Ever since about 2005, I’ve occasionally warned readers that we could face a weakening dollar in the future and growing inflation (inflation is best defined as excessive expansion of the money supply, which we are obviously doing – what prices do for any particular product at any one time is complicated by many factors). You can’t keep spending like crazy and creating more money without facing dire consequences. No nation has ever done that without having its currency eventually face great pain. I have therefore recommended that people diversity their investments to include at least some precious metals such as silver or gold.
I made these recommendations when gold was at $500 to $700 an ounce and when silver was at $9 to $14 an ounce. Now that gold is approaching $1100 an ounce and silver is nearly $18 an ounce, those who listened to this advice may wonder if it’s time to sell and take their profits. I suggest no, this is still a time to hold and even to buy, if you can. While a painful pull back is still possible, the fundamentals behind precious metals are better than ever. Production globally is declining, demand is increasing, and the dollar faces greater threats than ever. Than ever.
One of the great threats that the popular media rarely discusses is the likelihood that oil-producing nations will no longer rely on the petro-dollar. When the oil-producing nations no longer require payment in the US dollar, the support for the dollar will drop. China has also shown that they are worried about the dollar and turning increasingly toward gold. They must make this move gradually and calmly, but the direction is clear. You can find some of the key news in places like Kitco.com or in British newspapers. You must understand these trends. There are many factors that can threaten to destabilize the dollar. My suggestion, just a tip to loyal readers, is to continue to make slow and steady preparations by building your food storage and diversifying whatever investments you have to include at least some precious metals. I know some of you will say that it’s crazy to buy something when the price is at an all-time high, as gold is, and still pretty high, as silver is, but when you adjust for the inflation of the US dollar, the former high in gold in the 80s is about $2000 an ounce today, and the former high of silver is over $100 an ounce, so there’s a long ways to go just based on history even if we weren’t destroying the fundamentals of the dollar today. When China, Russia, and the Middle East become weary of the dollar, they will turn increasingly to precious metals and other currencies, and those who beat them to the punch by investing in precious metals today will be glad they did – although none of us will have any cause to rejoice when the US faces the consequences of corrupt politicians of both parties who exert no fiscal responsibility and recklessly spend all that we and future generations have for their political benefit today. Germany, Yugoslavia, Zimbabwe, and other nations have shown what happens when government spending and monetary creation gets out of control. We don’t want to go down that path, but we are rushing.
The expansion of the money supply is a terrible tax on American workers. It silently steals your wealth and transfers it into the hands of spendthrifts and their friends. It erodes years of labor and savings. It whittles away at your wages. It diminishes the future for your children. Over 95% of the value of the dollar has been lost since the Federal Reserve system was created nearly a century ago, when the vast boom in productivity that has occurred should have made the dollar and your savings worth far more. The guardians of our economy have been pilfering it for years. How long will we remain blind to what is going on? Will we remain silent until the burden of debt triggers unbearable pain? It will be too late then.
3 thoughts on “Secular Note: Prepared for the Decline of the Dollar?”
Kitco has an interesting article showing that we've lost 15% of our wealth through the decline of the dollar this year: http://www.kitco.com/ind/Summers/oct232009.html.
If the economy collapses completely then how much will gold be worth compared to food? especially shares in gold rather than the real thing?
I wont be eager to trade in my wheat for a coin or a piece of paper (and am less likely to do so for a number on a computer which repesents gold).
Those who mine the gold still need cash as a return for handing over their precious metals, the brokers still need a functioning stock market to trade through, and the investor still needs to pay the brokerage firm, if it doesn't also collapse, and all of this needs a functioning infrastructure which requires a certain level of stability to function.
I think we are close to the day Heber C. Kimball foresaw when a man would rather have a bag of cats than a bag of gold – because he can eat the cats! But don't think the first thing the government won't try to do is expect you to hand over your food to the "peace keeping forces" on your doorstep.
It doesn't surprise me that the economy is suffering in a nation with agitators who want to remove "in God we trust" out of their sight.
It doesn't surprise me there are problems in a nation that hauls people off to court for praying to God in public.
Can we have too many blessings from heaven? I don't thinks so, do you? So why are we turning away from them?