To The Moon

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The world’s reserve currency stands at a critical juncture. In recent weeks, signals from Federal Reserve Chair Jerome Powell have unsettled global investors, leaving markets questioning the future trajectory of the U.S. dollar. The Fed appears to be preparing for aggressive interest rate cuts—potentially beginning as early as September—a move that could alter the balance of global finance.

While equity markets cheered the news, with the S&P 500 rising 1.5% in anticipation of cheaper credit, the dollar itself weakened, falling nearly 1% against major global currencies. For investors, this reaction underscores the core dilemma: rate cuts may temporarily buoy asset markets, but they also accelerate the erosion of confidence in the dollar.

The stakes are enormous. As the world’s reserve currency, the dollar’s stability is not just an American issue; it underpins global trade, finance, and savings. Yet as the Federal Reserve attempts to ease financial burdens at home, it risks igniting a long-term loss of trust abroad.

The Fed’s Impossible Dilemma

The Federal Reserve faces what can only be described as a no-win scenario. Keep interest rates elevated, and the economy risks stalling under the weight of expensive credit. Cut too aggressively, and the credibility of the dollar itself comes into question.

At the heart of this tension lies the ballooning U.S. debt burden. With annual interest payments already exceeding $1.2 trillion, fiscal sustainability has become precarious. Projections suggest that by 2026, the U.S. could be spending $1.4 trillion annually just to service its debt.

The math is unforgiving. To stabilize interest costs, five-year Treasury yields would need to fall below 3.1%, down from the current 3.8%. That implies at least a 75-basis-point cut—a move that may offer temporary relief to Washington but would likely accelerate the dollar’s decline.

The U.S. finds itself locked in a feedback loop: rate cuts weaken the dollar, weakening confidence in Treasuries, which in turn necessitates further rate cuts to attract buyers. For a reserve currency meant to symbolize stability, this is a dangerous spiral.

Why Rate Cuts Threaten the Dollar

To understand why rate cuts threaten the dollar’s status, one must revisit the core incentive behind holding U.S. bonds: stability and return. Investors purchase Treasuries because they believe that future dollars will hold their value.

But with inflation pressures still elevated and tariffs adding to input costs, the picture is shifting. Even if borrowing costs fall sharply, the U.S. consumer continues to pay more for less, while corporations face elevated expenses due to higher trade costs. Rate cuts, in this environment, fail to address structural inflationary pressures.

Instead, they make Treasuries less attractive. Yields drop, but inflation-adjusted returns deteriorate. For foreign investors, the calculus becomes simple: why hold dollar-denominated debt when its purchasing power is eroding, and alternative assets—like gold—are appreciating?

A Century of Declining Purchasing Power

The U.S. dollar has already lost over 95% of its purchasing power in the past century. Since 2000 alone, that decline has been 40%. If Powell’s new policy trajectory holds, the trend may accelerate. By 2025, the dollar could lose 43% or more of its value relative to its turn-of-the-millennium benchmark.

This is not just an abstract statistic. For households, it translates into higher prices for everyday necessities. For businesses, it means more expensive imports and diminished global competitiveness. For investors, it means questioning the very foundation of the dollar-based system.

The Global Exodus from Treasuries

Signs of shifting sentiment are already clear. In just one month, foreign central banks sold $48 billion worth of U.S. Treasuries, the largest divestment in years. The move reflects a fundamental erosion of confidence.

The trend is most pronounced in Asia. China, once the largest foreign holder of U.S. debt, has steadily reduced its Treasury exposure while simultaneously expanding its gold reserves. In just three years, China’s official gold holdings have risen from 2,000 tons to more than 2,200 tons, increasing the share of gold in its reserves from 3% to nearly 7%. Analysts suggest the true figure may be even higher, given the opacity of Beijing’s reporting.

This shift represents more than diversification—it is a strategic reallocation away from dollar dominance. As the U.S. leans into rate cuts and fiscal expansion, Beijing appears determined to hedge against dollar weakness by building a foundation in real assets.

Gold’s Historic Bull Market

The consequences are already evident in gold’s performance. Since the start of 2025, bullion has soared from $2,600 per ounce to $3,400, marking a 30% rally that has outpaced equities, bonds, and even Chinese stocks.

This move is not limited to central banks. Retail investors across Asia are also increasing exposure. According to an HSBC survey, mainland Chinese investors doubled their gold allocations in just one year, with holdings rising from 7% to 15% of portfolios.

This surge reflects not only a hedge against inflation but also a broader loss of faith in fiat currencies. Unlike paper assets, gold carries no counterparty risk. In an era of heightened geopolitical uncertainty and fiscal instability, that quality has become invaluable.

Corporate America’s Buyback Obsession

Meanwhile, lower rates are unlikely to spur the kind of productive corporate investment the Fed might hope for. Expanding domestic operations remains costly, and overseas ventures are constrained by tariffs. Instead, companies are plowing excess liquidity into record share buybacks.

In 2025, U.S. corporations are projected to repurchase $1.1 trillion worth of stock, with Apple, Alphabet, and major banks leading the charge.

From an investor’s perspective, this supports share prices and earnings per share metrics. But at a macroeconomic level, it underscores a troubling truth: corporations see limited opportunities to deploy capital in ways that generate real economic growth. Instead, financial engineering becomes the preferred mechanism for delivering returns.

This dynamic exacerbates inequality. Asset owners benefit from higher stock prices, while wage earners face rising costs and limited economic expansion.

The Reserve Currency at Risk

The reserve currency’s fundamental duty is stability. When a currency no longer serves as a reliable store of value, global trust erodes. For decades, the dollar’s dominance was unquestioned. But in today’s climate of fiscal profligacy, trade wars, and monetary easing, cracks are forming.

The combination of aggressive U.S. borrowing, deteriorating purchasing power, and a deliberate pivot by countries like China toward gold is shifting the balance of global finance. While the dollar remains dominant for now, its long-term supremacy is no longer guaranteed.

Where Investors Are Looking

If U.S. bonds and cash lose appeal, where will capital flow? The answer increasingly lies in alternative assets:

• Gold: Benefiting directly from dollar weakness and monetary debasement.

• Equities: Particularly consumer and industrial stocks, which thrive on lower rates and increased credit availability.

• Foreign Assets: European and Asian equities, as well as international bonds, are seeing inflows as investors seek diversification.

• Hard Assets: Commodities and real estate continue to attract capital as hedges against inflation.

By contrast, traditional U.S. debt instruments face structural headwinds, with diminishing foreign demand and mounting fiscal pressures.

The Irony of Monetary Policy

Perhaps the greatest irony lies in the intended versus actual effects of monetary easing. Rate cuts are meant to stimulate borrowing, investment, and growth. But in today’s environment, they may do little more than fuel asset bubbles, inflate inequality, and erode trust in the reserve currency.

The U.S. is effectively kicking the can down the road, hoping that lower rates can mask deeper structural issues. But each kick leaves the foundation shakier than before.

Conclusion: The Point of No Return

The dollar’s position as the world’s reserve currency has long been underpinned by confidence in U.S. fiscal and monetary discipline. That confidence is now being tested as never before.

With debt burdens rising, interest costs surging, and global investors pivoting to gold, the U.S. faces a defining moment. Powell’s coming rate cuts may provide short-term relief, but they risk accelerating a long-term decline in the dollar’s credibility.

For investors, the lesson is clear: diversification is no longer optional. Exposure to equities, commodities, and precious metals may provide protection in an era of currency instability. Bondholders, meanwhile, must reckon with the reality of diminished returns and growing risks.

The global financial system is evolving, and the dollar, once unchallenged, now stands at the center of the storm.