Three Reasons Why The USD Is Already Worthless

July 15, 2013

In countering the relentless gold-bashing propaganda of the mainstream media; readers have listened to the many virtues of gold (and silver) recited again and again by the (legitimate) commentators within the sector. However what has been neglected somewhat is to focus on the worthlessness of the paper we are fleeing.

Indeed, commentators within the sector have actually undermined this thought process by continuing to produce “price targets” for gold and silver. What does it mean when a currency is recognized as being worthless? Hyperinflation.

What does hyperinflation represent? The prices for gold, silver and other valuable assets going to (literally) infinity.  The only rational “price target” for gold and silver over the long term (or even the medium term) is infinity – as long as we continue to express these prices in worthless, fiat paper.

The poster-child for all this worthless banker-paper is obviously the U.S. dollar. As the world’s declining “reserve currency”; the U.S. dollar has fundamentals of worthlessness not shared by any of this other fiat paper.

Sadly, the clearest, most-unequivocal indicator of USD worthlessness is one which continues to be overlooked by commentators inside and outside the sector; despite having presented this (tautological) argument in a previous commentary (0% Interest Rate = Worthless Dollar; February 2011).

The fundamentals here are just simple arithmetic. The U.S. dollar is currently produced at “zero cost” (the definition of a 0% interest rate). The U.S. dollar is being cranked-out in essentially infinite quantities. Any good produced at zero cost and in infinite quantities must be worthless.

If this was not the case; any Intelligent Actor in markets would borrow/produce infinite quantities of the zero-cost good, and use it to “buy” (i.e. steal) all of the world’s assets. Indeed, this is precisely what Western banksters are attempting to perpetrate with their endless stacks of fiat paper – except that recently they have had to dedicate most of those stacks of new paper to simply forestalling their own bankruptcy (by buying up their own, fraudulent bonds and debts).

This brings us to the second fundamental of worthlessness of the U.S. dollar: the obvious bankrupt status of the U.S. economy. For years, readers have read in my commentaries and elsewhere that the U.S. is so hopelessly insolvent that it is fundamentally bankrupt today.

All it would take to compel a declaration of bankruptcy is for the U.S. government to account for its debts/obligations in the same manner legally required of all U.S. corporations (U.S. Is Bankrupt And We Don’t Even Know It: Laurence Kotlikoff; August 2010):

…delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt…“closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

…So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as payroll levy set down in the Federal Insurance Contribution Act.

…Based on the CBO’s [Congressional Budget Office] data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.   [emphasis mine]

What is notable here is that this article is written by a former economic advisor to the Reagan administration, and the numbers are taken from an utterly servile banking institution (the IMF) – which actually takes seriously the fraudulently optimistic future “projections” for U.S. economic growth.

In other words, this bleak warning comes from some of the U.S.’s best friends. Venture into the real world, where U.S. GDP is actually shrinking every quarter, and the U.S. economy is losing jobs every month; and none of the bleak numbers presented by Professor Kotlikoff are even remotely plausible.

Why does the obvious bankrupt status of the U.S. economy make the U.S. dollar worthless today? Because when Nixon completed the bankers’ assassination of the gold standard in 1971, the U.S. dollar (and all the world’s paper currencies) ceased to be a unit of value (i.e. backed by a real/hard asset) and became merely units of obligation – literally borrowed into existence.

When someone asks the question “why is any scrap of any of this fiat paper worth anything at all?”; there are only two answers which can be given in response:

1)      Because our governments say so.

2)      Because these currencies are legitimate “IOU’s”.

More than a thousand years of history tell us that “because the government says so” is a reason (excuse) which will be accepted by the general population for about as long as it takes for them to spell “hyperinflation.”

In other words, the moment that the masses of deluded Sheep cease to believe these paper currencies represent legitimate IOU’s (debts which can or at least might be repaid), this paper will acquire its actual value: zero.

When currencies disintegrate into hyperinflation (and thus oblivion); typically this is a change which occurs practically overnight, and without warning. The exception to this is where such a disintegration is preceded by a massive dumping of that currency onto international markets.

Such is currently the case with the U.S. dollar, as it is phased out as the world’s “reserve currency” and is replaced by China’s renminbi. This is the third fundamental of worthlessness: massive over-supply, and a dollar-deluge about to flood global currency markets.

As many readers know, seven of Asia’s most-dynamic economies already use the renminbi as their official, reserve currency:

…A “renminbi bloc” has been formed in East Asia, as nations in the region abandon the US dollar and peg their currency to the Chinese yuan – a major signal of China’s successful bid to internationalize its currency…

As the U.S. government creates new greenbacks at an unprecedented rate, simultaneously demand is plummeting.

The trend of declining demand as the U.S. dollar is phased-out as reserve currency is permanent and irreversible. The trend of increasing supply of newly-printed dollars is also permanent and irreversible – unless/until the U.S. acknowledges its insolvency and officially defaults on its debts.

The U.S. dollar was undisputed reserve currency of the world for roughly a century, with no remotely similar historical parallel since the Roman Empire. However, for the last 40+ years it has been a fiat reserve currency (i.e. backed by nothing).

This is of enormous significance, because for reasons listed above the U.S. dollar can no longer be considered an “asset” (i.e. a store of value), only a tool – a tool of international trade. So what happens when the U.S. dollar is no longer an asset or a tool?

No nation will need to use U.S. dollars (other than the U.S. itself). No nation will want to hold U.S. dollars – at all – as we will see a glut of this fiat-paper unprecedented in the history of human commerce. Who would want to hold the most over-supplied commodity in the history of the world, when that commodity was/is both totally useless and completely worthless in fundamental terms?

Supply will exceed demand by many orders of magnitude, to the point where in statistical terms demand will be effectively zero. A commodity with no intrinsic value and (effectively) no demand is also worthless, in clear tautological terms. Note that this fundamental of worthlessness is clearly distinct from the first fundamental. The first fundamental was based on the production of U.S. dollars (at zero cost). This last fundamental is based on the over-supply of dollars (in a world of zero demand).

Admittedly this third fundamental is still in the (near) future for the dollar, not the present. However, one of the “efficiencies” of markets is that when the future value of any asset is telegraphed to the market through the sort of irreversible trends described here that the market immediately discounts that asset to its future value.

In a world of massive over-supply of dollars, holding dollars which you know will soon be worthless is little different from holding dollars you know are already worthless. The “bid” for the dollars held by any current dollar-holder (in any world of rational/legitimate markets) would already be zero.

As soon as it is known that the dollar will be worthless tomorrow, there will be no buyers today. This is yet another path to hyperinflation detonation: the dollar-bomb imploding in global currency markets. This path to hyperinflation (the worthlessness of currency) is one which is totally unique to the U.S.; as (with the possible exception of China) the U.S. is the only major economy where more of its currency is held outside rather than inside the economy.

If the world shuns dollars, the dollar is worthless – irrespective of the hopes/delusions of those within the U.S.

Whether one wishes to view the dynamics of the U.S. dollar as a sequel to “Tulipmania”, or simply as a real-life dramatization of “The Emperor’s New Clothes”; we already know the end of the story. One day some innocent child will shout out the Truth about the dollar, the adults will all rub their eyes, and then the U.S. dollar will meet the same fate as all other paper, fiat currencies.

 

Jeff Nielson

www.bullionbullscanada.com

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

The world’s largest gold nugget is 61 lbs, 11 oz and is on display in Las Vegas.