Addison Wiggin

The shrinking dollar is a modern problem. The U.S. dollar has been shrinking since the inception of the Federal Reserve — the very crew assigned the task of maintaining its value. Of late, the decline is accelerating at an alarming rate.

For many Americans, the suggestion that the dollar is losing value is unthinkable — even unpatriotic. The problem is not simply a lack of understanding about the nature of wealth and investment used to sustain it.

Our policy makers and economists make no distinction between wealth created through savings and investment in the real economy versus “wealth” created in the markets through asset bubbles brought about by credit policies.

When I tell people this, I feel like I’m addressing a meeting of folks who want to lose weight at the local burger joint. We as individuals — and as a nation — are addicted to cheap, easy credit. What the government gives, we’ll take. We spend at a high level, and we want to accumulate wealth on the same fast track.

Forget hard work, we’d rather our house go up in value like magic! Traditionally, economists recognized that it took time to build an estate. People and countries could build wealth slowly. Those days are far, far behind us. Now we are at the mercy of what I call serial bubble blowers.

All the U.S. economy’s so-called improvements stem from one main reason: all economic growth during the “recovery” since 2001 can be traced to a seemingly endless array of asset and borrowing bubbles.

First, we saw the stock market bubble, then the bond bubble, then the housing bubble, then the mortgage refinance bubble, then the commodities bubble. Now another bond bubble approaches.

In between, we haven’t seen a single sign of stable, sustained growth. And that makes sense; consumer spending has been surging in excess of disposable income for years. That’s not real growth.

Right now, Washington thinks that another round of stimulus will solve the problem. That’s like saying that overeating will eventually lead to serious dieting. Consumer spending isn’t juicing the economy.

Meanwhile, since the government is broke, all the borrowing they do to fund stimulus, tax cuts, and anything else to save the economy puts us at the mercy of foreign investors. If and when they decide to slash their investments in U.S. dollars or Treasury securities, we’ll have a crash landing worse than anything we’ve seen yet.

It’ll be far worse than Lehman Brothers’ collapse, far worse than 2008’s aftermath.

We depend on foreign investors for everything. Be they private, institutional, or governmental, we need them. If the dollar’s fall frightens foreign owners, they will sell from this immense stock of dollar assets.

But how big are these foreign holdings? You rarely hear about this on financial news channels, so you probably don’t think it’s a big deal. In fact, it’s a big fat deal.

We’re sitting on $15.4 trillion in debt. How is it going to get paid? And by whom?

Back before 1970, foreigners held a 5 percent slice of U.S. public debt. Today foreigners hold nearly half the pie. And the government owes a bunch of it to itself — $4.6 trillion — including what it’s borrowed from the Social Security trust fund.

Is Washington at all alarmed? While the end of 2011 did culminate in near-monthly government shutdown threats, we expect the debt ceiling to go on being raised as it was under every presidency since, well, 1917, when we had a World War to finance.

At last count, it’s been raised 74 times. And lest you believe the crisis came to a head in the Obama administration, we’d like to point out that he’s only raised it three times so far. Famed fiscal conservative Ronald Reagan raised it a whopping 18 times. So you see borrowing to spend is everyone’s favorite game. Darn all the consequences.


Addison Wiggin and Samantha Buker
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • MaryB

    The future is very unpredictable.

  • spiritsplice

    Mary, only in the short term.

  • Steve K

    “The issue which has swept down the centuries and which will have to be fought sooner or later, is the people versus the banks.” – Lord Acton [1834-1902]

    Or, the people versus “The Monster”, apropos of your recent get-together…

  • PeterO.H

    The future is predictable in that it will end up in the past. Just as yesterday today was in the future.
    Everything will probably be ok, but why not panic anyway?

  • *Sparkie*

    The people don’t want RP 4 Prez so how bout. “Sponge Bob 4 President!” Watt is 2day? But yesterdays 2morrow,POH. I 4got 2 ask BB while he wuz away if his Mentor,Lord Williams is still round anymore? Happy Trails 2 All! *S*

  • Robin

    You don’t need to predict the inevitable. As sure as day follows night, the Americans have it coming, all parties come to an end.

  • CT

    Shrinking dollars and shrinking brains seem to go hand in hand.

  • Scott Landreth

    Technically, Ronald Reagan did not raise the debt ceiling 18 times nor has Barack Obama raised it 3 times. The Congress votes to raise the debt ceiling. :)

  • GT

    Shrinking dollars and expanding waistlines seem to go hand in hand.

  • Tee

    Soon we will be reading ‘The Daily Shrinking’, believe me

  • gman

    “We spend at a high level, and we want to accumulate wealth on the same fast track.”

    “we”? yeah, it’s a real problem when hoi polloi want to live just like the infestors do. they dirty up the place, get in your way, don’t know how to behave, diminish the infestment pool. they need education, to be put in their place. “no no, this is not for you. your place is to work, making wealth. we’re the ones with knowledge, we’ll do the infesting, leave that to us.”

  • John Gault’s Gay room mate

    Gas at the pump went down here 3¢ over night. Is that because we have a shrinking dollar?

  • emdfl

    Get back to me when it’s down to $2.00/gallon(remember when?); amybe I’ll believe inthe dollar again… yeah, I’m NOT holding my breath.

  • CT

    78 cents would even be better. Opps sorry, make that 78.9 cents.

  • Curious Dana

    Can someone enlighten me…when did we have the bond bubble?

  • Joe Biden’s Gay interior decoratorroom mate

    John G. – it’s supply and demand.

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