The US dollar’s value is tied to America’s ability to project military power, maintain an international alliance system, and pursue shared values – all of which are currently being undermined.
A potential collapse of the US dollar could result from America losing its military manufacturing edge, failing to provide nuclear guarantees to allies, and abandoning the pursuit of shared values.
The US military’s manufacturing capability has declined to just 2% of global manufacturing, severely impacting its ability to produce ships, planes, and missiles at rates comparable to World War II.
Resource nationalism is identified as the #1 threat to the Western mining system, undermining the rules-based order and corruption-free environment that Western miners rely on.
Nationalization of gold mines is considered inevitable in most countries, even during prosperous times, often implemented through a “salami strategy” or outright takeover.
Gold is regaining its status as a strategic asset due to its currency status, supply and demand dynamics, and perception as a store of value, with Dr. Kaplan predicting a bull market in gold.
China’s Belt and Road Initiative is viewed as a strategy for strategic control over natural resource deposits, including rare earths where China is 30 years ahead of the US in processing technology.
The Chinese initiative is seen as a sound strategy to build economic networks while engaging in an unprecedented military buildup to translate economic power into military strength.
Central banks have been rapidly increasing their gold reserves over the past 3 years, breaking 40-year records, as a hedge against economic uncertainty and potential currency devaluations.
Empires can collapse quickly when they fail to understand the root causes of their decline, such as loss of manufacturing edge and failure to adapt to changing global dynamics.
NovaGold’s Donlin project boasts 45 million ounces of gold resources with a grade of 2.25 grams/ton, twice the industry average, projected to produce 1 million ounces/year in the US.
The Donlin project is considered a strategic gold asset under the US administration’s spotlight as a critical mineral, with a decades-long mine life and low cost structure due to its high grade.
The US is experiencing a crisis of national identity at a time when China is enjoying a strong sense of purpose, with America’s self-inflicted wounds viewed as inexplicable and short-sighted.
A potential Chinese financial crisis could lead to complete social displacement in the West, potentially establishing China as the acknowledged global leader due to its stronger sense of national purpose.
The US dollar is projected to decline 25-50% over the next 5 years due to fading US economic outperformance, not loss of reserve currency status.
US fiscal policy since 2020, including COVID-19 stimulus and 2017 tax cuts, has been unfunded and expanded the deficit, contributing to the dollar’s expected decline.
The dollar’s reserve currency status is less relevant than its use in financial transactions, which has network effects making it difficult to lose its role in pricing assets over the next 10-15 years.
The dollar’s share of global foreign exchange reserves has decreased from 70% in 2000 to 57.8% in 2024, indicating a gradual shift in global currency preferences.
Investors should diversify portfolios out of US assets, as most are currently 90% overweight in US holdings, to prepare for currency shifts and flows into emerging markets and non-US assets.
Fiscal policy, trade policy, and the implementation of orthodox macroeconomic policies by the US administration will be more crucial than monetary policy in determining the long-term yield curve and economic performance.
The Fed’s program pays major banks $1.1 trillion to park money in their vaults, offering 4.15% interest on $3.5 trillion in reserves, accounting for 70% of profits in the American banking system.
This program effectively siphons nearly $200 billion annually from dollar holders, with the Fed printing money to finance federal deficits and artificially boost the economy.
Ending the program could release roughly $1 trillion into lending, potentially lowering interest rates on loans, mortgages, and government debt, while creating jobs.
The Fed claims the program is necessary to manage inflation, but critics argue it’s a mechanism to hide inflation caused by money creation.
Terminating the interest on reserves program would allow the Fed to “nudge inflation” by releasing frozen reserves, exposing part of the hidden inflation during the Biden administration.
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