Is the dollar crisis sneaking up on us?
March 4, 2012
Here we are, 8 months away from the next presidential election and I can hardly believe what I hear. America has not been in such dire financial condition since the end of World War II.
Current population demographics along with growth potential are completely different than 1945. Instead of an industrial revolution and baby boom, we have exported most of our manufacturing jobs to cheaper labor markets and the baby boomers are retiring instead of beginning their working cycle.
So far I have heard the candidates (from both parties) bicker about minor issues that should be near the bottom of the list of important things to do after the election. I can hardly wait until we have a Republican candidate and the negative ads between the candidates start assaulting the airwaves.
Who did what and when to whom? Do we really care? Remember the last election got so petty and nasty that it was hard not considering the “none of the above” box on the ballot.
In 2008, I knew how far in debt our country was and then with Troubled Asset Relief Program and stimulus spending, yearly shortfalls in revenue starting being counted in the trillions of dollars instead of billions.
Most people cannot fathom a trillion dollars but to give you some perspective: It is a one followed by 12 zeros or 1,000,000,000,000. We have a current national debt of more than 16 trillion and that is money already spent. If we talk about future obligations to entitlement programs, that number gets much larger at about $61.6 trillion.
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How much do we have saved up to pay all of this? Zero, nothing, nada, zip. Call me crazy, but I think we need a candidate with a plan.
So what are we doing to fund these deficits? We sell bonds to individuals, other countries and even our own Federal Reserve.
How can our central bank buy treasury debt you may ask? We print up money backed by only confidence in our ability to honor our own currency and debts and we have been on a roll printing money. In the last 2 years, the broadest measure of money supply has increased 12.8 percent to 9.61 trillion.
Does it really matter how many dollars are circulating out there? It really does.
While supplying liquidity to the markets, it also creates huge bubbles in everything that trades in dollars. That includes stocks, bonds, commodities and real estate. Our attempt to print ourselves back to a solid economy is an illusion. We cannot grow ourselves out of debt this time, so our central bank, in concert with other central banks will attempt to inflate our way out. That means paying back debt with drastically deflated dollars.
Personally, I do not think this will work and we will see a crisis of confidence in the dollar. If this happens, the dollar bubble will burst and 2008 will look like a mild recession.
The only candidate I see even discussing these issues is Ron Paul and even his fellow Republicans think he is a kook. President Obama has made no attempt to rein in spending, so I must assume that another 4 years of an Obama administration would be the same.
The Republican candidates are too busy trying to convince us who is most conservative instead of giving us any kind of firm plan to at least show voting Americans, along with the rest of the world that we deserve the confidence our dollar implies. The problem is that candidates want to be popular and there is nothing popular about telling Americans that the account of “safety net” money is overdrawn and the check may not be in the mail soon. This will upset many folks receiving money from the Treasury and they vote.
As a financial planner, I have been bullish when warranted and bearish when necessary, but any one of my former clients would tell you that I was not afraid to tell it as I saw it, no matter how unpopular. I never had a client that preferred I sugarcoat the truth.
Well, the debt charts now look like a tracing of the north face of Everest while the stock market continues to reach higher levels on very little volume. It may be a good time to evaluate your portfolio holdings and make sure you have protected your money against any future volatility that a confidence crisis in the dollar may bring. I am just saying be careful with your money and never forget the lessons of 2008 and how no one had enough time to save their profits. It all happened so fast as I expect a dollar crisis will too.
• Carol Perry is a retired financial adviser and has been a Northern Nevada resident since 1983. She can be reached at Carol_Perry@att.net.