Sunday, August 7, 2011

Dollar to Be 'Discarded' by World: China Rating Agency

As I talked about in my latest piece, the only factor giving the dollar so much (relative) value is its status as the world's reserve currency. This allows the Fed to inflate it to levels which would cause catastrophic hyperinflation in any other country. History bears this out: Weimar Germany. Argentina. Zimbabwe. Why can we hyperinflate our currency when other countries suffer for it? No, it's not because we are blessed by God. It's the dollar's reserve currency status, nothing else.

When - not if - the dollar loses this special privilege, countries holding dollars in reserve will flood the market with them, buying up other currencies, gold, real estate, oil, and other tangible assets. It's basic economic law: mega surplus in supply added to plummeting demand equals a worthless product. So when prices go up, it won't be because of any conscious choice by manufacturers and shopkeepers, et al. It will be a fundamental weakening of the currency used to procure the resources needed to produce their products, forcing them to raise prices for the consumer just to be able to turn a profit.

Government will do what government always does, being utterly worthless and destructively incompetent: it will attack the symptom of inflation, the direct result of their monetary policies - rising prices - not the disease - the surplus in supply. Since only government and its cronies benefit from inflation, they fear deflation as the vampire fears the sun. It bankrupts the powerful and empowers the people. Regardless, when the dollar loses reserve currency status, the gates of hell will be thrown open for those still dependent on it. Your only hedge against this inevitable outcome is to reorder your life so that you don't need cash to survive.

Read it all.