U.S.!
In fact, the U.S. averages exports of more than 27 million tonnes a year, which is almost 10 million tonnes more than the next closest country, Canada. So far, nothing can change the fact that U.S. wheat feeds the world, and it’s purchased in U.S. dollars.
Then, take a look at oil. Around the world, oil is priced in U.S. dollars. At one point, this reflected strategic ties between the U.S. and some Middle Eastern countries. However, the U.S. is now the number 1 producer of oil. In 2021, the country produced 10% more oil than Russia and 20% more oil than Saudi Arabia.
Wait, there’s more!
In 2022, the U.S. also became the largest exporter of natural gas in the world, surpassing Australia. Natural gas company ExxonMobil (XOM) and its other peers are only accepting U.S. dollars.
What do these examples tell you?
If you want to fuel your country, feed your people, defend your sovereignty, move stuff around, or do any other myriad of things, the dollar remains the REAL reserve currency.
So, if this is the case, why take the currency risk of storing your wealth or assets in any other denomination?
Professor Litman says the idea that two dictatorships like Russia and China, and two relative democracies like Brazil and India will find lasting agreement on one currency is far-fetched at best.
Russia has devastated its economy due to the war in Ukraine. The claim that the former’s gross domestic product (GDP) has remained flat in the past two years is propaganda.
Experts who have looked closely say the war and resulting sanctions have driven the Russian economy down more than 10% at best. However, it might be down more than 40%. The country’s economic power, as measured by government revenue, has been cut in half or more.
Meanwhile, China is going through a nationwide credit crisis that rivals the U.S.’ own financial crisis of 2008. The current “strength” of the renminbi reflects one simple fact: China’s currency is pegged to the U.S. dollar. If China allowed its currency to float freely, its value would collapse.
… and don’t forget! India is currently in an armed standoff with China over major border disputes. Soldiers were even engaged in hand-to-hand combat a few months ago.
That’s why Professor Litman says the idea that the BRICS countries—along with Iran, Cuba, and others—will agree to create a new reserve currency is “preposterous.”
This brings us to the other key reason the U.S. dollar will remain dominant for a long time. The U.S. has one thing Russia, China, and many other countries lack: Rule of law.
Think about this: When you’re using a currency, you need to know that all the contracts in that currency are going to be enforced fairly and equally. You want to make sure the rules won’t change overnight because that could wipe out your wealth.
In a democracy like the U.S., you can trust in that. As any wealthy Chinese or Russian person who has bought U.S. and Canadian real estate in the last 15 years would tell you, the same isn’t true for China or Russia.
The bottom line?
People don’t decide on currency to generate their commerce. They engage in commerce, which determines the currency they’re going to use.
So, despite what you hear even from finance experts like Kiyosaki, keep buying what legendary investor Warren Buffett has called the “best asset in the world”—dollar-denominated U.S. equities.
Lastly, don’t bet against the American economy. Unless sufficient facts and evidence prove otherwise, the U.S. dollar remains the REAL reserve currency in the world today.
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
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“Wednesdays: The Independent Investor”
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In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
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