‘Heavenly Father, we come before you today to ask your forgiveness and to seek your direction and guidance. We know Your Word says, ‘Woe to those who call evil good,’ but that is exactly what we have done. We have lost our spiritual equilibrium and reversed our values. We have exploited the poor and called it the lottery. We have rewarded laziness and called it welfare.. We have killed our unborn and called it choice. We have shot abortionists and called it justifiable. We have neglected to discipline our children and called it building self esteem. We have abused power and called it politics.. We have coveted our neighbor’s possessions and called it ambition. We have polluted the air with profanity and pornography and called it freedom of expression.. We have ridiculed the time-honored values of our forefathers and called it enlightenment. Search us, Oh God, and know our hearts today; cleanse us from every sin and Set us free. Amen!’ ————————————————————————————————————————————————
I increasingly believe that the dollar will collapse, and its ramifications could be as violent as when the credit markets cracked in July 2007. Currency collapses are nothing new, just as the bursting of a credit market bubble was nothing new. A dollar collapse could very well lead to carnage in domestic asset markets, whether it be the stock market, bond market, etc. Also, US imports and the overvalued dollar are fueling many of the export-oriented economies abroad, so a dollar collapse could wreak havoc on foreign asset markets as well. And once it happens, we’re going to view the collapse of the dollar as an obvious event that we should have long seen coming. Just as we now view the subprime wreckage and bursting of the real estate bubble as an event we should have easily predicted.
“The Dollar Crisis” is about how the world changed in 1971. That was when Richard Nixon dropped the gold standard (or its close cousin, the Bretton Woods international monetary system). Here’s the youtube video: Youtube Bretton Woods. The end of the gold standard ushered in a new era of large trade imbalances and the buildup of foreign currency reserves, and these trade imbalances and large foreign currency reserves have had significant impacts on the global economy that many people don’t realize. Huge trade imbalances and large foreign reserves didn’t really exist during the gold standard. During the gold standard, a country’s money supply was determined by the amount of gold it had. Banks’ reserves were either gold or indirectly tied to gold, and so the amount of money they could lend, and that the nation could print, was backed by the nation’s gold reserves. To see the implications of that sort of monetary system on trade imbalances, let’s take a hypothetical United States and China, where the US is buying lots of goods from China. The US gets goods; China gets dollars. China takes its excess dollars, gives them to the US, and gets gold in exchange. The US gold reserves would decline, causing credit contraction in the US. This would lead to recession; prices would adjust downwards; and falling prices would enhance the trade competitiveness of the US. The US would stop exporting so many goods from China as China’s costs of production begin rising relative to the United States’. The US would stop being a net importer; gold would flow back in; and equilibrium on the balance of payments would be re-established.
Today, in the system of fiat money, that’s no longer the case. The US gets goods; China gets dollars. China takes its excess dollars, and invests them back in the US, whether in the form of treasury bonds, Freddie Mac mortgage-backed securities, or US corporate bonds. The US takes those dollars and buys more Chinese goods. China gets more excess dollars and reinvests in the US. The US buys more Chinese goods. And on and on, until the US credit market debt as a % of GDP goes from 150% in 1970 to 350% in 2008. Just as reference, that number was 130% in 1950. During the gold standard, debt-to-GDP hardly grew. Under fiat money, it has soared. America isn’t awash in debt because we’re inherently greedy, profligate consumers. It’s because money is no longer backed by gold. China and Japan eagerly reinvest their dollars back in the United States so as to keep their currencies low relative to the US dollar. American consumers and companies happily borrow the money foreigners are throwing their way. The party lasted until 2007, when Americans finally began having trouble paying their enormous debts.
Quick Synopsis:
* Abandoning the gold standard in 1971 has resulted in large global trade imbalances and a massive buildup of foreign currency reserves
* These trade imbalances and buildup of foreign reserves have resulted in frequent booms and busts since 1971
* The Japanese bust of 1989, the Asian economic crisis of 1997, and the current US credit market collapse have resulted from the post-1971 paper money monetary system
* Abandoning the gold standard has gradually resulted in a very overvalued US dollar, and that the dollar is headed for disaster
* “The dollar standard is inherently flawed and increasingly unstable. Its collapse will be the most important economic event of the 21st century.”
The True Value of the US Dollar Is Almost Completely Gone
The US government and Federal Reserve would like you to believe that the US dollar has inherent value. . . that it’s stable. . . that it’s a store of value. . . that it is, and will always be, the world’s preferred currency. But, as more and more people are learning everyday, that is all just a fairytale. . . a fantastic misrepresentation of reality. The truth is. . .
The Value of the US Dollar is Gone
A 1928 $1 Silver Certificate
A dollar, once redeemable for physical gold or silver, is only backed today “by the full faith and credit of the United States government.” That means the US dollar is given credit and strengthened by the government’s ability to levy taxes or borrow from a separate entity, like the Federal Reserve or a foreign government. Think about that for a minute. First of all, no entity, not even one as large as the United States government, has unlimited credit.
The American government, just like you or me, is limited by how much it can borrow. And with the national public debt already approaching $11.5 trillion — and growing by an astonishing $3.8 billion per day. Perhaps more frightening is the government’s guarantee to back the US dollar through its ability to tax the American people. If you don’t pay your taxes, you may be fined, your paychecks may be garnished, your property may be seized, and you may even be thrown in prison. . . federal prison! In other words, the government’s guarantee of the dollar ultimately rests on your fear of incarceration. What once derived its value from gold now takes its strength from state-sponsored intimidation. It’s true, we’ve fallen quite a ways from the days when the greenback meant something. And what’s really scary is that. . . The US Dollar’s Value Has Eroded in Just a Few Decades At the close of WWII, with just around 5% of the world population living in the US, the nation nevertheless produced 75% of the manufactured goods consumed globally. It was an astounding achievement that set the stage for what many historians dubbed “America’s Century.”
That century is now over, literally and figuratively.
Although our economy was once responsible for a constant flow of steel, cars, ships, high-tech equipment, and all varieties of household goods. . . although our nation once fought off the Nazis and supplied the Allies with the goods and capital required to defeat the forces of evil and build the modern world up from the ravages of global war. . . today, America’s number one product is debt.
And the mountains of debt we accumulate on a daily basis will only keep growing because our industry and exports simply cannot keep up. We’ve all felt it, from the common citizen to the biggest corporations. Unfortunately, the Fed’s main tactic for combating this mounting crisis is adding to the money supply, which they’re doing at an unprecedented rate today.
