As its cover might imply, The Dollar Meltdown isnt a gentle introduction to the collapse of the dollar. Libertarians and Austrian school aficionados would feel most at ease with this book. Refreshingly, the nonpartisan author implicates both Democrats and Republicans as fiscal and monetary neer do gooders.
Goyette says the body economic is shuddering from the relentless compulsions of meddlers. Thanks to government intervention in money and markets, the US faces runaway inflation. Between Sept 2008March 2009, US monetary base grew 199%. Add the domestic dollar supply to foreign dollar reserves up to half of US dollar reserves are in foreign hands and you have a potential oversupply.
The countrys debt situation is making holders of dollars, both foreign and domestic, nervous about the value of their greenbacks. Goyette writes that our national debt adds up to $42,000/person for the bailout (March 2009 numbers). On top of that, China owns $767 billion in US Treasury securities. Thats the equivalent of each individual American borrowing $3,300 from people in China.
If people start dumping dollars, all that extra supply will make it back to the US. Inflation will result. Several countries are already seeking other kinds of reserves euros and gold, for example to replace dollars.
Why isnt the government quaking in its boots? Because, says Goyette, it has always pursued inflation as a policy. Authorities aim for mild inflation as a manageable economic state. The government tries to alter deflationary states into inflation to gain a sense of control of the economy. Helicopter Ben Bernanke is doing exactly that right now. Moreover, as the countrys biggest debtor, the government benefits most from inflation. For example, at 4% inflation, a debt of $12 trillion depreciates by $480 billion/year.
November 21, 2009
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