I've been getting a lot of questions lately from readers and friends asking about what's going to happen with the dollar, gold prices, and future inflation. If only I knew.
One thing I can tell you is that discussion of a potential "dollar collapse" or US hyperinflation has ramped up noticeably in recent months; an idea that seemed fringe two or three years ago is now openly discussed on blogs, economic and investing/trading forums, mainstream news sites, and business television.
John Rubino's website which tracks these dour trends, aptly named Dollar Collapse, is starting to look prescient, as well as gloomy. Is the trend towards dollar destruction inevitable, or will we somehow manage to escape this fate with some successful maneuvering by the Fed?
While you ponder that, here are two recent articles from Bloomberg (see Christopher Wood's comments near the bottom) and The Financial Times which caught my attention, due to their frank discussion of dollar devaluation and the possibility of a dollar collapse.
One thing we know for certain: the idea of a failing US currency is now a bit more mainstream.
Related articles and posts:
1. Hyperinflation and the bond markets - Finance Trends.
2. Jim Bianco: Fed acts are "hyperinflationary" - Finance Trends.
3. US inflation to approach Zimbabwe level (Marc Faber) - Bloomberg.
Wednesday, May 27, 2009
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2 comments:
Hi David,
Just wanted to clarify with you that the dollar has actually been in a downward trend since the beginning of 2002. Click on this link: http://www.fxstreet.com/rates-charts/usdollar-index/ and go to the monthly chart (where it currently says daily) and you'll see where the dollar was at its high.
I wrote a free White Paper you can download that goes into the dollar, inflation and gold that might interest you (I was a financial adviser for 20 years and left the business to expose its weaknesses).
You can find the White Paper here: www.fedupbook.com/whitepaper
Bottom line is, dollar down, gold up, higher inflation and the Fed's bag of tricks is about empty.
BTW, I disagree with Marc Faber and any comparisons to Zimbabwe inflation. There is no comparison in unemployment or GDP between the two countries.
However, Iceland had better economic numbers than the U.S. did in 2007 and they had the rug pulled out from underneath them.
Iceland had the IMF step in and help stabilize things, but there is talk of the U.S. helping stabilize the IMF, so there isn't much chance of the IMF stabilizing the U.S. (I kind of laugh at this, but it's not really funny....)
Cheers,
Doug
Hi Doug,
You're absolutely right, the dollar as measured by the USD index was much higher about 8-10 years ago, and that itself is only a measure of the dollar against a basket of other (similarly deteriorating) paper currencies.
Guess you could say the US $ has been steadily deteriorating in value/purchasing power since 1913, when the Federal Reserve was given power to essentially create money at will.
Not sure how bad future inflation will be. We'll see if the Fed can withdraw the excess liquidity they've created, but I wouldn't bet on the success of that operation.
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