Why Is The U.S. Dollar So Strong?
If you’ve been paying attention to the news, you may have heard that many countries are currently experiencing high inflation as the cost-of-living crisis deepens.
As a result, most central banks are attempting to undo their huge error by raising interest rates.
As investors become concerned with both the policies of foreign central banks, such as Japan and Europe, as well as the underlying economic strength of those countries, they choose to move their own currency into the USD for risk management and protection.
Of course, this becomes something of a self-fulfilling prophecy. How?
As the USD strengthens and other currencies weaken, this puts pressure on countries who have US Dollar denominated liabilities (think payments for oil or energy that are set in USD) or issue US Dollar debt. The weakness of their own currency relative to the US Dollar negatively impacts their ability to meet the obligations or interest payments.
Ultimately, it forces certain countries in emerging markets to either print more of their own currency to buy more US Dollars (which eventually leads to hyperinflation) or simply adopt the USD as their base currency.
In other words, other fiat currencies are being devalued at an even faster rate compared to USD.
That’s right, their currency disappears as the US Dollar swallows it.
Which leads to the US Dollar Milkshake Theory.
What’s the Dollar Milkshake Theory?
Brent Johnson coined the term to push forward his controversial theory that the world will be consumed by the USD which would wreak havoc on all foreign currencies especially in the emerging markets.
Here’s an explanation by James Lavish:
Let’s say you have a milkshake, and you’re sitting at another table, all the way across the room. Now let’s say I have a straw. A really long straw. So, even though you’re all the way across the room, I can plunk my straw into your milkshake and drink it.
This is what the US Dollar can do in the Dollar Milkshake Theory.
The milkshake, in this case, is a foreign currency. The straw is US Dollar denominated liabilities, US Dollar denominated debt, Eurodollars, central bank and major global bank liquidity, government bond interest rate differences, etc.
The one doing the drinking, of course, is the US Dollar itself.
And so, as weaker foreign currencies fall prey to the concerns and structural issues above, they eventually become consumed by the US Dollar. And eventually most, if not all, currencies are folded into the US Dollar.
What does this mean for the USD?
The USD will look like a safe haven for assets while other countries’ fiat slowly collapse as the dollar-system strengthens.
This will drive foreign investors to flood capital into the USD. However, in a counter-intuitive way; other countries will gradually move away from The Dollar as the reserve currency.
The rationale is, The Dollar is supposed to be the glue that facilitates global economic cooperation. It is not in the best interest of the rest of the countries that the USD becomes too strong to use. This is already happening as we speak and in accelerated fashion.
Hence, the best solution in the short to medium term would be to earn as much as you can in USD.
While earning interest in a traditional savings account brings an average of 1% APY and top-yielding CD rates pay over 2%. This is not at all enough to even outpace the ”official CPI” inflation rate of 9.1%. When in reality the inflation rate is closer to 18%.
That is why I choose to earn a higher savings account rate via Stablecoins like USDC or USDT. The highest APY rate I can get today on Stablecoins is 12.6%. (Check this page for updated rates!)
Scared of a recession? This is my plan for it
I’ve seen a lot in my decade as a digital marketer & an investor.
A lot of highs. A lot of lows. And enough recessions to notice some patterns.
My main takeaway? Prepping is always better than Panicking (even if it seems like the only logical choice).
I’ve seen tons of success stories involving ordinary people doubling down on their financial preparation efforts, even in the choppiest of economic waters.
Do you think Amazon was always the Amazon of today? Trust me—they looked a lot different pre-dot com bubble. And after the crash, they thrived.
I have built a financial plan for years to weather the coming storm. If you want to understand why; You can read this (long read!!):
https://entrepreneurshandbook.co/for-the-war-fd5509d525d
Here are my thoughts…
You can start by converting your local fiat money into USDT or USDC via Instant Swap Services. Only through Stablecoins can investors earn more than 10% APY on their funds.
Then, when you divide your portfolio; think in terms of time preference rather than diversifying your assets.
If you really want to be safe (conservative); Divide your portfolio based on the four-year moving average of bitcoin.
If you have money that you can afford to put away and hold for more than four years, you would be foolish to store it in a fiat currency; even if it is the strongest fiat currency in the world.
Yes. It would still be foolish to store money for more than four years in The Dollar or Stablecoins for that matter.
Any excess money that you want to hold for 4 years or more. Decades even, it should be in bitcoin. Maybe a home if you need a place to stay. For me, I just rent.
But, for less than four years; ideally you want to be storing in USDC or USDT while earning an APY of more than 10%. Four years of USD savings for me is still being too conservative. Two years is probably just right.
Regardless of where you stand, new investors tend to fall into one of two camps:
Playing the long-term game: Storing bitcoin in a hardware wallet and Hodl Or;
Trying to make a quick buck trading crypto
While trading has the potential to increase your net worth, the risk to reward ratio does not bode well for you. More than 80% of traders lose money. Including the ”Guroos” that are signaling to you as experts.
Ironically, trading becomes outright gambling in many scenarios. I’ve seen it far too many times in the last 5 years. You may be able to draw fancy Stargazing charts, but at the end of the day, you really are at the mercy of random events and The Whales.
No doubt, if you weren’t trading or investing your excess funds, it would just be sitting there and get eaten up by inflation.
Fortunately, there are platforms that offer yields like a traditional bank account except you earn it in USDC or USDT terms. And you can earn as high as 14.5% APY.
But remember, “not your keys, not your coins”. Transferring your Stablecoins to these platforms also means giving away control of your assets. You have to trust the platform to not run away or get hacked.
While not all Stablecoin Interest platforms are created equal, my list below breaks down these platforms in more detail.
I've made a lot of mistakes over the years. And sadly I don't have a time machine to turn back the clock.
But luckily for you, you don't have to make the mistakes I've made.
Do yourself a favor and start today.
Cheers,
Winson