The Dollar Isn’t Dying. It’s Tightening.
I am, in many ways, an intellectual child of the 2008 crisis.
At the time, I was working in service at a luxury auto group out in the Hamptons. I dealt with high net worth clients every day. People I assumed had everything figured out. Then almost overnight, that assumption collapsed.
What began at the top spread quickly. Friends, family, entire communities found themselves out of work or scrambling to stay afloat. I watched the news as what was National was, in fact, Global. Unemployment checks, extensions and schemes, stimulus programs, emergency policy responses, and near zero interest rates became the new normal.
To explain what happened, and why, there was also no shortage of politically charged explanations.
I grew up in a conservative household, so the framing was familiar. This was the result of liberal spending, deficits, and government excess. I was more left leaning myself, a real punk rocker, and that explanation felt incomplete. What about corporate greed and Wall St? They get a free pass?
I found Milton Friedman around that time. He was the first to break through. While I tried to despise what he was saying, the core of the message got through due to his uncanny ability to communicate and articulate so effortlessly; The first concept I understood was, “no free lunch.”
This was scary because, at the time especially, I saw nothing but free lunches served up as a political panacea. I was beginning to understand this would only make the problem worse! But, what was the problem?
But then I came across something that shifted my perspective.
There was this supposedly insane rich guy named Peter Schiff at Occupy Wall Street holding a sign - “I’m the 1%, let’s talk.” He took on any assertion, question, ridicule, etc and pointed the sentiment and conversation to where he believed it belonged - the system. The Federal Reserve. Central banking.
That stuck with me. Though I didn’t have much affinity for the wealthy at the time, here was someone redirecting the focus away from class resentment and toward the Federal Reserve. The most powerful part - he didn’t downplay the problems with disparate wealth or the corporate shenanigans etc. He simply asked who gave them the money to do these crazy things in the first place? To paraphrase his point, “If everyone at the party is too drunk - why is no one questioning the bartender who is pouring the drinks?”
At that point, I was firmly a gold bug. Schiff’s influence was real. The narrative was compelling. Sound money versus fiat distortion.
But it was reading Mises that clarified the core issue.
The problem wasn’t simply policy. It was the denominator; money and credit.
How else could every segment of the economy break at once?
From there, experience started to refine theory.
I have lived through meaningful ups and downs so far. Enough to understand that markets do not move in straight lines. COVID was a defining example. Repo market stress in late 2019 signaled something was wrong. I promptly moved to cash that November. Then, as the March collapse unfolded and policy response became unprecedented, I moved back in.
That was not ideology. That was the conditions of the time.
This is an important distinction. One overlooked by those who base their concrete investment decisions on ideological foundations. Most importantly: Ideology serves no place in your decision making. The market simply doesn’t care and the universe shall not bend to your wishes and will often subvert your expectations in this regard.
While I agree that should you believe something is wrong, you should make an effort affect change it, for the average retail investor that’s not the point of the exercise. I was, and am, simply on the lookout to make a return. That is what a retail investor can, or cannot, achieve. That is it.
How things are is what concerns me, however they “ought to be” is a matter for a different domain. One cannot make an is from an ought, afterall.
When I first was feeding this interest the temptation to confuse the two was enormous. I was going to buy gold, get rich, witness the return to sound money, and see the world change. To make a long story short; it’s just gotten worse. Much worse.
A major influence during this time was Robert Wenzel of Economic Policy Journal. I corresponded with him almost daily. If there is an intellectual debt in how I think about markets, it is primarily owed to him. His framing was simple and practical. If the boom creates the bust, why position yourself permanently for collapse. Ride the boom. Step aside when conditions change. This being said, there is nothing to be shy about when it comes to political / policy intrigue. As a matter of fact, it’s often quite useful when disciplined.
This approach stuck.
There have been times I have been long equities. Others, where I have been accumulating hard assets. Some, I have been in cash. The constant is not the asset. It is the framework.
For instance, recently, I was positioned heavily in mining equities. Silver, uranium, gold. It was an extraordinary run. I have been engaging in the endeavor since December of 2015 in earnest. Scooping up value for seemingly pennies. In particular one could buy GDXJ in the mid teens and, while tranching in, watch it move aggressively higher reinforcing your conviction.
At the same time, the narrative became unanimous.
Good ol’ Peter Schiff was making victory laps and could be spotted after years of absence on Fox News. Headlines turned supportive. Even the mainstream began talking about gold seriously. Most interestingly, discussions of the dollar losing reserve status were becoming quite commonplace. The
And then something small, but important, showed up.
I screenshotted it, sent it to my brother, and promptly sold all the equities and paper I had. GDXJ at the time was $142 and other positions held similar runs.
Precious metals were slammed days later. Silver had a 37% move in a single day from high to low, Gold 14.7%. It seemingly recovered. Schiff talked about how it’s a great time to buy. And then, weeks later, GDXJ would spike as high as $157. But not long after, it is 35% lower back near $100.
Why did I sell when everything looked so strong? I learned immensely from Rick Rule; one of the greatest resource investors I have ever come across. Since he is consistent in his reasoning for purchase, and spells that out, there is no shame or inconsistency when it comes time to sell.
Investing or even trading where appropriate, properly understood, is not done so in the way most people frame it. MAKE MONEY! It has been about preserving wealth through cycles and growing it. That’s an extremely difficult thing to do; so why risk just handing it back? The concern is always with profit all too often. No one pays attention to the potential, or reality, of loss which is far more damaging.
I know. I know. Simply making a new high and having $0 / 0% premium over spot does nothing. Didn’t I see what others were saying, “Inflation, war, government debt, etc.”
I get it. But most importantly, the signal beneath the noise is not any of these things:
It was dollar funding; i.e. dollar “shortage”.
What the Market Is Actually Saying
There is a growing problem in contemporary market commentary, particularly among those aligned with Austrian economics.
This being said, the high level critique is correct. The system is distorted. Intervention compounds itself and, to Schiffs point, cannot be stopped. The addict requires the dose and at higher and higher levels. Credit expansion has by all means replaced real savings. There really is zero turning back.
But the interpretation of current conditions is often wrong: We are told inflation is inevitable and that the dollar is collapsing. Gold therefore must rise.
Yet when you look at the actual behavior of markets, you see something different.
Commodities are not steadily rising, though they have been. Yet now, they are being liquidated. Note the choice of words there. Not sold. They are being liquidated. A 37% range in silver in one day, and such moves shared across other commodities, is not just a short squeeze or selling pressure. It’s outright liquidation.
But why? Look around. Credit conditions are not loose and in fact they are tightening everywhere. The dollar is not weakening. It is growing in strength, often lately very aggressively.
What is happening is that funding markets are showing stress, not abundance.
These are not the conditions of an inflationary breakout. These are the conditions of a system short of dollars relative to its obligations.
That is the key: RELATIVE to its obligations. I’m not saying there are trillions of dollars, I’m saying it’s a squeeze relative to obligations in the here and now. At that point, any asset may be put up for sale to get the dollars required to satisfy them.
That is a funding problem, not a printing problem.
Where the Austrian Framework Still Holds
I am not saying that the Austrians are wrong. I’m saying they are right, but some are not appreciating the current system and how that impacts things in the short to medium term. In the long run, for sure, the system is dead.
No one can deny this system is built on credit expansion. That, interest rates have been suppressed for decades upon decades at this point. Capital has been drastically and direly misallocated. Further, policy intervention does not resolve these issues. It bandaids some symptoms, brings about others, and extends and exacerbates the underlying malignancy. One that will surely kill the patient.
On this, there is alignment.
The Missing Mechanism
A credit based monetary system does not move in one direction. It expands, and it contracts. When it contracts, it does not feel like inflation. It feels like a shortage of money.
In a global system built on dollar liabilities, that shortage expresses itself as a shortage of dollars. This is what most commentary misses.
When conditions tighten, participants are forced to raise dollars. They sell what they can. Commodities, equities, even gold. This is the liquidation we are seeing. It is also the reason it could be “forecasted” ahead of time (oil shock, cross-currency basis widens, dollar rising, commodity liquidations, etc).
Prices fall not because value disappeared, but because liquidity is being demanded elsewhere. It is the Austrian cycle being laid bare. The capital structure is malformed and attempting to adjust; in that process, the dollar in our case rises.
Gold and the Reality of Liquidity
Gold’s role is misunderstood in these moments.
The standard narrative is that money printing leads to inflation, and inflation leads to higher gold prices. Ipso facto. That’s it. While that relationship exists, it is by no means linear. In periods of stress, which to the point of many who understand gold as insurance such as Simon Mikhailovich, gold is often sold to obtain dollars. That’s why it works so well as insurance.
Not because its long term role has changed, but because it is liquid. So instead of acting as an immediate hedge, it can act as a source of funding.
That is not a contradiction. It is a reflection of the system it exists within.
The Dollar Paradox
The most persistent misunderstanding is the belief that a broken dollar system leads to a weaker dollar. In reality, the opposite tends to occur. A system built and asymmetrically leveraged on dollar liabilities creates enormous global demand for dollars, especially during stress. So many of these dollars are “outside of the system” via the Eurodollar it forces the question, do policy makers / central banks truly have control. The answer is no. They can only react.
As demand rises for funding then, so does the dollar. Not because the system is strong, but because it is strained and constrained. Paradoxically, that strength creates further instability.
Debt becomes harder to service. Global trade tightens. Financial conditions worsen.
Credit expansion requires further credit expansion to sustain and the system feeds on itself.
We have to stop looking at this problem so nationalistically, given the Eurodollar, it’s become global to be sure. Global with no one truly at the wheel. So the only thing that can be done is give the addict the “fix” and try to keep the ponzi going.
As Mises wrote,
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Sadly, he won’t be wrong. But, a concept Rick Rule would point out when applicable, inevitable does not equate to imminent.
All About Positioning
This is where positioning matters.
When I sold into strength, it was not because I abandoned the long term thesis.
It was because the conditions no longer justified the price.
For instance UEC below two dollars was undervalued. At twenty five, without a fundamental shift to support that move, it was not.
GDXJ at $150 and prospects for the metals themselves looking reminiscent of April 2013 didn’t thrill me. I can always buy again, hopefully at a discount value. B
In all cases, the reason I bought to begin with, a discount, suddenly wasn’t there. So let’s just say I wouldn’t have jumped out of bed to buy more.
The same applies broadly and will always apply. The only exception being physical holdings which are ultimate insurance and allocation should never be out of hand to where the impact matters.
Bottom line: Markets do not move on ideology. Once again, the universe doesn’t care what you want or believe. They move on liquidity, positioning, and conditions.
And when narratives become crowded, especially ones rooted in certainty, they tend to mark turning points.
Intervention Changes the Timing, Not the Outcome
This being said, Policymakers respond to these pressures. Swap lines are opened. Liquidity facilities expanded. Rules adjusted. Each action is designed to relieve immediate stress but none of them resolve the underlying structure. In fact, they preserve it.
Which means the cycle continues. The long term critique from the Austrian perspective is not wrong. But the path is not an immediate collapse. It is a sequence.
Tightening and easing. Expansion and contraction. Through it all, the dollar is a currency that is both overextended and indispensable. The dollar is not about to be dethroned.
If anything, it is more likely to strengthen given what is likely to be further, and greater, coming stress. This being said; it is precisely that strength that will create the pressure that eventually forces change.
Not suddenly.
But gradually, as the cost of dependence becomes too high.
Then suddenly. But things will be far worse economically and geopolitically as that stress is borne. The system is unstable for sure, but not yet collapsing.
But keep in mind that Dollar strength is often a signal of stress, not health.
If you understand that, you stop trying to prove a point and start positioning for reality.
