Dollar Destruction and Inexpensive Commodities

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by Gary Christianson, Miles Franklin:

Americans buy groceries with dollars. Most of the world buys crude oil with dollars.  World trade depends upon dollars. That is changing but for now, it’s a fact.

SO WHAT?

If dollars weaken against other fiat currencies and against commodities, it takes more dollars to buy the same stuff. That extra-hot, sugar free, half-caf, soy latte for five bucks could be priced at seven bucks next year.  Gasoline in the U.S. was $0.25 fifty years ago and now it’s ten times more expensive. Slow or fast, dollars devalue!

The problem is not the gasoline, the oil companies or coffee shops … it’s the dollar. “Print” too many dollars (euros, yen, pounds) and they buy less.

The Fed has “printed” an excess of dollars, and global debt has skyrocketed into uncharted territory. There will be consequences.

The dollars are invested, many in stocks and bonds. Continuously rising stock prices since 2009 and the 35 year bull market in bonds (lower yields) are a consequence of massive debt creation and dollar (euros, yen, pounds) devaluation.

Cycles and Consequences Exist:

Examine the Thomas Reuters Commodity Index (similar to the Goldman Sachs Commodity Index).  Note the lows in early 2016, and seven years before in 2009, and seven years before in 2002. The index in late January 2018 is 29% higher than the 2016 lows.

Examine the dollar index. The Index is measured against other “over-printed” fiat currencies so it measures relative strength and weakness against other paper currencies.  The index is counter-cyclical with commodities.  Note the highs in late 2016, 2009, 2001 and 1993.

The dollar has been falling against commodities and other currencies for two years. What can we expect for the dollar?

  1. The value of the dollar will weaken for many reasons.
  2. Congress and the Administration have no incentive to reduce expenditures on wars, social programs, bureaucracies or graft. Expect continuously increasing debt.  That means more dollars will be created and every existing dollar will be devalued.
  3. The dollar is slowly losing its status as the global reserve currency.
  4. While the U.S. is obsessed with military presence in 175 countries, China is building the One Belt One Road. If successful, their enhanced trading will strengthen the yuan and weaken the dollar.
  5. Western countries are selling gold and shipping bullion to China, India, Russia and Turkey. They recycle devalued dollars into gold – a sensible policy.
  6. US. foreign and domestic policies have not inspired confidence in the dollar or the U.S. government for many administrations. The value of the dollar declines along with decreasing confidence.

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