The concept of “de-dollarization” refers to the growing trend of countries attempting to reduce their reliance on the U.S. dollar in international transactions and reserves. Investment expert Nick Giambruno expresses a bleak outlook for the dollar, predicting its eventual collapse. This decline is subtle and gradual, making it difficult to notice in real-time. In an article for Doug Casey’s International Man, Giambruno outlines seven indicators that serve as barometers for the increasing instability of the U.S. dollar, all linked to the country’s deepening “perpetual debt spiral.” Understanding these indicators is crucial for assessing the overall health of the U.S. economy and the dollar’s future viability.
The first major indicator Giambruno highlights is the federal budget deficit, which reached $1.83 trillion for the Biden administration’s fiscal year 2024, marking the third-largest deficit in history. Projections suggest this number could swell to nearly $3 trillion annually by 2034, a forecast he argues is based on overly optimistic assumptions devoid of potential crises such as wars or recessions. These budget deficits exacerbate the United States’ fiscal problems, indicating a structural imbalance that compromises economic stability. Increased spending without corresponding revenue growth raises concerns about the government’s fiscal responsibility and the dollar’s sustainability in the long run.
Another critical signal is the staggering level of existing federal debt, already surpassing $36 trillion. The rate at which this debt is accumulating is alarming; it took merely 118 days for the national debt to rise by another trillion dollars. The current debt level eclipses 123 percent of the nation’s GDP, a figure that Giambruno critiques as misleading due to its inclusion of government spending as a positive economic factor. When one excludes government outlays, the actual debt relative to productive economic activity is substantially more concerning, painting a bleak picture of the financial foundation supporting the dollar.
Interest expenses on this massive debt have also reached unprecedented heights, with the federal government spending over $1 trillion on interest alone in fiscal 2024. This expenditure is growing rapidly, up 28.6 percent from the previous fiscal year, surpassing spending on defense and Medicare. With interest payments likely to outpace Social Security expenditures shortly, Giambruno argues that the burden of debt is reaching critical levels. The implication is that the U.S. government may eventually struggle to meet its financial obligations if interest rates remain persistent and high, which may undermine investor confidence in the dollar.
The Federal Fund Rate is another area of concern, as the Federal Reserve is caught in a struggle between combating inflation and supporting a debt-laden economy. After a long period of near-zero interest rates following the 2008 financial crisis and during the COVID-19 pandemic, the Fed has begun to raise interest rates in response to rising inflation. However, Giambruno warns that this environment is unsustainable for a heavily indebted economy. The Fed’s recent pivot back to rate cuts, in light of rising interest costs, highlights a precarious situation where monetary policy could become ineffective in controlling inflation while also facing political pressure to keep borrowing costs low.
The broader implications of money supply further complicate the outlook for the dollar. Giambruno posits that the primary methods available to the Federal Reserve for managing government interest payments involve either currency debasement or manipulation of public perception. While the money supply contracted during early attempts to curb inflation, it has begun to expand yet again, leading to inevitable inflation down the line. This suggests that the growing money supply has risen by 37 percent since 2020, potentially eroding the purchasing power of the dollar and hinting at a systemic weakness within the U.S. financial framework.
Finally, the Consumer Price Index (CPI) serves as a contentious indicator of inflation. Giambruno argues that CPI underrepresents the true extent of price increases, pointing to revisions made during the 1990s that altered the methodology used to calculate inflation. By basing inflation assessments on models from earlier decades, CPI figures could point to much higher levels of price inflation than currently acknowledged. Interestingly, he also notes that despite its shortcomings as a standalone measure, watching CPI could provide insights into the Federal Reserve’s monetary policy actions and their implications for the economy. Additionally, the rising price of gold provides another signal of growing economic distress, with increases driven by concerns over the deteriorating dollar’s value as the Fed resumes monetary easing. Collectively, these factors indicate that the U.S. dollar is indeed on a precarious path, raising critical questions regarding its future role in the global economic landscape.