I have been predicting the collapse of the dollar followed by the collapse of the pound sterling for about 12 months. the phrase ‘double-dip recession’ has now gone into the language but again is one of those phrases which is quite meaningless because I do not believe that we ever came out of recession.
Economically speaking, we have all been whistling in the dark.
Today the US dollar plunged to its lowest level against the Japanese yen in 15 years and fell to its lowest level against the Swiss franc in 27 years.
The world currencies which are going to do well in the next 5 to 10 years of those which belong to countries who have something to sell, that is to say countries which have minerals and metals in the ground and/or any sort of manufacturing. Australia is such a country and today the American dollar fell against the Australian dollar to its lowest-ever level.
Again about 12 months ago I predicted that gold was headed for $2000 an ounce. Today it is already at $1360 an ounce. That’s what happens when the dollar plunges and investors start to buy gold by the ton!
World governments are plugging the odd financial hole here and there but, in the grand scheme of things, they are impotent to stop the meltdown of the dollar.
Apart from accelerating the value of gold, what else is the demise of the mighty dollar achieving?
There are only THREE major asset classes. Gold, commodities and currencies. As investors dump the dollar and rush for the exits marked gold, commodities and other- currencies-as-long- as-it-isn’t- the- dollar, there are two certainties. The first is that very soon the US government will have no choice but to devalue the dollar. The second is that the dollar’s plunge has put incredible pressure on the price of food as investors rush to invest in wheat, corn, soya etc.
By the end of this year, the United States and the United Kingdom will be leading the Western world in unemployment statistics as both economies are losing jobs at a greatly accelerating rate. In 10 days time, the British Chancellor will give the British unemployment statistics even more momentum by declaring thousand more public sector job losses. In the past four weeks, the United States has declared another 95,000 job losses.
Both the Federal Reserve and the Bank of England are inking the printing presses – ready to print even more dollars and sterling. That will inevitably lead to currency devaluation which in normal circumstances would inflate an economy . However, after the United States and United Kingdom, there is a long queue of countries also wanting to down-value their currencies. That way (if such a thing were possible), they could all default on each other’s debts. Never mind, perhaps the banks will bail them out.
As recently as two days ago, both the IMF and the G20 admitted that this is not the end of the world’s economic troubles but the beginning of something truly terrifying:
It is simply a question of who blinks first and which economy can print money the fastest.
So what of the investors? They will produce what is known as a self-amplifying problem. That faster governments print money, the faster the investors will dump any currency they hold and the faster they will invest in gold and commodities. That will inevitably give rise to chronic inflation and a very unpleasant end-game.
Will all these shenanigans affect the pound or dollar in your pocket?
Before you ask that question, make sure that you still have pockets that haven’t been picked by your government.
(THIS is from just over a year ago)