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The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 04:55 AM   #1
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The Declining Dollar Erodes Personal Savings

--By Dr. Ron Paul, a Republican member of Congress from Texas.
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A recent article in BusinessWeek magazine by James Mehring paints a stark picture of the ongoing decline of the U.S. dollar. The dollar has lost 5% against a blend of worldwide currencies just since April, falling to a 12-month low against the Euro and an 8-month low against the Japanese yen. Overall, the dollar fell 28% against other currencies between 2002 and 2004. It then rebounded slightly, but even the cheerleaders in the American financial press cannot shrug off this latest decline.

Of course the real measure of just how far the dollar has fallen can be found in the price of gold, which has reached a 25-year high of more than $700 per ounce. Itís much more accurate to measure the dollar against a stable store of value like gold, rather than against other fiat currencies. Gold has nearly tripled against the dollar since 2001, when the price was $250 per ounce. By this measure the dollar is losing value at an alarming rate.

Remember, gold is static. Gold isnít going up, the dollar is going down. And itís going to continue until the American people demand an end to deficit spending by Congress and unrestrained creation of new dollars by the Federal Reserve and Treasury department.

A sharply rising gold price is really a vote of ďno confidenceĒ in Congressí ability to control the budget, the Fedís ability to control the money supply, and the administrationís ability to bring stability to the Middle East.

As Mr. Mehring suggests, the Federal Reserve may have no choice but to raise interest rates to maintain foreign enthusiasm for our dollar. Itís a serious problem that new Fed Chair Benjamin Bernanke must address sooner or later: propping up the dollar with higher interest rates without killing the U.S. economy in the process.

The world financial markets are betting against the dollar and against Mr. Bernankeís chances of correcting the imbalances caused by Alan Greenspan. Our creditors, particularly Asian central banks, are losing their appetite for U.S. Treasuries. Our federal governmentís huge debt and voracious appetite for deficit spending make our economy dependent on the actions of foreign governments and central bankers. Yet few Americans realize the extent to which their own government has sold out American sovereignty by borrowing money overseas.

The consequences of a rapidly declining dollar are not yet fully understood by the American public. The long-term significance has not sunk in, but when it does there will be political hell to pay in Washington. Our relative wealth as a nation is measured in dollars, and the steady erosion of the value of those dollars means we will all be poorer in the future. The artificial stimulation of our economy through cheap money comes with a price. When dollars are abundant, they are worth less. This is the reality facing Americans today, especially older Americans who rely on savings to finance their retirement years.

May 16, 2006
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 06:48 AM   #2
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Re: The Declining Dollar Erodes Personal Savings

I told you so.

$2,000,000,000 .00 has just been approved to beef up security at the borders.

Bin Laden has inflicted more damage post 911, he may be smarter than given credit for??

He doesn't need to do anything, sit in a cave, send out the occasional Tape, the money keeps rolling in.

I think that the US$ has a way to go, when it hits the Front Page, as happend in Australia when their $ hit 0.49 (now 0.77) , then it may have hit bottom?

Canadian Merchants will start demanding a fence at our border, to keep all the shoppers from crossing to Buffalo and Detroit etc.

Buffalo Airport is increasingly being used by Canadians to travel, sometimes half the fare of flying out of TO.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 07:10 AM   #3
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Re: The Declining Dollar Erodes Personal Savings

Ron Paul is a nutball who is frequently quoted by other nutballs and by hucksters who are selling something, usually gold.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 07:15 AM   #4
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Re: The Declining Dollar Erodes Personal Savings

deficit = declining $ = inflation
yuan reevaluation = inflation
inflation some predicts could be double digits and possibly the first digit will not be "1" !?!?

silver llining = more American jobs, more (expensive) American products
but for stock owners it doesn't matter companies will make products in the US with their capital instead of going in Asia to do it.

For the few people who always bought Ameican products and didn't travel oversees it will not matter. For most of us, ouch.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 07:40 AM   #5
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Re: The Declining Dollar Erodes Personal Savings

Quote:
Originally Posted by brewer12345
Ron Paul is a nutball who is frequently quoted by other nutballs and by hucksters who are selling something, usually gold.
So, you will confine yourself to Ad Hominem arguments on this one, I figure?
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 07:42 AM   #6
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Re: The Declining Dollar Erodes Personal Savings

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So, you will confine yourself to Ad Hominen arguments on this one, I figure?
How many times should one be expected to refute the deraged babblings of a madman? Paul is just throwing stuff against the wall to see what stcks and maybe helps him with his right wing constituency.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 08:08 AM   #7
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Re: The Declining Dollar Erodes Personal Savings

Regardless of the source, the dollar is going down for many of the reasons cited, although the situation may not be as dire as the guy portrays.* Fiscal and trade deficits (as a % of GDP) can't grow indefinitely without affecting the value of the dollar.* The main implication for us is to question the cookie cutter recommendations for holding a huge share of US equities and only a small allocation in international equities.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 09:27 AM   #8
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Re: The Declining Dollar Erodes Personal Savings

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Originally Posted by brewer12345
How many times should one be expected to refute the deraged babblings of a madman? Paul is just throwing stuff against the wall to see what stcks and maybe helps him with his right wing constituency.
Hmmm, I can understand you not wanting to discuss this topic again if you have done many times in the past. However, if you are not willing to discuss it, what is the point of just throwing out short and unsubstantiated ad hominem statements into the thread? What does it add to the discussion if you are not willing to elaborate on it?

In regards on Ron Paul being a mad man just throwing stuff against the wall to see what sticks, I can't seem to find any example of that at all. I have been following Ron Paul closely over the past 6 years (I am not from Texas nor do I live there) and what I have seen so far is a man who is very consistent on what he says (unlike 99% of the people in Congress). He has ALWAYS opposed government spending, he was one of the few who voted against giving the president the green light to attack Iraq, and one of the even fewer who voted agains the Patriot Act when it was first presented to Congress right after 9/11.
He was ALWAYS very vocal againts Gitmo and the torture of muslim prisioners (long before it became fashionable for democrats to do that).

He has a very consistent record of defending civil liberties, even when it goes against his personal beliefs and faith (he opposed the constitutuional amendment that would ban gay marriage) and so forth. So I do not see any evidence that he is a madman (quite the opposite). And his constituency is certainly not the Fox News/Mike Savage crowd.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 09:35 AM   #9
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Re: The Declining Dollar Erodes Personal Savings

No, Fox "News" seems to be just administration lapdog chow.

I'm sure Ron Paul serves his constituents well. But when I see his constant rants on the USD and gold being wallpapered everywhere, it tells me that the tinfoil hat brigade has found a new idol/standard-bearer.

Is the deficit spending and trade imbalance putting pressure on the USD? Sure. Is it liekly to be as catastrophic as Paul and the gold loonies suggest? Not likely. Is inflation a terrible evil that we should stamp out? Definately not. Inflation should be controlled and kept at a modest level. You start seeing someone propound that inflation should be zero and back away from them, carefully. It is only a matter of time before the underpants go on their head and they start proclaiming themselves the Emporer of Greenland.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 09:53 AM   #10
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Re: The Declining Dollar Erodes Personal Savings

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Originally Posted by brewer12345
Inflation should be controlled and kept at a modest level. You start seeing someone propound that inflation should be zero and back away from them, carefully. It is only a matter of time before the underpants go on their head and they start proclaiming themselves the Emporer of Greenland.

I am sorry, but you are assuming a dogmatic view of a single school of thought within the Ecnomic Science. If you prefer the Keynesian view that small levels of inflation are good, that is fine. However, that is just ONE VIEW, of ONE school of thought. The Austrian school of economics, which is equally respected on the academic circles, does believe that inflation is REALLY REALLY BAD and that government has always a tendency to grow, to overspend and therefore to cause inflation to snowball (The Road to Serfdoom, by Nobel prize winner F.A. Hayek).

If you don't want to subscribe to the Austrian School of Economics, that is fine. But the fact that you do not agree with them does not make the people from this very respected economic school of thought a "bunch of lonnies". Even Keynes had a lot of respect for Mises (the founder of the Austrian school) and considered him "an equal" and had some very long and memorable debates about government spending and inflation.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 10:06 AM   #11
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Re: The Declining Dollar Erodes Personal Savings

Ask Japan how a long period of zero inflation went.

Thanks, but I'd be happy with 2 to 3% longterm inflation (all-in, not "core").
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 10:21 AM   #12
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Re: The Declining Dollar Erodes Personal Savings

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Ask Japan how a long period of zero inflation went.

Thanks, but I'd be happy with 2 to 3% longterm inflation (all-in, not "core").
I suggest you read this article from the George Mason University showing an analysis of the Japanese recession under the light of the Monetarist, Keynesian and Austrian schools of economics. You do not need to subscribe to any of them to see that they are all credible schools and not "guys wearing aluminum foil" on their heads.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 10:27 AM   #13
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Re: The Declining Dollar Erodes Personal Savings

brewer, when inflation appears to be heading to 5% and the Fed takes rates to 8% or more, this is the direct result of a bad Fiscal Policy.

I have no doubts you will see any action until after the elections, then you will see a series of dramatic moves.

Common sense dictates that when you are over your charge limit and you haven't paid the bill for awhile, something drastic has to take place.

You have your views, I have mine, that is what makes a market.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 10:33 AM   #14
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Re: The Declining Dollar Erodes Personal Savings

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Originally Posted by camberiu
I suggest you read this article from the George Mason University showing an analysis of the Japanese recession under the light of the Monetarist, Keynesian and Austrian schools of economics. You do not need to subscribe to any of them to see that they are all credible schools and not "guys wearing aluminum foil" on their heads.
Thanks, but I spent enough time studying economics to know that economists and (especially) econometricians will spend years arguing about things that can't be proven and simply result in more arguing. *The Japanese mess will be debated for decades to come.

BTW, even if everyone agreed that zero inflation was the be-all and end-all of poilcy goals (probably after one side of the debate shoots or lobotomizes the other), how exactly do you propose to get there? *10% interest rates? *Backing the USD with precious metal deposits? *Magic? *Each of these has serious side effects that might well outweigh whatever benefits you think zero inflation would confer (especially the last; the sorcerer's broom is a real PITA).
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 11:26 AM   #15
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Re: The Declining Dollar Erodes Personal Savings

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BTW, even if everyone agreed that zero inflation was the be-all and end-all of poilcy goals (probably after one side of the debate shoots or lobotomizes the other), how exactly do you propose to get there? 10% interest rates?
Zero government deficit (the state cannot spend more than it earns) and the end of "monetary policy to stimulate growth" should pretty much do the trick.

Will such thing ever happen? Not in a million years.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 11:35 AM   #16
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Re: The Declining Dollar Erodes Personal Savings

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Zero government deficit (the state cannot spend more than it earns)* and the end of "monetary policy to stimulate growth" should pretty much do the trick.

Will such thing ever happen? Not in a million years.
Again, these things have side effects which can be pretty nasty. If we were on a strict budget with no policy flexibility, how long would the recession/depression after 9/11 lasted? I personally wouldn't want to have found out.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 11:47 AM   #17
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Re: The Declining Dollar Erodes Personal Savings

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Again, these things have side effects which can be pretty nasty. If we were on a strict budget with no policy flexibility, how long would the recession/depression after 9/11 lasted? I personally wouldn't want to have found out.
That is the Keynesian view (which you are more than welcome to subscribe to). But there are other views that say that government spending and loose monetary policies make recessions worse instead of ending them. That is what Ron Paul and the people who follow the Austrian School of thought believe. Do you have to agree with them? No, not at all. I just don't think you should dismiss an important view of economics with the level of contempt you have shown (even if you do not agree with it).
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 11:53 AM   #18
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Re: The Declining Dollar Erodes Personal Savings

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That is the Keynesian view (which you are more than welcome to subscribe to). But there are other views that say that government spending and loose monetary policies make recessions worse instead of ending them. That is what Ron Paul and the people who follow the Austrian School of thought believe. Do you have to agree with them? No, not at all. I just don't think you should dismiss an important view of economics with the level of contempt you have shown (even if you do not agree with it).
Frankly, I have little interest in their views because they appear not to be looking at the real world. What central bank, Congress, Parliament, President, Prime Minister, King, or Emporer would ever consent to a policy of strict balancing of the budget and no monetary policy tools? None, apparently aside from Ron Paul. So until these guys start discussing the real world, I feel free to wave my private parts at them and laugh at them.
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 11:58 AM   #19
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Re: The Declining Dollar Erodes Personal Savings

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What central bank, Congress, Parliament, President, Prime Minister, King, or Emporer would ever consent to a policy of strict balancing of the budget and no monetary policy tools?
You might have heard of a few: Thomas Jefferson, James Madison, John Adams, etc...

Also remember that the Federal Reserve is a creation of the 20th century. The US did very well before there were any "monetary policy tools".
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Re: The Declining Dollar Erodes Personal Savings
Old 05-16-2006, 12:05 PM   #20
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Re: The Declining Dollar Erodes Personal Savings

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Also remember that the Federal Reserve is a creation of the 20th century. The US did very well before there were any "monetary policy tools".
Really? I seem to recall some truly ****ing gut-wrenching recessions and obviously runaway growth periods before the creation of the Federal Reserve. You know, like that minor episode in Merkin history known as the Great Depression? It wasn't just a period when everyone was a little blue and Prozac hadn't been invented yet, dontcha know.

If you want to get excited over inflation, great, have fun. Sell everything, buy gold, gold!, GOLD!!!!, hoard your bread, build a shelter with some guns, and despise all filthy moetary tinkerers. The rest of us won't miss you here in the real world.
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