A Journal for Western Man
A recent article in BusinessWeek magazine by James Mehring paints a stark picture of the ongoing decline of the U.S. dollar. The dollar has lost 5% against a blend of worldwide currencies just since April, falling to a 12-month low against the Euro and an 8-month low against the Japanese yen. Overall, the dollar fell 28% against other currencies between 2002 and 2004. It then rebounded slightly, but even the cheerleaders in the American financial press cannot shrug off this latest decline.
Of course the real measure of just how far the dollar has fallen can be found in the price of gold, which has reached a 25-year high of more than $700 per ounce. Itís much more accurate to measure the dollar against a stable store of value like gold, rather than against other fiat currencies. Gold has nearly tripled against the dollar since 2001, when the price was $250 per ounce. By this measure the dollar is losing value at an alarming rate.
Remember, gold is static. Gold isnít going up, the dollar is going down. And itís going to continue until the American people demand an end to deficit spending by Congress and unrestrained creation of new dollars by the Federal Reserve and Treasury department.
A sharply rising gold price is really a vote of ďno confidenceĒ in Congressí ability to control the budget, the Fedís ability to control the money supply, and the administrationís ability to bring stability to the Middle East.
As Mr. Mehring suggests, the Federal Reserve may have no choice but to raise interest rates to maintain foreign enthusiasm for our dollar. Itís a serious problem that new Fed Chair Benjamin Bernanke must address sooner or later: propping up the dollar with higher interest rates without killing the U.S. economy in the process.
The world financial markets are betting against the dollar and against Mr. Bernankeís chances of correcting the imbalances caused by Alan Greenspan. Our creditors, particularly Asian central banks, are losing their appetite for U.S. Treasuries. Our federal governmentís huge debt and voracious appetite for deficit spending make our economy dependent on the actions of foreign governments and central bankers. Yet few Americans realize the extent to which their own government has sold out American sovereignty by borrowing money overseas.
The consequences of a rapidly declining dollar are not yet fully understood by the American public. The long-term significance has not sunk in, but when it does there will be political hell to pay in Washington. Our relative wealth as a nation is measured in dollars, and the steady erosion of the value of those dollars means we will all be poorer in the future. The artificial stimulation of our economy through cheap money comes with a price. When dollars are abundant, they are worth less. This is the reality facing Americans today, especially older Americans who rely on savings to finance their retirement years.
This article originally appeared on Ron Paul's Congressional Home Page. It is reprinted with his permission.
Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. Dr. Paul is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency. He is known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives: Dr. Paul never votes for legislation unless the proposed measure is expressly authorized by the Constitution.
To learn more about Congressman Ron Paul visit his Congressional Home Page.
This TRA feature has been edited in accordance with TRAís Statement of Policy.
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