– Towards Liberty –
A COMMENTARY ON CURRENT EVENTS
– by Jarret Wollstein –
DEATH OF THE DOLLAR?
– 03-07-05 –
2005 may witness the beginning of the end of the U.S. dollar as the world?s reserve currency. That could mean skyrocketing prices, major business failures, and recession. However, by acting now, you can protect your assets and make large profits from the collapse of the dollar.
Is a dollar crash now inevitable? It looks more and more likely.
During the past three years, the dollar has fallen over 25% against major currencies like the euro and Swiss franc.
If that isn't enough cause for concern, in just the last few months America's major creditors – Chinese and Japanese central banks, which together hold $906 billion of the $1.1 trillion in treasury notes held outside the U.S. – have made it clear they will not continue their support of the dollar.
In the future they'll keep assets in other currencies such as the euro or in gold. That could strongly depress the value of the dollar. OPEC has also been slowly moving out of the dollar and into euros and gold.
For many reasons, the dollar will almost certainly fall rapidly during the next few years and could even crash suddenly – with little or no warning – at any time.
That will have severe consequences for stocks, real estate, pensions, gold, and even U.S. foreign policy, which runs on dollars. Thousands of companies and millions of families could even be financially wiped out.
The recession that followed the dot.com and telecom crash and 9/11, was just a warm-up. The crash following a dollar collapse, would be much more severe, and could cause stock and real estate prices to fall by 50% to 80%.
At the same time, everything we import – from oil to computers to fruit – would go up in price two- to five-fold. That means the 32" TV you can now buy for $500, would cost $1,000 to $2,500; and a gallon of gasoline would cost $5 to $10 a gallon.
In this article, you'll learn how we got in the situation where a dollar crash (fast or slow) now seems inevitable. I'll also show you what that crash will mean for your investments, savings, and real estate. Most important: I'll also show you how to protect yourself from a dollar crash and even turn it into a personal financial windfall.
The U.S. Credit Bubble
The falling dollar is not a recent phenomenon. Between August 15, 1971 and December 31, 2004, the dollar fell by a staggering 80% against major hard currencies like the Swiss franc.
What happened on August 15, 1971? That?s the date when President Richard Nixon closed the so-called "gold window," removing the last shred of gold backing for the U.S. dollar. Up until then, the dollar had been at least partially backed by gold, restricting the ability of our central bank, the Federal Reserve, to inflate our money supply. But with gold backing completely removed, all internal limits were gone, and the dollar decline began.
The bitter truth is that without gold or some other real commodity backing, there is nothing to stop any paper currency from becoming worthless. Indeed that has been the ultimate fate of every unbacked paper currency in history, including the first U.S. currency, the continental, and the renowned Confederate dollar. Governments are always tempted to create lots of currency, since it?s easier and more popular than raising taxes. Only gold or silver backing can restraint them.
Removing backing from currency facilitates virtually limitless credit expansion, initially creating the illusion of prosperity. Indeed, in the 34 years since Nixon closed the gold window, the U.S. has been on an unprecedented credit and spending binge, and during the past few years, the Federal Reserve has been issuing new currency at the rate of $1.5 trillion a year (mostly electronically), or about $10,000 a year for every working American.
This enormous credit expansion has enabled people to buy bigger homes, cars and TVs, and enjoy lavish vacations and lifestyles. But it has also created unprecedented – and unsustainable – debt. The only reason we have gotten away with credit expansion for this long without a crash is because the U.S. dollar has been the world's reserve currency since the end of World War II. That has allowed the U.S. to export our inflation overseas, and get cheap goods in return.
So how low could the dollar go?
An 80% Drop in the Dollar?
Peter Schiff – CEO and chief global strategist of Euro Pacific Capital – summarizes the present dollar problem well. In his recent Forbes "Doom of the Dollar" (1-10-05) he writes:
"The basic problem is that Americans don't produce enough and don't save enough."
"We are using dollars that we print to exchange for goods that we don't produce. We have to borrow from abroad as there are no domestic sources of savings, so the value of those dollars will continue to fall."
"The dollar will fall a lot lower than it already has – dropping by perhaps 50% against the Japanese and Chinese currencies? Americans will have to consume a lot less and save a lot more. Spending on cars, clothing and electronics will all drop dramatically."
Other analysts believe the dollar will fall even further, perhaps as much as 80% or 90%.
If this dollar drop takes place over many years, it may be manageable. The problem is that any one of a number of events – such as foreigners dumping the dollar, another major terrorist attack on the U.S., or a U.S. or world recession – could cause the collapse to occur rapidly, even in a matter of days.
That would result in a stock market crash, skyrocketing oil (and other commodity) prices, massive recession, widespread bankruptcies, massive layoffs, bank failures, and a real estate implosion, rendering millions of Americans virtually penniless overnight.
In fact, the crash will likely be global, for the simple reason that we are now experiencing the largest-ever, global financial bubble.
http://isil.org/towards-liberty/death-of-dollar.html
