"The most important economic trend is the long-term decline of the U.S. dollar. That's it, hands down.
"There are lots of reasons for the dollar's decline. No. 1 is chronic deficit spending by the federal government. And No. 2 is chronic trade deficits that have flooded the rest of the world with depreciating U.S. dollars.
"Now those dollars are coming back to haunt us, and I don't just mean things like buying the Chrysler Building. Those dollars are competing for barrels of oil and bushels of wheat.
"Most of the reasons for the declining dollar are like self-inflicted wounds by U.S. politicians and policymakers. We live in a nation whose policy discourages saving and long-term investment, especially in energy systems. And the culture, backed up by monetary policy, encourages overconsumption. How else can we explain the serial 'booms' in the dotcoms, housing and, now, commodities?
"This is not just me bellyaching, either. There's a fundamental economic misallocation at work here. Why do people make bad decisions? Because they can. Why do people jump off bridges? Because they are there.
"People expect that at the end of the day, the U.S. Treasury and Federal Reserve will be down below with a safety net. The monetary gurus will just goose up the money supply to maintain peace in our time. But the long-term price is inflation and a declining dollar, which ruin savings and destroy capital.
"The declining dollar is affecting everything. The dollar decline has much to do with the rising prices for precious metals, energy, other basic commodities and foodstuffs. Sure, there are issues with growing world population (a 'net' of 130 million new mouths to feed every year). And the Peak Oil thesis is entirely valid."
Byron tells us that the key to it all is the declining dollar...and the BEST way to play the dollar decline is with precious metals like gold and silver. He believes that gold has much, much higher to go yet.
Until tomorrow,
Kate Incontrera
The Daily Reckoning Australia
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About the Author
Kate Incontrera is the managing editor of The Daily Reckoning. She is also the author of The Daily Reckoning's Weekend Edition, a weekly wrap-up of contrarian investment analysis.
