Home About Writers Categories Recent Issues Subscribe Contact File Transfer





Charlie Traffas
Charlie Traffas has been involved in marketing, media, publishing and insurance for more than 40 years. In addition to being a fully-licensed life, health, property and casualty agent, he is also President and Owner of Chart Marketing, Inc. (CMI). CMI operates and markets several different products and services that help B2B and B2C businesses throughout the country create customers...profitably. You may contact Charlie by phone at (316) 721-9200, by e-mail at ctraffas@chartmarketing.com, or you may visit at www.chartmarketing.com.
What's New
2011-11-22 11:06:25
Our borrowed existence - series
Question: What’s new?
Answer: Like I always say…I’m glad to be asked. I believe there are some very serious things that are happening in this country and in the world that are not being talked about by nearly enough people. I feel they must be brought to the forefront…now. I would prefer a person or persons with much more knowledge in these areas than myself to do so, but unless this is done very quickly, it may be too late. Perhaps it’s already too late…but I will do what I can. I am not an economist. I am not a politician. I do not have an agenda…other than using this column to inform as many people as I can of the things I see and have researched, in the hope something can be done. These things will take some time and space to cover properly, thus the reason why my articles on this subject will be a series over the next few months, or until I am “shut down” for whatever reason or reasons. As I will do with each article in this series, I will tell you the information I will present has come from several sources, including but not limited to, Stansberry & Associates, Kiplinger, Weiss Research, the Wall Street Journal, the New York Times, the Congressional Budget Office, the National Inflation Association, the Center on Budget and Policy Priorities, several others…as well as my own analysis...for what it is worth. Last month we talked about the world’s reserve currency being the U.S. Dollar (USD) and why this has been such a blessing to us. This month, we will talk more about what is happening to the USD, why its status as the world reserve currency is in jeopardy, and what will happen if it loses this “borrowed existence.” Here is where we left off last month. Germany needs to buy oil from a Middle Eastern country. They cannot use German Marks to pay for it. Oil is priced in USDs. So first, Germany has to buy the USDs, then it has to buy the oil. That means the value of the German currency is always of great importance to the German Government. In order for it to maintain its value against the USD and other world currencies, Germans must produce at least as much as they consume from around the world, otherwise the value of its currency will begin to fall causing prices to rise and its standard of living to decline. A country that cannot use its own currency to pay for a foreign import, is much akin to a mid-rated NFL team having to play a top-rated, NFL team at the top-rated team’s home venue, on a Sunday afternoon, after the top-rated NFL team just got beat last Sunday by 21 points. There are much better situations than having to do this. Now perhaps you can see why we are so fortunate. In the U.S., we can consume as much as we want without worrying about acquiring the money to pay for it because our USDs are accepted throughout the world. This has been the way it has been since the end of World War II. What a deal, huh? All we have to do is print more USDs and we can have anything we want…for now. No other country in the world owes as much money as does the U.S.…and we’re not through borrowing and printing yet. Most of the rest of the world does not understand what is happening here in the U.S. You may differ with me. My point is, if they do not understand, they shouldn’t be occupying the positions they do in their respective governments. If they do understand what is happening, they have committed a far bigger fiduciary breach to their citizens than we have to our citizens by us getting into this mess in the first place. If they truly understood it all, and the ramifications, they would quit accepting USDs, or greatly discount the value of these newly printed USDs. The time for this to happen cannot be too far off. When it does, it will spiral, the way water disappears from a toilet bowl when it is flushed. It begins slowly at first, then picks up speed…and then it’s gone. It would not be out of bounds…at this juncture…for you to think I’m nuts. But please allow me to go on and maybe some more of the “dots” will connect. The United States’ biggest gift of owning the world’s reserve currency is cheap oil. This has made gas cheaper than almost anywhere else in the world. Before the recent Middle East unrest and the surge in oil prices, we were paying approximately $3.00 per gallon in the United States. In Norway, gas averaged $7.41 per gallon. In Germany, the average was $6.82 per gallon…Great Britain averaged $6.64 per gallon…$6.40 in Italy…$6.04 in France…and $5.40 in Japan. With the current Middle East unrest, today’s prices for gas in these countries are as much as 20% higher than the above stated prices. If this unrest continues, the prices will go higher…perhaps much higher. If not, and if the world “stagnates” even more economically, the prices may go down, but either situation is irrespective to the case I’m trying to make here. If oil was no longer priced in USDs, the price of oil for us would skyrocket immediately. It would change our lives over night. How would these things doubling or more in price affect you? Airline travel? The cost of shipping goods, fruits, vegetables? Farming? Commuting to work? Heating and cooling your home? Taking a taxi? Only one thing has to happen for this to happen…countries from around the world start preferring payments from us in a currency other than USDs. This could be the first “domino” tipped of the USD losing the status as the world’s reserve currency. In fact…as alarming as it might be…it is already underway. You might ask, “If the USD has been the world’s reserve currency for the past nearly 45 years, what was the world’s reserve currency prior to that?” This is a good question to ask at a good time in this series. It was the British Sterling and it had been the world’s reserve currency for nearly 200 years. After WW II the U.S. had to prop up the British economy with foreign aid. Unfortunately, Britain pursued a socialist agenda coming out of WW II, outright voicing their new mission, “Spread the wealth around.” It wasn’t long before Britain was flat broke. The final straw came in 1967 when the Labour Party decided to “devalue” their currency by 14%...overnight, thinking it would allow people to better afford their debts. The results turned out to be just the opposite. Everything skyrocketed in costs. If you had 100,000 British Sterlings, you immediately had 14% less buying power in an environment of skyrocketing costs over what they had been before the devaluation. Now that had to leave a mark…no pun intended. This is one of those times when you will want to go back and check me. Check what was termed as the, “Winter of Discontent” in Britain. The Brits’ early 70s were not good years for them. In 1975, inflation skyrocketed 26.9% in a single year, after several years of already two digit inflation. Many believe it could never happen here. But it is already happening. The USD’s exchange rate fell 11% in the last 7 months of 2010, and its rate of decline since January 1st is accelerating, notwithstanding its relationship to the Yen due to the Japan Earthquake and Tsunami. Everything will continue to get more expensive. Not only oil and gas, but also items like clothing, furniture and household goods we import from China; the food we get from Central and South America; and electronics, computers, televisions and cars we get from Europe and Asia. Look at the prices of commodities since the financial crisis began in early 2009. Gold is up 95%. Silver is up more than 300%. Oil prices have more than doubled. Copper is up over 220%. Soybean prices are up 168%. Cotton prices have more than doubled in the last 8 months. But rising commodity prices are not the only fallout from the USD losing its status as the world’s reserve currency. If other countries around the world do not want USDs, interest rates will skyrocket everywhere as well. Mortgage rates could go as high as 15%, or much higher. Stock prices could lose 40 to 50% in a matter of weeks. Everyone will pay more and get less. Bank loans will dry up…for everyone…business and personal. We thought the high interest rates of the late 70s and early 80s were bad? We thought the mortgage crisis was bad in 2008? These will be nothing when compared to the USD losing is status as the world’s reserve currency. When everyone is trying to get rid of their USDs at home and abroad, and the government continues to print USDs to pay its debts…we will all become way too familiar with the term, “hyperinflation.” I realize I am not “making your day” but please do one more thing before you quit reading. Google “the fall of Yugoslavia” in the early 90s and the years leading up to this. I won’t tell you all about it here…because you’ve had enough unsettling information for one day…but I will hit the high points. Suffice it to say, it’s a “looking in the mirror” kind of a deal. Of course we are a much stronger and larger economy than they were, with lots more things going for us than they had going for them, but what happened to them can happen to us and others. Once massive inflation began for them…their government tried to stem it by a implementing a wide range of price controls. They got progressively worse, until the prices manufacturers and producers received for their goods were so low, they quit producing. What else did they do to stem hyperinflation? They required that forms be filled out before any prices could be increased. This didn’t work either. Producers, annoyed with the time-consuming paperwork and having to hire more people to do it, increased their prices by double to lessen the frequency of filling out forms. How bad can things get? The last thing they did was to create a new currency. They simply removed zeroes. If you had 100,000 units before the new currency, you had 100 units of the new currency now. Sounds simple enough, doesn’t it? It didn’t work either. Once they did this, within 16 months, prices increased by 5 quadrillion per cent! You read right. A loaf of bread that cost 1 unit in 1993 cost 50 trillion units in 1995. Prices were doubling every day. Words cannot describe what happened at the end, but again…please check for yourself. Most people would say, “This can’t happen here.” But it can. This type of debt crisis has already happened in the last 100 years in Germany, Russia, Austria, Japan, Poland, Argentina, Brazil, the Ukraine and China. It is already happening at the local and state levels. Local governments are more than $1.7 trillion in debt. 46 states are facing serious budget shortfalls in 2011…totaling nearly $160 Billion. This added to the total debt these states now owe of $1.2 trillion, is going to make for a most interesting next few months. Most all of these states received Federal aid over the last two years…but all of that is gone. This nightmare does not even count the states’ unfunded public pension funds of more than $1 trillion. Remember, local and state governments cannot print money. So with no more Federal assistance coming in, what are they doing? They’re selling off their assets…state owned buildings and land…then leasing back (a temporary move that improves cash flow in the short term but doesn’t work in the long term); they are releasing thousands of inmates from their prisons; most every state in the union is trying to legalize gambling to boost tax revenues; and more. The most amazing thing is that the Federal Government is in even worse shape than the local and state governments, yet the President and Congress are still acting as if they have a choice of whether to spend or not, and how much. How long will it be before everyone accepts the fact…there are no choices left? We are far past the point of ideological differences. Spending must stop, or our “borrowed existence” will be taken from us. How much longer do you think the world will allow us to print money to bail ourselves out of debt? Again, I know you’ve probably had enough, but here’s one more “did you know” before I go this month. In March of 2011, the U.S. Government grossed $194 billion in tax revenue and paid out $65.9 billion in tax refunds, netting $128.18 billion. Over the same time, the government spent $1.1 trillion (net of the tax refunds). In other words, the government spent 8.2 times what it made in March. And where did most of that money go? To buy Treasury bills. The U.S. Government spent $705.3 billion redeeming matured paper. In a Senate Budget Committee testimony, Erskine Bowles – former chief of staff to President Clinton and current co-chair of Obama's National Commission on Fiscal Responsibility (that sounds like an oxymoron, doesn’t it?) – said of the current situation, "I'm really concerned. I think we face the most predictable economic crisis in history. A lot of us sitting in this room didn't see this last crisis as it came upon us. But this one is really easy to see. The fiscal path we are on today is simply not sustainable." Is anyone, who can and will do something about this, listening? I will be back next month to tell you about some things that are happening throughout the rest of the world that are further threatening the USD’s “borrowed existence.”
 
The Q & A Times Journal accepts no responsibility for unsolicited manuscripts or photographs.Materials will not be returned unless accompanied by a stamped, self-addressed envelope. Thank you.
 
Wildcard SSL Certificates