The chatter against the dollar as global reserve currency has ramped up in recent days. The risks are huge and largely ignored. Even allies are questioning how long the dollar can sustain its status in light of our enormous debt and deficit. Now, with the government shutdown in place and a political battle over the debt ceiling, our enemies are looking at the possibility of an attack on our currency during the confusion.
Sadly, too many believe that our dollar will remain permanently strong. Of course, these are in many cases the same people who would argue that deficits don’t matter and that the Treasury could mint $1 trillion platinum coins, essentially making up money out of thin air, and no one would complain. They are living in a fantasy world, emboldened by doctored government statistics that attempt to show there is no inflation in the system.
Simple economic theory shows that if you produce more supply of something without an increase in corresponding demand, the price of that item will fall. Obviously, we have greatly increased the money supply and the Federal Reserve’s balance sheet in recent years despite anemic economic growth. Thus, the value of the dollar is destined to fall. The only thing keeping it up at all is the fact that foreigners need dollars for international trade, especially oil purchases. If nations truly begin trading in other currencies, demand will actually drop. Combined with increased supply, the price will plummet.
The American dollar is the most widely circulated fiat currency in the history of the world. Unfortunately, fiat currencies are never permanent. Even the venerable Mark Mobius of the Templeton Funds understands that the day will come when fiat currencies are no longer accepted. He was quoted in a CNBC article last year:
Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, says investors will soon start to demand fiat currencies be backed by gold or other hard assets.
“It’s already happening, you’re beginning to see that trend with central banks stocking up on gold. The estimate is that at least half of the buying is central bank buying. They are looking to the day when they can say okay, our currency is backed by gold and therefore we’re a strong country,” Mobius told CNBC Asia.
Mobius has $50 billion under management.
Read that carefully. Mark Mobius is no fear monger. I worked with him at Templeton and respect him a great deal. He travels the world extensively and is successful because he has his pulse on the thinking of people from a wide variety of cultures and backgrounds. He works for one of the largest asset managers on the planet. And, he’s right about this.
The average life span of a fiat currency is 27 years. Our dollar has been unbacked by gold since 1971 and is therefore “long in the tooth.” Even if everyone loved our dollar and America, at its current age and health condition, we’d have cause to worry. The problem is, however, that not everyone loves us, as much as we hate to say it.
Full article: Forget the Shutdown, Our Next Problem is the Dollar (Global Economic Warfare)