Rodney Johnson | Tuesday, April 09, 2013 >>
I just got back from the Global Currency Expo in San Diego. The event was several days long and featured a ton of great speakers. In addition to the usual suspects, like Jeff Opdyke and Chuck Butler, were known headliners, such as James Dale Davidson. Rounding out the group of keynote speakers were Harry Dent and me. The theme of the conference was how to position investments as the dollar crumbles after so much printing and so much debt issuance.
To say that Harry and I were the odd men out is an understatement.
At one point, I actually felt some sympathy for the attendees, because they listened to many smart, successful people talk about how the dollar will collapse. But then they had Harry and me bombard them with facts and statistics as to why it’s not true.
It all comes down to knowing the rules of the game.
You see, most every speaker there was using the typical check list to explain why the dollar is in dire straits. Has the government seemingly gone beyond the pale in terms of issuing debt to pay for profligate spending? Yep. Is the government – or its nefarious extension – printing money ad nauseum during a time of peace? Absolutely. Are there hard assets that can be purchased? Of course. Are there capital controls? None that can’t be overcome. Well there you go. The government’s killing the currency for its own ends and people of means can choose to leave the system. Nothing else to see or talk about here, the death of the dollar is a foregone conclusion… or not.
Those rules, the ones about debt, money printing, ease of capital movement, etc., are certainly important factors in determining the health of a currency. But they are not the only rules. There are others, which can trump – and have trumped – these criteria, and that’s what we pointed out from the stage.
While the U.S. is printing money, it is not showing up in inflation-inducing borrowing. That’s because the largest segment of our population, the boomer generation, is now in their saving phase – not their spending phase.
This is the same reason that extraordinarily low interest rates are not causing a boom in borrowing, and why those same low interest rates are not causing savers to flee deposit accounts. The money they have is meant for another time – retirement. So all of Bernanke’s efforts will fail to spark a meaningful recovery and fail to spark inflation as well.
Just as important as the domestic situation is the current state of other large currencies. If an investor were to leave the dollar, where would he go? The euro, with its Cypriot bail-in and failing states of Italy, Portugal, Spain, Greece, and Ireland, along with 12% unemployment? Or perhaps to the yen, where the government of Japan has just announced plans to destroy its own currency? Boy, those sound like GREAT choices! There are lots of little currencies that could be held, of course, but none offer the liquidity and depth of the U.S. dollar, the euro or the yen.
Finally, there is the idea that the U.S. dollar is losing its status as the currency of reserve. This is bantered about a lot, and many smart people point to economic reasons why the U.S. dollar will be knocked off its perch. The typical reasoning circles back to the money printing and the debt, and often includes the prospects for future growth. All of that makes sense, but I’ll add another element – security. In particular, the ability to project power around the globe with bone-crushing force. We have it.
No matter what one’s opinion of the wars in Afghanistan and Iraq, there is no doubt that they have allowed the U.S. military to develop into the most battle-tested and experienced fighting force on the planet. No other military has engaged in such warfare over the last decade.
Along the way, we have developed unparalleled techniques for gathering intelligence (like drones) and surgical strikes (by special forces). What does this have to do with the reserve currency? Think back to how the U.S. dollar got that position in the first place – it was immediately after the Second World War and we were the strongest country to emerge from the conflict. We took the status from the Brits, who’d held it while they reigned supreme across the oceans. For the next decade, no one looks nearly strong enough to challenge this position, much less take it.
For those of you thinking, “What about the Chinese?” – remember that they have one aircraft carrier that is essentially a renovated Eastern European boat, and they have a rapidly aging population. They have enough troubles to worry about without being the world’s policeman.
So for all of those who attended the GCE in San Diego, I’m sorry that Harry and I rained on the parade a bit, but we wanted you to be warned. Those who are counting down the glory days of the U.S. dollar are in for a big surprise… it’s going to get stronger.
PS: Don’t worry if you couldn’t make it to San Diego to hear all the strategies and recommendations (including sessions from Harry and I) for yourself. You can simply click here to get audio access to the entire event … but, this is a limited-time offer. It will only be available until Wednesday, April 10.
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