Rich Currency, Poor Currency

Some think the sky is falling...

Financial author Robert Kiyosaki, who wrote Rich Dad Poor Dad, has been all over the media lately warning that the U.S. is doomed... especially the U.S. dollar.

He says the U.S. is overspending and over-levering so much that the world will flee from the U.S. dollar as a reserve currency at any minute.

He points out things like the development of a digital currency in China and the threat that Brazil, Russia, India, and China ("BRIC") may band together to embrace an alternative to the U.S. dollar as evidence that the greenback's days of dominance are numbered.

Kiyosaki even called the dollar "toilet paper." And he's not alone...

Others are panicking as well. People are rushing to buy up precious metals in case things go south. Gold prices are up more than 20% since the end of October.

The inevitable conclusion of these oracles of doom is that you 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 among your investments.

Let's say the BRIC countries have their way and somehow agree to rely on a new currency other than the dollar. Imagine a few other countries join them. What would happen?

Say you're the treasurer of a billion-dollar multinational business in Asia... or the head of an endowment of a major university in Europe... or the minister of finance of a country in Africa. Suddenly, your accounts are flush with buckets of this newfangled reserve currency. What would you do with it?

Trust me... You'd convert it right back into U.S. dollars.

The U.S. has safeguards in place that protect the value of our currency and keep it entrenched as the foundation of the global economy. As I'll explain today, if Robert Kiyosaki offers you a fistful of dollars for a roll of Charmin – that's a deal you want to take.

It's not the dollar, it's what you do with it...

Every industrialized company treats its aerospace sector as a strategic asset. It's why every major country has its own airline company. Well, airlines need airplanes, and most airplanes come from the States.

If you add up the value of all the helicopters, drones, planes, and other aircraft... the U.S. aerospace industry is larger than the entire rest of the world's combined. If you have to buy planes, chances are you're buying some of them from the U.S.

And U.S. planes are sold for U.S. dollars.

The world's total annual military expenditures are surpassing $2 trillion. Once again, the U.S. exports more military equipment than any other country by far.

From 2017 to 2021, the U.S. had almost 40% of the global arms-export market share and the next closest country, Russia, was less than 20%.

2023 is the first full year of sanctions against Russia. That means the U.S. should keep gaining share over Russia.

Again... U.S. defense contractors operate primarily on one currency... U.S. dollars.

The same is true for food. Countries need to feed their people year-round, and many countries can't grow enough to meet their needs. Wheat is the world's No. 1 source of calories. And guess who exports the most wheat...

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. Hopefully, Ukraine will return in the coming years to being the breadbasket it once was. However, nothing will change the fact that U.S. wheat feeds the world, and it's purchased in dollars.

Look at oil. Around the world, oil is priced in dollars. At one point, that reflected strategic ties between the U.S. and some Middle Eastern countries. However, the U.S. is now the No. 1 producer of oil. In 2021, the U.S. produced 10% more oil than Russia and 20% more oil than the Saudis.

Last year, America also became the largest exporter of natural gas in the world, surpassing Australia.

Again, ExxonMobil (XOM) and its U.S. peers are only accepting dollars.

If you want to fuel your country... feed your people... defend your sovereignty... move stuff around... or do any of a myriad of other things (which add up to trillions of dollars in worldwide spending)... the dollar remains the real reserve currency.

And if that's the case, why take the currency risk of storing it in any other denomination?

A preposterous scenario...

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's war in Ukraine has devastated its economy. The claim that its gross domestic product has remained flat in the past two years is propaganda. That the International Monetary Fund and international media repeat it is laughable.

Experts who have looked closely say the war and resulting sanctions have driven the Russian economy down more than 10% at best. It might be down more than 40%. Its economic power, as measured by government revenue, has been cut in half or more.

Meanwhile, China is going through a nationwide credit crisis right now that rivals our 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 engaged in hand-to-hand combat a few months ago.

The idea that the BRIC countries – along with Iran, Cuba, or others – will agree to create a new reserve currency is preposterous.

And that 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.

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. That could wipe out your wealth.

In a democracy like the U.S., you can trust in that. As any wealthy Chinese 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.

If you look at the data, you find only one country that has the resources, industry, and financial structure to be the global reserve currency – the U.S.

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... keep buying what legendary investor Warren Buffett has called the best asset in the world – dollar-denominated U.S. equities... and don't bet against the American economy.

With love, joy, and peace,

Joel
April 28, 2023