We’ve all seen photos of people in third-world countries pushing wheelbarrows full of money to the market because their currency was worthless. Think it couldn’t happen here? Americans like to believe their country is “too big to fail”, just like the financial institutions that were seemingly fail-proof. However, statistics present another, more disturbing reality. Make sure your wheelbarrow is in good repair, because the rapidly declining value of the U.S. dollar will soon be impossible to ignore.
The dollar, which was once redeemable for gold or silver, is now backed only by “the full faith and credit of the United States government.” That may have been enough when the U.S. abandoned the gold standard in 1971, but the credit of the U.S. government is getting worse every day due to excessive spending by Congress. The government is asking investors who hold dollar-backed securities to “just trust us” as it continues it’s spending spree, but people are losing faith in the dollar, and rightfully so.
The national public debt is now more than $11 trillion, and growing at a rate of about $3.8 billion each day. And this figure doesn’t include the unfunded liabilities of programs like Social Security, Medicare, and other contractual obligations. Adding in all those numbers produces a number closer to $70 trillion, or about $1.8 million for each American citizen.
Rather than cutting back on spending during this crisis, Congress is using money it doesn’t have to bail out large companies, inject so-called “stimulus money” into the economy, and fund a cap-and-trade program for energy companies. Now it proposes to spend more than $829 billion over the next decade for a new healthcare program we can’t afford.
How will the government pay for these obligations? The short answer is that it will print more money, which devalues the dollars already in circulation – dollars in your money market account, in your children’s college fund and your 401(k), assuming it still has any value.
Depending on which pundits you ask, the dollar lost between 29 and 42 percent of its value in the last seven years. Nine percent of this drop occurred over the last 6 months, and the decline shows no signs of stopping. In 2009, the dollar lost 19 percent compared to the Australian dollar, 13 percent against the Canadian dollar and 12 percent compared to the Japanese yen.
The shrinking dollar has led investors, especially in foreign countries, to stop using the dollar as a medium of exchange. China currently holds around $1 trillion in U.S. debt. Naturally the Chinese are concerned that their investment is losing value. Central banks in countries around the world have begun switching to other currencies, including the Euro, the yen and the Swiss franc, in order to reduce their risk. Middle Eastern states, which have traditionally used the dollar as currency for trading in oil, are now holding discussions about moving away from the dollar, and they control more than $2 trillion in dollar reserves. As these major investors move away from U.S. currency, more dollars will be dumped back into the market, reducing their value even further.
If we don’t stop the runaway spending, we are heading for a crash that will make last year’s financial meltdown seem tame. As dollars become devalued, all Americans will see their personal worth decline, and we are leaving a legacy of overwhelming debt to our children and grandchildren. This issue has not received much coverage in the mainstream press, so it’s up to those of us who realize the problem to speak up before it’s too late.