Source: Karen Roche and JT Long of The Gold Report (9/23/11)
If dollar-dumping turns from a trickle into a flood, look out. Exploding prices (aka exorbitant inflation) resulting from the devaluation of the dollar will compound the problems we saw in 2007–2009. Catastrophe will come when everybody realizes that the dollar is an "IOU nothing." That's the downside in the decade(s) ahead, according to Casey Research Chairman Doug Casey. But an optimist at heart, in this exclusive interview with The Gold Report, Doug also identifies some reasons to be hopeful.
The Gold Report: You've been talking about two ticking time bombs. One is the trillions of dollars owned outside the U.S. that investors could dump if they lose confidence. And the other is the trillions of dollars within the U.S. that were created to paper over the crisis that started in 2007. Are these really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?
Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the U.S., it's going to have truly worldwide effects. The U.S. dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main U.S. export for many years has been paper dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee—and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride—but the party's over.
Nobody knows the numbers for sure, but foreign central banks, and individuals outside the U.S., own U.S. dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more dollars to bail out the big financial institutions. At some point, foreign dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel—the boom in commodity prices.
Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the U.S., it's going to have truly worldwide effects. The U.S. dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main U.S. export for many years has been paper dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee—and about everything you see on Walmart shelves. It has been a one-way street for several decades, a free ride—but the party's over.
Nobody knows the numbers for sure, but foreign central banks, and individuals outside the U.S., own U.S. dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more dollars to bail out the big financial institutions. At some point, foreign dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel—the boom in commodity prices.
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