Dollar collapse, stagflation coming? What can we do

Peter Schiff posted on X: The 10-year Japanese government bond yield has now exceeded 2.22% and is rising rapidly. This indicates that U.S. bond prices are about to crash, leading to soaring mortgage rates, while the dollar is on the verge of collapse, pushing up consumer prices—preparing for an unprecedented stagflation! Stagflation will put policymakers in a dilemma. So, if stagflation occurs and the dollar collapses, what can we do?

What is Stagflation?

Stagflation is a special phenomenon in economics, referring to the simultaneous occurrence of stagnation (Stagnation) and inflation (Inflation). Simply put, prices are rising, but the economy is not growing, and unemployment remains high. Why is stagflation particularly difficult to handle? Usually, economists face situations like: recession → central banks may cut interest rates and increase money supply to stimulate consumption; high inflation → central banks may raise interest rates and reduce money supply to curb prices.

But when stagnation and high inflation occur at the same time, these policies conflict:

Stimulating the economy worsens inflation

Controlling inflation further stalls the economy

This is why policymakers find it so challenging.

Trump Threatens Tariffs on NATO, Gold Prices Hit New Highs

In recent months, Bitcoin (BTC) and gold have diverged sharply. Gold prices soared, while Bitcoin prices plummeted. According to Fortune, many analysts believe that President Trump’s tariff sanctions against NATO could threaten the dollar again. Bitcoin’s price dropped sharply overnight, falling from nearly $96,000 to just above $90,000 within minutes. Meanwhile, Trump expanded his threats toward NATO, stating that unless Denmark agrees to a deal on Greenland, tariffs will be imposed on eight NATO allies, causing gold prices to immediately hit a historic high.

Bitcoin and Gold Diverge, Dollar Pressure and Stagflation Concerns Rise

Over the past few months, Bitcoin and gold prices have shown clear divergence. Gold has surged to new all-time highs, while Bitcoin has experienced intense volatility, dropping from about $96,000 to just above $90,000 in a short period. Market analysts believe that the tariffs and trade war initiated by President Trump, along with recent threats against NATO allies, are increasing pressure on the dollar, further boosting demand for gold as a safe haven.

Trump stated that unless Denmark reaches an agreement on Greenland, tariffs will be imposed on eight NATO allies. This move has sparked concerns over geopolitical risks and pushed gold prices to new highs. At the same time, the Bitcoin market faces significant volatility, with traders worried that the downward trend may continue, especially amid ongoing geopolitical uncertainties. Digital asset analyst Nic Puckrin said that unless buying interest intervenes, Bitcoin could further decline to around $88,000 support.

The market is also paying close attention to the upcoming release of the US December Personal Consumption Expenditures Price Index (PCE). Barclays and Morgan Stanley have respectively raised their forecasts to 2.8% and 2.9%, significantly higher than last week’s Consumer Price Index (CPI) of 2.7%. PCE is the Federal Reserve’s preferred inflation indicator, excluding volatile items like food and energy. Its results could once again trigger concerns about stagflation, with sluggish economic growth coexisting with rising prices.

Recently, the US dollar has been weak, as the popular “devaluation trade” from last year makes a comeback, with investors selling dollars and buying Bitcoin, gold, silver, and other scarce assets. David Morrison, senior market analyst at Trade Nation, pointed out that the dollar index has fallen below 99, after reaching a six-week high earlier. As the dollar weakens, gold and silver prices continue to rise. David Wilson, head of commodities strategy at BNP Paribas, stated that gold at $5,000 per ounce is no longer out of reach.

Strategies for Investors During Stagflation

The author has summarized six major strategies to cope with stagflation, aiming to protect individuals from rising prices while reducing investment impulses. These are personal opinions and not investment advice.

1. Maintain Cash Flow and Reduce Debt

During stagflation, economic growth is weak, unemployment is high, and living costs rise. Cash flow management is crucial:

Reduce high-interest debt: Credit card debt or high-interest loans will worsen financial pressure with inflation.

Keep liquid assets: Ensure sufficient short-term funds to handle personal or investment uncertainties.

2. Invest in Inflation-Resistant Assets

Rising inflation erodes purchasing power. Investors can consider assets such as:

Gold and Silver: Traditional safe-haven assets that perform well during stagflation or currency devaluation.

Commodities: Such as oil, natural gas, agricultural products, which may benefit from inflation.

3. Consider Defensive Stocks in the Stock Market

During stagflation, sluggish economic growth can pressure growth stocks, but some defensive stocks remain relatively stable:

Consumer Staples (Food & Beverage, Daily Necessities): Low demand elasticity; people still need to buy even if the economy slows.

Utilities and Healthcare: Provide stable cash flow and are more resilient.

High Dividend Stocks: Offer cash returns that can partially offset inflation.

4. Avoid High-Risk or Long-Term Interest Rate Sensitive Assets

High-growth stocks or tech stocks: Rising interest rates and economic stagnation may suppress these stocks.

Long-term bonds: Very sensitive to interest rate changes; rising rates during stagflation can cause losses.

5. Diversify Investments

Stagflation is a complex market environment. Relying on a single asset class can be risky. Diversification can reduce volatility:

Asset class diversification: Cash, stocks, bonds, precious metals, real estate, commodities.

Geographical diversification: Different countries respond differently to inflation and policies, reducing concentration risk.

6. Monitor Policy and Market Signals

In a stagflation environment, central bank and government policy changes can significantly impact markets. Pay close attention to news:

Central bank interest rate decisions: Rate hikes to curb inflation may worsen economic stagnation.

Fiscal stimulus measures: Government spending or tax policies may support certain sectors.

Inflation data and market expectations: Such as PCE, CPI, which directly influence investment strategies.

This article, “Dollar Collapse, Is Stagflation Coming? What Can We Do?” was first published on Chain News ABMedia.