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Dollar's Doomsday

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When I wrote this blog entry about the dollar over three years ago, the dollar and the euro were at parity levels, give or take a few cents, and the euro was climbing robustly. Soros had taken a strong position against the dollar and was beating the drum on how grim the outlook for the dollar was. The dollar did lose ground but it finally stabilized and everyone thought the bad news was over. Not so fast.

Here we are again. The euro is near $1.31 and the British pound is nearing $2. What gives? It's the irresponsible spending. It's the careless borrowing. It's the head-in-the-sand mentality that the world loves the dollar and it won't let it sink. At some point we have to wake up to the reality that this is business, not charity. People will not punish the dollar because they disagree with the US policies, but they will bail when their interests are in jeopardy.

And jeopardy is what we have now. We are funding an endless and hopeless war without a timetable to disengage, while the rest of country goes about its business as usual. The stock market is up but now it seems that it might be on a shaky ground. And the one possible bright spot in the economy, the housing market, has run its course and it's on a descent path. Personal debt levels are at all time highs, and yet we continue to believe that all is well.

Ever get a feeling that our economy today is built on a house of cards? It is. Without the foreigners, like the Chinese, that have vast reserves of dollar denominated securities, the underpinnings of our economy will come apart in a hurry and the economy will collapse.

We have no one to blame but ourselves. For years, we have been the junkies and the foreigners happily supplied the drugs. They always knew what they were getting in return for their products had dubious value, but didn’t have the courage, or the will, to put a stop to it. They were just as addicted to our IOUs as we were to their products.

By some accounts we are already in the middle of a long crash. The dollar is not even at a third of the value it had 30 years ago. But at some point the slow fall might turn into a fast plummet and that won't be pretty. All will suffer from a dollar crash but none more so than the US. The wealthy Americans will be fine. Their Asian accounts, European real estate holdings, and Gold and global funds will be their tickets out. As usual, it's the middle class that will take the brunt, and it'll be a painful one.

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