By John Reizner |
As the dollar begins to cascade down once again with the dollar index at 81.64, many market participants, including this writer, are coming to the conclusion that America's domestic and foreign debts will be repaid with dollars that are worth much less. Many participants agree that the U.S. Treasury bonds that we and other nations hold will end up being worth less in real terms (i.e., will be able to buy fewer goods and services), and perhaps a great deal less in future years.
That may be the greater fear of our foreign debt holders. Remember, in the last great inflation of the 1970's, many long term bonds lost half their value as interest rates soared into the high double digits.
The authorities are depreciating our money, which in turn may allow us to better service our national and foreign debt. Government is accomplishing this by effectively placing half of its living expenses on the credit card.
Warren Buffett in an interview with a CNBC anchor at the height of the credit crisis, noted that the future should bring higher inflation, perhaps greater inflation than the 1970's, and that fixed income investments will not keep pace with an embedded great inflation. However, Buffett also stated that individuals with skills to sell should be able to buy a can of Coca-Cola with an equivalent amount of their labor in the future as they do now. Buffett is confident that owning good American businesses will be profitable over the long run. He is not selling America short.
Jim Rogers[, a well-known investor and commentator,] has expressed his view that the stock market should turn down from its current level (the Dow Futures closed at 8295 on 5/21/09). He argues that the Federal Reserve has shown the financial markets a good time (temporary in nature) by printing trillions of dollars in an effort to stave off a U.S. economic collapse.
Rogers claims that he is not buying any stocks now, but that he is buying gold and silver. He believes that most currencies worldwide will experience depreciation in the future, but he thinks that the Chinese yuan will emerge over time as the next reserve currency.
No one can predict the future, but I am personally betting on a decline in the dollar, and have redeemed a significant portion of my investment in the Franklin Templeton Global Bond Fund (a fund which holds U.S. and foreign currency denominated long and shorter term debt obligations). In my view, future inflation and possibly much higher interest rates may deeply discount this asset. Higher worldwide inflation and interest rates should hurt most fixed income debt in almost all currencies.
I have owned physical gold [for a number of years], and have recently taken a position in silver bullion as well. I am anticipating an upward resolution to a potential bubble in the gold and silver market in the next two to three years, possibly sooner.