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The Decline and Fall of the U.S. Dollar

Shakespeare wrote, "All the world's a stage and [we] all men and women are merely players." You could say that the script the world has been using for the last six months is the most dynamic ever--

The Decline and Fall of the U.S. Dollar. The three acts are: Act I: Past History, Act II: Present Events, and Act III: The Future. Interestingly enough, the players--Mexico, the U.S. dollar, the federal budget and trade deficits, the Federal Reserve, Congress, the United Nations Social Summit, Dr. James Tobin's World Tax, the stock market, and you and I--also create the backdrop.


This writer has consistently written about the importance of the dollar and feels we are at the most crucial juncture in all of American economic history. Let us look at the past in order to understand the present and perceive the future.

ACT I Past History

Scene 1: The Dollar

Up until 1933, America's currency was backed by gold, and our Treasury issued gold and silver certificates which basically told Americans that, at anytime, they could redeem the paper currency for gold or silver. However, the Great Depression changed all that. Due to the Stock Market Crash of 1929 and the ensuing depression, over 12 million people were unemployed by the summer of 1932. In late 1932 Franklin Roosevelt was elected on his "New Deal for the American People" platform, and his first act as president was to declare a national bank holiday March 4 - 12, 1933. This act was an effort to stem the tide of banks declaring bank holidays of their own due to the number of people withdrawing their savings in gold. On April 20, Roosevelt signed the Emergency Banking Act of 1933, which made it illegal for "Joe Average American" to own gold and required private citizens to turn in their gold but provided for countries who held our currency to convert to gold at any time. All individuals had to turn their gold in and settle for paper currency, with the exception of coin collectors.

In 1944, the "Bretton Woods" Monetary Conference was held by the United Nations in New Hampshire. The purpose of this three-week meeting with 700 delegates from 44 countries was to determine the value of money in the post World War II era. At this conference, the United States dollar, which had the highest amount of gold reserves backing it, was named the international reserve currency of the world. What this meant was that all of world commerce would use dollars to trade and all other currencies would be linked to it at fixed exchange rates. In addition, these countries could convert the dollars they held at any time to gold, if they chose to do so. It is because our currency is used for world commerce that America has not directly felt the kind of inflation which should accompany the kind of federal trade and budget deficits that we currently have.

Realizing the inflationary trend caused by the high cost of the Vietnam War and the fact that America had started printing money, French president Charles deGaulle came to ask that the dollars he held be converted to gold. In 1944, ten years after Roosevelt took America off the gold standard, we had $30B in gold reserves. Due to the number of countries redeeming their paper currency for gold, our reserves fell to $22.8B by the end of 1957, to $17B by the end of 1967, to $10.367B by the week of June 12, 1968 when President deGaulle paid President Johnson a visit. He was the last one who got paid in gold before Richard Nixon who, on August 13, 1971, severed any ties the U.S. dollar had to gold. The countries who still had not converted their dollars to gold ended up with a treasury full of worthless paper, now called "Eurodollars." These dollars are still floating around the world and are currently contributing to the lower value of the dollar since they are in the millions.

Up until 1971, there was stability and some semblance of order in the currency market as most of the world currencies were linked to gold. What did the removal of gold from money really mean? In simple terms, there were no more absolutes with regard to the value of money. Any country's treasury could print and print and print to cover its mistakes or mismanagement of the economy. Without the gold standard, it was open season for running the printing presses to cover "budget deficits."

By 1973, all of the countries of the world, with the exception of Switzerland, went off of the gold standard. After all, if the biggest and strongest country severed its currency from gold, what purpose would there be for other countries to be on the gold standard?

After America closed the gold window in 1971, the 70s were plagued with double-digit inflation. Although many would like to blame for our hyperinflation on oil shortages, the fact is, the world no longer had an "absolute" monetary standard. And for the for the first time in our history (1972), America started to import oil because of our own declining oil production and reserves. This too accentuated our financial problems. (Today we import more that 50% of our energy needs from abroad.) In addition, there was the oil embargo of 1973 and the fall of the Shah of Iran in 1975, who was the peacekeeper among Arab countries. Inflation skyrocketed to 11% and 16%, interest rates climbed to 12% and 22%, and our federal deficit climbed to $70B and $100B respectively. In addition, there was the farm crisis, the savings and loan crisis, and defaults of third world countries who could not afford to pay the double-digit interest on their developmental loans to Wall Street, the World Bank, and the IMF.

By October 1981, the U.S. federal deficit hit $1T, a feat that took 205 years to accomplish. In 1982, Mexico defaulted on payments of $75B in foreign debt. In 1983, Michael Milken designed "junk bonds" to help corporate raiders finance takeover deals. The farming crisis followed in 1984 which affected banking as 78 banks failed, and in 1985, Continental Illinois was taken over by the government as it became insolvent. By 1985, American had become the world's largest debtor nation. (Much of the above is from Trade Wars Against America by William J. Gill.)

Also in 1985, the Group of Five (now the Group of Seven) finance ministers (they have been dubbed the "closest thing to a board of directors for the world economy" -WSJ, 9/17/92) met in Washington D.C. where they agreed that the United States should deliberately weaken the dollar relative to other currencies (US News/World Report, 2/16/87). Their reason for doing so was the fact that the dollar was the strongest currency in the world and they wanted to make our products more affordable to foreign countries in order to reduce our trade surplus. In September 1986, Federal Reserve Chairman Paul Volcker said that the dollar had dropped sufficiently against major currencies for the United States to be competitive with goods from abroad. This action signaled to the world that the dollar was "low enough." Between 1985 and September 1986, the dollar plunged 40% against the yen and deutsche mark.

Scene 2: Trade Surplus Changed to Trade Deficit

By 1986 the United States had a trade deficit of $34.7B. How did we go from a surplus to a deficit? In 1982, newly-elected President Reagan said he was going to reduce taxes in America. Between 1982 and 1985, tax brackets were reduced from 50% to 38.5% and then to 28%. Foreign money came rushing into the American economy in search of bargains and greater profits for two reasons: our tax brackets were lower than any of the other industrialized countries, and the dollar was "on sale." Thus foreigners could buy American stocks, bonds, buildings, farms, and corporations for 40% less than the two previous years. Although this created a boom in our stock market as the Dow reached 25 new highs in the first ten trading days of 1987, it also added to the trade deficit as the amount of money coming in exceeded the amount we were exporting.

Scene 3: Evolution of Currency Trading

Once the dollar was severed from gold and all currencies allowed to float, there developed a situation whereby international currency traders started "playing" the currencies against each other based on good or bad economic or political news. A survey, in 1987, by the Group of 30, an economic research council, reported that the worldwide volume of currency transactions doubled between 1979 to 1984, so that by that time $150 billion a day (equals $40T a year) was trading on the international currency market. This was twice as much as the U.S. government bond market and nearly 40 times the average daily volume on the New York Stock Exchange (US News &World Report, 2/16/87). Today, the amount of monies being transacted on international currency markets on a daily basis is $1T. According to the March 24, 1995 issue of USA Today, the reasons for "capital moving at the speed of light" are: (1) the increase in investments outside the United States. (2) the increase in hedge funds, (3) the boom in currency trading, and (4) the boom in futures, options, and other derivatives--financial instruments that track the prices of bonds, currencies, or other securities. Last year $1.4T was traded on the world's future exchanges.

Contributing to the volume in the international currency markets is the fact that many countries have relaxed their foreign exchange controls, many corporations actively trade for greater, enhanced corporate profits, and even banks earn much of their foreign-exchange profits by making small gains on huge volumes of trade. Money flows where it can get the highest returns. According to Guy Field, senior vice president of Morgan Guaranty in London, "Once you get some basic volatility in a market, you attract speculators who are not interested in the reason for the movement but in the movement itself (USNews and World Report, 2/16/87). Economist Christopher Johnson of Lloyds Bank said at the time, "We're still in for a world of uncertainty and shock."

With regard to the devaluation of the dollar, Warton's Paul Getman said, "A cheaper dollar means cheaper prices for U.S. goods sold abroad. A cheap dollar thus is a tempting short-term solution for the nation's $170B annual trade deficit...The dollar is going to be weak all year, 100 on the yen is possible." (WT, 1987)

By the end of 1991, the Federal Reserve had reduced various interest rates 18 times in an effort to "jump start" the economy. By December 21, 1991, the Fed had slashed the discount rate to a 27 year low of 3.5%, forcing many small investors out of certificates and into bonds and stocks, thus causing the stock market to reach new highs.

The dollar pretty much stabilized between 1987 and 1991 until the European Currency Crisis occurred in September 1992. It is said that the collapse of the Berlin Wall and the unification of Germany caused the problems in the EMS. A number of countries pulled out of the exchange rate mechanism. As a result, Sweden raised its key interest rate from 20% to 75% then to 500% in an attempt to stop a flight from the krona. In a statement following their meeting, the European Community finance officials said all EC states "stress their unanimous commitment to the European Monetary System as a key factor of economic stability and prosperity in Europe" (WT, 9/18/92). Because the cut in taxes was without a reduction in spending, the federal deficit during the Reagan years grew by $2T. By mid-1992, it had ballooned to $4T. President "Read my Lips" Bush passed the largest deficit-reduction package in U.S. history, raising taxes for every American.

Also in 1992, United States corporations downsized in order to become "mean and lean" and therefore compete in the global marketplace. Numerous major companies eliminated thousands of jobs, with

Philip Morris cutting 14,000 jobs and Xerox 10,000. Overall, foreign investment in the U.S. declined by 47% in 1992 and the dollar closed at 125.55 yen and 151.93 deutsche marks, down from a high of 184 D.M.

Scene 4: Euroquake

In 1991, a book by Daniel Burstein, called Euroquake, was published. What was most interesting was the fact that it was two years in the making and had six pages of acknowledgments, listing just about everyone in strategic places in industry, think tanks, the UN, and European Common Market.

Burnstein claimed "a seismic shift is occurring in the composition of global wealth. It is convulsing the structure of international power relationships and changing the rules of international business competition."

He made several key observations: (1) the world would stop using the dollar as its reserve currency and that oil, which is traded in dollars, would be traded in yen and Deutsche mark, by-passing the dollar set up at Bretton Woods; (2) unless Washington took serious action on the budget deficit, the dollar would move precipitously lower in 1992-3; and most importantly and perhaps prophetically (3) "A new global currency agreement will be hammered out between 1995 and 1997...It may even be the precursor of a single globe-spanning currency for the Triad (United States, Germany and Japan) as a whole. The new exchange rates will reflect the economic strength achieved by Europe and Japan, and the erosion of competitiveness in the United Sates. Although the system itself will be intricate, the bottom line will be a massive devaluation of American assets roughly analogous to fixing today's exchange rate at $1.00 = yen 1.05 and Deutsche Mark 1.2.

Scene 5: A New Administration

In 1993, when Bill Clinton became president, Geoffrey Dennis, an international economist and strategist at James Capel said, "There is going to be a sense of political stability in the U.S. over the next four years. With all of the tension, turmoil and economic gloom in Europe, that's going to be a tremendous plus for the dollar." One of the first acts of the Clinton Administration was a tax increase of $246 billion which included a $30B jobs stimulus package and loosening of bank lending rules. Although this was the second largest tax increase in history, the stock market responded by reaching new highs while the dollar dropped over 25% against the yen in 1993.

Scene 6: A Sea Change

In 1993, Barton Biggs, Morgan Stanley's chief investment officer, said in an interview with Forbes Magazine (July 19) that he was recommending clients cut U.S. equities in their portfolio to 18% and go overseas. He gave three reasons: (1) The U.S. stock market was overvalued, (2) there was greater opportunity abroad, and (3) he was appalled by what he saw going on in Washington. He felt that once the markets understood the deficit was going to stay high, interest rates would go up again and could only mean a stock market correction. Economist Paul Craig Roberts, commenting on the remarks made by Biggs, called it a "sea change." Purchases and sales of stocks and bonds among the seven big industrial countries soared to $764B in 1993 compared to 1985 when it was $200B (USA Today, 3/24/95). Not to mention the number of investors opening up foreign bank accounts in order to protect themselves from the lower purchasing power of the dollar. At the same time, the flow of dollars out of the United States added to our expanding trade deficit--a "double-edged sword", if you will.

Scene 7: The Dollar in Crisis

In 1994, the Federal Reserve started to increase interest rates for the first time on February 4 to "head off inflation." It was noted by USA Today in March that "Inflation hasn't been a problem for 12 years and it's not likely to be in the foreseeable future." In response to rising interest rates, the dollar dropped to 102.85 on the yen (despite a bid by the Bank of Japan to prop up the currency) and to 1.6750 deutsche marks. The stock market dropped 352 points or 8.8%, and bonds rose to 7.10% from historic lows.

On April 29, the United States faced with a potential "dollar crisis," stepped in to the foreign exchange markets to halt the drop in our currency. "We came to the brink of a dollar crisis" said David Jones of Wall Street broker Aubrey G. Lanston & Company. The Baltimore Sun reported the rescue of the dollar as follows: "The United States teams up with the Central banks of 16 nations yesterday to buy billions of dollars in a global campaign designed to show investors that the Clinton administration is serious about maintaining the value of the ailing U.S. currency."

Although throughout 1994 the Fed said they were raising interest rates to control inflation, a number of articles highlighted a capital outflow from the United States as being the fundamental problem.

Economist Paul Craig Roberts wrote: "Since Mr. Clinton has been president, tax rates have gone up, interest rates have gone up, the price of gold has gone up and the exchange value of the dollar has fallen..." He went on to say that the tax increase discouraged some investors who moved some of their capital abroad..." (WT, 5/13/94). These events fulfilled a warning he gave on June 10, 1993, "When Mr. Clinton's growth-killing taxes hit the economy, the deficit will swell...the dollar will take a big hit as people move out of dollars and dollar-denominated assets and the dollar prices of gold and foreign currencies rise. The price of Treasury bonds will sink, pushing up interest rates. Rumors will spread that the Japanese will no longer buy our bonds or Arabs accept dollars in payment for oil" (emphasis added).

Business Week quoted Federal Reserve Governor Lawrence B. Lindsey, who said on May 25, "One cannot imagine New York retaining its role as the world financial capital if the dollar did not retain its leading role as a world currency" (BW, 6/6/94).

In the May 9, 1994 Wall Street Journal, there was a very interesting article which the writer almost missed since there was no headline to really explain what the article was about. It stated, "This summer a private commission headed by Paul Volcker, the former Federal Reserve Board chairman, will announce "an ambitious plan to overhaul the world monetary system." Nothing else was said. Since then, the writer has not seen any detailed article making public the plans of what this private commission called "The Bretton Woods Commission". The writer believes this study is critical to the reason for the seismic shifts occurring in the dollar and in the American economy.

Because of Daniel Burstein's prediction that a "global currency agreement would be hammered out between 1995 and 1997," the writer has been following, if you will, the "countdown to a one world currency." Why else would the dollar drop so substantially against other currencies if it wasn't to create a global currency? The sole purpose of currency is to support the economic transactions of a government. Talking about a global currency agreement is basically talking about a world government.

Scene 9: A World Government Empowered by Global Taxation

In September 1994, the writer attended her first United Nations conference in Cairo, Egypt. The writer was not prepared for what she saw in Cairo as she was confronted with the UN operating as a world government. Amid the call for "sustainable development" was a presentation by Sir Shridath Ramphal, co-chairman of the Commission on Global Governance, who stated that his commission was completing a study to determine how the UN should change in order to meet the demands of the "Post-Cold War Era." Since that time, the Commission has made their suggestions public in a book called Our GLOBAL Neighborhood , published in March, 1995. Incidentally, their suggestions are almost exactly the same as those published in March, 1994 in the UN Human Development Report 1994. They include: Changing the UN charter so that it meets year-round on a full-time basis , expanding UN representation, empowering the Security Council, creating an Economic Security Council, changing the International Monetary Fund so that it becomes a World Central Bank, allowing the UN to have its own permanent volunteer army, allowing the UN to float UN bonds through a new agency at the World Bank called the International Investment Trust, and creating the World Anti-Monopoly Authority (in addition to the World Trade Organization, which was passed by the U.S. Senate in 1994).

Most interestingly, in the April 19 Washington Post, there was an article on the IMF and that "it must adopt broad changes to better anticipate and respond to future financial crises such as the collapse of the Mexico peso"...and that the fund has ignored "crucial movements of money into and out of stock and bond markets..." and that the "Clinton administration and Federal Reserve officials are pushing the fund to take a more assertive role as the world's economic watchdog."

Could this be the first part of a movement to change the IMF into the World Central Bank?

Lastly, both the Commission for Global Governance and the United Nations Development Programme, originators of the Human Development Report, recommend a number of global taxes to empower the United Nations financially. The tax that would "reap" the most monies for the UN is the "Tobin Tax," named after Dr. James Tobin, a Nobel Economics prize winner who suggested that the UN tax one half of 1% of the $1T traded on the international currency markets. This would generate $1.5T a year for the UN. However, the UN is rather shy in what it wants and has reduced Tobin's suggested tax to 1/500 of 1%, which would only reap $150B a year, or 15 times the UN budget worldwide for 1992. At the International Development Conference the writer attended in January, the Tobin tax was presented as a way for the UN to help reduce the fluctuation in the currency markets (as well as empower itself with 15 times its 1992 budget!).

A friend of the writer's trades on the international currency market for a Fortune 500 Corporation. When the Tobin tax was presented to her as a "way to reduce the currency fluctuation," she laughed and said it would have no effect. With a "foot in the door," the UN creates a situation whereby the currency fluctuation does not stop with a 1/500 of 1% tax, then it has a lot of room to maneuver until it can reduce the fluctuation!!! Even Bella Abzug made a number of calls for the Tobin tax. She said "If we had the Tobin tax, we would not have the currency problems of Mexico or Barings Bank." (Any old excuse will do...) Do you see what I see?

Because of the research the writer did after returning home from the UN Population Control conference in September, 1994, she found a "dual agenda" for the Social Summit scheduled for March, 1995. That dual agenda was the structural and financial empowerment of the UN as a world government as found in the Human Development Report and confirmed at the International Development Conference. These ideas were not in the Programme of Action for Copenhagen, and the fact this "dual agenda" was being promoted is what prompted the writer to go to Copenhagen.

At the Social Summit, from the very moment the UN said "Welcome," the speakers all hammered on both the structural changes as itemized above and global taxation. From Secretary-General Boutros Boutros-Ghali on down to a "lower-level clerk," all of the UN speakers endorsed the above actions. What the UN did in Copenhagen is to set a new mandate as caretaker of the world's "human and social development," which includes everything in daily life. This could be picked up in the opening speeches. These same people said: "A new type of political process has brought us were we are"; "This is a transition from peacekeeping to an economic social force--look at the world in terms of a new compact, new dialogue, where everyone gains"; "You must link and network your global presence on gender issues, environment, worker's rights, population, peace, trade and social questions into a powerful and united force that can spearhead a worldwide civil society movement." Boutros Boutros-Ghali called for a "new social contract." By adopting a new mandate, the UN now has a reason to request a global tax to finance this endeavor and gather greater political power to "carry out their new responsibility to the world."

Although the financial and structural changes evident in the Human Development Report 1994 were not in the Programme of Action, the UN used the Social Summit to present its ideas and to start a "conditioning process" on those present. In the end, Canada, France and Denmark endorsed the Tobin global tax, which they will present to the finance ministers at the next G-7 meeting in June. Lastly, Sweden's Prime Minister Ingvar Carlsson said: "The cold war is over...Social development and justice also has a financial ideas must be explored...the recent turbulence on the global financial markets has once again demonstrated the need for improving global economic governance...establishing an Economic Security Council...All the efforts at reforming the UN should be seen as one process...I propose that this process should be summed up at a World Conference on Global Governance in 1998. Its decisions could then be put into effect by the year 2000, giving world democracy new strength in the new millennium..." Daniel Burstein was only one year off in his prediction of a global currency agreement.

Act II -- Present Events

Scene I: Mexico

Let us turn our attention to the fast-paced events that have dominated the news in 1995 so far. On December 20, the Mexican government devalued the peso. According to the Washington Times (1/30/95), "The decision to devalue the peso was an act of deliberate policy [very similar to the Group of Five devaluing the dollar in 1985]. It is commonly said Mexico's new president had no choice but to devalue the peso because of a rising trade deficit and dwindling reserves of dollars [have you heard this before?]. Not so. There was and is a readily available alternative to devaluation. Mr. Zedillo made the wrong choice...a much better choice would have been to tighten monetary policy." As a result, Mexico went from 3.4 pesos per dollar and 13.6% interest rates in mid-October to 40% interest. The peso has dropped over 50% in value and consumer goods have already jumped 10 to 30% while bank interest rates have risen so high that middle-class families with business loans, adjustable rate mortgages, credit card debts and car payments say they can't pay their bills (WT, 1/22/95).

Coming to Mexico's aid was the Clinton Administration with a bailout package of $20 billion, which is from the little known U.S. Currency Stabilization Fund, leaving only $5 billion to protect U.S. currency from devaluation. In addition, the IMF made a loan of $17.8B and the Bank for International Settlements a $10B loan. With regard to the source of funds, President Clinton did not ask Congress to approve his actions, but acted fully outside of his jurisdiction.

With regard to the bailout, Fred Smith, resident at the Competitive Enterprise Institute said "Giving Mexico a new loan is like giving an alcoholic one last drink". Likewise, Patrick Buchanan said "With the $9B which is only a down payment, it is 2/3's of our annual foreign aid, 50 times more than the budget for the NEA and with $18B we could build the Strategic Defense Initiative. We didn't bail out Orange County for their mistakes but if elites of the New World Order go belly up, whether in Moscow or Mexico City, the U.S. Cavalry--carrying satchels of U.S. tax dollars--is on the way" (WT, 1/19/95). Also, Dr. Mark Mobius, Manager of the Templeton Emerging Markets Fund "The bailout package is only a 'bandage and a temporary one at that.'" He fears the bailout will allow Mexico to avoid the hard economic policy changes that could produce "real" long term confidence in its economy. (WSJ, 2/1/95)

Who has the most to lose in Mexico? Commercial banks like Citicorp, Chemical Bank and Chase Manhatten which have, not only huge emerging market operations, but have lent $41B to Latin America. At the peak of 1993, security firms sold stocks and bonds valued at $27B issued by Latin American firms and governments. In 1993, Fidelity Asset Manager mutual fund put 20% of its assets into Latin American bonds. Maybe this is who the bailout is really for which means that you and I, Joe Average American, will replace the funds in the Stabilization Fund with tax dollars, thus making the Mexican bailout to Wall Street, personalized. If this is so, then President Clinton does not work for you and I.

Scene 2: The Twin Deficits - Federal and Trade

In 1994, the total federal deficit rose to $4,692,973,000,000 and the federal deficit $200B. It is projected by the time President Clinton leaves office he will have added $1T more to the current deficit. In addition, the trade deficit for 1994 rose continuously through September for six months in a row, adding $150B to the trade deficit. According to USA Today, 3/9/95 "Instead of closing those gaps...were talking about tax cuts and going deeper into debt. That's how, as a nation, you go from being owed $400B by foreigners in 1980 to owing them nearly $800B today. You go from having currency that's a store of value for the rest of the world to one people are afraid to hold."

Scene 3: The Dollar

There is deep concern over the loss which the dollar has experienced since the beginning of the year. Since January, the dollar has fallen more than 20% against the yen and 14% against the Deutsche mark. Almost weekly, the dollar hits new post-World War II lows against major world currencies amid signs that the world's central banks can do little to reverse the decline. The plunge in the dollar the week of April 7 came one day after the Federal Reserve, the Bundesbank and the Bank of Japan and France committed an estimated $1.2B to $2B in an effort to slow the dollar's fall (WT, 4/7/95). By April 11, the dollar had dropped to 80.15 yen, the lowest level since modern exchange rates were established in the late 1940s (WT, 4/11/95). Amid the drop in the dollar to the unthinkable, the Dow Jones broke the 4000, 4100, and then 4200 level.

Why is the dollar being "thrashed" on the international currency markets? There are a number of possibilities: (1) the reluctance of the Federal Reserve to support the dollar during this crisis; (2) the fact that America, with structural problems of its own, i.e. the largest trade and federal deficit, bailed out Mexico from a special fund to protect its currency, leaving it in a very vulnerable position; (3) the fact that since 1990, the Federal Reserve has increased the supply of money in the economy by 35%, and that the demand for credit in the last few months has increased the "velocity" of the number of dollars floating around globally, thus contributing to the dollar glut, along with the fact that the world no longer wants the Eurodollars (which are worth less and less) contributing to the loss in its "store of value," i.e. ability to retain its value; (4) the fact that maybe the world is saying it dosen't want the dollar as the reserve currency; and/or (5) the fact that a lower dollar enables American companies to sell more, thus creating more jobs here in the States [this rationale was also used by the Group of Five, which has not proved to be true]; and/or (6) as a way for the United States to get into the Japanese market since our products would be cheaper.

If the above is true, then what a lower dollar also does is devalue and deflate the deficit and the amount the United States needs to repay to lenders. For example, if Japan bought Treasury Bonds at 124 yen when Clinton was elected, it will now only get 85 yen for that same purchase.

Since 1985 when the Group of Five met to deflate the value of the dollar, its value has fallen 70% against the yen and 60% against the German deutsche mark. An analogy to America's financial problems would be if you had all of your credit cards up to the limit with no savings, a poor credit record, and had a 10% down payment on a $200,000 house. If the value of your house dropped 70% to $60,000, and the bank called and wanted an additional down payment of $120,000 ($120,000 + $60,000 = $180,000) and you had no place to go to get that amount, do you think another bank would make a loan to you for what you needed to give your mortgage holder? While this is an over simplification of the dollar problem, you can see understand how serious this is to America. We may be at the most critical juncture in all of American economic history.

The truth of the matter may be that the "sins of the past" have caught up with the United States. We may have no place to go. The only way to lure investors is to raise interest rates dramatically, which would basically send the economy into a tailspin and perhaps cause a sizeable correction in the Teflon stock market. In addition, there are the global factors that need to be considered.

ACT III - The Future

Scene 1: Future Trends


First, a lower dollar will be inflationary to us. In addition, if the countries of the world are trying to get rid of their dollars, this will inflate our currency supply which the Federal Reserve has increased by 35% since 1990, again causing inflation. If the Federal Reserve raises interest rates to defend our currency or lure investors to America, this, too, will be inflationary. What is happening in Mexico could happen here.

Seismic Shift in the Composition of Global Wealth

Second, let us go back to euroquake which Burstein defined as "a seismic shift in the composition of global wealth, convulsing the structure of international power relationships...." For the dollar to drop 60% to 70% since 1985 against the deutsche mark and the yen certainly says something important and is an indicator of "a seismic shift in the composition [of U.S. wealth]." Should the world, as a result of the impoverished dollar decide they are going to use the deutsche mark or yen as the world reserve currency, it would yield quite an economic blow to our economy as it would reduce the economic stature and power of the United States and change our standard and way of living.

Global Taxation and Global Government

The fact that the UN is looking to empower itself politically as a world government by changing its charter and economically through a global tax, which is only one of the half dozen or so taxes they are suggesting, should be a wake up call that perhaps what we see in the currency market is directly related to what they wish to do. Case in point is the April 19 article in the Washington Post on changing the IMF so that it can "anticipate and respond to future financial crises such as the collapse of the Mexican peso." In addition, there was a separate meeting hosted by State Street Bank and the Fidelity funds for private companies and investment firms who discussed some of the same things which were being presented at the Social Summit like global taxes. One of their recommendations is for a World Security and Exchange Commission to be set up. Do you see what I see?

The currency market is directly related to not only the value of our currency but the strength of the United States. In order to have a "one world government " where everyone is equal, all countries must be made equal. To do that, the strongest countries currency has to be devaluated and the weaker countries currency must be strengthened in order to reach a point of "parity" or equality.

The proposed actions by the UN to empower themselves politically and economically should be of concern to each of us as UN laws will replace the freedoms found in our Constitution and Bill of Rights. We should not allow this to happen as it will change our way of living forever and replace what our Forefathers fought and died for.

Final Scene: Our Response

Be informed as to what is happening on the global level and how it relates to you, your family and country.

Reduce as much personal debt as possible, as soon as possible. If you have savings which could pay off the auto or the house, strongly consider paying it off.

Protect yourself by investing in foreign currency. You can do that either through mutual funds which convert to foreign currency or by opening up a foreign bank account.

Invest in the hard asset area which includes oil/gas, real estate and gold, silver and rare coins.

When the stock market adjusts, start investing in America. Bring back the foreign investments to America. It will help reduce our trade deficit.