Friday, September 24, 2010
Another Day, Another (Drop In The) Dollar.
The fate of the currency of the realm is something I'm keenly interested in for personal and intellectual reasons. In truth, everyone who uses, however modestly, the dollar as a medium of exchange, and heaven forfend, as a store of wealth, ought to be riveted by matters related to The Greenback's prospects, which, I am sorry to report, are, like all fiat, dismal.
Why should this be so? Putting aside the history of currencies, even reserve ones, whose viability rests ultimately on nothing but the existence of a solvent and subservient citizenry pliable to government taxing schemes, the dollar- which, since the inception of The Federal Reserve in 1913 has already lost 94 percent of its purchasing power- is destined to be devalued at an increasingly faster rate, perhaps to the point where it becomes shunned as a medium of exchange, because the vast majority of the taxable citizenry, contrary to economic reports that might suggest otherwise, are quickly being reduced to penury.
Add that condition to the existing burden to pay for all that needs to be paid for by way of pubic spending, as well as the need to repay borrowed funds- two requirements that are consuming the host like a late stage cancer- and it is as close to a certainty that, within a few years, if not sooner, there will be crisis on these shores of the sort that, in years gone by, would have only seemed fitting in places like late 20th century Argentina and Chile.
Lately, the authorities have been trying to pressure China into devaluing their own currency, the Yuan, the idea being that inducing a drop in Chinese currency would improve the United States' prospects for export. The diplomatic efforts, if that is, indeed, what they were, seem to have failed, and, so, the U.S. powers that be are engaged in skinning the cat via another time honored method, ergo the dollar's precipitous fall of late.
In truth, all currencies around the globe are in a race to the bottom as governments attempt to prop up their export trade with beggar they neighbor policies. This will, of course, simply exacerbate the already fragile condition of the world economy, but when winning elections are at stake, and the tempers of the citizenry are frayed, governments invariably opt for these sorts of measures. Rarely does anyone express concern that inducing weakness in one's currency carry any sort of real long term risk such that the weakness may start to take on the cast of a fatal illness. Even so, that shouldn't stop us, on this occasion, from being on guard for the already sick patient's transfer to the critical ward.