Currency Wars

Why the USA Biggest Advantage could be About to Disappear?

America is the only country in the world that doesn’t have to pay for its imports in a foreign currency.

Here’s what I mean…

Let’s say you’re a German and you want to buy oil from Saudi Arabia. You can’t just pay for your oil in German marks (or the new euro currency), because the oil is priced in dollars.

So you have to buy dollars first, then buy your oil.

And that means the value of the German currency is of great importance to the German government. To maintain the value of its currency, Germans must produce at least as much as they consume from around the world…otherwise the value of its currency will begin to fall, causing prices to rise and its standard of living to decline.

But in America…?

We’ve been able to consume as much as we want without worrying about acquiring the money to pay for it, because our dollars are accepted everywhere around the world. In short, for decades now, we haven’t had to produce anything or export anything to get all the dollars we needed to buy all the oil (and other goods) our country required.

All we had to do was borrow and print more money.

Even as late as the 1970s, America was the world’s largest creditor. But by the mid-1980s we’d become a debtor to the world. And since the late 1990s we’ve been the world’s LARGEST debtor.

Today, our government owes more money to more people than anyone else in the world.

With all of these bad debts piling up, we’ve had to begin repaying our debts by printing trillions of new dollars.

With QE3, the latest round of “quantitative easing,” the Fed is now promising to print $85 billion a month. That’s over a trillion dollars a year.

I believe our creditors (which include foreign countries and other investors here and abroad) will either completely stop accepting dollars in repayment… or greatly discount the value of these new dollars. I’m sure you think that sounds crazy, but as I’ll show you, it is already happening.

In fact, Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, recently said:

The shortcomings of the current international monetary system pose a big threat to China’s economy.”

That’s why China is now actively taking steps to phase out the U.S. dollar because of its frustration with the U.S. government’s mismanagement of our currency. And how does our government respond? We have the audacity to label China a “currency manipulator!”

Keep in mind, the U.S. dollar has been the world’s reserve currency for decades now… so most Americans don’t have a clue about what the repercussions are of losing this status.

And maybe you think it could never happen… but the truth is, this is exactly what happens when countries get too far in debt or when they consume too much or produce too little.

First Britain… Now America

Most people don’t know this, but Britain’s sterling was the reserve currency for most of the world for nearly 200 years… for most of the 18th and 19th centuries.

It continued to play this role until after World War II, when America was forced to prop up Britain’s economy with foreign aid –remember the famous Marshall Plan, when we gave billions to help European countries rebuild?

Unfortunately though, Britain pursued a socialist national agenda. The government took over all of the major industries. Like Barack Obama, Britain’s leaders wanted to “spread the wealth around.” Pretty soon the country was flat broke.

The final straw for Britain came in 1967, when things got so bad the Labour Party (the socialists) decided to “devalue” the British currency by 14%, overnight. They believed this would make it easier for people to afford their debts.

In reality, what it did was make anyone holding British sterling 14% poorer, overnight, and it made everything in Britain, much, much more expensive in the coming years.

And for the country as a whole, it ushered in one of the worst decades in modern British history.

Most Americans don’t know about Britain’s “Winter of Discontent” in the late 1970s, when the government put a freeze on wages. There were continuous strikes in nearly every sector… grave diggers, trash collectors… even hospital workers. Things got so bad at one point that many hospitals were reduced to accepting emergency patients. And mothers giving birth had to bring their own linens.

In 1975, inflation in Britain skyrocketed 26.9%… in a single year!

The government also imposed what was known as the “Three Day Week” in 1974. In short, businesses were limited to using electricity for only three specified consecutive days’ each week and they were prohibited from working longer hours on those days.

Television companies were required to cease broadcasting at 10:30pm… to save electricity.

Imagine… Britain was a global superpower for 150 years. But when they started intentionally devaluing their currency, things went straight downhill.

It’s now obviously clear that the same thing that happened to Britain’s sterling when it was the world’s reserve currency, is now happening to the U.S. dollar. In fact, the exchange value of the U.S. dollar has fallen nearly 10% since June 2010. And its rate of decline is accelerating.

As the U.S. dollar continues to lose its position as the world’s currency, gas, oil, and other commodities will continue to skyrocket. Almost EVERYTHING we consume will get dramatically more expensive. All the clothing, furniture, and household goods we import from China.

And the point here is simple… As we print more money, the price of the world’s most essential commodities have soared. This is NOT a coincidence.

Around the world, as we print, prices soar… citizens protest… governments get overthrown. And it’s only going to get worse…

Because here’s the important fact you simply must understand about the United States right now:

Our government can NOT stop printing money because there is no possible way for us to actually afford our existing debts. No one wants you to know this. No one.

That’s why, despite the obvious inflation going on all around the world, the Fed continues to say there’s no inflation at all.

Just like in a Third World country, the government is radically devaluing the dollar and simply lying to everyone about what is really happening.

Whether you realize it or not, there is already a “run” on the dollar. Many of our creditors, like the Chinese, are getting out of the dollar as fast as they can via strategic commodities, like copper, gold, and oil. That’s partly why commodity prices are soaring.

Unfortunately, skyrocketing commodity prices are just the beginning.

There are other disastrous consequences to the U.S. dollar losing status as the world’s currency…

For example, as demand for U.S. dollars around the globe decreases, interest rates will skyrocket. Instead of getting a mortgage at today’s incredibly low rates of around 3%, it might cost you 8%… or even 10%… or 15%.

Imagine what that would do to housing prices!

Stock prices will likely plummet by at least 40% in a matter of weeks as a result of this event in the currency markets. We had a small taste of this in 2011.

As investment banker and best-selling author James Rickards writes in his new book Currency Wars:

“If the currency collapses, everything else goes with it… stocks, bonds, commodities, derivatives and other investments are all priced in a nation’s currency. If you destroy the currency, you destroy all markets and the nation.”

This is why countries like Germany are taking nearly all their gold stored around the world, and bringing it back home. They are worried. And they have every right to be.

In the financial world, they refer to this as “capital flight.” And what it means is, when people figure out that their savings in U.S. dollars are in jeopardy, they look for better and safer alternatives.

This is why gold prices have gone up for 12 straight years. As far as we are aware, no other asset has ever gone up for 12 straight years, in the history of our nation.

But remember, we are not the first to go through this…

When Germans realized their currency was being destroyed in the 1920s, they got their money into Swiss Francs and gold as quickly as possible.

When Argentineans realized their currency was being destroyed in recent years, they did the same—by moving money as quickly and as quietly as possible into a safer currency and into “hard assets” like land and precious metals.

And it’s the same with the U.S. dollar right now. As it continues to lose its position as the world’s reserve currency, it will cause a brutal downturn in our economy, which will be about 10-times worse than the mortgage crisis of 2008. Remember, we bailed ourselves out of the last crisis by simply printing trillions and trillions of new dollars.

In a currency crisis, that’s not possible. Printing money only makes the situation worse.

Perhaps we could right the ship if we could drastically reduce costs and cut spending.

But that’s the EXACT OPPOSITE of what our politicians are doing today.

But our political leaders are now on a runaway, suicide course. They’ve come to believe that narrowing the tax base and printing billions and billions of dollars is the formula for prosperity.

Is Your State as Broke as these Places?

Did you know that according to the Center on Budget and Policy Priorities, a Washington, D.C.-based think-tank, some 31 states are working to close $55 billion in shortfalls for the 2013 fiscal year?

Remember, unlike the federal government, states can’t typically run a deficit, so they are taking drastic steps to cut back. For instance…

** A town in Ohio turned off 766 of the town’s 5,200 streetlights – which will remain turned off for two years. They hope to save $185,000.

** Philadelphia announced it is closing 37 schools, because the district is “out of time and out of options,” according to Superintendent William Hite.

** Budget crises have prompted states to explore early release options for prisoners. California is scrambling to comply with a Supreme Court order to reduce its inmate population by 30,000 people by mid-2013.

New Jersey Governor Chris Christie, confirmed that this problem is going on all over the country…

Of course, that was topped in 2012, when three California municipalities declared bankruptcy in a matter of weeks, including the new “largest municipal bankruptcy in U.S. history”… Stockton, a city of 290,000 people east of San Francisco.

And keep this in mind: Only about half the states in the country (27 in all) allow municipalities to declare bankruptcy. If it were allowed everywhere, I’m sure we’d see twice as many bankruptcies as we’re seeing today.

But for most places where bankruptcy is not allowed… they just keep kicking the can down the road, rather than address the real problems.

In Baltimore, for example, where my firm’s offices are headquartered, the city can’t legally declare bankruptcy. But that doesn’t mean they aren’t essentially bankrupt.

An independent audit solicited by the mayor recently shows the city will be $2 billion short of the money they need over the next decade. In other words, as one of local news station reported: the “City of Baltimore is on a path to financial ruin.”

What will it take for you to
recognize the crisis for what it is?

How high will gold have to go? How many banks will have to be seized by the FDIC? How high will oil have to soar? Or food prices? Or foreign currencies? When will you finally realize there’s a problem…?

 

Source: Porter Stansberry

 

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