By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
I have written extensively about the different means by which the US dollar is declining in use for international transactions. It wasn’t that long ago that the dollar was the monetary unit used in over 80% of all international commerce. Today that percentage is down to about 60% and still falling.
It is easy to understand why the use of the dollar around the world is declining, but that does not necessarily mean that the US dollar will soon lose its status as the de facto world reserve currency.
I see four major reasons why the US dollar is losing its domination as the unit of money for international trade.
First, the US government’s commitment to incur multi-trillion dollar budget deficits every year, when calculated on the more accurate accrual basis of accounting, is one reason why other central banks and foreign businesses are becoming more leery about continuing to price transactions in US dollars.
Second, the massive inflation of the US money supply through the quantitative easing programs continues to drive down the future value of the dollar.
Third, growth of developing economies such China, Brazil, Russia, India, and others is resulting in more nations using their own currencies for transactions.
Fourth, the US government’s attempts to coerce other nations against trading with Iran by threatening to cut them off from the SWIFT system of settling international payments have pretty much backfired. China and other countries are instead preparing to develop a competing international payment system that does not use the US dollar at all.
Even though the US dollar may fall sharply in value in the next few years, it will still be used for a significant percentage of worldwide trade. Here’s why.
The most important reason is that there is no other currency positioned to replace the US dollar as the world’s reserve monetary unit. The euro is on shaky grounds, the yen issued by a Japanese government that has a huge overhanging level of debt. China’s yuan is still in the early stages of being used in international commerce. No other country has a large enough economy to replace the US dollar on a global basis.
Also, the European Central Bank and Bank of Japan have already made commitments to devalue their currencies along with the Federal Reserve’s intention to destroy the value of the US dollar. Other nations are just about guaranteed to follow suit. There will be no winning monetary unit in this race to the bottom.
What about gold, though? I fully expect gold to become more important at facilitating international transactions, through the use of gold clauses in contracts, if not outright payments in weights of pure gold. Gold will again become a trusted monetary unit because of its multi-thousand year track record of never failing. However, no politicians will be willing to surrender control of its domestic money system to the absolute external rigor of weights and purities of a commodity.
In sum, my basic advice is to plan for the continuing decline in value of the US dollar, but don’t worry that it will cease overnight from being a major currency used for worldwide commerce.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
The postulates appear reasonable. Part of the reason the reserve currency status will persist in many nations IMO is the prospect of US military force. It’s for good reason that many Generals and Admirals are members of the Council on Foreign Relations and the most important of these brass, members of The Pilgrims Society. The link between fiat money, absence of gold payments, and war is familiar to the cognoscenti. The last place the USD will be accepted as payment is right here at home, because of the silly legal tender laws. Good money never needs statutory enforcement to be accepted! Various States are seeking to remonetize gold and silver; this must give TPTB sleepless nights. These States should also seek to overturn the 17th Amendment, which Wall Street used to gain working control over the Senate via direct election of Senators. Previously Senators were selected by State legislatures, the 17th Amendment removed local influence. Alden Freeman, Pilgrims Society 1914 leaked list, was the main organizer back of the 17th Amendment—he was the son of the treasurer of Standard Oil Company, which was supplying editorials to over 300 newspapers in the 1870’s. 37 States mistakenly ratified the 17th Amendment before the Fed legislation in 1913—that Amendment made the Fed legislation possible! One of my Senators, John Cornyn, is on the take from ExxonMobil (Rex Tillerson, Pilgrims Society) and JPMorganChase (Jamie Dimon, Pilgrims Society). “Constantly rising prices brought on the most terrible, complicated and diabolical torture a country can know”—Richard Van Kuehlmann, German Foreign Minister, quoted in the New York Times, March 17, 1933, page 4. With another roaring round of inflation, very palpable in food and energy prices, more people will desire stable money.
Good report. Indeed, the dollar appears to have a lot of fight left in it thank goodness. Generally speaking, we live in a prosperous environment despite our economic woes of present. It is crucial dollar has staying power in these tough economic times.
One very real problem looming in the shadows for the dollar that was not mentioned in this article is the Fiscal Cliff.
The Fiscal Cliff is a very real scenario unfolding before us. Congress has not devised a plan to offset this trifecta of negative conditions set to take effect on midnight of December 31st, 2012.
1. CURRENT TAXES GOING UP: All workers will experience a 2% tax increase. Many tax cuts for business will expire. 2001-2003 tax cut law expires.
2. NEW TAXES BEING ADDED: Obama Care Taxes go into Effect
3. SPENDING CUTS GO INTO EFFECT: Almost a 1,000 government programs will be cut, including automatic deep cuts for Medicare and Defense.
It is not known exactly what type of effect these coming conditions will have on our economy.
Americans are strong, independent, and have a distaste for panic.
Unseasonably bad news at the wrong time, could erode this strength. For example, a ratings cut of the United States, by one of the large ratings agencies, following the already negative impact of dealing withe the Fiscal Cliff challenges, could be disastrously timed.
What could cause this type of bad news? Big business, banks and ratings agencies. They have extraordinary power in this country and they have not used it well. These mega institutions have the power to lend, the power to employ and the power to control risk. Conversely they have the power to lay off, or cut pay, the power to embezzle and defraud and the power create risk and to start a panic. The largest of these institutions have a consistent history of failing the American People, and I worry that this could happen at a most inopportune time.
Therefore it is going to be crucial that Congress not to allow the Fiscal Cliff to blow out of proportion.
In closing, the Fiscal Cliff poses a large and unknown threat to the well being of the dollar.
Compare the two current fiscally dismal presidential contenders with “Old Kinderhook,” Martin Van Buren (from whom we get the expression “OK”), who, with the great Sam Houston, Father of Texas, was one of Andrew Jackson’s two top proteges—
“Of my own duties under the existing laws, when the banks suspended specie payments, I could not doubt. DIRECTIONS WERE IMMEDIATELY GIVEN TO PREVENT THE RECEPTION INTO THE TREASURY OF ANYTHING BUT GOLD AND SILVER, and every practicable arrangement was made to preserve the public faith by equivalent payments to the public creditors.”—President Martin Van Buren, Special Congressional session message, September 4, 1837
If we the precious metals advocates ever designate a gallery of patron saints, President Martin Van Buren would shine bright like Sirius in the deep night sky!
I read Silver Stealers and was so impressed by it that I decided that I had to send it to everyone who is in my Address Book because I have been urging everyone to buy silver and gold for more than a year now.
There are several people in your article for whom I have no dates of birth or more importantly date of death. They are so far:
1. Duncan B. Cox
2. Michael H. Davis
3. Howard B. Dean Is this the former governor of Vermont?
4. Desmares, Francis Arthur M. C. Was he born in 1896?
5. Warren H. Dickerson Appears to live or have lived in New Jersey, but can’t find anything about him in New Jersey, only in southern states which I don’t think is the man in question.
6. Mark Dixon-What year was he born? I know he’s alive.
7. Alden Freeman
Please write me at your earliest convenience.
God bless you for what you have devoted your life to uncovering,