Will the Dollar Collapse?

By Patrick A. Heller April 05, 2011

The price of gold effectively serves as a report card on the state of the U.S. economy, the federal government and the dollar. The price of gold is up more than 400 percent in the past 10 years, while the price of silver is up about 700 percent. Even with that spectacular result, with the U.S. stock markets little changed over the past decade, I believe the greatest increase is yet to come. Last night, if you ignore inflation, the price of gold closed within a whisker of its highest gold price ever. Silver finished at its highest price in more than 31 years, which is also among the 10 highest daily closing prices ever.

When the Far East Asian financial crisis hit in 1997, the country of Indonesia suffered more than other nations. Indonesian citizens who owned gold saw their personal standard of living little changed. Indonesians whose wealth was tied up in paper currency were wiped out. It would take a huge change of political will in the U.S. to avoid a similar currency collapse here.

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U.S. Attorney Anne Tompkins, in a press release on March 11, stated that those who buy and sell gold and silver deserve to be considered “domestic terrorists” who “represent a clear and present danger to the economic stability of this country.” To me, the danger to America comes from the politicians and bureaucrats who are deceiving the general public about their efforts to destroy the value of the dollar.

Will the U.S. dollar collapse? I think it may already be too late to avoid this fate.

I have been fortunate to earn a decent living by looking for the truth, then sharing it with others. I don’t have a perfect track record, but have been right a lot more times than wrong, even when my conclusions differed from the reports issued from the U.S. government.

If you review the information I have assembled, and then seek independent corroboration of my points, I am confident that you will come to the conclusion that you need to protect your own wealth by including gold and silver as part of your assets. Once you have absorbed this information, it will be up to you to take action. If you wait until there is a panic among the general public attempting to unload their dollars before it is “too late,” you will not have the excuse of “Why didn’t somebody warn me?”

A small but growing percentage of Americans have started to protect themselves and their families. For everyone else, today you have received your wake-up call.

I’m too dramatic, you might ask?

Well, dig into the publicly available information and judge it for yourself.

The “secret” about the U.S. government’s actions to reduce or destroy the value of the U.S. dollar are starting to get some mainstream coverage. It is not so widely covered yet that the public is rushing to bail out of the dollar. But, I’m afraid that that day is coming and it may be here a lot sooner than almost anyone expects.

In my most recent issue of Liberty’s Outlook, I discussed nine current trends that all indicate why the U.S. dollar is destined to continue falling in value relative to other currencies and against safe haven assets like gold and silver. If you don’t have a copy to read, you can view it online at www.libertycoinservice.com.

Since I wrote those words, two significant news reports have appeared that gained some degree of publicity. This publicity is what could hasten the decline of the dollar and bring the greenback closer to a possible collapse.

On March 29 the Conference Board released its monthly report of the Consumer Confidence Index. It fell from 72.0 in February to only 63.4 in March. It takes a reading of 90 to indicate a healthy economy. Even worse, the six months outlook by shoppers fell from a February reading of 97.5 to 81.1. While it is true that consumer expectations for the economy rose from 33.8 in the prior month to 36.9 in March, both figures are horribly gloomy.

The Conference Board noted that the most important reason given by consumers for their reduced confidence was higher inflation expectations, meaning higher consumer prices. The Board noted that the increase in oil prices, by itself, had more than offset the minor increase in personal income in February. In other words, incomes are actually falling.

A day after the Conference Board data, Bill Simon, the CEO of Wal-Mart met with USA Today’s editorial board for an interview. Wal-Mart accounts for 10 percent of all retail sales in the United States. The last thing that Wal-Mart would want to do is scare consumers. Yet, Simon had to admit that U.S. consumers face “serious” price increases in the months ahead for clothing, food and other products. He said that the rate of consumer price increases is “going to be serious.” He also said, “We’re seeing cost increases starting to come through at a pretty rapid rate.” He stated that major factors pushing up prices are steep increases in raw material costs and rising transportation fuel costs.

You wouldn’t have a clue why the general public or the CEO of Wal-Mart are worrying about significant jumps in consumer prices in the near future if you listen to the U.S. Bureau of Labor Statistics. Their reports of consumer price increases of barely 1 percent per year late last fall prompted some top officials at the Federal Reserve to state that they might have to force consumer prices even higher to support an economic recovery. The Bureau’s February report now claims that consumer prices were rising just over 2 percent per year, which is almost double their rate of increase from a few months earlier.

In your experience, is your cost for a gallon of gasoline only 1-2 percent higher than it was last fall?

The Bureau of Labor Statistics regularly revises the methodologies used to track statistics such as unemployment, money supply, consumer price increases and the like. Invariably, the changes have the effect of making the government look better after the change than before.

Wouldn’t you be interested to know what the U.S. government reports would be today if they used the consistent methodology from years past? Analyst John Williams tries to do exactly this at his www.shadowstats.com website. For instance, using the Bureau of Labor Statistics’ methodology used until 1994, the current U.S. unemployment rate would exceed 20 percent! Or using the same consumer price change methodology as in the 1980s, Williams calculated that consumer prices today are about 10 percent higher than a year earlier.

I couldn’t find stories on either the Conference Board report or of the Wal-Mart CEO’s interview in issues of the Lansing State Journal, which surprised me as the Journal is owned by the same company that owns USA Today. I don’t mean to be picking on the Journal in particular, as this lack of important news coverage seems to be par for the course among non-national newspapers.

While I was researching the Journal, I found that it did include a story about a survey released March 30 by the Business Roundtable. The Roundtable’s quarterly survey of top CEOs found that they expected the U.S. economy to expand by 2.9 percent in 2011. This was largely in line with forecasts of other economists. John Engler, the former Michigan governor who became president of the Business Roundtable four months ago was quoted as saying that growth would have to rise to about 3.5 percent annually to drive down the nation’s unemployment rate. The last paragraph of the article did note that the survey was conducted before the impact of the Japanese earthquake, the fighting in Libya and the surge in U.S. gasoline prices.

Let’s dissect this forecast figure of a 2.9 percent growth in the U.S. economy in 2011. If this proves to be accurate and that consumer price increases continue rising at about 10 percent per year, that would mean that the US economy is actually contracting – by roughly about 7 percent. That isn’t information that was included in the Journal’s story or in any other mainstream media report.

The true story is that the U.S. government’s inflation of the money supply, disguised by the use of the term “quantitative easing,” is deliberately destroying the value of the U.S. dollar. I warned my readers and customers last summer that the Federal Reserve would announce a second round of quantitative easing at the end of the Federal Open Market Committee meeting which concluded the day after last November’s elections. Top Federal officials, all the way up to President Obama, tried to pretend that this step was not set in stone, claiming in the weeks before the election that no decision had been made and the more data was needed before a decision could be considered.

The quantitative easing announcement occurred on the very day I forecast. The U.S. dollar has generally been in decline ever since, save for a few short-term instances where the euro had temporary weakness over crises in Ireland, Spain, Portugal and Greece.

When there is an international crisis, normally there is a flight into the U.S. dollar as a safe haven asset. Well, after the earthquake and tsunami hit Japan on March 11, the dollar actually declined against a market basket of other major currencies. In fact, there was an announced concerted effort by the G-7 Group of Nations on March 18 to intervene to push down the price of the yen and push up the other currencies, including the U.S. dollar. Despite this open intervention, by the close of markets on March 18, the U.S. dollar had fallen to its lowest level since late 2009. It has continued to fall since then.

Both foreign and domestic buyers of U.S. Treasury debt are fearful that 1) this quantitative easing is hurting the future value of the dollar, and 2) the U.S. government will be forced to announce a third program of inflating the money supply after the current program ends on June 30. Even though some presidents of regional Federal Reserve Banks are now stating that they believe that the U.S. economic recovery is solid enough that a third program of quantitative easing won’t be needed, that is just an attempt at public deception similar to what was tried before the elections last fall. I am confident that the next round of QE is already locked into place.

As a result, independent demand for Treasury debt is falling. The only way to try to recapture foreign and domestic investors would be to offer higher interest rates. Unfortunately, that step would accelerate the decline in the value of the dollar, would again clobber the American real estate market, and push up consumer prices even faster than today.

The Federal Reserve is now purchasing 70 percent of all new Treasury debt, which is one more bit of news that the American mainstream media does not consider newsworthy enough to report. In the process, the U.S. government has now become the largest creditor of the U.S. government.

This pattern of the U.S. government printing paper to finance its own debt cannot continue indefinitely. Here’s another news note that didn’t make it into the Lansing State Journal. Last Thursday, potential 2012 Republican presidential contender Gary Johnson, who served as governor of New Mexico from 1995 to 2003, spoke at Michigan State University. During part of his speech, he explained that 43 percent of current federal expenditures are paid by borrowing the money. In his mind, unless the U.S government immediately trims its expenditures by 43 percent, he expects the U.S. dollar to collapse. In fact, he said that the collapse could happen “as early as tomorrow.”

Perhaps the largest problem facing the U.S. government today is for the average American to realize what is being done to destroy the value of the U.S. dollar. The Conference Board report shows that the public is starting to catch on. When the CEO of Wal-Mart finds it necessary to go public about the imminent decline in the U.S. dollar, even more people will realize that it is in their interest to get out of the dollar and their dollar-denominated assets such as stocks and bonds.

Are you catching on, too?

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich. and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).