The US Dollar is not Worth Saving

William (Bill) Buckler
Captain of The Privateer
Dec 22, 2008

The US Federal Reserve has made it - to ZERO. It has no further place to go after cutting official interest rates to record lows of 0.00 - 0.25 percent.

Endless US Credit - At NO Cost?:

From here on, monetary absurdities abound. The US Federal Reserve Note as issued into external circulation is on the balance sheet of the Fed as a liability - a debt. Anybody who accepts it has de facto given credit to the issuer of the note, they have made a loan to the Fed. Americans, of course, have no choice here because they must accept the Fed Note. It has been made legal tender inside the US. Foreigners, though, are under no such legal obligation. It shows. The US Dollar (aka the Fed Note) has dived precipitously on the currency markets.

The post July 2008 US Dollar rally is over - the USDX (US Dollar Index) has given back half its gains. The Fed is now strongly hinting that it will soon issue its own debts! This is absurd. The Fed is proposing to issue its own bonds, notes, etc which will pay a rate of interest. The interest will be paid in Fed Notes, non-interest paying debt paper which the Fed can create in unlimited quantities.

That amounts to the Fed paying interest payments on its future debts by printing the non-interest paying Fed Notes required. Economically, this makes the US Dollar (aka the Fed Note) not worth saving, buying or even holding. If the issuer of a debt can service the debt, and later redeem it - repay the principal amount of the loan - with its own non-interest paying notes, then no repayment has been made at all. One debt - the non-interest rate bearing Fed Note - will be used to repay the other. To repay a debt with another debt is fraud. That is what the Fed is proposing to do.

The Future Debts Of The US Fed:

Since September, the Fed's balance sheet has grown from $US 900 Billion to $US 2 TRILLION plus, as the US central bank has created new money and lent it out through all its new programs. The Fed now has plans to buy up US mortgage-backed debt and consumer debt paper. That will take its balance sheet up to about $US 3 TRILLION. The Fed plans to sell its own debt paper to, in part, fund this.

The US Internal Deflation Hits The Ground:

US consumer prices have fallen in November at the fastest rate since 1932, the darkest days of the Great Depression, the US Labor Department reported on December 16. The US CPI fell by 1.9 percent, the biggest decline since January 1932 at the nadir of the Great Depression. CASH - not credit - is King.

The Fed's Cut To ZERO Cuts The US Dollar Down:

Since the rally peaked on November 21, the US Dollar has fallen in international value against all sixteen of the most widely traded currencies, according to data compiled by Bloomberg. No wonder. US policy makers have flooded the world with an extra $US 8.5 TRILLION through 23 different plans designed to bail out the US financial system and pump up the American economy. Now comes the Fed's zero interest policy and its own attempts to sell more debt under its own banners. The US Dollar is on the edge of a global sell-off. It is no longer worth saving, buying or even holding as an investment.

William (Bill) Buckler
Captain of The Privateer
email: capt@the-privateer.com

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