More on the Dollar
By Greg Hunter’s USAWatchdog.com I wanted to do a little more on the coming plight of the U.S. dollar. I received this comment from a reader named Billhopen who wrote, “Inflation??? you go to lengths quoting Karl Denninger (Market Ticker) who will tell you its is massive default, delevering, etc that will lead to DEFLATION….Your thesis is lacking on how we get an inflated currency from or situation, and certainly you can’t quote Karl to support that theory.” Billhopen does have a point about Mr. Denninger. Denninger lays out a case for deflation, but at the same time, he also makes a case for how bad things will get. That is precisely why I used a quote from him. When things get bad, and I mean desperate, what do you think will happen to the dollar on the open market? One of my readers named JJ makes this point by saying, “Billhopen . . . doesn’t understand where the inflation will come from. Fiat currencies are bought and sold on the open market. Only the demand for a currency sets its value. If you don’t understand this point then you don’t understand the coming storm. Billhopen, do you think the demand for Whale oil increased or declined with better alternatives?” (You can read more from JJ in the comment section of “Inflation Nation.”) The alternative to the dollar might be the SDR, or Special Drawing Rights. I wrote about this in a post called, “Another Sign on the Road to a Devalued Dollar.” The financial world has been talking about replacing the dollar as the reserve currency for a couple of years now. To give my “thesis” a little more clarity, I turn to economist John Williams of Shadowstats.com. In his most recent report from last week, he summed up what will happen to the dollar by writing, “As reported today (July 16th) by the Bureau of Labor Statistics, consumer inflation appears to be contained. That should change quickly and sharply at such time as the U.S. dollar comes under heavy selling pressure, along with broad dumping of dollar-denominated paper assets. Not only will oil prices spike in response to the dollar weakness, but the Fed will find itself forced to become lender of last resort to the U.S. Treasury, with a resulting sharp jump in Fed monetization of Treasury debt and related money supply issues. Both the dollar weakness and monetization developments are of increasing probability within the next year, with the time-horizon beginning to come in. These developments should result in a rapid increase in consumer inflation, with the base then being set for a hyperinflation. . .” I don’t know if anybody is watching this, but 6 more banks failed over the weekend. The new total of insolvent banks taken over by the FDIC is now up to 96. How many more will fail this year? What will the effect of a seemingly never ending parade of failing U.S. banks have on the dollar? How will the dollar hold up in the face of insolvent states such as California, New York and Illinois, to name a few? (46 states have a budget hole that is $200 billion deep.) What is coming is not what happened in the 70’s or the 30’s. It will be far worse. America will not be destroyed, but it will be very tough going and many will be wiped out. Your best chance to be there for the rebuilding process that will surely come is to get fully prepared. What is coming is not for the kids or grandkids–that is 80’s and 90’s talk. What is coming is for us, in the here and now.
Greg, One other thought. You can have Deflation and Inflation at the same time. Its the NET effect that we have to be concerned about. If our spending power is stolen with high inflation, a gallon of gas could cost the static in Euros and increase weekly here.
All those FRN’s in foriegn hands will come home to roost and when they do get ready for $2000 loaves of bread……
” Your best chance to be there for the rebuilding process that will surely come is to get fully prepared.”
Right you are, I have been preparing now for several years now. It will be up to those of us who prepare to rebuild this country after the dust settles. I just wish more people could see it……..
Greg, you and several others keep saying to prepare yourself. What’s the best way to do that for the coming storm??
Thank you so much for your help. Since hearing you on Coast to Coast, I’ve become a devout reader and tell everyone about your site..
Well Said! We are preparing the best we can, and it’s not easy.
The massive Multi-Trillion Dollar Debt has placed this country in a position it has never been in before.And this is where all the worry comes from.Deflation, inflation, collapse, anarchy, nuclear war,,,take your pick. It’s anyones guess where we go from here because know one really knows.
The one thing that is certain is that the potential for things getting worse is greater than things getting better.Visualize your worse case scenario ( excluding death ) and plan accordingly.
Unfortunately for all of us, government officials subscribe to the school of economics that serves their needs. What people don’t realize is the government does not make money. It’s sole source of revenue is the taxpayer and for every dollar spent with public funds that is one less dollar available for the private sector to use for purchase of goods or job creation. A Keynesian rebuttal would be the private sector’s confidence in the economy has been shaken and they would likely hoard their money instead of using it for job creation. If we were not strapped to a fiat currency that can be manipulated while creating boom and bust cycles then the private sector would have no need to hoard money since their confidence in our economy would be in tact. Why? Because this whole mess would have never happened.
People are over thinking this. If we print massive amounts of currency and the world ceases to use our currency as the reserve currency then all of those overseas dollars will come home to roost.
I ask this simple question. How valuable is toilet paper? Not very, because there is soooo much of it.
Could there be a hint of self fulfilling prophecy here?
I am just saying if everyman begins to accumulate gold at $1200 per ounce, will this not begin to drive the price even higher? Thereby triggering price increases of commodities across the board, with speculation to follow and the merry go round commences.
I realize that what every ‘everyman’ does is not even a tenth of a drop in the bucket compared to the National, let alone global debt problems; however perception in our media driven psyche is reality and wouldn’t this accumulation further increase the height of the tsunami wave; just as the shallows increase wave heights closer to shore.
Just trying to understand and appreciate what has and is happening to us all; and trying to formulate a plan for surviving the ongoing onslaught of economic carnage.
Really enjoy the articles on this site Greg, and the intelligent, thoughtful commentaries of the readers. Glad I was listening to Coast2Coast that night and caught your appearance.
Gold soldfor $35 an oz. and now $1190.00. Does that tell you what your paper money is woirth…Death of the west…
Why doesnt the next pres run on the notion that we will prosecute the people who let this whole thing happen in the first place. aka, lehman bros, goldman sachs, barnie frank, allen greenspan, bill clinton, bush, bernanke, dodds, paulson, and every other crimin…uh oh sorry, politician that NEVER SAW ANY OF THIS COMING. THEY ARE SUPPOSED TO BE LEADERS AND THEY ARE NOTHING BUT CROOKED COWARDS. Lets take a page from china’s discipline book and see how these politicians act then. Then they’d know we are tired of being taken for granted and driven into the ground with taxes for bailouts leading to fake stimuli and fake job numbers and fake media spins. Ive had enough. Thanks for the work Greg, and for the chance to vent.
The purpose of a reserve currency is stability; that is not the US Dollar. There is nothing to replace it with except Commodity money [GOLD]. You can’t print more gold. The current crop of wunderkind talk of spending more to stimulate the economy; Due to the political realities of our time, you could spend another trillion dollars and it would not go where it really needs to go.
Look at our stimulus verses the Chinese stimulus. They bought concrete, bricks, steel and mortar; America, we bought Bankers, political favors and road signs touting the “Stimulus”. Is it any wonder we are losing our position in the world?