muses of the moment

July 28, 2011

Currency Crisis

Filed under: Dollar Crisis, Fiat Currency, Hyperinflation, Hyperinflationary Depression — totallygroovygirlfriday @ 8:30 am

Casey Research has a great summary on the history of fiat currencies and the USdollar’s similarities to the fallen currencies of the past. The worst part of this situation is that most believe that the dollar can never implode, since it has been “stable” for so long.

Click here.

So, will a similar fate befall the U.S. dollar? The common denominator that led to the downfall of each currency above was the two big Ds: Debts and Deficits.

With that in mind, consider the following:

Morgan Stanley reported in 2009 that there’s “no historical precedent” for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Our total debt now exceeds GDP by roughly 400%.

Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” On our current path, analyst Michael Murphy projects we’ll hit that figure by October.

Peter Bernholz, the leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” This year’s U.S. budget deficit will end up being $1.5 trillion, an amount never before seen in history.

Since the Federal Reserve’s creation in 1913, the dollar has lost 95% of its purchasing power. Our government leaders clearly don’t know how – or don’t wish – to keep the currency strong.

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