Home »
Economy,
Financial Crisis,
North America » US Dollar Now Ripe For Catastrophic Devaluation
US Dollar Now Ripe For Catastrophic Devaluation
Posted by
EU Times on Aug 16th, 2010 //
No Comment
Normally when I cover subjects in the economy, I try to take a macro approach, giving an overall view of various financial elements around the world and how they are clearly connected to one another in a greater synchronous social force. That is to say, in Chinese domestic consumption, or European debt obligations, or Russian gold reserves, and in many other factors, is encoded the very future of our own American economy. Showing others how to decipher that code is my primary mission.
In this instance, however, I would like to focus chiefly on the U.S. Dollar, the private Federal Reserve currency which is now the basis for our entire financial system, not to mention a substantial basis for trade around the globe. For decades, the dollar (and by extension U.S. Treasury bonds) has been the standard by which foreign nations safeguard capital reserves, denominate debt, and in some cases have even pegged their own currency to maintain advantageous trade deficits. In the past, the Greenback has been treated as good as gold. Though many see this as a windfall for Americans, it is actually a very unfortunate circumstance.
The world reserve status of our currency created a demand for dollars, but through this, it also created a glut of Treasury bond holdings in foreign central banks, and an unserviceable national debt here at home. The combination of removing the dollar from the gold standard in tandem with gaining world reserve advantage allowed our government along with central bankers to create the most precarious illusory fiat currency in history. Could this process continue indefinitely? Its possible, but only if the demand for dollars continues to rise annually. As long as people want dollars in greater and greater amounts, we could continue to expand our debt into infinity. But what happens if demand for the dollar falls, or disappears entirely? The massive liabilities we have already accrued will no longer have the crutch of perpetual Treasury investment. We no longer would receive the busloads of foreign capital we need to continue functioning. The system we have staked the future of our culture on would disintegrate.
Anyone who uses common sense would easily conclude that it is highly unreasonable if not outlandish to expect that other countries will continue to pump more and more money every year into our very unstable system. Even if Treasury bond investment simply plateaued, remaining steady for years, we would still be crushed under the weight of our debt obligations. As our government expands, and our wars expand, so do our costs, and our interest payments. Eventually, every undisciplined debtor hits a state of critical mass; a point at which he runs out of options in extending his ability to outrun bankruptcy. We are seeing this right now in the U.S., most prominently in municipal debt in states such as California and Illinois. These are not just local problems. The growing insolvency in states is a direct reflection of the growing insolvency in the Federal Government.
Many people have at one time or another been caught up in their own debt race, trying to dodge bills and pay off one credit card with another credit card. They understand well that this terrible circle ends in ruin. This is the situation we are in as a nation.
Strangely though, some mainstream economists and analysts still contend that America will never face consequences for its fiscal debauchery. Why do they believe this despite all the evidence to the contrary? Because of a magical machine called a printing press.
If foreign investment in our debt ceases, they say, The Federal Reserve can just PRINT the money our government needs to function out of thin air. That is to say, these economists (which include men like Ben Bernanke) either truly believe that capital can be created out of nothing with no sacrifice attached, or, they KNOW there is a serious sacrifice attached, but intend to keep this fact from the American public. Regardless, the end result is the same; massive liquidity injections which continually monetize debt as it defaults, and Federal Reserve purchases of our own T-bonds. We are buying stock in our own dollar just to prop up its value and keep our country afloat!
The inflation vs. deflation debate has been raging for nearly three years, but I suspect that when all is said and done, we will find that both sides in a sense were correct. The people who consistently miss the mark on what is truly going on in the economy are those who blindly insist that this is an either/or situation. The fact is, we are seeing symptoms of BOTH deflation and inflation simultaneously. Deflation in jobs, stocks, real estate, and wages. Inflation in energy, food, and commodities. At bottom, we are seeing the worst of both worlds colliding to make a financial mutation, an aberration of the natural processes of supply and demand. Our economy has become a frothing rampaging Frankensteins monster bent on the destruction of its former benefactors; the American citizenry. Anyone who alleges otherwise is either a liar, or a fool.
At the very heart of this nightmare, we find the U.S. Greenback; perhaps the number one reason the economic meltdown was engineered by global banks in the first place (yes, I said engineered). The sovereign ideology of the U.S. is the only thing left standing in the way of complete centralized economic control, and by extension, political control, by the top 2% wealthiest people in the world, who now hold around 50% of all the worlds assets. The dollar, though a fraudulent fiat currency, is still a representation of that sovereign drive, at least in terms of finance. Its position as the foremost traded currency on the planet affords us great leeway in our ability to spend without fear. It is the glue holding absolutely everything together. With most of our industry shipped overseas, and our communities completely reliant on a 70% service based system, the Dollar is the only homemade product America has left to lean on.
Unfortunately, the strength of our currency is waning, and nearing outright collapse. It is something we have been talking about for the past two years at least, which has drawn some into a false sense of security. The signs have been muddled in the MSM fog, but now the picture is becoming clear. Will the dollar crash tomorrow? Thats hard to say.
What I do know, is that all the elements necessary for a catastrophic dollar devaluation have moved into place, especially in the past month. That is to say, there is now nothing preventing a steady and precipitous fall in the Greenback over the next six months or more. Below are many signals which indicate such an event is near:
Dollar Index Plummeting: Interestingly, there has been very little coverage in the mainstream news of the dollars continuous 9 week decline, the longest straight weekly decline since 2004. One would think this is something that might concern the general public, and not just investors:
thinks Obama is a very smart man. The president, however, does not seem to realize that one cannot borrow his way out of debt. Not even the American federal government can do that. The American government has more leeway than the rest, because the dollar is the worlds reserve currency. But no one can defy the laws of finance forever. When the day of reckoning finally arrives, the dollar will collapse.
