We recently saw Donald Trump’s announcement warning the BRICS countries against attempting to move away from the USD for trade. This is probably the first time I’ve heard Trump talk about BRICS, and it has been absolutely fascinating to see the concept of the demise of the USD as the reserve currency crossing into the mainstream.

When I started talking about this possibility in 2006 while working for Tony in a different company, it was a fringe concept, and most people were either completely unaware or thought the idea was crazy. After all, wasn’t the US the most powerful military in human history and the wealthiest, most innovative country in centuries?

The notion seemed absurd at the time. Either way, the signs are very clear now. The only question remaining is whether it’s even possible for Trump (or anyone) to prevent this from happening.

Let’s quickly recap why America depends on the USD retaining the ‘exorbitant privilege’ of having reserve currency status.

It allows the US to run massive deficits every year with little consequence. In other words, America doesn’t actually have to make anything, it can literally just print money and purchase goods from other countries with little consequence for a long time.

But, of course, there must be a reckoning.

Every empire in history that has attempted this has eventually had a currency collapse simply because having the reserve currency (effectively forcing all other countries to use it for trade) means that you either have to print way more than you produce, which eventually leads to internal disorder and currency collapse or let your currency appreciate, which is terrible for exports and trade. In the long run both options mean you lose.

Obviously, our leaders don’t seem to understand history, economics, or anything else, and so we repeat the mistakes of the past. You only need to ask the Portuguese, the Spanish, the Dutch, the French, and the Brits.

In the past, the US military-industrial complex would stage a coup, assassinate, or invade any country that dared go against its will, but that is no longer possible with the BRICS nations.

It’s hard to imagine now, but the USD was not held in any global reserves before WWI. The bulk of reserves held was the British Pound, followed by the Franc, Deutschmark, and the Dutch Gilder.

Compare that to today, where it comprises nearly 60% of foreign exchange reserves.

With the Saudis refusing to renew the 50-year-old petrodollar agreement, the US dollar is now backed by nothing and is only being used because there is no credible alternative. This is where empires go to die. It took 10-15 years for the GBP to die after WW2, so I guess that might be the timeline remaining for the USD.

If we look at inflation in Britain after the Pound lost its reserve currency status, we can get an idea of the USD’s future in the coming decade. Anyone unable to hold assets during that time was financially destroyed, as money was lost in purchasing power. The death of the petrodollar agreement this year will likely be seen as a turning point when we look back on history.

But what about Australia?

Being a vassal state of Britain back then, Australia wasn’t spared either, and we can see clearly soaring inflation rates from the 1950s onwards in the graph below. After WW2, we effectively became a vassal state of America, and I can state clearly enough that we will almost certainly see history repeat this time. The only way to protect yourself against this is to accumulate good assets over the next decade and hang onto them. The real shame is that nobody bothers to study economic history – it is not even taught in economics degrees at university.

What happened to house prices in Australia after 1950?

I think the picture speaks for itself.

If we look at the BRICS countries, they seem unlikely to want to follow the US and the empires before it because they understand this better than we do. Instead, they accumulate as many hard assets as possible by ramping up their gold reserves before the time comes. It’s the responsible thing to do for the head of a state.

As heads of our households, we should also be responsible. One of the best ways to do this is to borrow money (which will eventually become worth much less) and buy up hard assets like property and factories that make real things. Let the debasement whittle away the mortgage debt and watch the asset prices soar.