The Upcoming Financial System Collapse: How to Protect Yourself as the US Dollar Comes to an End

Who can you trust? What can you trust?

People rarely acknowledge the importance trust plays in our economy; every transaction requires some level of trust.

If someone gives you a dollar bill, you trust that it’s not a forgery. You trust that the bank will honor it. You trust that the US Treasury Department will guarantee its worth.

It is this blind faith and trust that allows our current fiat monetary system to exist as it has for the past 50 years. Few people challenge this trust, and even fewer people understand that the current monetary system is broken and doomed to fail.

Current Fiat Money System: Federal Reserve Notes and U.S. Treasury Bonds

To understand why and to protect yourself, one has to understand the current fiat money system. The concept of the fiat system goes back to ancient times--ever since mankind discovered that people’s debt has value and can be traded on someone’s promise to pay.

It is no secret that the United States has been in a spending deficit for all but four years since 1970.

When the US needs to spend money that it doesn’t have, it incurs debt by selling pieces of paper called US Treasury Bonds in the market that are ultimately bought by the Federal Reserve.

The Federal Reserve creates equally impressive pieces of paper that we spend everyday called federal reserve notes (US dollars) and trades these reserve notes for the bonds.

When the exchange is complete, the US government deposits the federal reserve notes in a bank account, and the federal reserve notes officially become legal tender, adding the amount of the notes to the money supply.

And there it is! This new money has been created essentially out of thin air.

Of course, this example is an oversimplification.

In reality, this process would occur without any paper used at all.

The exchange of the bonds for the federal reserve notes and the creation of money would just be an addition or subtraction on a digital ledger.

This is a mind numbing conundrum of how value or our money can be created out of debt.

Let’s take it further, once the legal tender federal reserve notes are deposited in a bank account, then the fractional reserve banking system takes hold.

The system works, for example, when you deposit money into your account, the bank shows 100% of it in your bank account, but it is permitted to loan some of it to other customers.

Let’s say that a deposit of $1,000,000 is made into a bank account. By law, banks only need to keep maybe 7-10% of the money that they loan out to be held as the required reserve.

So if a person or business went into a bank to request a loan, the bank would hold $100,000 in reserve, and the remaining $900,000 can be considered the basis for new loans.

It’s reasonable to assume that the $900,000 loan is coming out of the bank’s deposits, but this is not the case; the $900,000 is created out of thin air on top of the original $1,000,000 deposit.

The banks do not really pay out loans for the money they receive as deposits. The bank simply accepts a promissory note or loan contract and debits the borrower’s account electronically for the $900,000 loan.

The original account still shows the original deposit of $1,000,000, however the borrower’s account shows $900,000 so there is $1,900,000 in the system. The bank simply types in a computer that the borrower’s account now has $900,000.

In other words, the $900,000 above the reserve requirement can be created out of nothing simply because there is a demand or a loan and the reverse requirement is met.

Without a doubt, the $900,000 loan that the client receives will end up in another bank account where that bank will keep the required reserve and create more money out of thin air by loaning the remainder.

That loan ends up in yet another bank account and this process continues for infinity in theory.

Almost all of this money that does not exist or is created out of thin air is a loan that must be returned to the bank with interest.

If the money that is held in banks as well as the money supply that is expanded by the fractional reserve banking system is considered the “principal,” then where does the money to cover the interest payments come from?

It is nowhere. It does not exist.

The US dollar and the wealth of a nation is debt that it can never pay back.

You can say that debt is money, and money is debt. Every dollar that you hold in your wallet or checking account is owed to someone else. To illustrate this, if everyone tried to withdraw 10% from their bank account simultaneously, everyone would learn the truth; the money does not exist and never did.

Also, if all the money in the United States or almost any country was collected to pay off the national debt, all the money in circulation wouldn’t come close to paying off the national debt principal and interest.

All the government can do to cover its scheduled interest payments is create more and more money out of nothing.

As this continuous flood of new money circulates in the economy, it steals value from the existing money supply as there are increasingly more dollars to pay for approximately the same amount of goods and services.

Prices for goods and services must rise per the law of supply and demand, which is what we all know as inflation.

Inflation is a hidden tax to the public as the purchasing power of the US dollar decreases each and every year.

For instance, the value of the dollar, or what you can buy with a dollar bill has decreased by 96% since 1913.

It is impossible for inflation to be stopped. The more debt there is, the more money there is. The more money there is, the more debt there is. It’s a perpetual cycle.

If this sounds dysfunctional, backwards, and counterintuitive to you, then you are correct.

In fact, every fiat currency similar to our current federal reserve notes (US dollars) has failed in history.

The average lifespan for a fiat currency not backed by tangible assets is around 30 to 40 years.

We see currencies collapsing all around us in countries such as Venezuela recently, Zimbabwe in 2008, and the German Mark prior to World War II. In each of these countries, inflation got out of control to the point where the currencies were nearly worthless.

The US dollar is going through the same collapse today. The hyperinflation in places such as Venezuela, Zimbabwe, and Germany is the same inflation that happens every year in the United States; the only difference is the speed of the inflation.

The US dollar has existed as a fiat currency for the past 50 years or so, and history tells us that the current system is not sustainable.

History doesn’t always repeat, but it often rhymes.

If the only value of the US dollar is trust in the government to pay its debt, then we know that this trust is unfounded.

Digital and Decentralized Currencies

Bitcoin

Most people think of bitcoin as magic internet money; however, it is actually fundamentally the greatest currency humans have ever created.

It is not a coincidence that Bitcoin was created in 2009 right after the financial crisis of 2008. Bitcoin is a digital currency that operates free of any central control or oversight from governments and banks.

It runs off blockchain technology, where a block is a chunk of information that is created when a transaction of some sort occurs. The blockchain creates a permanent, immutable record of each transaction in a peer-to-peer network where the transactions are stored, linked, and verified by thousands of servers called nodes.

This makes the Bitcoin network nearly impossible to hack as to do so would require someone to gain control of tens or hundreds of thousands of these private nodes at the same time.

The links between blocks cannot be broken, and the blocks themselves in the blockchain cannot be opened, making the network outside of government or bank manipulation.

The Bitcoin network is a public ledger where anyone can see the underlying Bitcoin source code and all the Bitcoin transactions since its creation, although one can still use the network anonymously.

This transparency removes the need for any trust in our financial system. As we’ve seen, too much trust in centralized government and banks can be detrimental.

Programmed in Bitcoin’s software code is inherent scarcity as well. There can only ever be 21 million Bitcoin mined, and there will only be this number of Bitcoins to ever exist.

This completely removes the grip of any government or bank on an economy's money supply as it is impossible for any centralized entity to infinitely print more Bitcoin as they do with dollars, which is leading to the destruction of our fiat system.

In fact, Bitcoin satisfies all the qualities of reliable money: It is scarce in its 21 million coin limit. It is fungible as a Bitcoin can be subdivided into a hundred millionth of a Bitcoin known as a satoshi for small purchases. It is recognizable as it is becoming known and accepted worldwide. It is substitutable in the sense that a Bitcoin is a Bitcoin and are identical no matter where you are in the world. Finally, it is the most portable in the sense that it is digital and is following the trend of digital payments of the last decade as opposed to physical gold, silver, or cash.

While it is not perfect, the security and transparency of Bitcoin makes it our best decentralized, trustless solution in combating the control of governments and banks that wish to inflate or debase our currency into ruin.

Ethereum

It is important to also mention Ethereum in this conversation of decentralized finance.

Ethereum is also a peer-to-peer network similar to Bitcoin in its use of blockchain technology and using “eth” as the payment or currency in its network.

Like Bitcoin, the Ethereum blockchain and source code is entirely public, and the transactions in Ethereum are permanent and immutable.

As of this writing, the downside of Ethereum is that eth has an unlimited supply unlike Bitcoin, which makes it inflationary in nature and more suitable as a utility token rather than a currency or store of value. However, this issue will be addressed in future upgrades to the Ethereum network.

Some of the true value in Ethereum lies in its superior smart contract capabilities.

Smart contracts are self-executing contracts within the Ethereum network, where the terms of the contract or agreement are embedded directly into the code of the smart contract.

This code controls the execution of the contract on the decentralized blockchain network, and these transactions are trackable and irreversible.

These smart contracts allow trusted agreements and transactions to be carried out without the need of a central authority, external enforcement, or legal system.

For example, a farmer could use a crop insurance smart contract which would automatically pay the farmer in the case of drought, excessive rain, or hail without the arbitrary discretion of a traditional insurance company.

People could request loans anonymously through an Ethereum smart contract that are paid out based on public, predetermined requirements to quality where one could not be rejected based on ethnicity or financial status.

The value of Ethereum goes a lot further than just smart contracts, however, as nearly anything could be “tokenized” or recorded immutably for record keeping purposes.

In an election, votes could be permanently stored publicly on the Ethereum blockchain to remove any doubt that your vote was not counted or falsified.

Posts on a social media site based on blockchain technology could not be removed or censored by centralized companies such as Facebook or Twitter.

An apple’s journey on the supply chain could be documented transparently and unaltered from farm to grocery store so one could trust that it is really organic.

Stocks, copyrighted material, and assets will be digitized on the Ethereum blockchain to irrefutably prove ownership.

In all, cryptocurrencies like Ethereum and Bitcoin may just democratize the internet and our financial systems in the sense that everyday people will be in control of their data, privacy, and the value or sustainability of our currencies.

If cryptocurrency is the people’s money, then gold and silver have always been God’s money.

Precious Metals as Currency

Gold and silver have been seen as currency or stores of value since antiquity.

It is referenced in the Bible, and gold and silver were two of the six earliest metals known to prehistoric man.

Gold and silver always had universal appeal across time and geographical space.

Somehow, isolated civilizations across the world with no contact with one another throughout history recognized silver and gold as objects of value.

Humans have always been physically and emotionally drawn to these metals, and the aesthetic value of precious metals has always had a permanent presence in our global economy.

It is no secret that physical gold and silver in the form of bars or coins are the ultimate inflation hedges you can own.

Gold and silver are the only forms of money that have stood the test of time despite hundreds of other commodities or fiat currencies failing over the thousands of years of mankind’s history.

There is only a finite amount of precious metals on earth, so they will always have intrinsic value that cannot be diminished over time due to their relative scarcity.

For example, if a silver dollar coin in 1964 could buy you three gallons of gas, then that same silver dollar coin would buy you at least three gallons of gas today in 2022, or more based on the value of its silver content. You would also maintain the same purchasing power for gold over time.

If you had a paper dollar bill in 1964, it would still be worth just one dollar today in 2022, and could only buy you about one fourth of one gallon of gas.

Physical silver and gold are just inert pieces of metal that do not produce any revenue, pay any dividends, or yield interest.

It is not the value of silver that has gone up in this example, but the value of the dollar has been debased over time due to inflation, so it takes more dollars or fiat currency to buy the same amount of precious metals or gas.

In addition to an inflation hedge, the value of silver and gold may increase in the future due to industrial demand.

This is especially true for silver since it has the best thermal and electric conductivity of all the elements and is also the most reflective metal. In our modern digital age, the demand for silver can only increase as it is critical for all electronics such as computers and smartphones.

Silver is also integral for electric vehicles and solar panels, which are industries that will explode in the coming years due to climate change concerns.

Gold has many industrial applications as well, but is much more rare and expensive than silver, so it is not available in as much abundance as silver for manufacturing.

On the flip side, gold’s rarity makes it the monetary metal of choice to be held by central banks and large institutions.

While Bitcoin and cryptocurrency may perhaps be the future of decentralized finance and money, it is a speculative bet based on global adoption and the ability of the technology to increasingly scale.

Silver and gold are truly safe haven assets as there is no substitute. Nothing can replace more than 5,000 years of history when it comes to gold and silver.