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What gives the U.S dollar its strength and what can investors do to protect themselves against a rapid devaluation?

Robert Wiedemer
October 6, 2015
Video Transcript

You know, one of the strange things about how people view the dollar and its strength is that they don't understand what gives the dollar its strength. They think the dollar has strength because people love the U.S., or we have a very stable economy, and that's partly true, but what most gives the dollar the strength is that people buy them. What do I mean by that? They buy dollar-denominated stocks and bonds and they hold them. The dollar doesn't go up suddenly just because you traded a lot or people like it a lot, it's kind of like stock, IBM stock. If you wanted the stock price to go up, you buy it and hold it. You don't just trade a million shares a day. You buy a million shares a week and you hold it. That’s essentially what the rest of the world has done... is they bought our stocks, they bought our bonds with dollars and that keeps the values of the dollar up, but you see it's sort of a circular loop here the same thing can go the other way. If stocks and bonds fall traumatically, people aren't going to want dollars to buy those stocks and bonds. People say, "Where else will they go?" Well, one place they'll go is precious metals, but they also will go to less risky assets, more cash. That's what happens in any down turn of financial markets, but it's sort of a self-fulfilling prophecy to say, "The dollar is strong, hence, I'm investing in it," because it's really those investments in stocks and bonds that keep the dollar strong. If you don't have foreign investors in the stocks and bonds, the dollar will fall. It's not... that's not the reason to invest, It's really just reflection of other investments doing well. Again, people say, "Oh, well they can never pull money out of stocks and bonds, U.S. stocks and bonds." Yes, they can and one thing they can put money into is precious metals.

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