TCS Daily

Dollar Suicide

By Jerry Bowyer - October 29, 2009 12:00 AM

It wasn't Colonel Mustard in the library with the candelabra. And contrary to recent press reports, it wasn't Prince Alwaleed in the desert with a cartel. It was, in fact, Dr. Bernanke in the temple with the printing press. And since Dr. Bernanke is, in effect, the dollar incarnate — the walking embodiment of the soundness of our currency — if the dollar does die, it will not have been murder. It will have been suicide.

Funeral services are already being held for the dollar, and to be fair, they are a bit premature. The dollar is not dead yet. It hasn't even reached the point of no return. Today it's in the ICU, and if the bleeding is staunched, it will pop right out of bed and begin traveling the world as it has in the past — bearing heavy burdens, storing value, and moving with great velocity into every nook and cranny of our lives.

The problem is the bleeding. Our government's excessive spending depends on a world that accepts our rivers of red ink. If and when the world does not, our central bank becomes the lender of last resort to our own government. And that means gushers of new money supply.

We've added roughly $1 trillion to the banking system across the financial crisis. And dollars are just like works of art: The more copies there are relative to demand, the less each one is worth. As with Monet, so with money — only Monet has remained scarce and valuable. As the U.S. money stock has continued to explode, the exchange value of the dollar has tumbled.

I've heard that the difference between a genuine suicide attempt and a "suicidal gesture" is in the cutting. If a man slashes deep into his wrists, he really means it, and if he merely scratches the surface, he's only crying out for help. In the case of Dr. Bernanke, the dollar incarnate, we might be witnessing yet another shade of suicide, the kind where the blade goes deep, but there's no recognition of the damage being done. Call it an absent-minded suicide, and call it lethal.

This article first appeared on National Review Online.

Jerry Bowyer is an economist, CNBC contributor, and author of the upcoming Free Market Capitalist's Survival Guide.



3rd way of suicide
Great article, but here's another angle on the suicide metaphor. Instead of just a shallow cut as a cry for help, or the deep cut which really means it, we might say that even though the cut is rather deep, the loser won't lie in the hot bath to make sure the blood doesn't coagulate.

The US can 'muddle through' for decades even with such mismanagement. Also don't forget that there is no viable alternate reserve currency in the world these days. So the US greenback even though humiliatingly debased, must be compared to even more pathetic currencies.

We should also remember that debased currencies are only bad for the public, but they are wonderful for the political elite; that's why they purposefully do it.

The Arabs have been mulling over a currency union around the Gold Dinar
And that would change the game...for all the fiat currencies out there. Especially if they demand payment for oil in gold dinars.

In other words, there will then be no more 'pathetic currency amongst even more pathetic currencies' to compare with.

Of course, the FED and ECB and BoJ and BoE would fight it tooth and nail...interest rates at 93% anyone? In the end, they'll be forced to peg dollars and yen and euros against gold.

At which point the world will finally be returned to a single currency for the first time since the 1940s or so: gold.

re; Arabs & a gold dinar
This would be very welcome if it ever happened. But I doubt it will since most of those Arab countries are quite dysfunctional and would probably find ways to cheat, as they already do on their promises to follow their oil production quotas.

Also, as you suggest, there would be major opposition from the world powers over it; we've seen them go to war over less.

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