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Date: May 24, 2011
Subject: Three Dollar Lies That Can Steal Your Savings

This is
G&G Associates
Tax & Financial Consulting Services

Three Dollar Lies That Can Steal Your Savings

Karibu (Welcome) G&G Readers,

So the U.S. government believes in a “strong dollar policy?”

Funny I haven’t found that to be the case over the past 10 years I’ve been in the markets. Ever since I first started trading Treasuries (which I’m not now), I’ve been listening to politicians, Fed-Heads and Treasury PR people say something to that effect — every time they took the podium to talk about our fiscal well-being.

It still seems to be quite the opposite to me — considering how much the U.S. government has done to weaken the dollar over just my lifetime.

In fact, this is just one of several flat-out lies that unfortunately far too many investors believe about our sad, beaten-down dollar. Don’t believe me? Let’s take a closer look:

Lie #1: Debunking the Strong Dollar Policy Myth

As I mentioned, many politicians have talked about our strong dollar policy for over a decade.

But if this were true, then why does the U.S. government bang on China to make their currency stronger than the U.S. dollar? You can’t have a strong dollar policy, but still want a weaker currency than a trading partner like China!

The original strong dollar policy started in 1995. It was orchestrated by then U.S. Treasury Secretary, Robert Rubin. At the time, the U.S. dollar had been in a weak downtrend for a decade. Things looked bleak for the greenback.

In an effort to prop up the dollar, Rubin told everyone who would listen that a “strong dollar” was in the best interest of the United States. It was the first time anyone had heard these words, so the markets obliged and traders closed out their short dollar positions.

But those days are long gone. Today, this “strong dollar policy” is nothing more than lip service. Those Americans who believe it are going to end up stuck with worthless dollars.

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Lie #2: “Inflation is Not a Problem”

I find this statement very disturbing. The Fed stubbornly points to our deflationary housing sector and says:

“There’s no inflation here.” Then they completely disregard the rest of the things we, as consumers, buy. It’s not just food and energy folks. Medicine, tuitions, insurance, movies, and so on continue to rise in price.

Example… I still have my 1991 Honda Accord with the cell phone installed in the dash. Yes…it still works for emergency purposes. Well…when I first bought the car it only cost $9.00 to fill it up, yesterday it cost me $58.90. So, do you still believe the government when they say inflation is only increasing by 3-4% a year.

Rule of 72 states that if inflation was only 4% a year then the price of goods should double every (72 / 4 = 18 years). Math says… the increase of gas from $9 to 58.90 = 554.44% increase … again, do you still trust the governments numbers?

The problem is, along the way, we stopped tracking inflation properly. Before the mid-90s the U.S. always used a fixed basket of goods to track inflation. Then our government had a “better idea.”

Without naming names, the President at that time, decided that home ownership would be a great thing for all Americans. So the President went to his Federal Chairman for a solution to make homes affordable for all.

Knowing that a home’s interest cost is the biggest nut to crack, Alan Greenspan figured out he must control inflation to keep interest rates in check. Greenspan gave an proclamation to the Boston Commission to lower inflation.

And that’s just what the Boston Commission did! They suggested we no longer track inflation based on a fixed number of goods. Instead, they would make “substitutions” to the index, whenever anything got too pricey. For instance, if steak prices rose, they could replace steak with a cheaper hamburger in their tracking index.

And “voila!” Lower inflation. Lower Consumer Price Inflation (CPI). And it’s been happening ever since, so our inflation is always “low or full of shigidy.”

Lie # 3: We Will Always Have the World’s Reserve Currency

It’s naive to think no currency can replace the dollar as world’s reserve currency. For years, the euro was in the best position. But today, the dollar has a new challenger: the Chinese renminbi.

The Chinese are already positioning their currency to become the next reserve currency. The Chinese have quickly become one of the largest holders of U.S. Treasuries, and are now becoming the financier of European debt!

But financing everyone’s deficit spending habits isn’t everything. I’m more concerned about the fact that China is trying to replace us as the “settlement bank of the world.”
Being the “settlement bank,” means your currency is in the middle of all trades. When you have two parties involved, you convert to the settlement bank’s currency to complete the trade. That means the dollar should be involved in every trade around the world.

Right now, the Chinese are signing “currency swap agreements” with their trading partners to essentially cut the dollar out of their trading. Instead all transactions will be handled in the local currencies of the trading partners.

They are effectively removing dollars from oil transactions between China and Brazil and the Arab states. Also, these agreements support a wider distribution of the renminbi, and put the renminbi in the perfect place to take over as reserve currency.
As owners of the world’s reserve currency, the U.S. is allowed to print (fiat) money, and run up deficits, while obtaining loans at lower interest rates. We can buy commodities at cheaper prices.

That’s why we pay $4 for gas, while they pay $8 in the U.K. We have the reserve currency of the world, and the U.K. doesn’t! Lose that status, and trust me: All Americans will feel the change!

The End Is Near: Take Cover

Right now, the deck is stacked against the U.S. dollar from every angle.
Diversifying your investment portfolio outside the dollar can help as the dollar continues down this slippery slope. But most of all, I advise you: Don’t rely on the dollar, or the government to defend your wealth. It’s up to you to see through these lies — and take cover.

If you are a GGIS subscriber… you already know how. If you aren’t a GGIS subscriber…why not? And, best wishes to you.

If you need a one-on-one consultation to learn how to implement these investments or any other on the GGIS portfolio, feel free to contact me to setup an appointment.

Until the next time!

Metta (Wishing You the Best)

Asar Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.


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