Enzio's Clock

Background

1. Why superpower currencies fail

Many people are perplexed at the dollar's demise. After all, America is the world's greatest economy, so how can the dollar be falling if the economy's strength is gaining?

The answer is simple: empires run out of money,so they print more money to cover the hole. If you increase the supply of something, its price falls. Empires run out of money because the colonialist has to pay ever-larger costs just to maintain the empire, in particular, defence costs.

Sterling is a case in point. In 1970, you had to spend US$2.40 to buy a pound. By early 1976, you were paying about $1.94, and by 2001 you were paying only $1.44 to buy the same pound: it had fallen by 40%!

Compared to its multilateral exchange rate of 1973, the dollar had fallen by nearly 20% per the end of 2006. Meanwhile, the US budget deficit has ballooned from $15 bn to $248 bn! Defense outlays have rocketed from $77 bn to $522 bn -a nearly seven-fold increase!

 

 

How to Make Money Off This Idea

Start diversifying out of the dollar into high yielders such as the Euro, Sterling (now that Britain does not have the financial yoke of an Empire around its neck), the Australian and New Zealand dollars.  Per yesterday's note we advise doing yen carry trades.