The Twilight Of The Dollar
American consumers face the spectre of losing value in their retirement savings, finding out they cannot live on a fixed income, and suffering from chronic hyperinflation. These changes are unavoidable. But there are steps that smart investors can take defensively to escape from their vulnerability to the dollar's inevitable fall.
Any number of things could create a sudden, wrenching drop in the dollar's value. Consider the following three possibilities:
1. Foreign countries drop their U.S. dollar reserves. We depend on foreign investment in our currency to bolster its value or, at least, to slow down its fall. When that thinly held balance changes, our dollar loses its spending power.
2. Oil prices increase catastrophically. We - and our real inflation rate-are at the mercy of Middle East oil. Imagine what would happen if the price of oil were to double. Or triple. Our vulnerability is not imaginary. We are all aware of our vulnerability and dependence on oil, but we don't like to think about it. If oil prices do rise, it will affect not only what you pay at the pump, but many other prices as well - non-automotive modes of travel, the cost of utilities, and local tax rates, for example.
3. The double whammy of trade and budget deficits. We're living beyond our means. It's as simple as that, and something is going to give. The federal budget deficit - annual government spending that is higher than tax revenues - adds to the national debt at a dizzying rate, making our future interest burden higher and higher every day. Our trade deficit - bringing more things in from foreign countries than we sell to the same countries - has turned us into a nation of spendaholics. We've given up making things to sell elsewhere, closed the store, and gone shopping. But we're not spending money we have. We're borrowing money to spend it. Any head of a family knows that this cannot go on forever without the whole thing falling apart - and yet, that is precisely what we are doing on a national scale.
Even as our economy burns, our political leaders fiddle. They point to economic indicators to prove that our economy is strong and getting stronger. This information would be valuable...if only it were true.
Politicians like to measure the economy with esoteric indicators. For example, we are told that consumer confidence is up. Well, confidence is all well and good, but what if it isn't accurate? Yankee optimism has achieved a lot in the past 200 years, but it alone is not going to prevent the current dollar crisis from getting worse and worse.
Does this mean that the United States is finished? No, but it does mean that our long history of economic power and wealth is being eroded from within. For example, look at how the reality has affected you in recent years. For most people, the real state of our economy is measured in one way: jobs. Sure, the number of jobs rises every month, but the truth is not as reassuring. We are losing high-paying jobs in manufacturing and replacing them with low-paying jobs in health care, retail, and other menial job markets.
Our mantra of "Yankee ingenuity can accomplish anything" is gradually being replaced with a new mantra: "Would you like fries with that?"
by Addison WiggiFor The Daily Reckoning
Addison Wiggin is the editorial director and publisher of The Daily Reckoning. To get more from Addison and a host of other daily contributors, check out the free daily email, The Daily Reckoning.
This essay was taken from Addison's newly-released book, 'The Demise of the Dollar...and Why It's Great for Your Investments'. It has just hit the New York Times bestseller list. You can buy your copy here for £8.49.
