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The King is Dead... PDF Print E-mail
Friday, 08 April 2011 17:42

He had a good run, for nearly 70 years.  World domination, the most important in his circle.  What everyone else aspired to be. While ailing over the last few years, he still had vigor in him, was able to hold off the upstarts and retain his crown.  However, over the last 3 months the inevitable happened - the cancer growing inside him was too much, and alas - is now on life support.  His reign was historic, but appears to have come to rest as his minions have shown little willingness to raise him - or a successor - back to his prominence...  The King truly is dead.

 

Who is the King?  The US Dollar.  The Greeback.  The buck.  The once most-sought currency in the world.  It's on its deathbed, and the current President and Senate seem hell-bent on watching him die a slow, agonizing death.  Rather than admit their actions on weakening the currency, the President and Senate Majority Leader are insistent that it's "speculation" that is causing inflation; it's someone else killing the dollar, not their own blind commitment to budgetary "solutions" that lead to a further erosion of the USD.  Here's a few sobering graphs:

 

 

 

Against the two other "main" currencies in the world the Euro and the British Pound - the USD is sliding.  We've lost ~6% against both this year.  That would be an annualized loss of 20% in both cases.  How about against our number one trading partner and neighbor to the North, Canada?

We see we've dropped just as much - a solid 5%.  And this is just in 90 days.  Hard to believe that just 2 years ago the USD would buy 1.28 Canadian Dollars.  Now we need to drop a buck and a nickel to get a single Canadian dollar - a 33% change in value in just 2 years.

 

But how about one of our main sources of finished good importing: China?  How are we looking there?  If that exchange rate drifts much, then much of our electronics and manufactured goods imports go up in value:

Ouch.  Dropping as well.  Just 4 years ago a single USD would buy 8 Renminbi; now it's down to 6.5.  China's doing the best it can to keep its currency pegged (exports are still valuable to it), but we see a 25% drop over just the last 4 years - that's why so many things are increasing in price...

 

So we're losing ground to other major players; what about minor/2nd world nations?  I spend a good amount of time in Thailand, so what's the USD doing versus that nation's currency - an emerging market?

We see the same thing - a strong downward trend.  The USD is even losing strength against 2nd world/emerging markets.  It's pretty much the same world-over.  The King may not be dead, but he's at least on his deathbed.

 

How to reverse this?  I submit that the only thing that will restore the value of the USD - which is backed by the full faith and credit of the United States (essentially, a promise) - is a rapid return to strict fiscal discipline.  The 2011 GOP budget, presented by Representative Paul Ryan, is the only sane option.  It puts the US on a path towards actual elimination of the national debt, by shrinking the size of Government, and reining in the real source of our debt and increasing deficits - entitlement spending.  Privatizing, allowing individuals to better manage their own future is the solution.  We've tried the Big Government approach and it's left us with $14+ trillion in debt, and $60+ trillion in unfunded liabilities (about 25 times our Federal revenue - we, as a nation, fit the textbook example of classical bankruptcy).

 

We've heard the President and Senate Majority leader, along with their fellow Democrats in the House, blast this budget as irresponsible and damaging.  Yet they have offered nothing in return - no plans, no budget (even though they were supposed to produce this budget back in September of 2010).  It is more than apparent by their actions that the death of the USD is either a non-issue for them, or an actual goal.  Apparently continuing the death of the USD - and the absolute guarantee of an increase in the inflation we're feeling right now - is acceptable to them.  A decade of $1 trillion deficits is fine; taking the US debt to 150% of the GDP is no concern.

 

Unless the GOP plan is adopted (or another equivalent plan with a similar result), the USD will continue to fall, and the citizens of these United States of America will bear the brunt.