BYE BYE U.S DOLLAR!-- SEPTEMBER 2009

Bye Bye U.S. Dollar!

   If you recall I wrote about Special Drawing Rights (SDR) in the may newsletter.  At that point there was quite a bit of pressure from the Chinese to have the IMF reinstate them.  Well it would appear to be coming true.  Since then Russia, Brazil and India have joined them in their opinion.  The United Nations is now calling for the SDR’s to be replacing the U.S. dollar as the world reserve currency.  What will this mean for the dollar?

   The dollar has been propped up by two things for the last couple years, deceiving us of its vulnerability.  The first was the fact that China continued to buy our bonds.  I say was, because they are no longer doing so.  At the last two treasury auctions nobody bought our bonds.  It was the Federal Reserve that bought them and then sold them back to us at a small profit for themselves.  Wouldn’t it be nice if you could continue putting off your debts by having somebody buy them and then immediately giving them back to you extending the actual date of funds due?  I think Bernie Madoff went to jail for something similar.

   The second scenario propping up our exposure to a complete collapse has been the fact that we remain the world reserve currency and others still need to buy and sell our dollars for international transactions.  How much longer?  I am not sure of this answer but if the U.N. gets its way it won’t be long.  Foreign countries have long been worried about removing the dollar from this position because of the bonds they own of ours.  Reality seems to be setting in for these countries that they will be able to move on without us.

   Peter Schiff wrote a book a few years back explaining about the emerging markets and their impact on us and themselves.  I will use China to explain his findings.  The Chinese will be able to look at the amount of time they work and the profits they make.  While considering the amount of business they are losing from the U.S. they can reduce their workload and pay by that same amount let’s say 15% and realize they will have a better quality of life.  Yes, they are making 15% less, however they are not spending more than they make.  Once they figure out they have some time to spend with the kids, watch television, read or go play table tennis and the bills are still paid, they are happy.  We are the ones that suffer because they don’t want our bonds so our dollar drops and we still buy their products because they are less expensive than anything we can get here(regardless of quality).

   What can you do to protect yourself and your assets?  Buy Gold!  China is, Russia is, India is, people these are the emerging markets of the future, if we do not get off our rear ends and create new jobs.  We can no longer function as a country that sells ideas to foreign countries to produce at a lower cost and then sell back to us.

   I have heard a lot about the recession being over because the stock market is climbing and certain economic indicators are slowing.  Baloney, gimmicks like cash-for-clunkers and free money to banks to balance books as well as the ability to mark to model on toxic assets manipulate short term numbers but do nothing in the longer run.  They don’t create new jobs, they don’t strengthen our dollar, and they definitely don’t improve on our quality of life.  It is a magic show and I am not sure what it is that we will see for a grand finale.  Socialism, Communism, or an Oligarchy like the powerhouse of all societies Rome finally fell from.

   Final Parting Shot:  Never in the history of the world has there been a situation so bad that the Government couldn’t make it worse.  Use your common sense and protect yourselves!