Long time readers in the hard asset community who have been following my work and that of others will find nothing particularly new here but the fact that it is now being recounted in perhaps the most prestigious US financial newspaper is indicative of how far things have come since we first started sound the alarm bells about the US Dollar so many years ago.
It is my firm conviction that the combination of the runaway spending by the US Federal government in combination with a completely shortsighted and utterly reckless Federal Reserve, both under former Chairman Alan Greenspan and now current Chairman, Ben Bernanke, has destroyed the birthright of future generation of Americans.
The Dollar's role as the global reserve currency did not just happen out of chance; it was the result of our military victory in WWII and the manufacturing powerhouse that was once the US economy. Our fiscal health was solid, we lived within our means and we had a nation of savers. Those halycon days are now long gone.
Instead we have a total Federal debt of over $14 trillion, now at 100% of total GDP. There is no end in sight to continued red ink on our annual Federal budgets. Most of our states are in serious financial trouble and are having extreme difficulty in balancing their budgets and thus far it looks as if our political leaders cannot even manage to shave $100 billion off of a $trillion + budget.
Additionally the Federal Reserve continues its idiocy of printing more dollars into existence in order to prop up the economy further compounding the supply of Dollars at the exact time that demand for those same dollars is decreasing globally.
In short, our leaders have betrayed us all for the sake of short term gain at the expense of long term prosperity. Their betrayal will impact us all but even more so our children and the next generations that will follow. It is they that will suffer the most as their standard of living falls when compared to ours.
There are three things that I can see that the US can do to preserve the Dollar's unique status.
First - get its fiscal house in order. By that I mean seriously cutting spending not talking about some pathetic $4 billion in cuts in order to get a bunch of free spending Democrats to sign off on a 2 week extension to keep the government going.
Second - Stop the madness of the Federal Reserve with its deliberate, willful and purposeful debauchment of the US Dollar through the nefarious QE policy.
Third - tie the Dollar back to gold in some form. It does not need to be a direct convertibility but it does need to be some form of backing. Bernanke seems to scorn such a thing but the fact is it is workable however NOT AT THE CURRENT GOLD PRICE. Because of the sheer size of the US debt load, it would require a significantly higher gold price of MULTIPLES of its current level to accomplish this but it could be done. Bernanke may not want to admit this because in so doing it would expose the failure of the Federal Reserve but egos are no longer relevant at this point in our nation's history.