“The Return of the Dollar”
Courtesy Ice Cap Asset Management.
During the 19th century, the sun never had a chance – the British Empire spanned the globe soaking it up 24 hours a day. Eventually, the Empire grew too big, became too bloated, and had too many interests in too many places. Its eventual decline should have surprised no one.
Next up to rule the World was America. Millions of eager immigrants flooded the New World and planted the seeds which created the most powerful empire since the days of Julius Caesar. Yet as all good things must come to an end, so to will the American Empire.
While nobody is exactly sure when the transition will occur, America’s bloated debt problem and unfunded future liabilities all but ensures the day will come. And when that day arrives, we are confident the US Dollar will be worth considerably less than it is today.
However, a funny thing happened on the way to USD devaluation – Europe is getting in the way. Thanks to a disastrous handling of Europe’s debt crisis, Ben Bernanke and the US Federal Reserve will become the recipients of billions of Euros, Swiss Francs, British Pounds and other currencies resulting in a strengthening of the USD.
All money needs a home. And due to its status as the World’s reserve currency, the USD becomes the home of choice for everyone during times of crisis. As the debt crisis in Europe rolls into Rome, everyone everywhere should fully expect the USD to strengthen as a result.
Setting the record straight
Before we go any further, we feel it is important to share our long- term view of the USD. In short, it’s going to stink. Just as Europe is facing an enormous debt problem, the US is also facing a difficult fiscal squeeze with no easy way out.
However, unlike the Europeans the Americans do have a plan to get out of their debt crisis – after all, they didn’t develop into the World’s sole superpower without one. Forget about trying to be like the Europeans and creating some sort of confusing bailout fund – the Americans already have their bailout fund in the form of the US Federal Reserve. Plain and simple.
While others often say the US will default on its debt at some point, we have a somewhat different view. Yes we believe a default will occur, however it won’t be the typical default whereby the US simply stops making interest & principal payments. The US Federal Reserve has the capacity to print unlimited amounts of USDs and they will use this capability to eventually make the USD considerably less than it is today. After all, a cheaper USD means America’s products are cheaper for foreigners to purchase, and these cheaper goods means more jobs in the long run – and who doesn’t want to work?
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