In Touch Financial
William Lenderman, III Financial Mentor
Email:WL3@whc.net /Website: keepingintouchfinancial.net
“Experiencing Success One Good Idea at a Time”
Evaluating the US Dollar
Nearly everyone I talk to initially expresses concern about the declining value of the American dollar. There is no denying, that since the Federal Reserve was created in 1913, the value of the dollar is but a shadow of what it once was.
In addition, people are aware of the tremendous amount of money being created by the Federal Reserve and used to buy bad debt from the large banks to keep them solvent. Many people believe this extra money is likely to cause a runaway inflation.
The Federal Reserve notes we now use to buy things and to pay taxes are not really money. These bills are simply debt instruments which are effectively IOU’s. Recognize that every time an individual puts money in a banking institution; the money is multiplied by at least 10 times. This is the major source of inflation. Currently, the banks do not believe that lending money to Americans is a good risk. As the result, the amount of loans being made to the public is relatively small. Currently, the banks are selling their bad debts to the Federal Reserve using money simply created on a computer keyboard. This electronic money is then being deposited back at the Federal Reserve. Effectively, the Federal Reserve is paying interest to banks on non–existent money. As long as the banks are not lending money to the public with the effect of multiplying the money by a factor 10, all this simply amounts to a shell game. Until the banks begin lending to the public, effectively no money is being created.
Since March of 2000, I have been explaining that we are in the greatest depression the entire world has ever seen. This portion of the depression is now 14 years old. It is the deflationary phase. The deflationary phase may very well last another 5 or 10 years unless something substantial and unexpected should happen. A major contributing factor in this deflation is the fact that individuals are paying off debt as rapidly as they possibly can. Every dollar they pay off makes ten dollars disappear. The amount of money disappearing from the economy as a result of debt repayment substantially outweighs the amount of computer generated money being created. In addition, millions of people, have been losing in the stock and bond markets and losing in the housing market as prices drop. All these losses have been enormous over the last few years. Even more, a great amount of newly created money is being used to pay our military and to buy bombs and supplies which are destroyed in the process of invading foreign countries.
Additionally, approximately one million people are losing their full-time jobs every month. Seventy percent of these individuals are finding part-time jobs which hardly provide enough to pay the bills. As a result, the number of working taxpayers is decreasing at a rapid rate. Adding to the problem, individuals are turning age 65 at the rate of 10,000 per day and will do so for the next 10 to 15 years. Also, large numbers of people are going on welfare because they can’t find work. Others sign up for Social Security disability in order to gain a lifetime income because unemployment benefits have ended and they have given up hope. All this causes a heavy drain on government resources.
Until these trends reverse and banks begin to lend, there is no likelihood of monetary inflation. Even the mighty Federal Reserve can not change this trend.
It should be clear, that, as more and more money disappears from the economy, the value of the remaining money will tend to increase. This is true for any commodity. Money is a commodity.
Just as during the great depression of the 1930”s, economies are struggling all over the world. Like it or not, Americans the big dog in the fight. During times of crisis like these, individuals from all over the world tend to liquidate their assets in their home nations and send their money here, since doing so seems to be the safest possible choice. Just as in the great depression, this is likely to raise the value of the American dollar compared to foreign currencies, despite the fact that the American dollar is just simply a piece of worthless paper just like all other currencies.
A lot of people believe that the American dollar will soon be dethroned from its position as the dominant world currency. For the time being, this is quite unlikely. Just in the month of April 2013, 87% of all foreign currency transactions involved the American dollar. The Euro is the next contender. During that same month, 33.4% of all transactions also included the Euro. The Chinese renminbi (yuan) is also another contender to be the world’s standard currency. The use of the renminbi is growing rapidly. It has increased from 1% to 2.2% over the last year or so. This is an insignificant amount compared to the dominant American dollar.
In order for another currency to have a significant impact on the world economy, there must be a substantial supply of that foreign currency in order to facilitate trade. No other country has a sufficient supply of money comparable to the American dollar. Money, for the foreseeable future, will be judged by its utility in trade, the ease of comparison with other currencies, and the efficiency of transactions. The American dollar meets all these criteria. Despite the fact that this situation may eventually change over the years, the American dollar is still the best bet for the next 5 or 10 years at a minimum.
In my view, it is vitally important to have a significant amount of American dollars where they will be safe and readily available. This will allow us to respond quickly to protect ourselves as circumstance change in the future.
Recognize, this country is rapidly turning into a Marxist dictatorship. I find it quite ironic that the Reichstag inGermanypassed a law which gave Hitler the power to do all the things he did. Our current President has decided on his own, with the support of Congress, to do whatever he wishes in violation of the American Constitution. His comment during his latest state of the union address tells it all. “Wherever and whenever I can take steps without legislation ….that is what I am going to do”. That is the statement of a Dictator. You need to have plenty of cash safely stored and readily available if you want to survive under such a corrupt government.
I want to compliment all of my clients for having taken the first crucial steps, not only to protect themselves and their families but also to prosper during troubling and difficult times.