The Dying Dollar

By Joe Hewitt


While the federal government is swinging a flyswatter at the fox in the henhouse a big hungry bear is coming in the open kitchen door.
Sub-prime mortgages, credit card debt, bankruptcies, and collapsing financial institutions are bad enough, the fox in the henhouse, but not our main problem. Our main problem is a looming currency crisis.
The dollar is dying.
Gold is now close to $1,000 an ounce. Not that gold is worth a lot more, but that money is worth a lot less. The dollar is losing steadily to the Euro. The Euro was introduced in 2000 on par with the dollar. The Euro reached $1.57. People in Europe and around the world who have been saving dollars will figure it out: Euros are a better investment.
I remember when Saddam Hussein’s stash of money was discovered in a Baghdad bank: large cartons full of U.S. $100 bills. There are other hoards of dollars around the world. I remember visiting Russia in 1996 and exchanging dollars for Rubles. Even in remote Siberia so many dollars were flowing through the system that the Russian currency exchanges had automatic machines to count dollars. Traveling in the Middle East I heard again and again the cry of street peddlers, “One American dollar,” or “Five American dollars.” Throughout Latin America, I have asked the question, “Do you accept dollars?” The answer is usually, “Yes.” U.S. dollars flow through the arteries, veins, and capillaries of commerce around the world.
So when people in these other countries figure out that the dollar is losing its value as fast as a new car, what will they do? They’ll ship them back to the United States where they have the most value and spend them. American real estate sales to foreign companies, already numerous, will multiply. Within a three-month period the amount of currency circulating in the United States could double. Like the run on Bear Stearns stock caused its value to plummet out of control, the rush to send dollars back to the U.S. will gain momentum until it’s a flood. When the money supply in the U.S. doubles, guess what will happen to prices. Four-dollar-a-gallon gasoline hurts. Eight-dollar-a-gallon gasoline will hurt worse. How about a seven-dollar loaf of bread, and a nine-dollar gallon of milk?
Like Richard Nixon’s futile attempts to stop double digit inflation in the Seventies, the federal government will probably institute price controls with the same results, accelerated inflation.
When the tons of dollars flood into the United States we could do as other countries have done when their currency becomes worthless: just chop off some zeroes and print more money. Call it “New Dollars.”
No matter how well you dress it, a dead dollar is just a piece of paper. We got started with printing press money because we were desperate during the Great Depression. President Franklin D. Roosevelt instituted a giant devaluation when we went off the gold standard. Gold went from $20 an ounce to $35 an ounce. Two generations later, President Lyndon B. Johnson did away with the silver standard, and soon gold was $350 an ounce.
Now we’re on the paper standard.
The big hungry bear is coming through the open kitchen door, and the fox is still in the henhouse. What do we do? Maybe government can do something. I hope so. I’m afraid nature will take its course and our country will suffer a major economic collapse that will spread like a tsunami around the world.
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