Gold and the Dollar

I’ve written about this before, but I want to emphasize this again. I’ve been asked to name one future situation that I’m most certain of. My answer is this – I believe the surest situation (change) in America’s future is a decline, even a drastic decline, in our standard of living. We’ve spent it, we’ve spent what we didn’t have. And somewhere ahead, probably much sooner than we think, will come pay-back time. And it won’t be pretty.

Why do I warn about payback time? My answer is that there is no free lunch or free dinner. Really? But Americans have been stuffing themselves with free lunches and free dinners ever since World War II. How could they do that? Here in the US we have been able to keep our standard of living high because of one reason. The fact is that we have been spending more than we have taken in ever since 1946. And in doing so, we have built up huge deficits and debts. How was it possible to do this? It’s been possible because we possess one “magical” advantage. The US possesses the world’s reserve currency. For years the US dollar was considered “as good as gold.” Consequently, the world accepted our dollars by the multi-billions. Happily the US dollar has been the world’s reserve currency for decades. The reason our standard of living has been as high as it has – is that we have been able to buy any amount of food and merchandise with our dollars. The secret of our exalted standard of living is that our creditors have been accepting our dollars all along – until now.

The reason I have predicted that our standard of living is headed for a great fall is because the world is starting to back away from the US dollar. The dollar has not been holding its purchasing power, and the world knows it.

The central banks of the world and many nations including China (our biggest creditor) are now in the process of cutting down on their dollar exposure. To do that they are now buying (instead of selling) gold. For 12 years I have been begging my subscribers to do the same thing – buy gold. More recently I have been urging my subscribers to buy gold in physical form – in the form of one-ounce bullion coins.

There is one problem with holding physical gold. That problem is the US government. The intentions of the US government and its dollar creators (The Federal Reserve) are the same – control and remaining in power. But what if a desperate US government announces that it’s illegal to own gold? Would they do that? I believe that any government will do absolutely anything to ensure that it remains in power.

I’m aware that there are a thousand schemes for ensuring that your gold will be safe. Perhaps the easiest and surest way to keep your gold safe is to place it in plastic tubes and then bury the tubes in your back yard under a plot of geraniums. Still, how can you use your gold if it’s against the law to even own gold? I don’t have an answer for that. My answer is buy the gold (or silver), hold the metals and hope for the best – hope that America comes to its senses. Except for armed revolution, there’s no way to beat a government that is fighting for its life, a government that holds all the power and the guns. And I keep thinking that if the government tries to pass a law making it illegal to own gold, there will be such a protest from the voters that the government might well back off.

To get back to the reserve currency, I’ve always believed that just as the dollar (the reserve dollar) has been the strength of the US, the dollar is also America’s Achilles’ heel. In a sane America which believes in spending within its means, the dollar with its reserve status is a symbol of strength. But in an America that runs up huge deficits and then pays off those deficits with dollars that it creates out of a computer, the fiat dollar becomes a source of extreme weakness.

Everybody knows that the Federal Reserve is attempting to hold the US economy up by its bootstraps by printing ever-more fiat money. But in printing the money, the dollar is losing purchasing power by the day and by the hour. As the dollar buys less and less in terms of food and merchandise, inflation comes into the picture. But the government has found a way of circumventing the inflation problem. The way is called – lying. So far the process of lying has worked. There have been no food riots in America. And why should there be, when 44 million Americans are now using food stamps?

Political Theatre

LRC Blog

LRC Podcasts