Demise of the Dollar, 3rd Edition

CHAPTER 6A MODERN ENIGMA

“I put a dollar in the change machine, nothing changed.”

—George Carlin

It is a modern enigma. The US dollar—the world's reserve currency—is weakening, shrinking, falling at home. It has been since the inception of the Federal Reserve, the very institution assigned with the task of maintaining its value, but the decline has accelerated at an alarming rate of late. The popular term used for the demise of the dollar, by journalists and bloggers alike, is “inflation.”

But here's the enigma. At the same time prices are rising for gas, eggs, and jeans, the US dollar is getting “stronger” against the euro, yen, and yuan—currencies from Europe, Japan, and China that make up the balance of trade in the global economy. How can that be?

How can the dollar be weakening at home and getting stronger in the global economy at the same time? The answer begins with an important distinction. We need to understand what it means to be a “reserve currency” of global commerce. And why that's different from what our friend and the author of the foreword to this book, Jim Rickards, calls a “payment currency.” I'm going to write that again because it's important. For the balance of this book we'll need to understand the difference between a “reserve” and a “payment” currency. The distinction will also help us understand the historic inflation—price increases for everything—that began during the COVID‐19 pandemic.

Fifteen years ago—the week we were putting the finishing touches ...