U.S. Dollar Bubble: Is the Dollar Going to Crash in Value?

Author: Focus on the User | 7 min read
US dollar bubble
There are many bubbles that have occured in the past from the 2008 crash to the Dot-com crash.

There's been a lot of talk in global financial circles about a U.S. Dollar bubble over administrations. You've probably already heard of stock market bubbles or the housing bubble.

In 2001, there was the Dot-com crash. During 2001 and the years leading up to it, there was a huge appreciation in the stock market value of companies that didn't make money.

You'll scratch your head and think how crazy that concept is. These companies would go out of business if they were regular companies. Unfortunately for the rest of the market, these companies were Internet companies.

Is the dollar going to crash?

The Dot-com Crash: 2000s U.S. Bubble

During the height of the Dot-com bubble, Internet companies traded solely on hype compared to other investment options such as buying bulk gold and silver bullion. People were not worried about whether their company was making or capable of making money. Instead, they only focus on one thing and one thing alone – they focus on whether the price will continue to go up. Focusing on only the value of the stocks going up is the classic sign of a market bubble.

When the market divorced itself from basic fundamental economic reality like profit and loss, year-over-year profit growth and value, you know there's a severe problem with the market. In 2001, the Dot-com bubble collapsed. We're talking about trillions of dollars erased overnight, which triggered a mild recession.

For the most part, a large chunk of the overall American economy did not feel the after-effects of the recession. The U.S. economy quickly recovered, and by the time 2008 rolled around, the stock market had set new records.

dollar bubble analysis

The 2008 Housing Bubble and Subprime Mortgage Fiasco

The NASDAQ went crazy, and the market bottomed out when everyone thought that the good times were back permanently. It was no surprise why it had to do that. After all, starting from 2004 to 2008, the market had been in a housing bubble. The housing bubble caused the price of gold and silver to go up and down over time. A housing market bubble fuelled by mortgage-backed securities and excessive lending. Most American banks were cranking out mortgage lending, offering them to people who could not afford them and then leasing these securities in the market.

Since banks were lending, governments and other institutional investors historically thought mortgages were one of the most secure investment forms. You can see where all these investment manias were headed. Everybody is asking the big question: "Is the U.S. dollar in a bubble?" It depends on how you define a bubble and what measure you use.

U.S. dollar collapsing

Arguments Toward Dollar Overvaluation

There are many ways to look at the U.S. dollar. One school of thought is to look at the U.S. dollar as its own intrinsic value store–this is economists' main view. They think that since the United States has such prestige and economic and military power, the dollar at some level is too big to fail. There's no other currency to replace it. If the dollar gives way, we're talking about trillions of value vaporized overnight in the United States and worldwide. There are many ways to look at the U.S. dollar, causing investors to turn to diversify their portfolio in items like gold bullion.

Would Other Countries Suffer From a U.S. Dollar Crash?

Whether you're selling oil, precious metals, commodities, coffee, sugar, you name it – you usually would price those commodities in the form of dollars. Payments are made internationally in the form of dollars. If the U.S. dollar went belly up, all that trade, which doesn't necessarily have to involve the United States, will take a massive hit. It's like trying to ban blood, but your body is dependent on blood; it's a medium of exchange.

Too Big to Fail?

So from this perspective, there is no dollar overvaluation. The dollar's value is tied to its intrinsic necessity. It's basically like if you want to cut into a bumper sticker slogan, too big to fail. The problem with this approach in defining dollar bubble economies and situations is just plain history. This kind of thinking ignores history. The reality is that there were previous benchmark currencies from this perspective. Investors turn to more than one investment vehicle, such as debating physical gold or gold mining stocks in a portfolio.

The dollar's value is tied to its intrinsic necessity. It's like if you want to cut into a bumper sticker slogan, too big to fail. The problem with this approach in defining dollar bubble economies and situations is plain history. This kind of thinking ignores history. The reality is that there were previous benchmark currencies.

Spanish Peseta and Its Currency Crash

In the 1500s, the benchmark currency was the Spanish peseta because, in the 1500s, the top dog when it came to Europe was Imperial Spain. When Spain imploded because it funded too many wars, it stopped producing and just imported the bulk of stuff it needed. Its manufacturing sector remained stagnant and declined, and Spain faded from the scene. The French franc replaced the peseta. In the preceding centuries, it was the French, the British, and then now, the Americans who took control.

However, look at the rise and fall of the economies that took center stage. You could see that their manufacturing capabilities declined. They borrowed too much and overextended themselves with expensive wars to fund. Does this sound familiar? The United States faced wars in Iraq and Afghanistan and supports the war efforts in Ukraine. The U.S. has a history of spending money on wars and military bases worldwide. And now COVID-19 has impacted the American markets with costly spending.

value of the U.S. dollar in a bubble

Is the United States Too Big to Fail?

The arguments against the idea of a dollar bubble rests on the concept of being too big to fail, the United States is not too big to fail. It doesn't look like it will be an exception to what would be an iron-clad historical rule.

Preparing Yourself Against the Dollar Bubble

Trying to deny the concept of a dollar bubble based on the idea that a system is too big to fail is dangerously naïve. It is crucial to consider the benefits of precious metals for your portfolio. Investing in more than one choice can help secure long-term investments.

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