Who Shot The Dollar?
June 15, 2011 by John Myers
Who killed the U.S. dollar? This question will be debated by future historians. Already, more people are asking that question than tuned in to find out who shot J.R. on Dallas. The lineup of suspects is long, but it ends with Barack Obama, the triggerman who killed the buck.
The first wound came from Franklin Delano Roosevelt, who expanded the Federal government’s influence far beyond what the writers of the Constitution ever imagined. He devalued the price of gold and made it impossible for ordinary Americans to convert currency to bullion. But FDR was also crucial during America’s World War II victory, a pivotal event that set the stage for America to become the world’s largest creditor and greatest superpower.
LBJ Chooses Guns And Butter
Another suspect is Democrat Lyndon B. Johnson. When I was in college studying economics, our professor made us read history. This seemed counterintuitive until we read about the guns-and-butter policies of the Johnson Administration.
And while Presidents George W. Bush and Barack Obama make Johnson look like a penny-pincher, Johnson was the first to take a shot at the dollar.
Johnson pressed forward his vision with major spending programs for education, medical care, crime and transportation. He wanted to transform America the way FDR had. And he had a war to fight in Vietnam.
Gold demand rose, creating a drawdown on America’s gold reserves. The root of it all was a growing trade deficit that the United States owed to the rest of the world.
The Administration of John F. Kennedy knew America’s gold standard was in trouble. In January 1961, Kennedy’s Undersecretary of the Treasury, Robert Roosa, suggested the U.S. and Europe pool their gold to prevent a private marketplace for gold in which the price would exceed the mandated price of $35 per ounce. French President Charles de Gaulle reneged on the deal and began to redeem dollars for gold instead of U.S. Treasuries. The drain on U.S. gold became severe.
The 1960s marked a gigantic increase in Federal spending. Johnson’s two-front war was being fought at a prohibitive cost. In 1968, for the first time since 1893, the United States ran a deficit in its balance of trade. Federal debt began to soar. By the end of the 1960s, the U.S. faced the stark choice of eliminating trade deficits or devaluing the dollar.
Gold On Nixon’s Enemies List
On Aug. 15, 1971, President Richard Nixon cut the final link between gold and the dollar. Other nations could no longer redeem rapidly depreciating greenbacks for bullion.
In February 1973, the world’s currencies “floated.” By the end of 1974, the price of gold had soared from $35 to $195 an ounce. The U.S. could suddenly pump dollars without constraint. It was a period during which red flags were being raised for paper investors, few of whom paid any notice.
The majority of investors would pay a steep price for their ignorance. Over the next decade, they suffered through the worst bear market in stocks since the Great Depression and the worst bond market of the 20th century.
A Democrat Gives The Dollar A Reprieve
It is ironic that another Democrat would breathe life into the buck, but that is what President Bill Clinton did.
During the Clinton Administration — with the help of innovative accounting — the dollar stormed back. The disgrace Clinton brought to the Oval Office over the Monica Lewinsky affair seems almost forgivable since his Administration presided over a growing economy and what underpinned it, a strong dollar. More than a decade ago, the world had confidence in the U.S. dollar.
If you do not believe me, check the chart below.
As you can see, the greenback has been experiencing an unprecedented decline since 2001. No doubt much of the weakness in the dollar was caused by another guns-and-butter President: George W. Bush.
Just 2½ years into office, Obama is pushing the value of the dollar even lower. It’s so low that the value of the U.S. dollar now threatens to undermine our future and our children’s future.
Obama had an opportunity to restore the U.S. dollar and the United States. In that task he has failed miserably.
The London Telegraph details Obama’s murder of the dollar. A few weeks ago, the newspaper wrote: “If President Obama is to be believed, ‘speculators’ are responsible for the rise in oil prices that threatens the global recovery. However, for the real drivers of the oil price, the President needs to look closer to home.”
The U.S. has continued to devalue its currency by allowing the Federal Reserve to print dollars like they are going out of fashion. This has boosted the price of all commodities — and the trend is likely to continue for the rest of this year.
“Commodities such as oil are priced in dollars. When the dollar falls, these commodities — be they copper, wheat, or oil — become cheaper in other currencies. This prompts “speculators” to buy. Prices of raw materials have therefore risen on a sea of dollar liquidity — fueled by cheap money and quantitative easing.”
Obama has been pumping money the way Saudi Arabia once pumped oil. His spending has gotten America close to Third World status.
China alone holds nearly $1 trillion in U.S. Treasury obligations. Still, we have a President who is bent on blaming Wall Street. And he does so after having spent more than $1 trillion in bailouts and pushing the Federal deficit past $14 trillion!
Tale of Two Presidents
The Administration of President Jimmy Carter dealt President Ronald Reagan a bad hand. The world was losing confidence in the once-almighty dollar. Commodity prices were soaring. Reagan did the right thing for America. He bit the bullet. Interest rates soared under the discipline of Reagan and then-Federal Reserve Chief Paul Volcker. The result was a rolling recession that hurt a lot of Americans and could have cost Reagan a second term.
Obama has not shown that courage. Rather than batten down the hatches, Obama has opened the spigots — to the tune of trillions in new dollars. The result is a world in which other nations no longer want the greenback as the world’s reserve currency.
History will show that a lot of Presidents injured the U.S. dollar. But the one who gave the greenback the coup de grâce was Obama.
Action to take: Obama’s re-election is paramount to him. He doesn’t care whether the dollar dies. As a result, you should continue to get out of dollar investments and into real assets. The U.S. dollar and Big Board stocks are heading for a collapse. Real assets offer you your only chance of financial survival.
Yours in good times and bad,
Myers’ Energy & Gold Report