Dollar at Risk of Crashing, Triggering Inflation

[sunshine05]

Dollar at Risk of Crashing, Triggering Inflation: Strategist
Published: Thursday, 4 Nov 2010 | 11:54 AM ET
Text Size
By: Jeff Cox
CNBC.com Staff Writer


Federal Reserve policies have put the US dollar the risk of crashing, which will hammer consumers through higher prices, strategist Axel Merk told CNBC.

Investors should brace for a much weaker dollar [.DXY 76.405 0.525 (+0.69%) ] by diversifying out of the greenback and into currencies of other countries, said Merk, chairman and chief investment officer of Merk Investments, of Portland, Maine.

Merk spoke the day after the Fed said it will be embarking on a program to buy $600 billion in Treasurys in an effort to pump up the economy by increasing liquidity. Critics say the program, also known as quantitative easing, will further devalue the dollar and ultimately create inflation.

"It's with the best of intentions but I think it's a very, very wrong policy," Merk said in an interview.

Consumers should prepare for another turn of events like the spring of 2008, when oil prices [US@CL.1 86.77 0.28 (+0.32%) ] soared to $147 a barrel and gas at the pump was more than $4 a gallon, he said.

"One of the key things here is a weaker dollar has traditionally not been inflationary because Asian exporters like to absorb the higher cost of doing business," Merk said. "There comes a breaking point when Asian exporters can no longer absorb that higher cost of doing business. They'll raise prices and guess what? They will stick.

"So we will have a cost-push inflation. We're going to get inflation but not where Bernanke wants to have it. We're not going to get wages to go up. We'll get the price at the gas pump to go up instead."

The current climate of low inflation has spurred comparisons to Japan's "lost decade" where deflation prevailed.

But Merk said the difference in monetary policy between the two countries will guarantee different outcomes.

"We won't be like Japan because we finance our deficits externally. So our fate will be different," he said. "We'll have a dollar that may crash in that process. The issue here is that (Fed Chairman Ben) Bernanke wants to have a weaker dollar. This is the first Fed chairman who is seeking to have a dialogue about the dollar."

Merk said forex investors still can navigate a difficult environment but need to be diversified and should focus on countries that will be looking to clamp down on inflation by boosting rates and backing their currencies.

"There's no such thing anymore as a safe asset. Cash is no longer safe," he said. "Do what central banks do, they diversify to baskets of currencies. That's what we try to do. It's a pity for any savers out there, but we'll survive. We'll get through this."

http://www.cnbc.com/id/40007252

[jetgraphics]

Actually, it's not the risk of the dollar bill crashing (it's not a dollar, anyway) but what is "backing" it.

Arrogance of the FED:
http://www.treas.gov/education/faq/currency/legal-tender.shtml#q2
"Federal Reserve notes are "backed" by all the goods and services in the economy."

"All the goods and services" - all that YOU thought was yours - was stolen by Congress and pledged to the Federal Reserve Corporation. Correction - voluntarily 'donated' by you, thanks to FICA. And Congress can tax away EVERYTHING you thought you owned in order to redeem those "Dollar bills".

When the creditor forecloses, he forecloses on YOU.

[agnut]

Thanks Sunshine; your article coupled with Ponce’s article :

“NIA Projects Future U.S. Food Price Increases.”, we all may want to rethink our prep strategy.

Quote :
"So we will have a cost-push inflation. We're going to get inflation but not where Bernanke wants to have it. We're not going to get wages to go up. We'll get the price at the gas pump to go up instead."

I wrote of this very thing happening years ago and named it hyperstagflation. That is when prices rise while wages go nowhere. Hyperinflation is where prices go up and wages also go up; this is the mistake most everyone makes. This is not Zimbabwe or 1922-23 Germany. We don’t have what I call true fiat currency but rather a sort of “hybrid currency” which is tied to debt as collateral. Note that the FED issues new dollars out of thin air BUT demands receiving collateral in exchange. Neither Zimbabwe nor Germany demanded collateral and could therefore add zeroes to their currency like there was no tomorrow (because there WAS no tomorrow).

I tried but could not get the point across in the past but now we are entering a hyperstagflationary scenario.

If this is true, those who bought food and necessities will be able to continue until they run out. Sometimes I wonder if it would be wiser to sell some silver and buy more food preps.

What is to be the best investment in the coming years ? Nobody knows for sure but as time passed and I ponder this, I first realize that if I were to buy more food preps and have less silver, my family and I could consume the food. However what of the silver ? Yeah, yeah, I know; can’t eat silver.

But there is an additional critically important thing to consider. On January 1 a new law that goes into effect that requires that a 1099 be issued for transactions over $600. And that is per year with a particular party. I don’t know the details but you can imagine if you needed food and had to sell your silver. Right now $600 would buy a lot of food preps but after the January 1 AND a serious devaluation in the dollar combined could devastate even a huge rise in the price of silver.

Being low on physical silver is one thing but being low on food preps is entirely another. Hard to envision a time wherein food prices will be sky high. Maybe watching Soylent Green again would be the ticket.

I’m still thinking about it and may act soon but this is the first time in a long time that I feel like a deer frozen in the headlights. Any comments ?

Best wishes,

agnut

[sunshine05]

Thanks Sunshine; your article coupled with Ponce’s article :

“NIA Projects Future U.S. Food Price Increases.”, we all may want to rethink our prep strategy.

Quote :
"So we will have a cost-push inflation. We're going to get inflation but not where Bernanke wants to have it. We're not going to get wages to go up. We'll get the price at the gas pump to go up instead."

I wrote of this very thing happening years ago and named it hyperstagflation. That is when prices rise while wages go nowhere. Hyperinflation is where prices go up and wages also go up; this is the mistake most everyone makes. This is not Zimbabwe or 1922-23 Germany. We don’t have what I call true fiat currency but rather a sort of “hybrid currency” which is tied to debt as collateral. Note that the FED issues new dollars out of thin air BUT demands receiving collateral in exchange. Neither Zimbabwe nor Germany demanded collateral and could therefore add zeroes to their currency like there was no tomorrow (because there WAS no tomorrow).

I tried but could not get the point across in the past but now we are entering a hyperstagflationary scenario.

If this is true, those who bought food and necessities will be able to continue until they run out. Sometimes I wonder if it would be wiser to sell some silver and buy more food preps.

What is to be the best investment in the coming years ? Nobody knows for sure but as time passed and I ponder this, I first realize that if I were to buy more food preps and have less silver, my family and I could consume the food. However what of the silver ? Yeah, yeah, I know; can’t eat silver.

But there is an additional critically important thing to consider. On January 1 a new law that goes into effect that requires that a 1099 be issued for transactions over $600. And that is per year with a particular party. I don’t know the details but you can imagine if you needed food and had to sell your silver. Right now $600 would buy a lot of food preps but after the January 1 AND a serious devaluation in the dollar combined could devastate even a huge rise in the price of silver.

Being low on physical silver is one thing but being low on food preps is entirely another. Hard to envision a time wherein food prices will be sky high. Maybe watching Soylent Green again would be the ticket.

I’m still thinking about it and may act soon but this is the first time in a long time that I feel like a deer frozen in the headlights. Any comments ?

Best wishes,

agnut



Good post, agnut. You make some excellent points about the collateral. I honestly never thought about it that way. It's hard to know exactly how it will play out, but what you describe sounds highly possible. I've been thinking more and more about leaving the US. I was listening to Schiff's radio program last night and one of his caller's was considering places to move. He was considering New Zealand and Australia. Schiff felt that they will fare better than the US because the dollar will be hit so hard. It's something to think about but time is running out. More food preps is smart.

[1970 silver art]

Thanks Sunshine; your article coupled with Ponce’s article :

“NIA Projects Future U.S. Food Price Increases.”, we all may want to rethink our prep strategy.

Quote :
"So we will have a cost-push inflation. We're going to get inflation but not where Bernanke wants to have it. We're not going to get wages to go up. We'll get the price at the gas pump to go up instead."

I wrote of this very thing happening years ago and named it hyperstagflation. That is when prices rise while wages go nowhere. Hyperinflation is where prices go up and wages also go up; this is the mistake most everyone makes. This is not Zimbabwe or 1922-23 Germany. We don’t have what I call true fiat currency but rather a sort of “hybrid currency” which is tied to debt as collateral. Note that the FED issues new dollars out of thin air BUT demands receiving collateral in exchange. Neither Zimbabwe nor Germany demanded collateral and could therefore add zeroes to their currency like there was no tomorrow (because there WAS no tomorrow).

I tried but could not get the point across in the past but now we are entering a hyperstagflationary scenario.

If this is true, those who bought food and necessities will be able to continue until they run out. Sometimes I wonder if it would be wiser to sell some silver and buy more food preps.

What is to be the best investment in the coming years ? Nobody knows for sure but as time passed and I ponder this, I first realize that if I were to buy more food preps and have less silver, my family and I could consume the food. However what of the silver ? Yeah, yeah, I know; can’t eat silver.

But there is an additional critically important thing to consider. On January 1 a new law that goes into effect that requires that a 1099 be issued for transactions over $600. And that is per year with a particular party. I don’t know the details but you can imagine if you needed food and had to sell your silver. Right now $600 would buy a lot of food preps but after the January 1 AND a serious devaluation in the dollar combined could devastate even a huge rise in the price of silver.

Being low on physical silver is one thing but being low on food preps is entirely another. Hard to envision a time wherein food prices will be sky high. Maybe watching Soylent Green again would be the ticket.

I’m still thinking about it and may act soon but this is the first time in a long time that I feel like a deer frozen in the headlights. Any comments ?

Best wishes,

agnut



Good post, agnut. You make some excellent points about the collateral. I honestly never thought about it that way. It's hard to know exactly how it will play out, but what you describe sounds highly possible. I've been thinking more and more about leaving the US. I was listening to Schiff's radio program last night and one of his caller's was considering places to move. He was considering New Zealand and Australia. Schiff felt that they will fare better than the US because the dollar will be hit so hard. It's something to think about but time is running out. More food preps is smart.


I think that Singapore was also mentioned as a place to move to. I cannot remember if Schiff or the caller mentioned it but I think that it was bought up in the conversation in last night's Schiff radio show. I also think that the caller also asked Schiff about the tax and debt issues of Australia and New Zealand and Schiff did not seem to worried about it when he explained to the caller that those two countries are still a good place to go to.

[mick silver]

they cannot tax us out of what they have done to this country

[cthulu]

I agree with the hyperstagflation theory. Prices aren't dictated by consumer purchases. It's more governed by prices in the digital/credit world, and in that world, the average retail investor has no say whatsoever. How many people do you know invest in pork bellies? Whereas huge sovereign wealth hedge funds and institutional buyers are the ones who are making the waves in the digital world. Average j6p with his big 100 shares of company X doesn't make a dent in the market.

So anyway, what I'm saying is prices will be determined by the digital world, and the average person here will be priced out. Think tons of food rotting on the docks or getting exported out because it's more profitable to let it spoil than to give it away. Hope you're fully prepared. Got 10, 20 years' worth of food? This ain't grandma's depression. :lol

[FunnyMoney]

...Hope you're fully prepared. Got 10, 20 years' worth of food? This ain't grandma's depression. :lol


While food preps are important, they don't have anywhere near the shelf life that metals have. Farmers will always sell food for silver and gold coins. Things may become pretty bad, but it's still very likely the metals will out pace in purchasing power the future increases in food costs.

[cthulu]

While food preps are important, they don't have anywhere near the shelf life that metals have. Farmers will always sell food for silver and gold coins. Things may become pretty bad, but it's still very likely the metals will out pace in purchasing power future increases in food costs.


That's my point. All these people saying "ya can't eat gold" so proud they've got food preps...do they have 20 years worth of food? I doubt it.

[sunshine05]

While food preps are important, they don't have anywhere near the shelf life that metals have. Farmers will always sell food for silver and gold coins. Things may become pretty bad, but it's still very likely the metals will out pace in purchasing power future increases in food costs.


That's my point. All these people saying "ya can't eat gold" so proud they've got food preps...do they have 20 years worth of food? I doubt it.


Yes. You really do need both. Finding the right balance is the tough part.

[madfranks]

You can't eat gold, but you can't preserve wealth with a sack of beans.

Oh, and how is the dollar up so strong today? +.483 as I type this!

[nunaem]

You can't eat shelter.

You can't eat clothing.

You can't eat air.

Some things have other uses besides eating.

[Libertytree]

There is no such thing as being 100% prepared, only preparing as best as you are able. Being adaptable and having your wits about you is the ultimate commodity.