I’ve been warning for some time now that there would come a day when the world started to flatly reject the U.S. dollar as the world’s reserve currency.
I’m not unpatriotic, and I wish the dollar’s demise weren’t so.
But I’m afraid it’s here, now. Just take a look at the dollar’s recent action, where it has now penetrated important support on the long-term charts and is threatening to plunge another 20% in value in the weeks and months ahead.
So for today’s column, I can’t think of a better way to explain what’s happening in the economy and in the markets than to let all readers see my April issue of my Real Wealth Report.
Naturally, I’ve made slight edits so it could fit in today’s already longer-than-usual column. I’ve also highlighted some of the most important points, facts I think everyone must consider very seriously.
Unfortunately, however, the specific recommendations I make in the issue cannot be disclosed; they are reserved for Real Wealth Report members. I’m sure you’ll understand.
Nevertheless, I consider the April Real Wealth Report issue so important, I am publishing the edited version below for the benefit of everyone.
Internal Sponsorship
Internal SponsorshipU.S. dollar on the edge of a great cliff!
Global investors are dumping dollars like there’s no tomorrow. It’s the Fed’s money printing — plus Washington’s complacency about its credit worthiness — that’s driving the dollar into the gutter.
The big danger ahead is that we could see a bust in the biggest bubble of all — the U.S. government bond market!
This is precisely why I decided to issue objective, conflict-of-interest-free country ratings and rate the U.S. government. Click here to learn more.
We’re on the Brink of an American Apocalypse
There’s never been a time when it was more critical for you to watch your portfolio like a hawk!
This may be the only warning you get. When the first domino falls, it will be TOO LATE to protect your wealth. And that first domino could fall, quite literally, at any moment.
DO NOT miss a minute of our shocking video: Click here to watch it now — while there’s still time to protect your family and your finances.
Real Wealth Report — April, 2011
The Most Important Economic Event of Our Lifetime: The Dollar Crash I Have Been Warning You About Is HERE!Washington is finally getting its way: The dollar is now careening off a cliff. Nothing will stop it.
Prepare now for the next leg up in gold and natural resources … a sudden jump higher in inflation … and an upward surge in interest rates.
In years past, whenever and wherever there was trouble in the world, and no matter what the root cause, natural or man-made, the world looked to the United States and to the U.S. DOLLAR for safety.
That is no longer happening. In fact, in the midst of all the crises of the past two months, instead of soaring like the eagle it once was, the dollar has steadily moved lower. And now, it is CAREENING OFF A CLIFF.
As you know, I was one of the first, if not the first, to forecast the major bear market in the dollar in 1999.
I have been one of the first, if not the first, to warn that the U.S dollar would lose its status as the world’s reserve currency — and that gold would soar to once unimaginable heights.
Moreover, I have been one of the first to warn that — because of the dollar’s terrible fundamentals — the world will ultimately be forced onto a new monetary system that would involve a single world currency.
But truth be told, all of this is unfolding faster than I had expected!
The U.S. dollar is taking a beating, giving Washington what it wanted all along: A cheaper dollar to help inflate the heck out of just about everything to try and escape the crushing burden of its debt problems.
The dollar has fallen to near record lows against the euro and to ALL-TIME record lows against the Swiss franc, Canadian dollar, Australian dollar, and even the Japanese yen!
And of course, the dollar has plunged to record lows against gold!
You can see the dollar’s pathetic action in the following chart. Notice how it has now busted through every remnant of support and is a mere 5.3% above its all-time record low of 71.05 on April 22, 2008. [Update: The dollar is now merely 4% away from record all-time low.]
This is a serious situation, the most important economic event of our lifetime. Consider that at one time …
— A dollar bought more than 5 British pounds. Now it buys 1.63 pounds. And despite Britain’s severe economic problems, the dollar continues to fall against the pound.
— A dollar bought more than 6 Swiss francs. Today the dollar stands at a record low against the franc, buying only 0.91.
— A dollar bought almost 9 Australian dollars. Today it buys less than 1!
— A dollar bought more than 4 Canadian dollars. Today it, too, buys less than 1!
— And just a few short years ago, the U.S. dollar bought 1 euro. Today, despite all the terrible economic forces ripping Europe apart, the dollar buys a mere 0.70 of a euro.
But to top it all off, consider how much gold a dollar buys now. A dollar purchased 1/35 of an ounce of gold in 1933.
In 1971, a dollar bought a bit less, 1/41 of an ounce.
In 2000, the dollar was worth far less, and bought about 1/255 of an ounce of gold.
Today, $1 buys 0.00068 of an ounce of gold! That’s 1/1,470th of an ounce of gold!
[Update: Dollar now buys 0.00065 of an ounce of gold. That’s 1/1,538th of an ounce!]
To put that into perspective, against gold, what I call “honest money” …
— The dollar lost 15% of its value from 1933, the year Roosevelt confiscated gold, to 1971, the year Nixon severed the dollar’s final links to gold.
— Over the next 29 years, the dollar lost a whopping 84% of its value.
BUT …
— In just the past 11 years, the dollar has lost yet another 83% of its value against gold, effectively DOUBLING its rate of depreciation.
At that rate, and without any further downside pressure on the dollar caused by any fiscal irresponsibility in the U.S. or any additional money printing by the Fed, the dollar will lose another 41% plus in just the next five years.
Unfortunately, I don’t think it will take five years. Once the Dollar Index takes out the low at 71.33, which could be just days, or at best, weeks away, I believe the U.S. dollar crash that I have been warning you about will be here, full tilt.
Central Banks And Fund Managers Are
Under SEVERE Pressure To Dump U.S. TreasuriesLook. No one can fool overseas investors who hold more than $4.6 TRILLION in U.S. bonds.
They have seen the mess the United States is in, beginning with the tech bubble and wreck of 2000 …
Then the reckless real estate bubble and its bursting in 2007 … and then …
In the government’s equally irresponsible responses — continuing to spend money like there’s no tomorrow … “maxing out its credit card” … and then upping the limit, even though it can’t pay its current bills …
All the while, the Federal Reserve is aiding and abetting every wasted penny Washington spends, printing fiat money with reckless abandon.
The truth is, however, that the international financial markets are more powerful than all central banks combined, and the international currency market — where more than $4 trillion changes hands daily — is no fool.
Neither are our foreign creditors, who have had it with Washington’s insanity!
The fact is, this is the first time the dollar has fallen when overseas investors have such huge holdings of dollar-denominated investments.
Already, we’re seeing the cracks in the dollar turn into gaping holes. Over the last year, central banks have quietly been replacing portions of their dollar reserves with the euro, Swiss franc, Canadian and Australian dollars, and of course, gold.
China, our biggest creditor, the country that underwrites our biggest credit card, is quickly cutting our credit by selling U.S. Treasury notes and bonds, dumping $5.4 billion in January, the latest available data — on top of cumulative sales of $14.2 billion in November and December!
Plus, PIMCO, the world’s largest bond investment firm with more than $237 billion in assets, DUMPED ALL of its U.S. Treasury bond holdings at the beginning of March.
Another 12 intermediate bond and total return bond funds tracked by retirement specialists MyPlanIQ have also recently liquidated their bond holdings and now hold virtually none or very little in U.S. Treasury bonds in their portfolios.
These funds include some of the best fixed-income managers, such as Loomis Sayles Bond Fund (LSBDX), TCW Total Return Bond (TGLMX), Western Asset Cord Bond (WATFX), and Templeton Global Bond (TGBAX).
How can you blame them? These fund managers have a fiduciary responsibility to their investors and they see the handwriting on the wall …
— Washington spends more than $10.4 billion a day, $433 million an hour, not counting interest expense!
— The U.S. government’s debt is standing at more than $14 trillion, and growing at such an alarming rate that another government shutdown will loom again at the end of May, just seven weeks from now.
— The U.S. budget deficit is insurmountable as our spending requires more than 80% of the world’s surplus savings to finance it.
— And even more staggering debt looming directly ahead from the $113 trillion of unfunded liabilities in Social Security, Medicare, other Federal pension payments, and more!
But it’s not just domestic U.S. fund managers who are now starting to run for cover from the catastrophes about to smash the U.S. Treasury bond markets and the U.S. dollar.
I already told you about China. Though official figures are not yet out, my sources in Asia tell me that Japan, South Korea, and Russia are all actively looking to dump U.S. Treasury bonds (and the dollar).
Who can blame them? They see all the same problems mentioned above.
Plus, they have already seen U.S. Treasury bonds fall as much as 5% in just the past 30 days and nearly 11% since October — a loss that has been compounded by as much as another 6.25% decline in the value of the U.S. dollar, translating into more than a 17% loss in just over six months.
Question: If big, smart money is dumping treasury bonds, who is buying? More importantly, who might be left holding the bag?
Answer: First, the Federal Reserve is buying, by printing money and supporting our U.S. debt markets to aid and abet Washington’s spending.
I have no doubts that this will translate into even more money printing to try and support the house of cards Washington has built.
Second, the investors holding the bag will be the average American investor — who continues to hold and even buy more U.S. Treasury bonds, sometimes knowingly, sometimes unknowingly, through their pensions and retirement programs.
Either way, the assumption is that U.S. Treasury bonds are some of the safest investments in the world, when they are actually some of the deadliest — not only because their value can plunge, as they already are, but because the value of the U.S. dollar, upon which those bonds are based, is also careening lower!
The consequences of this, plus the plunging dollar and its impact on the bond markets means …
Consequence #1: Inflation Is About To Kick Into High Gear
A year ago, hardly anyone was paying attention to inflation. All you heard was “inflation is under control.” And, “if it starts to rise, it will be easy for the Fed to control it.”
Now, with the U.S. dollar plunging, all that has changed.
For Real Wealth subscribers who have seen my bear market warnings about the dollar, rising inflation is hardly a surprise.
Now, with the latest move down in the dollar, and the confirming move higher in gold, even I am surprised at how fast inflation is jumping …
(1) According to the Institute for Supply Management’s Prices Paid Index, 18 manufacturing industries paid higher prices for goods in March, the 21st consecutive month.
(2) The Continuous Commodity Index of Futures Prices has risen from 383 in December 2008 to 674 at the beginning of this month, implying a 33% rate of inflation!
(3) The Producer Price Index for March rose 1.6%, to an annualized inflation rate of 19.2%! Food and energy prices had their biggest monthly jump since November 1974!
This is not a flash in the pan as some experts would have you believe. It is the beginning of a new wave of inflation.
It’s also why Bill Simon, CEO of Wal-Mart, the world’s largest discount retailer, warned earlier this month that inflation is “going to be serious” and that Wal-Mart is “seeing cost increases starting to come through at a pretty rapid rate.”
The inflation we are starting to see will be worse than virtually anything this country has ever experienced, for the simple reason that these problems, along with the Federal Reserve money printing, are coming when there are other, unprecedented fundamental changes occurring in the world …
Namely, the exploding growth in Asia and other emerging markets that is driving demand for everything from A to Z through the roof.
Mark my words: As I have warned repeatedly, the price of every essential item you purchase, from bread to eggs, from oil and gas to water, will be going higher in the months and years ahead.
Consequence #2: A MASSIVE Upward Surge In Interest Rates
This is a no-brainer because it’s already happening! To better understand how a collapsing currency (and a concomitant rise in inflation) can cause interest rates to suddenly surge higher, consider the following:
In 1931 – 1933, as the dollar declined in value in international markets (via a rise in the gold price), bond prices plunged and long-term interest rates soared from 3.1% to 4.2%. Short-term interest rates also skyrocketed.
In 1974, as the dollar plunged in international markets (after Nixon abolished the gold standard), interest rates nearly DOUBLED, jumping from 5.41% to nearly 9%.
In 1987, 30-year bond rates jumped from 7.28% to more than 10%, while short-term interest rates soared from 5.41% to 7.4% on the heels of a plunging dollar.
Those interest rate jumps are nothing compared to what’s coming.
Consider how interest rates are doubling, tripling, and more than quadrupling in other bankrupt nations such as Spain, Portugal, Greece and Ireland.
The world reserve status of the dollar won’t help us this time. Never before in the history of this country has the dollar’s central role been as vulnerable.
So how high could interest rates go? No one has a definitive answer.
But considering that this is the first time the dollar has fallen when overseas investors have such huge holdings of dollar denominated investments … considering the dollar is at record lows and about to plunge faster than ever before …
I would not be surprised to see long-term interest rates more than QUADRUPLE over the next few years, to 14%-16%, perhaps even higher.
You’re probably asking yourself, “Won’t rising interest rates, at some point, kill off inflation, even halt the dollar’s slide?”
My answer: No. When a country’s currency is collapsing, there is no level of interest rates that can choke off inflation or stop the currency from plunging to worthlessness.
Just look at the Weimar Republic and Zimbabwe as two examples of when currencies plunged to nearly zero and no level of interest rates choked off inflation or helped stabilize their respective currencies.
Unfortunately, as much as we hate to admit it, we face a similar future. Eventual hyperinflation and the death of the dollar.
At some point in the not-too-distant future, even the Federal Reserve will be powerless.
Consequence #3: Another Surge In Gold, Oil, Natural Resources!
Subscribers who have followed me for any length of time know that I have called every twist and turn of this financial crisis years ahead of time, including nearly every twist and turn in the natural resource markets.
But there’s no denying that over the last few months I was wrong about gold, silver, in expecting the dollar to bounce, and the broad stock markets to pull back.
I simply underestimated the dollar’s bear market. Nevertheless, there has been no change in any of my long-term forecasts. Indeed, based on recent developments, they are more likely to unfold than ever before.
This means higher prices for gold, silver, oil, and every natural resource.
They won’t go straight up. There will be inevitable corrections and bounces in the value of the dollar.
But for the record, my models project the following minimum price levels will be met in the years ahead, probably by the 2015/2016 period …
— Gold is likely to move well above $5,000 an ounce
— Silver to more than $125
— Oil to more than $250 a barrelSome of the most stunning gains of all will be in the basic necessities of life, such as …
— Corn, which could easily skyrocket more than 514% to $36 a bushel, its inflation-adjusted 1917 record high
— Soybeans, more than 350% to near $53 a bushel, its 1973 inflation-adjusted high
— Wheat, nearly 700% to its 1917 inflation-adjusted high of nearly $53 a bushel
I will cover my inflation projections in the May issue of my Real Wealth Report, including charts of all major commodities and estimates of what you will be paying for basic necessities down the road.
For now, due to the dollar’s precarious position — without a doubt, all subscribers should …
Prepare For A Possible Dollar Crash
With These Recommendations!Crashes, by their nature, are so-called “Black Swan” events because they are almost always impossible to predict.
And while there are bound to be dollar bounces and pullbacks in commodities in the weeks ahead, I believe we are close to a Black Swan event for the dollar — a cataclysmic collapse in its value.
It may be triggered by another natural disaster. It may be a man-made event. Or, it may be that Washington reaches its debt ceiling again and overseas investors decide to throw in the towel.
I hope not. But considering that the risks of it happening are higher than ever, I believe it would be foolish not to take the following steps:
XX Specific Recommendations Reserved
For Real Wealth Report members. XXWe are approaching one of the most critical economic developments of our lifetime. Flash alerts and recommendations can come fast and furious.
Best wishes,
Larry
P.S. I wish I could give everyone my specific recommendations.
But I simply can’t. It would not be fair to members. But you can get them all, including all flash alerts and more, lots more — for a mere $99 a year. All you have to do is click here now and you can join Real Wealth Report too.
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