There is trouble brewing for the US dollar, USD, which is a problem for America. The rhetoric from China, Russia and now India is going to weigh heavily over the green back in the near future. Many may ask why this is a big deal or what alternative may these countries have as a reserve currency. The answer is it is a big problem, but luckily there is no immediate substitute for the USD in the near-term.

What we have seen over the past few months is China and Russia balking over the dollar as the reserve currency. One day they are talking down the dollar and the next they are embracing it. What this means is that they may be moving out of much of their dollar holdings, but we will not know for a while whether this is happening or not.

We do know that both countries have begun to buy IMF bonds and China has been buying commodities. Also China will begin to start trading their currency more freely in the near future, or at least they plan to. I believe this an opportunity to bring their currency into the limelight and make a bid to be a reserve currency. Whether this will happen or not is years away from actually happening, but it is a very real threat.

While China and Russia balking at the dollar is not new, the fact that the Indians are now questioning it is more troubling. The big problem is that the dollar has lost much of its value over the last 30 years through inflationary policies by the Federal Reserve. The argument over whether this is a result of being off the gold standard is irrelevant, although it is the primary reason for the decline, and a moot issue at this point in time.

The fact that the dollar has lost so much ground, with the exception of the recent crisis, is the problem. Given that since much of the major crisis is over the dollar resumed its decline is of concern to our trading partners who hold trillions of our treasuries. They, presumably, are thinking that hey since we bought these bonds they are now worth less and is this going to stop? The fact is with all of the printing and spending by the Federal Reserve and our government the devaluation will not stop, it can’t because of simple dilution.

Our stimulus is a joke filled with pet projects and waste which will not produce any or hardly any long-term jobs. Instead if you look at the Chinese stimulus, they did it right by issuing vouchers to buy specific items and by increasing lending, unfortunately politically motived lending, was the correct way to stimulate the economy. However, in the US we have a spending problem and need to spend less and save more so we are in favor of letting firms fail who are being propped up merely to survive in order to save jobs, but now are malinvestments depriving productive companies of credit and resources.

Regardless, this story is being ignored by the media and is considered preposterous to think the world would ditch the USD. However, it is beginning to happen whether we like it or not. I am not one to embrace this, nor do I know anyone who would embrace the USD losing its value, but nevertheless it appears to be happening.

This message is not just our own view, but also Peter Schiff’s, many others in the Austrian School and many beyond. we have covered this previously, but feel it is very important for people to understand what is going on. Some say the Chinese would take horrible losses on their holding by scrapping the dollar, we say not so fast. Do you think the Chinese and others would like to loose on a trillion dollar bet or do you think they would rather loose on a multi-trillion dollar bet? We think the former is more likely.

So what can you do? Well, you can do nothing and hope for the best, that is the preferred message of most. You could move out of the dollar into other currencies through direct exchange or by investing abroad in those currencies or you could buy gold, silver and other metals. Each way has its own results, some less appealing than others, like doing nothing.

The move away from the USD may not happen overnight, but the talk is getting a bit scary out there from many of our trading partners. We have no idea how long any of these predictions would take, but we know they are happening. It could happen Monday morning or it could take 3 years to unwind. What we do know is that the same people who said everything was fine in 2006-2008 say that the dollar is fine while those who were right, Austrians and Peter Schiff say run now from the dollar. I do not know about you, but I prefer to listen to winners rather than losers.

Peter Schiff just posted this video talking about what we just wrote about a few hours ago.