When the dollar dies, and it will at some point, interest rates in the U.S. will skyrocket (we’ll be lucky to see 10% to 12% mortgage rates) – crushing the real estate and mortgage industries (which is why it matters so much).
This is because the Treasury will be forced to offer much higher yields to attract foreign bond buyers.
Because the dollar is the world’s reserve currency – used for most international trade and finance – countries are forced to hold dollars and/or Treasury bills and bonds that they can quickly convert to dollars – creating artificial demand that keeps our rates much lower than they would otherwise be, given our drunken-sailor-spending Congress and drunken-sailor deficits (nobody would lend money to drunken sailors unless they were forced to).
Social and traditional media accounts are constantly sharing reports about the dollar’s impending demise, e.g., that countries are “dumping” U.S. Treasuries, that the BRICS nations are establishing a new reserve currency, and that the dollar’s value is collapsing.
But none of this is true – at least not yet and not anytime soon.
China is not dumping Treasuries; it is partly just moving its holdings into European custody to make them less transparent – while also gradually reducing exposure over many years. Neither is a “dump.”
And other countries (India, South Korea) are often just selling Treasuries to raise the dollars they badly need to buy energy and other imports priced predominantly in dollars.
As evidence of dollar dominance, demand for dollars spiked after the war in Iran started – even as the dollar’s value stayed mixed and choppy.
As evidence of these dynamics, the dollar strengthened after the war in Iran started.
The war made it more difficult for countries to export goods to earn dollars, drove up energy prices significantly – increasing dollar demand because energy is traded predominantly in dollars – and created acute dollar shortages because overseas dollar lending (the source of most new overseas dollar creation) dried up along with trade.
The dollar is not going anywhere for a long time because of the enormous amount of global trade and debt currently denominated in dollars – dwarfing the capacity of any alternative system to replace it.
There is now a massive dollar “network” effect that will take many decades to unwind.
Would you want to be paid in Chinese Yuan – and then have to convert them to dollars so you could spend them at the grocery store? Me either… (and it is the same way in other countries).
Here Is What Is Really Interesting: The Dollar Is Now America’s Most Powerful Weapon.
Ironically, the Iran war is illuminating America’s most powerful weapon – and it is not our Bunker Buster bombs, our hypersonic missiles, or our F-22 Raptor.
It’s the dollar. Countries absolutely, unequivocally must have dollars to buy the imports (like energy) they need to keep their economies afloat.
And – if they can’t earn those dollars through trade, they are forced to come to Uncle Sam to borrow dollars via swap lines or IMF loans.
And – Uncle Sam has a long history of extending that lifeline only to countries doing the things it likes – most recently lending Argentina dollars in 2025, explicitly tied to the outcome of its elections.
