Dollar Demise
We are at the beginning at what I believe is the biggest economic change the world has seen since the industrial revolution. A paradigm shift is beginning to take place that will create a new economic order in the world and America is in deep trouble. Why? The US Dollar is in major decline.
When World War II ended, America emerged as the economic and military superpower of the world. Unlike Europe and Asia, which lay in ruins, America was spared from destruction and its treasury was rich with gold. The US Dollar replaced the UK Pound as the world reserve currency. Militarily, we had competition from the Soviet Union, but there was no one that could compete with us economically. The US Dollar was “as good as gold” and was accepted by all nations. Sadly, America turned its back on sound monetary policy and began printing money like crazy. When foreign nations began to demand the dollars they held be converted into gold, the US Dollar was completely taken off the gold standard by 1971 and turned into what we have today, a Fiat currency.
People who study and understand sound financial policies know that our current system of is a house of cards that is destined to fall. The US Dollar has no real value behind it. What is the US dollar backed by? We produce very little as we have outsourced most of our manufacturing to foreign countries. It certainly is not our service jobs that is sustaining our dollar. The dollar has only been backed by, “the full faith and credit of the United States of America”. That may have been acceptable in the past but times are changing and I believe the worst days are ahead. How do you have faith in a debt ridden system?
America has been fortunate to reap remarkable benefits from issuing its fiat currency. We have been the economic and military superpower for decades. Even after coming off the Gold standard the US Dollar was saved and continued to be the world reserve currency when it went on the “Petrodollar” standard. Congressman Ron Paul pointed this out back in 2006:
The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.
This new system was an agreement between OPEC leader Saudi Arabia and the United States. Saudi Arabia agreed to price oil in dollars and the US agreed to protect the interests of the Saudi Royal family. Since oil is needed all over the world, the new system guaranteed that every nation would have to keep substantial dollar reserves in order to buy oil. This inflated the value of the US dollar and subsidized the debt-ridden policies of the US government as well as the debt-ridden consumption of its citizens.
Now, we are seeing the end coming. The UK paper, The Independent, reports that in a graphic illustration of this new world order, Arab states have launched secret moves with China, Russia and France to stop using the US Dollar for oil trading.
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Even though those nations involved deny such talks, the US Dollar has taken serious blows to its supremacy and in turn, there is a direct threat to the current power structure of America. But thanks to colossal failures by both political parties and those who run our banks and financial institutions, the economic collapse has critically weakened America economic standing.
In the past, anyone who challenged America’s fiat currency was dealt with swiftly, whether economically or militarily. Today we are losing on both fronts. China has become the economic juggernaut of the 21st century and is predicted, by many economists, to replace America as the world’s economic superpower. They own over 20% of our debt and flood our nation with cheap, inferior products that, for a lot of Americans, are the only items they can afford, thanks to the Dollar’s weak purchasing power.
Iran announced late last month that its foreign currency reserves would henceforth be held in Euros rather than dollars. Many politically and economically astute people remember, of course, what happened to the last Middle East oil producer to sell its oil in Euros rather than dollars. A few months after Saddam Hussein announced his decision to sell oil in Euros, Iraq was invaded and promptly returned to the Petrodollar standard. The drumbeats for war against Iran have never been as loud as they are now. But how can we pay for and recruit enough troops to fight another Middle East war?
The biggest loser for years has been the American people. Americans have watched their once strong dollar and their hard earned money become worthless. Back in the ‘50’s and ‘60’s a man could support his family on one income and still have money left to save. My grandfather was able to afford a home, two cars, and a summer lakefront house with a boat on one salary with a wife and two children to care for. Today, two incomes can barely keep a roof over a family’s head. The American family is working just to keep from being crushed from enormous amounts of debt. My grandfather was a blue collar worker most of his life. Think he could do that today?
The Great Recession has wiped out over 6 trillion dollars of American wealth, our national debt is now over 11 trillion dollars (we are adding a staggering $46,000.00 to the debt EVERY SECOND) and the federal government is larger and more encroaching into the lives of Americans than ever before. Like sheep, we are being led to the slaughter.
The questions remain as to how this new system will affect the average American and to what lengths will the establishment go to prevent it?
Richard:
Thank you for raising this story. It is a critical story and an ominous crisis that is coming. And neither party in Washington has a clue of how to deal with it.
We do need to eliminate fiat currency. However, it is even more critical to get the government out of the business of money in the first place. Having the government issue gold backed currency is not any better than the current system, because the government remains in the position of price fixing the value of its currency.
What is needed is a free market in money and banking. That would mean allowing banks to issue their own banknotes, in the same way that today they issue their own credit cards.
The consequneces to our government’s ability to finance the welfare state without being able to print money should be obvious. The government could never spend the way it does now if it could not print its own money. Given the complete lack of will – not to mention complete lack of ideological understanding of the need to – cut government spending, if a crisis overtakes us, it could lead to a very serious disaster.
And we currently have a President who lives for disaster. Not a good sign.
October 12th, 2009 at 1:33 pm“The UK paper, The Independent, reports that in a graphic illustration of this new world order, Arab states have launched secret moves with China, Russia and France to stop using the US Dollar for oil trading.”
Gov. Palin warned about this fact many days ago.
“We do need to eliminate fiat currency.”
Do you advocate a gold standard? (I do.)
October 12th, 2009 at 2:53 pmZbigniew:
I advocate private money, which will base its value on whatever the market values. I do not support government setting the price of the dollar at $20 per opunce, $35 per ounce, $38.71 per ounce, or any other amount. The government has no better clue as to what the correct price of gold or the dollar should be than it has of the correct price for cars, rent, health care or anything else.
Under private banking, banks would issue their own banknotes instead of the Federal Reserve issuing banknotes. There would be no FDIC insurance (though private companies would be free to sell such insurance and banks would be free to purchase it). There would be no government mandated reserve requirements. Individuals would have to investigate the safety of banks – and there would be outfits akin to Consumer Reports that would provide such services in a free market. During the period of free banking in the United States during the 19th century, there were companies that published information on the soundness of a particular bank’s notes – and different banknotes traded at different discounts or premiums.
I support a free market for money and banking, just as I support one for all other goods. Would gold back the better banknotes? I would guess so, but given that I do not fancy myself as a central planner I cannot say for sure. But it is likely that banks would maintain their own reserves based on their own judgment of the market (including their depositors’ demands), and that some of those reserves would be in the form of some store of value such as gold.
October 12th, 2009 at 3:08 pmIt’s rather amazing when you look at the value of the dollar from the year 1913 and onward considering it was the year we got two horrible things that truly crippled American prosperity: 16th amendment and the Federal Reserve. Look at the dollar in 1913 and watch what happens when a supposedly an “independent” agency controls the money and interest rates in our country. Look at the times in which this country had a central bank whether it be called the Federal Reserve or a Bank of the United States: http://mises.org/images/SeanMaloneRiseFallDollarLarge.jpg
October 12th, 2009 at 5:33 pmGreat article Richard. Thought provoking and timely. Nice to see that again on this site.
I am so angry at how we have be manipulated and screwed so badly!
October 13th, 2009 at 10:17 amRyan Gilroy – good point. The IRS is an oppressive communist institution; the Fed is a private central bank owned by unaccountable private banks which cause crises to take over rival banks.
The Fed caused America’s worst banking crisis (1933), its worst economic crisis ever (1929-1945), and its worst sustained inflation (started in 1955). The last year when the CPI did not rise was 1954.
October 13th, 2009 at 3:27 pm[...] week, our own Richard Ross had a sobering and, well, downright scary post regarding the U.S. dollar. Well, I’ve come across some interesting information which puts this into further [...]
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