Long term economic outlook

My short term outlook is that the US Dollar will rocket up. My long term outlook is that the USD will pop. I’m trying to position myself to ride the rocket up and then jump off before it explodes.

The end of the Fiat experiment

For the most part Fiat currencies only happened en masse from the 20th Century onwards. There were a few dribs and drabs in history prior, but short lived and parochial.

Generally speaking money types were:

• Commodity Money (Prehistory - 17th century)
  Objects with “intrinsic” value were used. E.g. beads, shells, livestock, metals

• Representative Money (17th century - early 20th century)
  Paper or notes redeemable for an underlying commodity

• Fiat Money (Early 20th century - present)
  Only backed by trust

When an IOU is not backed by anything the only thing you have is trust. Trust that the paper you receive will be worth something in the future and that you can readily exchange it for something else in the future.

Ray Dalio talks about the end of the Long Term Debt cycle being as being a time when the current dominant financial power gets challenged. Second and third place powers rise up to topple the dominant player.

I believe that we’re in the beginning of the end of the Long Term Debt Cycle.

The United States of America are the top dog. Importantly to note most international trade is done with US dollars. This has a ridiculously powerful advantage for the United States. Imagine being able to pay for things locally and internationally for things that you can just print money for.

Of course all the other key players want this to stop. It looks so far that China, Russia are playing the slow 3d chess game of undermining USA.

• De-dollarization. China, Russia and accompanying BRICS are hard at work at using currencies other than the US Dollar for settlement between each other

• Alternate Payment Systems. Since Russia was kicked out of the SWIFT system (Society for Worldwide Interbank Financial Telecommunication) China's Cross-Border Interbank Payment System (CIPS) and Russia's System for Transfer of Financial Messages (SPFS), aim to provide a way to bypass the U.S.-dominated SWIFT network.

• Gold stacking. China are a bit loosey goosey in revealing how much gold they are buying but they are clearly actively buying a lot. One could speculate that they are trying to build up a stock pile of gold in order to facilitate a gold back currency.

• China’s Belt and Road initiative. With China turning down the volume on how much US debt they buy in the form of Treasuries, they are looking for other ways of producing a return as well as undermine US dominance. China’s Belt and Road initiative is a massive infrastructure project, designed to build a vast network of land, sea routes connecting Asia, Europe, Africa and beyond.

Conflict

My expectations are that challengers to the US will slowly, steadily keep poking at the US in various areas of the world, aiming to pressure the US’s finances via military spending. In Asia with Taiwan, in the Middle East with Israel, in the Ukraine and everywhere else in-between. The constant state of alertness will cost the US heavily in finances, causing the money printers to be turned on.

With the constant increase in touch points of engagement comes risk of actual conflict. I expect safe havens such as Gold to become more and more desired in time of conflict due as people seek safety outside of paper wealth.

Confidence

Because governments can print away their problems - defense spending, social programs, increasing government size and so on, governments are encouraged to print more money.

The game of musical chairs continues until the trust stops. As soon as countries or individuals realize that the currency is worthless due to the printing they switch to something that is harder and has value.

Gold & Diversification out of the West

I expect the best bets for the next decade will be Gold and investing in emerging markets out side of the West. During those 10 years you will see US denominated assets sky rocket and you will kick yourself for not buying them. But in my opinion, that is short lived and you are playing a timing game. Yes it is going up, but:

its just Monopoly money.