For over a year I have been talking about the dire fate of fiat paper money, especially the US$ and Euro. I called both as toilet papers. I hope you have got the taste of what I mean when you see how Euro has been beaten up in the past year. Although in the past 2 months or so, I have bet that Euro would appreciate against US$ in short-term, which has been the right call, the ultimate fate of Euro will be its death. I said I don't expect Euro will survive another 5 years. I still maintain my position. For the US$, although I don't think it will disappear within the next few years, I also have a very depressed outlook. I'm seeing 2 concrete signs which are consistent with this outlook.
- China, the largest holder of the US government debt (bonds), has taken drastic steps to diversify away from the US$ assets. She has set up many bilateral agreements with other trading partner countries (e.g. Japan, Russia, Latin America countries etc) to do trading business with their own currencies, instead of using the US$ that used to be the only acceptable international trading currency.
- Iceland has recently announced its intention to use the Canadian $ as its currency. What? Wouldn't any country who wants to tie itsself to another currency should always use the world only reserve currency, the US$? It was true in the past, e.g. Ecudor using US$ as its own currency or Hong Kong pegging the HK$ with a fixed exchange rate. So why Iceland does not want to use the US$ as its currency but the CAD$? Lack of confidence of the US$! No other way to explain this.
I know you won't feel the immediate impact of this kind of news on the US$ but more and more we are witnessing the losing purchasing power of the US$. That's why I like gold and silver more and more even though it has been painful to experience the extreme volatility of the precious metals. So far I only see gold and silver as the real money, the eternal money which will keep my purchasing power over time.
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