(Disclaimer: I didn't write this. A friend emailed me this. Whoever wrote it has written it nicely so can not resist temptation to share with a wider audience.
This is not a stock tip but gives you some points to consider when you do your asset allocation.
Sorry I can not give due credit to the original writer by mentioning his email because I do not know who he or she is)
The euro, worth 83 cents in the early George W. Bush
years, is at $1.45.
The British pound is back up over $2, the highest
level since the Carter era. The Canadian dollar, which used to be worth 65
cents, is worth more than the U.S. dollar for the first time in half a century.
Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has
Have gold, silver, oil, the euro, the pound and the Canadian
dollar all suddenly soared in value in just a few years?
dollar has plummeted in value, more so in Bush's term than during any comparable
period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment
of the American dollar.
Is it all Bush's fault? Nope.
is plunging because America has been living beyond her means, borrowing $2
billion a day from foreign nations to maintain her standard of living and to
sustain the American Imperium.
The prime suspect in the death of the
dollar is the massive trade deficits America has run up, some $5 trillion in
total since the passage of NAFTA and the
creation of the World Trade Organization in 1994.
In 2006, that U.S.
trade deficit hit $764 billion. The current account deficit, which includes the
trade deficit, plus the net outflow of interest, dividends, capital gains and
foreign aid, hit $857 billion, 6.5 percent of GDP. As some of us have been
writing for years, such deficits are unsustainable and must lead to a decline of
A sinking dollar means a poorer nation, and a sinking
currency has historically been the mark of a sinking country. And a superpower
with a sinking currency is a contradiction in terms.
What does this mean
for America and Americans?
As nations realize that the dollars they are
being paid for their products cannot buy in the world markets what they once
did, they will demand more dollars for those goods. This will mean rising prices
for the imports on which America has become more dependent than we have been
since before the Civil War.
U.S. tourists traveling to the countries
whence their ancestors came will find that the money they saved up does not go
as far as they thought.
U.S. soldiers stationed overseas will find the
cost of rent, gasoline, food, clothing and dining out takes larger and larger
bites out of their paychecks. The people those U.S. soldiers defend will be
demanding more and more of their money.
U.S. diplomats stationed
overseas, students and businessmen are already facing tougher times.
U.S. foreign aid does not go as far as it did. And there is an element
of comedy in seeing the United States going to Beijing to borrow
dollars, thus putting our children deeper in debt, to send still more foreign
aid to African despots who routinely vote the Chinese line at the United Nations.
The Chinese, whose currency is tied to the dollar, and Japan will
continue, as long as they can, to keep their currencies low against the dollar.
For the Asians think long term, and their goals are strategic.
China - growing
at 10 percent a year for two decades and now growing at close to 12 percent - is
willing to take losses in the value of the dollars it holds to keep the U.S.
technology, factories and jobs pouring in, as their exports capture America's
markets from U.S. producers.
The Japanese will take some loss in the
value of their dollar hoard to take down Chrysler, Ford
and GM, and capture the U.S. auto market as they captured our TV, camera and
computer chip markets.
Asians understand that what is important is not
who consumes the apples, but who owns the orchard.
Other nations that
have kept cash reserves in U.S. Treasury bonds and T-bills are watching the
value of these assets sink. Not fools, they will begin, as many already have, to
divest and diversify, taking in fewer dollars and more euros and yen. As more
nations abandon the dollar, its decline will continue.
and exporting nations, with trade surpluses, like China, have also begun to take
the stash of dollars they have and stuff them into sovereign wealth funds, and
use these immense and growing funds to buy up real assets in the United States -
investment banks and American companies.
Nor is there any end in sight
to the sinking of the dollar. For, as foreigners demand more dollars for the oil
and goods they sell us, the trade deficit will not fall. And as the U.S.
government prints more and more dollars to cover the budget deficits that
stretch out - with the coming retirement of the baby boomers - all the way to
the horizon, the value of the dollar will fall. And as Ben Bernanke at
the Fed tries to keep interest rates low, to keep the U.S. economy from
sputtering out in the credit crunch, the value of the dollar will fall.
The chickens of free trade are coming home to roost.