WILL THE DOLLAR CRASH?

NEWSWEEK (2009) 10/26

BIGGS/38-41

Although some prominent names were telling us that the market will collapse

and it did, they are now saying the same thing about the dollar. The summation of statements is that we are essentially broke in most areas of the economy and we are printing money to stay afloat. The stock market is not the best indicator of where we are going. Obama is

doing the right thing, but it is too late and too imperfect. Under Bush 43’ U.S. stocks

have lost half their value. Treasuries have been averaging 9% points a year.

So why optimism? We survived the 20th century with an average growth of stocks

at 6.9% a year. This is a good time to buy stocks. Other good times were beginning in the second quarter of 32’ The second was in 49’ and the budget deficit was far higher than it is today. The third was the stagflation from 66’ to 80’. Volker upped interest rates to around 16%. However, when Reagan left office he left behind a debt of 3 trillion dollars (today that would be 3 or 4 times that.) In spite of all that we survived and will survive. Why?

S&P collect almost 50% of their revenues from over seas. These developing countries

have 1/3 of GDP. Second, it really is good to buy stocks as they are undervalued.

Third, if we assume that their will be rapid inflation, price/earnings may fall, but profits

should be much higher.

YES

BUSINESS WEEK (2009)10-26

COY/ 18-22

We started losing our dollar value in 2002. That was in part because Bush fought 2 wars,

cut taxes on the rich and initiated a medical drug program without funding it. The last

8 years have been horrible for most of the masses.

Many times before and after the Great Depression, we stated over and over that really

bad economic times can’t happen here. Well they did with the Crash of 2008.’ At first

Treasury bills zoomed up and as no other investments appeared to be safe for money so investors went into

T-bills. However, the drift is downward again. We are heading into a fall. We are doing

badly compared to other currencies. At the moment, the Obama administration is not

strengthening the dollar, because it is helping to pay off the huge debt from the Bush administration.

However, a black swan may emerge (the likelihood of 30% to 40%) quite soon. Since Nixon let the dollar float, the dollar is the currency of the world. If it falls, the mystique is gone. It is just another currency. At the moment, other countries are buying the dollar

which is very cheap, but mixing it up with other currency for military and diplomatic

reason, they don’t want to know as the country that killed the strongest military power in the world.

Then comes the revenge and a self fulfilling prophecy. The dollar is bad so we better dump it. A price point emerges and catastrophic change happens. The big giant that has been manipulating the lives of so many societies, can come tumbling down. Please also remember that the folks that made funny money have killed any legislation that would

bring some ethical if not financial stability to Wall Street. Five big banks have 88% of the derivative market. If one leverages too far and there are no rules stopping them, that is

about it.