• The value of the dollar continues to decline as it is challenged by the prospect of new currencies
• Shifting to a multi-polar global economy with a BRICS+ currency could have devastating effects on the dollar and the US
• You can defend and potentially grow your portfolio with a tax-advantaged Gold IRA.

Decline of the Dollar

As the dollar is rapidly losing value, the BRICS+ alliance is aiming to challenge its position as the world’s reserve currency. According to the Federal Reserve, the U.S. dollar has lost 97% of its purchasing power since 1913, leaving only 3% of its original value. What cost $1 in 1913 would now cost around $30. The global shift away from the dollar is positioning gold as the ultimate winner in this economic transformation. Owning physical precious metals offers a way to safeguard your finances from the consequences of this changing economic landscape.¹

Lynette Zang is CEO of Zang Enterprises. She stated that the dollar’s 3% purchasing power in 2024 could turn to zero in 2025. Zang pointed to the FRED’s chart showing the Purchasing Power of the Consumer Dollar in U.S. City Average, stating that even the Federal Reserve tells you the greenback can approach zero. Hyperinflation and job losses could result from such a drop.

“I believe with all my heart and everything that I know that we’ve already begun the transition to hyperinflation,” Zang said. “We’re going to see more borrowing, more money printing, more inflation because they have not killed that beast that they created and continue to create,” she stated.²

Growing BRICS+ Challenge

The BRICS+ Alliance began with four nations – Brazil, Russia, India, and China. South Africa then joined to add the ‘S’. Four additional countries joined in January 2024 with 24 others informally expressing interest in joining. And now another 23 countries applied to join before the BRICS+ alliance summit in October.

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The countries are all emerging economies from the ‘Global South’ that are eager to flee dollar dominance. They want to defend against a dollar that has been weaponized by sanctions. The alliance members also want to fortify their own economic interests as the world shifts from a single superpower, the US, to a more multi-polar world.

According to the Atlantic Council’s Dollar Dominance Meter, the global share of U.S. dollar reserves has fallen since 2002, the first full year of the BRICS alliance. Until recently, nearly 100 percent of oil trading was conducted in U.S. dollars; however, in 2023 one-fifth of oil trades were reportedly made using non-U.S. dollar currencies. The undermining of the petrodollar erodes one of the pillars of dollar support. ⁴

BRICS+ Summit

The next BRICS summit will take place in Russia on October 22nd. The summit agenda will focus on accelerating de-dollarization. The alliance is primed to announce a de-dollarization roadmap. There is speculation that they will unveil key developments in ditching the dollar for trade and reserves.

A new report states that the bloc is “expected to introduce a multicurrency platform along with a roadmap for a gold-backed BRICS trading currency.”

Among the expected announcements is the launch of a new BRICS Pay system. It would provide an alternative to SWIFT, a cross-border payment platform dominated by US dollars. Russia was barred from SWIFT after its Ukraine invasion. The new system will use local ‘digital dollars’ to simplify and speed up trade for members, free from Western influence.

There is even more anxiety surrounding the potential creation of a BRICS currency. Preparing for such a launch might explain why BRICS countries have been stockpiling gold reserves at a record pace in recent years. If it happens, not only would trade between members accelerate, but it will also effectively eliminate the need for the U.S. dollar on a global scale.

The ramifications of such a demand loss could be catastrophic to the U.S. economy. It would also weaken U.S. global influence and the standing of the dollar as the global reserve currency. According to the Atlantic Council, the U.S. dollar is used in approximately 88 percent of currency exchanges, and 59 percent of all foreign currency reserves held by central banks. That may all come to an end. Especially if a BRICS currency sparks the launch of other competing currencies. ⁵

Devalued Dollar, BRICS+, and Gold

The devalued dollar and the growing strength of the BRICS+ may give gold strong tailwinds. A devalued dollar leads to higher gold prices because when the dollar weakens, it takes more dollars to buy the same amount of gold, making gold more expensive.

And if a BRICS+ currency is backed by gold, as suggested by Putin, the demand for gold would surge, driving its price higher. As of now, the BRICS+ nations account for more than 20 percent of all the gold held in the world’s central banks. Russian, India, and China rank in the top 10 for central bank gold holdings. They are perfectly positioned to capitalize on a new gold-backed currency.

Conclusion

The world is experiencing a major economic shift in real time, with the dominance of the dollar fading as challengers like the BRICS+ alliance emerge. The full impact of the global economy moving toward a multi-currency system is still unknown, but the decline of the dollar is clearly linked to the rise of these new currencies. This change is accelerating, making it crucial to act now before it’s too late to safeguard your dollar-based savings. Gold is expected to reach record highs as part of this shift, and you can benefit by moving a portion of your portfolio into a tax-advantaged Gold IRA. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://money.visualcapitalist.com/buying-power-us-dollar-century/
2. https://www.kitco.com/news/article/2024-09-20/transition-hyperinflation-has-already-begun-feds-own-charts-show-dollars
3. https://asiatimes.com/2024/09/bric-by-bric-de-dollarization-only-a-matter-of-time/
4. https://www.nasdaq.com/articles/how-would-new-brics-currency-affect-us-dollar-updated-2024
5. https://www.nasdaq.com/articles/how-would-new-brics-currency-affect-us-dollar-updated-2024

• The Federal Reserve cut interest rates for the first time in 4 years by 50 bps
• There is concern the outsize interest rate cut is an indicator of deeper economic problems
• Analysts are taking the large rate cut as a sign to move into defensive safe haven assets, like physical gold or silver

Outsize Rate Cut Sparks Concern

The Federal Reserve sent shockwaves through financial markets with its first rate cut in four years. They slashed interest rates by a striking 0.5 percentage points. This aggressive move, twice the size of a typical rate cut, goes beyond a mere attempt to stimulate growth. It signals a much more profound concern within the central bank about the state of the U.S. economy. By taking this bold step, the Fed appears to be bracing for more than just a ‘soft landing’. Instead, it hints at underlying fears of a severe downturn, potentially even a looming recession.¹

Reading Between the Lines: Fear of Recession

Rate cuts are often seen as tools to spur economic activity. They can encourage borrowing, spending, and investment by making money cheaper. However, the magnitude of this cut shifts the narrative from economic support to economic survival.

The size of the rate cut has raised concerns about what the Fed sees on the horizon. While the central bank has refrained from explicitly stating its fear of a recession, its actions speak volumes. In times of economic uncertainty, a modest rate cut is often employed to maintain momentum and confidence.

By contrast, a half-percentage-point reduction could have other implications. The Fed may be worried about more than just a temporary slowdown. Issues like an overheated stock market and an explosive debt crisis pose existential economic problems. Without this larger intervention, the situation could deteriorate rapidly.

“Bond King” Jeff Gundlach stated that the interest rate cuts are too little, too late. “We are in a recession already,” according to him. ²

Several economic indicators have been flashing warning signs for months. Growth has been sluggish. Job cut announcements climbed 193% over the last month. Inflation has remained persistently above the Fed’s 2% target. And global economic uncertainties have been mounting. The U.S. manufacturing sector shrank for the 11th time in the past 12 months, indicating a decline in overall production and demand. Consumer confidence has weakened, as has business investment. All these factors could have contributed to a cautious outlook from the Fed and the need for more dramatic action.³

The Market’s Mixed Reaction

The markets initially responded to the rate cut with enthusiasm. Stocks surged as investors welcomed the prospect of cheaper borrowing costs and a more accommodative monetary policy. However, this euphoria was short-lived. As the implications of the Fed’s decision sank in, a sense of unease began to permeate the markets. The initial 400-point gain was lost by the end of the day.

Broader Implications Across Sectors

The ramifications of the Fed’s decision are expected to ripple through various sectors of the economy. On one hand, lower interest rates can provide a boost to industries such as housing and consumer spending. Mortgage rates often decline in tandem with Fed rate cuts. This can potentially spur home-buying activity. Similarly, consumers might be more inclined to take on debt for big-ticket purchases like cars and appliances. Increased consumer spending can support retail and manufacturing sectors.

However, the flip side of this scenario is the psychological impact on businesses and consumers. When the central bank takes such a dramatic step, it can be interpreted as a sign that all is not well. This perception can lead to a self-fulfilling prophecy. Businesses may cut back on investments and hiring. Consumers can tighten their belts in anticipation of tougher times ahead. And with the era of ultra-low mortgages unlikely to return, the housing market can stall. If this sentiment takes hold, it could deepen the very economic weakness the Fed is trying to prevent.

Chris Rupkey is the Chief Economist at FWDBONDS. He stated, “some investors might be nervous and wondering what the Fed sees and what they do not. The last two times the Fed cut interest rates the first time they did it by 50 bps as well, but it was an emergency inter-meeting cut because the outlook had darkened. There were recessions in fact.”⁴

Historically, the economy doesn’t do well after an initial 50-point cut. On Jan 3rd, 2001, the S&P 500 fell ~39% over the next 448 days. Unemployment rose another 2.1%. And then on September 18,2007, the S&P 500 fell ~54% over the next 372 days. And unemployment rose another 5.3%. ⁵

Moreover, the Fed’s aggressive rate cuts carry the risk of reigniting inflation. By making money cheaper to borrow, the central bank could inadvertently fuel rising prices, especially if demand rebounds unevenly. With economic growth already sluggish, this scenario creates the risk of stagflation—a situation where inflation rises even as economic growth stagnates. Stagflation can be particularly damaging because it limits the Fed’s policy options. If inflation picks up while growth remains weak, the Fed could find itself in a bind, struggling to balance the dual threats of rising prices and anemic economic activity.

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Conclusion: The Shadow of Uncertainty

The Federal Reserve’s decision to cut interest rates by 0.5 percentage points can be seen as more than just a monetary policy adjustment. It may be a statement of concern. Is the central bank aware of economic risks that we aren’t? The fear of a recession looms larger now than it did before the Fed’s announcement. Businesses, consumers, and investors are left to grapple with what might come next. You can protect your portfolio with safe haven assets like physical gold or silver, especially in a tax-advantaged Gold IRA. Contact us today at 800-462-0071 to learn how.

 

Notes:

1. https://www.cnbc.com/2024/09/17/stock-market-today-live-updates.html
2. https://www.businessinsider.com/fed-rate-cuts-recession-layoffs-job-market-outlook-jeff-gundlach-2024-9
3. https://www.businessinsider.com/fed-rate-cuts-recession-layoffs-job-market-outlook-jeff-gundlach-2024-9
4. https://finance.yahoo.com/news/live/stock-market-today-federal-reserve-cuts-interest-rates-by-half-a-percentage-point-stocks-rise-180501561.html
5. https://x.com/tiffany_varty/status/1828137294370611632
6. https://pwonlyias.com/current-affairs/us-fed-rate-cut/