Why the Dollar Could Collapse: Richard Duncan Explains

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0:37While Robert is away, we're revisiting some of the most important conversations from the Rich Dad radio show. Today, it's The Best of Richard Duncan, a collection of his insights on the U.S. dollar, inflation, global trade, China, and the economic forces shaping America's financial future. Enjoy the show. Because as you know, Richard, money and war go hand in hand. And you threaten China. And you have our fleets all over the world. How close to war are we getting from your point of view as an American sitting in Thailand? But are we pushing to war or is that too far pessimistic? I'm very worried about U.S.

1:23national security because even though China's economy is having a property crisis, that doesn't mean that China's government is slowing down its extraordinary surge in investment in new industries and new technologies. That's why they dominate electric cars and batteries. That's why they have hypersonic missiles and we don't. That's why they had 5G for several years before we got 5G. They are overtaking us technologically. And if they overtake us technologically, they're going to overtake us militarily. And this is happening very quickly. This is what was happening in Germany in the early 1930s.

2:03Winston Churchill warned the world that Germany was industrializing and was becoming a very serious threat. Well, we're past that point with China now. China is neck and neck with us technologically. And if we don't respond by ourselves in the United States, investing more aggressively in new industries and new technologies on a very large scale, then we're really in danger of being conquered by China in the not too distant future. And so that's why I was so excited when President Trump announced that he was going to establish a U.S. sovereign wealth fund to invest in new industries and new technologies.

2:40And the main reason for doing that is because we could produce technological miracles and breakthroughs and ensure that China never overtakes us technologically. And meanwhile, that sort of investment would turbocharge U.S. economic growth and allow us to grow out of our economic problems. Rather than being sucked down into depression, we could have a major economic boom if we invest aggressively in new industries and new technologies. And so that's the policy of President Trump that I'm most enthusiastic about, establishing a U.S. sovereign wealth fund. Yes, I'm very worried about China, and every American should be.

3:17And that's why they should get behind this idea of the U.S. government financing a multi-trillion dollar investment in the technologies of the future. That was what my most recent book was about, the money revolution, how to finance the next American century, how to drive the economy forward. We don't have to just grow at 2 % economic growth a year. We can rev up the economy and make it grow at 7 % a year. You know, America doesn't have to be a declining superpower. The first American century doesn't have to be the last. We have the resources to invest in our future and turbocharge economic growth and create such extraordinary technological breakthroughs that will rule the world for another century and beyond.

4:01But what can the ordinary person do? So I wrote The Dollar Crisis in 2002. And at that time, gold was under$300 an ounce. So the dollar has lost more than 95 % of its value against gold since then, I think. And over the next 30 years, we're probably just going to see that trend continue. So I am a big believer in owning gold. And silver and gold more or less moved together. I'm also a big believer in owning land, especially land with rental property on top of it, like a house. So you can buy the land and land is as good as gold. They're not making any more land. So if gold goes up, land will go up.

4:45And meanwhile, you can have the rental income from your house every month. And if you have a mortgage and we have higher inflation, which is a real possibility, the higher inflation will eat away your mortgage and destroy your debt in a good way. And you'll become richer that way. So all of those things are things that normal Americans can do. It's very important that the U.S. has the reserve currency. It means it's the main currency in the world that other countries trade in. India uses dollars to buy things from Brazil, and Brazil uses dollars to buy things from Saudi Arabia. And the reason that the dollar is the reserve currency, first of all, we won World War II, and all the other countries in the world were broke and didn't have any gold.

5:34And so we pegged the dollar to gold and everybody else pegged their currency to the dollar. And so initially, that was the establishment of the dollar as the reserve currency. But the reason it's remained the reserve currency is because since 1980, the United States has had extremely large trade deficits with the rest of the world. In fact,$16 trillion of trade deficits with the rest of the world. And that has thrown out$16 trillion into the global economy, making the trade surplus countries$16 trillion richer. And literally, they have$16 trillion. And with these$16 trillion, they must invest them in U.S.

6:25dollar assets like Treasury bonds or stocks or Fannie Mae and Freddie Mac bonds or corporate bonds. So this money boomerangs back into the United States and helps finance our very large government budget deficit. So this has been very advantageous to the entire world because it's allowed the rest of the world to grow much more rapidly than they otherwise could have by selling$16 trillion worth of goods to the United States that they couldn't have otherwise done. And it's been very beneficial to the United States because that$16 trillion has come back and been invested in U.S. dollar assets, pushing up the stock market, pushing up bond prices and holding down bond deals and making it very easy for the government to finance its extremely large government budget deficits.

7:14Yeah, so the point here is this. Back in the Bretton Woods in 1940, was it 1944, the agreement, the US dollar became the reserve currency, but it promised we would back our dollars with gold. And that's when Tricky Dick Nixon in 71 took us off the gold standard, which made the dollar, US dollar, 100 % credit, debt. and now we print and print and print and print and print and we're now I think the U.S. national debt is like 36 trillion off balance sheet off balance sheet liabilities including social security medicare the estimate is around 250 trillion and then they will say well Japan's in deep trouble also so is Japan but they're financed internally I mean their debt is financed by the Japanese people, the world finances America.

8:14And when they start dumping our bonds, which they're doing right now, that's what I want to find out from you. As again, a classically trained economist, worked with the IMF and the World Bank, and you're sitting in Thailand out there next to our buddies in China. I'm going, que paso? What is going to happen, Richard? How serious? Because you wrote the book, The Dollar Crisis. Can it be a much bigger crisis than this? Right. So I wrote The Dollar Crisis in 2002. And that's the one that you saw. And that's how we got to know each other. And in The Dollar Crisis, I was very worried about these very large U.S.

8:59trade deficits that were destabilizing the global economy. They were blowing the trade surplus countries into bubbles like Japan and later on China. The money was boomeranging back in the United States and blowing the U.S. into a bubble. And I said, this bubble in the U.S. is going to pop and it's going to lead to a financial sector crisis and a severe recession and probably a collapse of the dollar standard and the dollar reserve currency status. Well, so that collapse actually did happen in 2008, and the financial sector almost did collapse. There was a very severe recession, but the government managed to reflate the bubble with trillions of dollars of paper money creation and trillions of dollars of budget deficits.

9:46So the Great Depression that I foresaw at that time didn't happen. I just jotted down of how things have changed since then, 22 years ago. At that time, the trade deficit was$450 billion in 2002. Last year, it was more than twice that much,$1.1 trillion. And the cumulative deficit, if you add them up over the years, in 2002, the cumulative deficit was$3 trillion. Now it's$16 trillion. In 2022, the U.S. government, the total debt in the U.S. was$33 trillion. Now it's$100 trillion, so three times larger. The government's debt in 2002 was$6 trillion. Now it's$36 trillion, six times larger. The total assets of the Fed, how much money they created back then, that was$700 billion.

10:50It peaked a couple of years ago at$9 trillion. Wealth in the United States in 2002 was$46 trillion. Now it's$169 trillion. And China's economy in 2002, it was$1.5 trillion. Now it's$18 trillion. Gold was$300. dollars. Now it's$3 ,500. So my point is that by keeping this bubble inflated in 2008, and again in 2020, it's made this global bubble so much larger than it was when I first wrote the dollar crisis in 2002. Now I think we're so much more vulnerable than we were then, And it's going to be so much more difficult to keep this bubble inflated. I think we're moving into this new period where the dollar is going to plunge like it did after 2002.

11:54Between 2002 and 2008, the dollar fell 41%. And that had seriously destabilizing consequences for our trading partners, for the global economy, for the U.S. financial markets. And ultimately, the global financial crisis blew up entirely in 2008. So now we're in this situation where we have a much bigger bubble and much less firepower to try to combat it if the bubble pops. So now we're turning to your question about what's going to happen if other countries start dumping our treasury bonds. This is a real concern. And so President Trump, as you know, has put up very high tariffs on all the countries in the world, but especially on China, 145 % tariffs on China.

12:51And he has a plan. There is a strategy. The strategy was laid out in a paper by a person called Stephen Moran, who is the chairman of the Council of the President's Economic Advisors. And here's Moran's three-step plan. Step one is to put very high tariffs on all the countries of the world. Step two is then to threaten all of the other countries in the world to remove the United States security umbrella from them if they dare to retaliate against the high U.S. tariffs. And step three is then to force all of these countries to devalue the dollar into an agreement to devalue the dollar, like a new Clausa Accord.

13:40This would be called the Mar-a-Lago Accord. Now, everyone has read this paper by now in terms of the policymakers, central bankers, the hedge funds, all the big banks. So they know that President Trump wants to devalue the dollar. This is the main part of the strategy. So the only sensible thing for anyone to do who understands that President Trump wants to devalue the dollar is to sell U.S. dollar assets as quickly as they can before the dollar gets devalued. Because if the dollar gets devalued, it's already dropped 10 percent from January. It could drop another 30 percent or 40 percent. They would be all of their they would all of these people, especially the foreigners holding dollar assets like treasury bonds would suffer enormously from a huge devaluation.

14:34So they want to sell their treasury bonds and their other dollar assets like stocks. And this is what they've been doing.

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16:17Again, that's richdadlovesgold.com or text guy at the 24999. Are you diversified or are you diversified? This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with the name your price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it at progressive.com. Progressive Casualty Insurance Company and Affiliates. Price and coverage match limited by state law. Not available in all states.

16:55So the big round recently was because of the COVID pandemic. All the governments incurred enormous trillions of dollars worth of debt. And their central banks helped finance that government borrowing by creating trillions of dollars. And that pulled us out of the COVID depression and set off a boom with all of the new money they created, especially in terms of asset prices. And it also caused high rates of inflation. Now to fight the inflation, the central banks have increased interest rates very significantly. And even more importantly, instead of creating money as they were doing through quantitative easing, now they're doing the opposite.

17:40Now the Fed is destroying$95 billion every month through quantitative tightening. And that's sucking the liquidity out of the financial markets. It's like just, you know, imagine a ballroom full of investors. And suddenly the Fed starts taking the air out of the ballroom. At first, they don't notice, but then it becomes hard to breathe and they all run to the exits. So we're right now where liquidity is getting tight and it's probably going to be very hard on the financial assets in the months and quarters ahead. How are they tightening? What are they doing? What specifically are they doing to tighten?

18:17Well, so in terms of interest rates, they've increased interest, the federal funds rate from zero to now five, five and a quarter, five and a half percent. So that's really very radical interest rate hiking in such a short period of time, just about 15 or 16 months. But in terms of quantitative tightening, they are literally taking$95 billion a month out of the financial system and destroying it. You know,$95 billion adds up over a year. That's$1.1 trillion, or about 13 % of all the dollars. So this is rather than pumping money into the system, making everything appreciate, now they're sucking the money out of the system.

19:04And we're getting to the tipping point where I'm afraid that asset prices, especially the stock market, which is very expensive, but other asset prices as well are likely to suffer and perhaps take quite a big tumble because they're really very expensive compared to their normal levels. So they're very vulnerable to a correction. Right. What that means for those who on the macro side is when the Fed creates money, it puts money kind of into the system via big banks like J.P. Morgan, Wells Fargo and all that. And then you and I walk up and businesses walk up to J.P. Morgan, Wells Fargo and your local bank, your original bank down the street.

19:45And then you borrow money. So money comes into existence via debt. When the Fed takes money out of the system, that means there's no debt being created. That means no money is entering the system. And where it shows up right now is credit card debt is at an all-time high because mom and pop don't have any money. It's crushing America right now. So credit is going out and the economy is crashing as we speak. Well, so yes, they've increased the interest rates to make it more difficult for people to borrow. They want people to borrow less and spend less so there'll be less demand, and that will cause inflation to fall.

20:29And they also want to take away some of this new money that they created during the pandemic, also to make liquidity conditions tighter and to bring down the inflation. So I have a question. If they're raising interest rates, which makes everything more expensive, which makes it more expensive to borrow.

20:52Aren't businesses passing that along to their customers so the prices would go higher? I mean, I don't understand how that is a hedge to inflation because I would think everybody's going to raise their prices because everything just got more expensive. It's happening in real estate. It's happening in rents. Isn't that happening across the board? Well, when it becomes more expensive, I mean, when interest rates go higher, then it becomes impossible for the consumer to be able to afford to borrow money at the higher interest rates. So that kills the demand and people just have to stop buying. So the companies can't push up their prices because if they do, they won't be able to sell their products.

21:31So the demand drops and then the companies either sell less or they begin to reduce their prices. and that's how the inflation comes back down again. So there's two things happening, is that interest rates are going higher and they're pulling liquidity out of the system so people can't spend money. And so that's causing this huge crisis because we said pretty much there's two things, right? Interest rates are higher, they can't borrow, so that's less money coming into the system, plus they're QTing it, quantitative tightening it, that we're drawing money out of the system. And then suddenly you see businesses start to fail because mom and pop don't have any money because they're maxed out on their credit card.

22:18I mean, that's kind of, that's the macro system there. That's right. But what we've seen up until really right now is the economy has been surprisingly strong. See, Americans can't see the bricks. It's out of their picture. Brazil, Russia, India, China, South Africa. and the Belt and Road project or the Silk Road project. What do you think those guys are up to against the dollar? So they used to all be very strong and moving together so they could be grouped together under this heading of the BRICS. But now they're all moving in different directions for different reasons. Russia's economy is in serious trouble because of this ill-advised invasion of Ukraine.

23:02And it's not doing very well. And they've got lots of sanctions imposed on them. They can't import any high-tech semiconductors, for instance, so they're going to run out of weapons. So their economy is in crisis. And, of course, as you know, I believe that 20 years from now, oil is not going to have any value whatsoever. And their economy is entirely fueled by their earnings from oil and gas. So they're looking at a very dire future, in my opinion. China, they have the biggest bubble in history probably, but since they have a totalitarian government that can make the banks continue lending and continuing to invest, their bubble will probably not collapse into any kind of Great Depression, but it is not at all inconceivable that they'll just stop growing the way Japan stopped growing 20 years ago.

23:54And that will be a huge change for the world because China's growth has driven the global economy since 2008 when the U.S. stopped playing that role. So no growth in China is a very big deal. India has better prospects because it's a little more friendly with the United States, and a lot of companies now realize that they'd probably better move their factories out of China, which the United States is becoming increasingly hostile toward, and move it somewhere safer with a lot of low-cost labor like India. So India's prospects are the best among the BRICs, in my opinion. From an American's point of view, sitting in Thailand, what are the odds of China going after Taiwan?

24:42Your opinion. It's a possibility. It's a possibility I'll be 6 '5 next week. It probably won't happen because it would lead to a war between the United States and China. And at the very least, it would result in an economic calamity in China because China's trade surplus with the United States, the amount of goods China sells to the U.S. over and above the amount the U.S. sells to China is more than$1 billion every day. more than$400 billion a year. So right away... How much a day? $1 billion a day. That's the trade coming back and forth between China and America? That's China's trade surplus.

25:34That's how much profit they make every day. More than$400 billion a year that they would lose overnight in an effort to recover if they invade Taiwan. So that's a very big incentive for them not to do it because unemployment would go up, It would cause social instability that also end up having some of their cities wrecked and the Communist Party might be overthrown. So that's probably the biggest reason they're not going to do it this decade. And the reason I asked that question was to set up your book, The Dollar Crisis and Corruption of Capitalism. One of the things you said, you know, in the dollar crisis was after Nixon took the dollar off the gold standard in 1971, which was the corruption of capitalism, because you could print money to pay bills, the U.S.

26:18dollar. What you said was that the reason there wasn't inflation was because China was producing so much, they could send goods over to America, like even our pharmaceuticals, at such low prices that Americans didn't feel the inflation. Once again, it's the high productivity of the Chinese people that kept inflation low in America since 1971. Anything you want to say about that? And they're very low wages. Of course, when this started in magnitude or in quantity around 1990, the Chinese factory workers, when I first saw the Chinese factory, it was 1989. And it was full of 19-year-old women earning$5 a day.

27:05And there were factories like that even then, 30-plus years ago, as far as the eye could see in all directions, full of people working for$5 a day. And that was the main source of global deflation and disinflation that held, that brought the interest rates in the U.S. down from interest rates and inflation, you know, in 1980, were double digit. In early 2015, they were practically negative. But it also meant the export of jobs to China. Monday, AI agents took over my work. And I absolutely love it. Chasing deadlines, writing status reports, updating stakeholders. Agents handle the daily grind now.

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28:42So, Richard, I have a quick question. What are your thoughts on China and Taiwan? I don't think there will be a war anytime soon because it would be so catastrophic for China's economy. If they attack Taiwan, then the United States will stop buying goods from China. And right now, the United States buys$400 billion worth of goods from China every year. That's over and above the amount of goods that China buys from the U.S. So they would immediately lose profits of$400 billion a year, and that would destroy their economy and probably their political system. So for that reason, I don't think they will anytime within the foreseeable future.

29:23And then, you know, the whole area you're in, that area of Southeast Asia, that's one of the richest parts of the world. I mean, you have pretty stable economies and you have hardworking people. As you said, I was in Vietnam last month, and it was incredible. They've had such an economic boom there for the last, well, since we have our trade agreement with Vietnam, which started around 2000, they have been completely transformed. Their trade surplus with the U.S. last year was$120 billion. And now Ho Chi Minh City used to be very quaint and all low rise. Now you go there, look across the river.