End of the Dollar as We Know It

Posted: March 11, 2011 in Commentary, Economics, Politics
Tags: , , , , , ,

This week we learn that in the month of February the Beltway Burglars ran a deficit of 225 billion dollars.  That is 2.7 trillion dollars – nearly a trillion dollars more than the current official annual budget deficit estimate.  Now DC has been saying for months that the economy is showing signs of growth.  If this is growth the US economy is destined to return to the womb.    

The economy is literally being cremated by the crippling policies of the Federal Reserve.  Bernanke persists in trying to put out a forest fire by throwing gas on it.  The value of the dollar is plummeting as QE2 continues to devastate the wealth and purchasing power of people around the world.  As Bill Bonner of The Daily Reckoning puts it:

One thing we know already is that the dollar and gold parted ways last summer, right about the time Ben Bernanke stood before the Grand Tetons at Jackson Hole and announced his grand design to continue debasing the dollar until something good happened.

William McChesney Martin, Fed chief during the Eisenhower years, used to say that the Fed’s job was to “take away the punchbowl” when the party started to get out of hand.

Times have changed. Now, the Fed has no intention of taking away the punchbowl. It’s just running out to the liquor store to buy more gin!

This wholesale destruction of wealth is happening just so Washington can continue to spend without restraint.  As noted previously, if the interest rate were to rise to just 5 percent, DC would be on the hook for an additional 750 billion dollars a year, or a third of current tax confiscations.  And remember as the bureaucrats continue to eradicate confidence in the dollar by printing more and more money, the inflation premium in interest rates rises. It’s enough to make you run from government bonds.  From CNBC we learn:

Pimco’s Total Return Fund, the world’s biggest bond fund, has dumped all U.S. government-related securities, including U.S. Treasurys and agency debt.  Bill Gros, the fund’s manager, has warned about the U.S. deficit spending and its inflationary impact.  He has advocated buying bonds with “safe,” higher yields — such as corporate bonds — that can withstand possible erosion of returns by inflation.

This is big news.  The government complex is seeing investors reject the contention that government debt is safe because they can loot a captive set of taxpayers.  This will add to interest rate pressure for government borrowing.  The same thing is showing up in state and municipal bonds as well. The Fed is virtually insuring a collapse in sovereign debt securities.  It is out whistling Dixie while digging the grave for any future economic activity.  As it happens, gold and silver will continue to strengthen.

The same thing is happening around the world.  China inflates to keep goods flowing to the US.  Britain inflates to play war and restart their economy.  The European monetary union inflates to save the governments of the PIIGS.  Other countries inflate to keep their jobs from leaving due to currency imbalances created by all of the money printing. Look at the price of gas.  They have climbed over 30 cents per gallon in the last two weeks.  Some of that is Mideast instability, but a large part is the result of currency debasement.

The whole house of cards is just waiting for the Big Bad Wolf to come around and huff and puff and blow the straw house down.  When it goes the whole planet is in for economic incapacitation.  It won’t recover until there is a currency reliably backed by a hard asset like gold or silver for international financial transactions.

The bright spot in all of this is that as has happened throughout history gold and silver are gaining in popularity as governments sap the wealth out of their populations.  Look for gold to return as the asset to prevent governments from destroying people’s assets.  Just as happened here in the US after the Revolutionary War when paper money was “not worth a Continental“, gold and silver (and currency backed by them) will once again become the bulwark against government  driven monetary value destruction.

So as the currencies around the world head for their day destruction, you’ll be hearing the tune ringing in your ears, “It’s the End of the Dollar as We Know It…”  If you protect yourself from the government monetary debasement, “You’ll feel fine…”

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Comments
  1. Jeremiah Dow says:

    It sounds to me like we are in a global race to the bottom. Printing money at this rate has simply become an exercise in who can devalue the lowest. Central banking policy has taken on a new dimension. It has become little more than a cat-and-mouse game of currency devaluation, a politico-economic arm of governments that will effectively create the largest liquidity crisis in human history. The only thing is, there can be no winner. What do you suppose the U.S. Treasury and Federal Reserve see as the end goal? They are not stupid people. They know the current situation is unsustainable even in the short-run. Do you envision a world currency backed by the IMF or the perhaps the Bank for International Settlement in Switzerland? Do you see such a possibility as an unstated goal of global elites? Once the crash happens, this will certainly be in the proposals for what must be done, yet, I don’t see them doing away with central banking. What do you thing???

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