I've found the magic formula for my blog - 67% of my posts will be random topics, but 33% will stick to fear-mongoring and doom and gloom. This week's fear-mongoring deals with the looming death of the US dollar. My goal is to ensure you have a little piddle puddle at your feet and need to change your pants by the end of the post. Happy reading.
For the better part of 100 years, the great experiment called the 'US dollar paper currency' has made the United States the number one economic power, military power, and overall global power. We are the world's reserve currency, a safe haven for struggling countries to park their sovereign wealth over the past century. However, forces have been in play over the past forty years that have reduced this once strong currency to a shell of its former self. In fact, the dollar has lost 98% of its value since the Federal Reserve was incorporated in 1913. Happy 100th birthday, by the way, you scoundrels (more on this later). How did we get here? Why did we get here? What the hell is gonna happen and is this gonna be a long and boring post?
I'm no economist, but I subscribe to the Austrian School of Economics and read up on all of the works of the 1% of folks who actually called the 2008 Economic Crisis back in 2006 (Peter Schiff, Ron Paul, Nouriel Roubini, Gerald Celente, Robert Weidemer, and a now well known radio host named Alex Jones). If you were laughed at for warning of a housing crisis in 2005-2006 by the major news networks, or wrote scary articles about accumulating dangerous budget deficits and expanding entitlements and were ridiculed, I want to know what you know. If in 2007 you called a bull market and saw no end in sight to the 'irrational exuberance', I want you tarred and feathered. See where we're going here? Conventional wisdom bit us in the ass five years ago, and those same pollyannas who thought nothing was wrong back then are rearing their ugly heads again. "Everything's fiiiiine, unemployment is creeping downward, it no longer hurts when I urinate, we didn't go off the fiscal cliff, Obama's gonna fix everything, the rich are finally getting taxed more, my entitlements are still in tact, etc." Time to drop some pipe bombs and give you all a reality check on where the dollar is headed.
Here's a quick history lesson since we don't get a proper perspective in our failing schools on how to run an economy, let alone our own personal finances - the US dollar in coin form was first minted in 1794, but it wasn't until the 20th century that paper bank notes started circulating. The 1944 Bretton Woods agreement fixed every country's exchange rates on the US dollar. Any and all US coinage was backed with gold. To save a lot of boring history lessons, we gradually backed away from coin-based dollars in favor of paper, and in 1971 Tricky Dick Richard Nixon put an end to the gold standard (ie - backing US paper currency with gold). This set in play the free fall of the dollar over the past 40 years.
Fast forward to 2013. We have a $16.4 trillion debt. China has emerged as our eventual replacement in the 'global superpower' category. Russia waits in the background, as do India and Brazil. The westernized nations in the Middle East pretty much hate us (might be the whole 'we don't hate Jews' thing), but put up with us nonetheless. We've shifted from a manufacturing economy to a service economy (thanks, NAFTA/Unions/Unmotivated Americans with horrible skillsets and lack of ambition). We're expensive labor. We've printed trillions of dollars since 2009 and just sent them willy nilly into the global economy. We have a disfunctional Congress that's about as effective as the 'rhythm method', and our credit rating was downgraded in August 2011 because we can't seem to get our fiscal shit together . I think it will be downgraded again after February's debt ceiling shitshow combined with a less-than-stellar tax revenues showing on tax day April 15th. SHUT OFF THE BACHELORETTE I'M TALKING HERE - CAN'T YOU JUST DVR IT?!?!?!? All of this together has made the US dollar as desirable as a Betty White Playboy spread (some sicko just screamed 'Jackpot!!!!'). We got here because we got cocky, stupid, and greedy, and whatever comes down the pike (financially) for the United States, we probably deserved it.
As it stands right now, the top investors in US Treasuries are 1) The Federal Reserve 2) Domestic/Global Mutual Funds 3) China and 4) Japan. The Federal Reserve pumped in about $1.5-$2 trillion for QE1, $600 billion for QE2, and between QE3/QE4, about $85 billion a month since September 2012, indefinitely. Combine that with near zero percent interest rates and you can see why no one wants our toxic currency. We are dangerously close to hyperinflation (textbook definition is that hyperinflation results whenever the currency inflates by over 100% in a three year span). Think Weimar Republic in the early 1930's, where infamous photos show wheelbarrows full of useless deutschemarks taken to the grocery store to buy a damn loaf of bread. We all know what happened in Germany when these desperate people needed someone to turn to. This is what happens to dying currencies. You can't just print money out of thin air and still expect people to think it's cool. Your economy falls apart, and your life falls apart. And oh by the way, it's fun to blame Bush, Obama, Pelosi, Boehner for our country's problems, but this stuff falls on the Federal Reserve. As anyone who took an Economics course in college knows, The Fed sets monetary policy (ie - interest rates, money supply), and Congress sets fiscal policy (budgets, size of deficit, tax policy). Both suck and both need to be audited every year. We're finally making progress auditing the Fed. Anyhoo......
China has intentionally kept their renminbi currency undervalued to keep their manufacturing economy overheated, and they are also slowly unwinding their US Treasuries position and entering into bilateral trade agreements in non-USD denominated currencies. So is Russia, India, Brazil, Japan, and every other Middle Eastern country. In fact, once Saudi Arabia's king dies later this year, they will stop conducting trade using USD. So there goes the petro dollar as a medium of exchange. There are treasure troves of recently signed bilateral trade deals that DON'T involve the US dollar. It's like our fiat currency has Ebola virus or something. All of this reduces the value of the dollar and pushes costs up domestically for goods, services, and imports. Add in a historic drought and BOOM! Food prices will be spiking this spring, in some areas as high as 20%. The last time food prices spiked that high was in Egypt in 2010. Arab Spring ensued shortly thereafter. Japan's economy is about to implode again, since they tried QE twenty years ago during the 'Lost Decade'. Outside of trendy haircuts and Smartphones, they're still pretty lost. In fact they may be worse off than us, since they are heavily invested in the two most toxic currencies on earth right now - The USD and the Euro. So forget Japan investing with us anymore. Speaking of the Euro, unemployment is 12% in the Eurozone, they have a monthly crisis on how to secure bailouts for PIIGS (Portugal, Italy, Ireland, Greece, and Spain). Rumors are circulating that the German and French public are tired of bailing out these loser countries. Greece and Spain may get kicked out of the Euro, and Germany may quit the currency! Think Leslie Chow in The Hangover - "So long, gayboyyyys." No one's touching the Euro with a 30 foot pole. Expect continued civil unrest and high unemployment. Greece and Spain are in a Depression, by the way.
As if that's not bad enough, our zero interest rate policy keeps getting extended, and as of right now looks like in early 2015 Ben Bernanke will goose it back up again to build up demand for the dollar. Except there's one problem - it will add to our budget deficit since we'll be paying more interest on the debt. By 2015, our budget deficit will be over $18 trillion. More of your tax dollars will start to go towards paying down f'ing interest to China. Makes me not want to work hard. It's like the movie Speed - if we go less than 50 MPH we die. Catch-22. So what do we do to avoid this?
Buy gold and silver. Gold is up 600% since 2002 and Silver is up 500% in a similar time period. There are Cash For Gold stores everywhere. I'm not a Registered Investment Advisor so can't give concrete advice, but listen you self-consumed goons - 1) Stock market ain't going much higher 2) Bond market bubble is about to pop 3) Inflation is about to go through the roof 4) Precious Metals are a safe haven in crises 5) Silver has high industrial use and is in a lot of electronic products, so its necessary going forward 6) China, Russia, Germany, George Soros, John Paulson (hedge fund billionaire), and every globalist on earth are hoarding gold. I don't even think the NY Fed nor Fort Knox physically have the gold in their vaults anymore (thus the wars in Iraq and Libya to replenish the gold, but that's for another day). Silver is currently being manipulated by outsized futures put options by JP Morgan. Once these assholes get cornered, the gig will be up and silver explodes. Buy now when its at $30 and wait till the dollar collapses. You'll be happy you did.
One final thought - no one knows when the dollar will die, but it WILL die. The BRIC nations (Brazil, Russia, India, China) are already preparing an alternative currencies when shit hits the fan. 'Special Drawing Rights' (SDR's) may be created that use a basket of currency and allocate a specific value to the investor. Eventually, this will lead to a global currency run by a global bank and administrated by a global government. Part of the plan all along. The global economy is about to collapse. 2008 was a crisis. 2013+ will be an implosion. But only weirdos believe that, right? More to come in future posts......