The major news outlets have finally started shouting about the collapsing value of the dollar [1] and the bull market in precious metals [2]. (Looking at the charts [3], $820 per ounce seems to be the new floor for spot gold.) Just as I predicted, it was a move by China that precipitated the latest drop in the dollar [4]. Thanks, BTW, to the five readers that all sent that link. I should mention that several SurvivalBlog readers mentioned that article. Reader Mike the Blacksmith noted: “The remarks by Cheng on world currency status is the most important point in this article.” The currency markets are coming apart at the seams. Reader Chris S. pointed to the one year chart for the US Dollar versus the Canadian Dollar [5].His comments: “Notice the steep drop? It hasn’t even looked close to this since the 1970s during the worst of the oil crunch. Other countries are beginning to stop trading in dollars altogether. When someone says “your money is no good here” now, it’s not a compliment and a prelude to a freebie. It means they don’t want our money. Considering our main export to the rest of the world right now is our paper money, this doesn’t bode well. I would say that we could work our way out of this by building things the rest of the world wants to buy, but our so-called leadership in this country (both political and business) has also exported the jobs and sold off our infrastructure. We’re getting increasingly stuck with empty factories and mortgage debt in a real estate market that no one wants to finance. BTW, the US Dollar is also now beginning to lose value against the Mexican Peso…” Also in the news, there are rumors of a formal dollar devaluation [6].
And if that weren’t bad enough, we read some disturbing news on the credit market front: Markets fear banks have $1 trillion in toxic debt [7] (thanks to both D.V. and Matt B. for sending that link.) But wait, it gets worse: Bond insurers set off fresh wave of credit panic [8].
Getting back to the FOREX [9] markets, it is noteworthy that the USD Index has broken down below the 76 level [10]. When I last checked, it was at 75.405, and falling. From deep in his lair (rumored to beneath Zurich’s Paradeplatz), my friend The Chartist Gnome [11] tells me that it is a long way down to the next interim support level. (For those of you that deride technical analysis, just ignore the following.) This SurvivalBlog snippet from a few weeks back bears repeating:” [I had mentioned ‘Some analysts suggest 75 or perhaps even 72 as the next support level for the US Dollar Index’. The Chartist Gnome said that I was being overly optimistic. By his calculations, ‘the next logical support level for the USD Index is 72 and then if that fails to hold, we can expect a step off the cliff with no support until 42.’ Lest you think that this is some wild-eyed exaggeration, Jordan Roy-Byrne (editor of The Trendsman) came up with almost identical numbers. (Namely, 72 and 40 support levels.) Gulp! A USD Index level of 42 would equate to around $2.75 to buy a Euro and $4.02 to buy a British pound.”
I often tell my consulting clients that it is impossible to predict short term market moves, but I’m often asked for advice on long term trends. My favorite bit of sage advice to quote about the UD Dollar comes from economist Ed Daughty, who writes under the pen name The Mogambo Guru [12]: He explains: “You paint a dollar sign on a rock, which you can also use to defend yourself, and (according to the instructions), ‘Hold the rock in an outstretched hand, making sure the rock is well away from your body, then say aloud ‘Oh, Magnificent Mogambo U.S. Dollar Index Predictor, what will the dollar’s value be over the long run?’ then let go of the rock.’ It’s uncanny how accurate it is!”
I’ve said it before, and I’ll probably say it again: Protect yourself from the imminent demise of the US dollar. Get out of your dollar-denominated investments. If you have an IRA [13], talk to Swiss America [14] and roll over your IRA into a warehoused US Gold Eagle IRA. Sells your stocks and bonds.Even the best of them is no protection when the currency unit itself is destroyed. Sell your silly jet ski and big screen plasma HD television. Instead, buy productive farm land in a lightly populated region–land that that can first and foremost serve as a survival retreat. (See our spin-off SurvivalRealty.com [15] web site for specially-selected retreat properties.) Get your family’s food storage and survival gear squared away. Buy some practical tangible barter goods, like common caliber ammunition and full capacity magazines [16]. After that, if you have any funds left over, invest it in physical silver (such as $1,000 face value 90% silver pre-1965 mint date coin bags) and store it in your home vault.