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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: skinowski who wrote (20760)	6/10/2009 2:15:23 PM
From: GST	11 Recommendations Read Replies (2) \| Respond to of 71463

One way, and possibly the most effective way to understand inflation is to see currency as a store of value. Instead, we tend to see currency only as a medium of exchange. The role of currency as a store of value depends on many things, one of which is money supply. The problem with the US dollar is that it is losing its capacity to act as a store of value. As the dollar loses its quality as a store of value, people demand higher prices in return for their goods. Where we go wrong in our thinking is that we tend to assume that the dollar is a stable store of value. If this was the case then if we buy less do to falling on hard times we would expect prices to come down as demand becomes weaker. If the dollar was a stable tore of value this would be the case -- but it is not the case. As a debtor nation whose finances are now completely out of control, we have entered an era where the dollar can no longer be trusted as a stable store of value. Our mounting poverty simply makes this situation worse -- far worse -- because we are a greater and greater credit risk. We become a subprime nation with very bad spending habits and completely tapped out credit lines. Nobody wants to finance our next debt binge. This leads to a loss of faith in the future of the dollar, and it pushes the dollar lower, and lower, and lower. When a currency loses its about to function as a stable store of value, you are vulnerable to two things happening at the same time that would not happen if the value of the dollar was stable. As our demand weakens we lose the ability to finance our debts -- and this becomes the driving force that undermines the dollar. This creates a downward spiral -- our inability to finance our debts leading to a lower dollar value and higher prices due which then leads to even lower demand which once again undermines our ability to finance our continuously mounting debts. This cycle repeats itself to infinity as our debt swamps our economy. Nobody will ever grasp this dynamic so long as it is assumed the dollar is a stable store of value. Nobody will grasp this until they understand the role of capital imports we need to offset our truly staggering debts. Nobody will ever grasp this so long as they think of the US economy as a self sufficient closed system. The dollar is the ultimate bubble -- and unfortunately as it breaks we will see slower growth and higher debt and higher prices all at the same time -- the perfect economic storm. That is why sensible people are so worried about the current state of affairs.