First, let me start with a few basic economic terms to get everyone on the same page:
inflation: a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency
hyper inflation: extreme or excessive inflation
stagflation: sluggish economic growth coupled with a high rate of inflation and unemployment.
Now, let’s get into what’s killing the dollar…
It took over 200 years for the United States’ monetary base to reach $800 billion, but by late 2008 it doubled to well over $1.6 trillion – which was twice the amount of paper dollars that were in existence in the summer of 2007!
We were told that all of this money was necessary as an injection into the banking system, so as to keep the banks open and loaning. Yet, only a small amount of all that extra currency shown above has made its way to the banking system and into circulation. But when it does, inflation will inevitably follow (i.e. more dollars in a system means that each dollar is worth less). This is bad news for anyone holding dollars, but precious metals will likely maintain their value.
As can be seen from the chart below, we are printing an unprecedented amount of money and injecting it into the system which – when paired with the mounting unemployment rate – will invariably lead to a “misery index” even Jimmy Carter couldn’t ignore.
(Click to enlarge)
Now, here is the same chart, but through 2008. You can’t even see the $8 billion Savings and Loan Crisis spike anymore!
(Click to enlarge)
At the end of 2007, the Federal Reserve had loaned out roughly $800 billion. By the end of 2008, the Fed gave out $2.2 trillion.
Then, add all of that to the current $11.2 trillion dollar national debt, and tell me… what do you think is going to happen to the dollar?
Here’s a hint: See what Germany was up to… oh around 1923… and then you might have some sense of what lies ahead for America if our government does not curtail it’s printing and spending of American currency.
Time magazine reported last week that billions of dollars worth of SDRs (Special Drawing Rights — another name for the ‘Bancor’) are being issued by the IMF to officially displace the dollar as the world’s reserve currency, just like ‘Creature From Jekyll Island‘ predicted. they argue that if 16 countries can use the same currency, why not 192?
Of course, Time thinks it’s a good idea. So does China, Obama and Geithner. In late March, U.S. Treasury Secretary Timothy Geithner sent the dollar tumbling when he said he was “actually quite open” to China’s proposal for a greater role for SDRs. The dollar lost 1.3% against the euro within 10 minutes of Geithner’s unexpected comment.
The US dollar is China’s lover but now she wants another. This is yet another reason we can expect to see hyperinflation, as China decouples form the USD those now “worth-less” dollars will start returning to the US. Get ready to pay more for everything.