Market Watch: The U.S. dollar is no longer as good as gold

This is a dangerous market. We continue to be deceived by the president and Congress about the necessity of continuously increasing the national debt. Every single dime of that debt goes to welfare recipients for the benefit of politicians purchasing votes. If either the Democrats or the Republicans had wanted to balance the budget and get out of the pyramiding tragedy of increasing our debt, they would have.

The “ladies and gentlemen” in Washington are working on their own behalf. Examples of that include automatic pay raises, separate and better health and retirement plans and exemptions from Social Security and Obamacare. The inability of our politicians to pay attention to the “limited government” theory of our founders has resulted in the greatest Ponzi scheme in history: destruction of the dollar’s value.

The market is at historically high levels for only one reason: Congress and the president continue to insist upon making money out of absolutely nothing to pay for the government’s current expenditures. It amounts to $80 billion a month of brand-new money, which doesn’t have one single lick of work, sweat or obligation involved in its creation. That money goes to banks and stock speculators who keep churning the market. This has contributed to two things: an inflated, over-valued stock market and the largest monetary bubble in history.

Any bubble always represents current market value far in excess of the liquidation value of the underlying assets. The debt that created our bubble is an obligation of the U.S. government, just like currency. The government used to be required to have enough gold and silver in storage to redeem outstanding obligations. Ever since the Federal Reserve System was created in 1913, however, politicians have chipped away at that constitutional requirement.

We cannot turn our dollars in for anything other than more government paper obligations. There is now little U.S. “hard” currency. The government is obligated to eventually redeem almost $20 trillion of bond and currency obligations. It is not possible. Government bonds are secured by assets that include thousands of failed pieces of real estate, which could not be redeemed for 50 cents on the dollar.

To see how great a Ponzi scheme this really is, take a look at the money-supply chart above.
The chart tells us a lot. In 1954, the gold backing of our entire money supply was 20%. Skip 60 years to 2014, and the gold backing of currency outstanding is only 2.9%. In that same period, inflation has dropped the purchasing power of our dollar to 11% of what it would purchase in 1954.

For a country’s business to be strong, the government’s balance sheet must be strong. Historically, civilizations whose currencies become world currencies fail. They fail for the reasons we are failing; they put more emphasis upon promising and providing benefits for the populace than governing. The only way those promises can be met is through more and more debt.

Government debt has destroyed every great economy in history by first destroying the value of the country’s currency. Rome, Portugal, Spain, France and England all did the same thing, and their world currencies failed. Government indebtedness required so much of their countries’ resources that interest obligations eventually could not be met. Other countries quit using their currencies. That’s what is happening to the dollar.

The market bears an inordinate amount of risk. The big stock houses and banks are making bundles because of government money-making. Dividends are at an all-time low of 2.1% on the Dow. That is not even enough to cover inflation. Solid fundamentals don’t exist to support this market. Sooner or later, all Ponzi schemes are exposed. Obamacare, pending tax increases, onerous interest costs on the national debt and a highly over-leveraged monetary system make the risk of purchasing additional stocks in this market greater than the potential for good returns.

Click here to view a chart of U.S. M-2 Money Supply Statistics

George Rauch, Longboat Key, is chief executive officer of Bradenton-based General Propeller and a former Wall Street investment banker.