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  • Writer's pictureIshfaaq Peerally


With Gold $GOLD prices at all time high and the weakening of the Dollar relative to other currencies on the DXY Index $USDOLLAR in recent weeks, we need to ask ourselves if a Dollar Crisis is coming.

Since the peak of the 2008 financial crisis, gold prices in USD have doubled. Does it mean that the US Dollar lost 50% of its value? No. Even if gold keeps its value over the long-term, in the short-term, there can be fluctuations. The Dollar only weakened by 20% during that period and since the inception of the Fed in 1913, 95% of its value.

If the Dollar is weakening, why aren't we seeing higher inflation? Because of innovation. Fed Chairman Jerome Powell said that Amazon $AMZN is one of the reasons why we don't see high inflation. Low oil prices $OIL is also keeping inflation low.

Some people will claim that Modern Monetary Theory (MMT) is keeping inflation low but that only works in the short-term. MMT says that a government with a reserve currency can print as much money as it wants and can control inflation through government spending.

The US Dollar is still the reserve currency of the world so in the short-term, the US Government can increase the supply of Dollar as long as other countries with reserve status do so too. And that's what's happening. The demand for USD will always be here. It is the same thing with the Swiss Franc $$USDCHF . MMT can work in the short-term only if your debt is denominated in your home currency and that currency has a reserve status.

In Canada, most of the government expenses and debts are in the hands of the provinces but only the Federal government can print money, and only Canadian Dollars $USDCAD . This creates a situation where the federal government has to print money (the balance sheet is set to increase by over 500% this year) to support the provinces, leading to a weakening of the Canadian Dollar. Since the CAD is not as widely used in the world as the USD, this could to higher inflation. Actually, the GDP of Canada in real USD terms has been going down in recent years.

Canada is a big oil rich country and I don't think the country will face any harsh crisis, but what about smaller countries? The Dollar crisis is a misnomer, what's really happening is a fiat currency crisis.

The solution would be to invest. Because saving (for the long-term) would be a bad idea.

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