Sunday, January 25, 2009

US Dollar: Imminent Collapse?

The forces that have allowed the US dollar to remain strong seem to be coming to an end, and it could be any time that it collapses under the weight of its inherent weakness.

A number of dollar experts, including Peter Schiff and Jim Rogers, agree with the sentiment that the US currency has nowhere to go but down.

Forced liquidation and deleveraging have kept the currency artificially high, but now those positions are unwinding, and so they won't prop up the US dollar any longer.

This will have a significant impact on dollar related investment vehicles like US Treasuries and bonds.

With the Federal Reserve running the money printing presses non stop to pay off its promises, there's nowhere for the US currency to go but down. Inflation is just around the corner, and it's a matter of when, not if, it comes.

Commodities have already started to rise, especially the metals, as gold and silver enjoyed a big jump recently, and that will continue throughout 2009. Some think platinum prices will also rise in 2009, even though the demand from the auto industry has slowed.

As far as the future of the US dollar, it's going to plummet in value in the near term for sure, while some are even beginning to think the unthinkable, that there will emerge an alternative currency the world favors, just as the pound was dropped for the US dollar long ago.

China is even beginning to experiment internally with using its own currency for transactions within its more successful economic regions, rather than the US dollar. We know the reason that experiment is going on, as the China currency could sometime emerge as the favorite to use in global transactions.

Any investment connected to the US dollar will suffer going ahead, and the dollar will not continue to retain its strength or go up over the long term. It will of course have its small seasons of upward movement, but overall the chart will go down.

This will get even worse because of the US government interfering in the free market and bailing out tons of poorly managed companies and sectors, all in the name that they're "too big to fail." Too bad, as the economy always cleans and flushes out the poorly run companies and emerges stronger than in the past.

That won't happen now as taxpayer money will be used to support the badly run companies and allow them to last in the face of the quality companies that would have taken over the bad.

In the short run, the US dollar will remain the currency of choice, but I don't see how going ahead, and the failed big government policies that are destroying the dollar, will allow the currency to remain as its been. It won't happen right away, but it will happen unless we get people in the government that understand monetary policy.

The future of the US dollar is bleak, and it will buy less and less going forward.

For the Treasury bond, the reason it's in a bubble and will collapse, is nations are starting to cut back on buying it, and speculators have entered the market giving it the illusion of strength. In reality, the US government will be the final holder of the bonds, and nobody will be there to buy them. Then what will they do?

The US dollar is heading for a fall, get out of them while you still can.


Gerald said...

Only a positive balance of trade will restore the value of the dollar, and we must accomplish this by any means possible, or accept third world poverty on a large scale basis. Riots and insurrection are predictable, ala the French Revolution, when the people find their situations economically hopeless.

Our political and economic leaders seem to have decided that we can continue our economic miracle by becoming a service oriented society cooking hamburgers for each other using imported beef, imported vegetables, etc., selling insurance & junk bonds to each other, and suing each other, but definitely not manufacturing or creating anything that we consume. The only way that we can reverse this trend is to re-start making the things that we consume.

The only thing that will save the US Economy is the re-building of our gold reserves in order to preserve the buying power of the dollar. The only way to do this is to produce export more (dollar value of) things than we import. The only way that we can accomplish exporting is to re-industrialize and make these products with US materials & Labor. In the last few decades we have purposefully destroyed the industrial base that won WWII and gave us today's bountiful way of life. Paying people to pave roads, build infrastructure, plant trees, dig holes then refill the same holes, rake leaves, write poems, paint pictures, etc. will not be useful or contribute anything to correcting the US economic problem.

As long as the US government continues to just crank up the presses and print more dollars, T-Bills, Government Bonds, etc. to pay for these pork barrel projects, negative balance of trade, government payrolls, bailouts, entitlements, operations, social schemes, wars, new infrastructure, wealth re-distribution, mental health, and etc. We will see the buying power of our dollars diminish until a loaf of bread costs a week's wages.

The current US government economic stimulation plan is to print up a bunch of new paper money and other similar paper securities and sell these securities mostly to foreign investors of producing and manufacturing countries to pay US people to re-build and expand the US infrastructure (Pork Barrel Projects) in order to reduce unemployment. This money will probably be spent on illegal alien labor, imported earth-moving machinery, imported materials (Steel, equipment, Pipe & Wire), airplanes, outsourced engineering, outsourced CAD drafting, etc., and the US workers are still unemployed? This is probably necessary at this time, even if it will cause massive inflation to the point that it takes a week's wages to buy one loaf of bread. Any Economic Stimulus Spending also needs to prohibit any imported products (even if we no longer manufacture those products) from being purchased with these funds, and also prohibit all outsourcing of the Labor Required.

How can we ever re-start our industries (re-industrialize) to generate a positive balance of trade that will restore our economy? Most of the men who knew how to operate the US basic industry and factories were fired 30 years ago and are now long dead. There are no books that completely tell everything about how to do most of the things that we knew how to do years ago when we created the industries that won WWII and then gave us our bountiful way of life. We need science-oriented citizens to create products and services that we can exchange for foreign currency. Foreign owned US dollars and foreign gold.

The dollar buying power or value is partly about psychology when it is backed by the "full faith and credit of the US government" rather than gold. This is the same as my definition of "Junk Bonds".

Since the US government stopped redeeming US dollars for gold, foreign governments and foreign individuals continue to use these freshly printed dollars (and other freshly printed US securities that they earned in exchange for their products that they exported to the USA) to purchase title to real estate, forests, industries, breweries, hotels, factories, casinos, financial institutions and everything else of value that is located in the USA. We paid these foreigners with our freshly printed dollars to manufacture or supply the things that we imported and consumed (rather than US citizens working to make these products ourselves in this country). Some government sources estimate that 25% of our property and businesses are now foreign owned ( What will be the buying power of the dollar when we have nothing left to redeem the dollars earned by foreigner manufacturers?????????

There is (probably) a limit to the amount of paper dollars that the foreign country manufacturing people and the foreign country raw material supplying people will continue to accept in payment. This limit will become apparent as soon as foreigners own title to everything of value in the USA and nothing is left that the foreign dollar holders want to buy with their freshly printed paper dollars. This is selling of our children's legacy to foreign owners, and the US government calls it "Investing in America".

The USA population will probably become employees, indentured servants, or maybe slaves of the foreign countries and foreign individuals that will own everything of value in the USA in the near future. The foreigners know that the US dollars that they earn will buy less and less each day that they do not spend them. They also know that these securities are not redeemable for anything except the "full faith and credit of the USA" (aka junk bonds). Our children and grandchildren might also have to change to the religion of the business owner if they want a job.

Future nationalization of foreign owned assets (ala Mexico) is another discussion topic for another day.

It is not the foreign manufacturer's fault that this condition exists. We created this condition ourselves. We purposefully destroyed most of our industries and fired all of the employees that were located in the US for various reasons. Why should we work and make the things that we consume as long we can get people in other countries to work to make these things for our consumption? We can pay them with freshly printed-paper currencies and other types of freshly printed-paper securities (Junk Bonds). They can redeem these freshly printed-paper currencies by exchanging them for title to our real estate, hotels, forests, breweries, casinos, factories, and our remaining businesses (instead of Gold). Our Stupid Legislators, Ignorant Government Employees, Self Serving Corporate Managers, Greedy Unions, Wall Street Financial Genius Criminals, Enron and Arthur Anderson type Master Criminals, NAFTA, EPA, WTO, and OSHA, just to name a few, have created this situation.

How can we ever re-start our industries (re-industrialize) to generate a positive balance of trade that will restore our economy? Most of the men who knew how to operate the US basic industry and factories were fired 30 years ago and are now long dead. There are no books that completely tell how to do most of the things that we knew how to do years ago when we created the industries that won WWII and then gave us our bountiful way of life. We need science-oriented citizens to create products and services that we can exchange for foreign currency and foreign gold.

hcg said...

I hope you have a nice day! Very good article, well written and very thought out. I am looking forward to reading more of your posts in the future.