Why the Dollar is the Key Issue Ahead

In December I accepted an invitation to speak — for free — at a small conference in St. Kitts where I’d debate Peter Schiff on what I considered the key issue of our time. The question was this: Do we get inflation or deflation out of this unprecedented debt bubble and the Fed’s ongoing money printing efforts to keep it from bursting?

I agreed to go for three reasons:

1) My wife and I wanted to visit St. Kitts and Nevis.
2) I had debated Peter Schiff once before and wanted to do it again.
3) Mark Skousen and Doug Casey were also speaking, and I admire both of them.

Peter spoke before me and, as usual, he was riveting. I found myself agreeing with everything he said about how deeply in denial governments are… how unsustainable their stimulus and debt policies are… how they have to raise more debt to fund their debt… and that at some point they won’t be able to do so.

Normally when I talk at conferences focused around gold bugs and hyper-inflation speakers — as I often do — I have to throw out most of my debt-bubble charts. But in St. Kitts, the guys understood debt bubbles and their unsustainability… as anyone with common sense would.

When it was my turn to speak, I walked to the podium and began…

As I always do, I started by explaining why demographic trends would continue to deteriorate and defeat government policies of endless stimulus. I got no disagreement on that point.

But I got a lot of resistance to one simple fact.

You see, Peter sees the U.S. dollar going down as a result of this endless money printing. And I just don’t agree. Every government is printing money, and that makes the dollar the best house in a bad neighborhood.

Peter argued that even if I was right about deflation in prices (and I gave a thousand arguments for deflation), the U.S. dollar would go down in purchasing power beyond that.

My response: You mean we’ll go down more than the euro or the yen?

I don’t think so.

Ultimately, my view is that too many people base their views of the dollar and inflation on the actions of the Fed and on what happened in the last great downturn of the 1970s. And I told the attendees in St. Kitts as much.

Then I asked them a question. I’ll ask you the same question now:

“What is more important than all the central banks in the world?”

Quite simply, the answer is: Babies!

They grow up, they enter the workforce on average at age 20. They start earning money, spending money, borrowing money. By the time they’re 46 years old, they’re spending the most they ever will. After that, they start to slow down. Not because they can’t afford to spend anymore but because there’s less for them to burn money on.

And that’s where we are today.

Chris Mayer, editor ofthe Crisis & Capital newsletter, also attended the St. Kitts conference. Recently, he told his subscribers about my presentation. He summed up the crux of my view of our future very succinctly. He said: “The U.S. is on the other side of a massive spending peak that doesn’t hit a trough until 2020 – 2023.”

This isn’t theory. This is fact!

As is the fact that we’re in a deflationary environment, which is something else I told the audience in St. Kitts. When debt bubbles burst, like they’ve done in Japan in the 1980s and the U.S. in 2007 (to name just two of many examples), there is deflation every single time.

No exceptions.

Debt creates money. When that debt is written off, you’re destroying money. And less money in the system equals a stronger dollar.

Bet on the dollar. You’ll be glad you did as we move further into the great American reset.

Harry

P.S. Our stay in St. Kitts wasn’t all business. My wife and I did some touring and I must say that Nevis is definitely much nicer than its partner. There are three nice hotels to stay in, with my favorite being the Montpelier. And the Nisbet Plantation Beach Club has great reviews… but I wasn’t all that impressed.

I’d recommend you make a trip there when you can. And while you’re in St. Kitts, check out Kittitian Hills. It’s the only place I found interesting there.

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Ahead of the Curve

Don’t Bet Against the Dollar

Hyper-inflationists — of the gold bug variety, or otherwise — hold firmly to the mental image of Ben Bernanke circling the New York skyline in a helicopter, dropping $100 bills like confetti at a New Year’s Eve party.

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About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.