A Currency Crisis Developing Internationally

The United States dollar is a currency which is in crisis. Its purchasing power has been eroding in fits and has started since World War II. The 1945 dollar is now worth less than ten cents. The 1970 dollar is now worth about twenty-one cents. The 1980, in which time the Americans were constantly reminded that the inflation was under control, is now worth about forty six cents. Against two of the dollar’s strongest competitors, the Swiss franc and the Japanese yen, its performance has been dismal. In 1985, it would cost Americans forty cents to buy a Swiss franc and point four cents to buy a Japanese yen. In 2004, it cost eighty cents to purchase the same Swiss franc and nearly a whole cent to purchase a Japanese yen. Basically speaking, the dollar has lost its value against two of the world’s major currencies over the past two decades. In short, we are moving the wrong direction on a one way street. One of these days, the oncoming rush will overwhelm us.

Throughout history, assets which are denominated in a currency which has gone wrongly can eventually be submerged in an ocean of debased paper value, which sometimes will never recover – the infamous German Inflation Nightmare of the 1920s being one of the most outstanding examples. In that obvious episode of a currency gone wrongly, the wholesale inflation index changed from one to seven hundred twenty-six billion. One persons life savings couldn’t bu y a cup of coffee or a loaf of bread. People would stand in lines very early in the morning to buy groceries that they knew that the prices would go up by the afternoon. Salary earners would get paid two times a day and their wives would wait at the factory doors for their husbands’ paycheck to buy their needs before the prices would go up again.

The United States has never seen inflation get to that level which is so advanced and desperate, the many parallels between 1924 Germany and present day United States are reason enough for us to be concerned. Not many people can look at the constant depreciation of the dollar since the 1970s and do not notice the warning that the currency could someday become uncontrollable. We seem to not have a difference with 1924 Germany only in the duration between the effects and their causes.

The German situation was solved over a few years’ time, our situation has become more protracted. This has occurred because of two main reasons. The first reason is because American central bankers have learned sufficiently from the experience of the Germans to extend, delay and make the consequences of making money printing excessively more tolerable. The second reason is that Germany was a small state which was isolated from the rest of the world, it was a pariah nation of sorts after World War I victory of the Allies over them. Due to this it had a difficult time trying to find a market for the bonds of their government. The deficits that Germany had had to be financed internally – it was an impossibility that made the government’s printing of fiat money go faster.

Fiat money or currency is paper money that is declared to be a legal tender by the government, although it doesn’t have any intrinsic value for a fact and isn’t upheld by any reserves. Most of the world’s paper money is considered a fiat currency. Until not so long ago, the United States could boast of an unquestioned and strong demand worldwide because of its governments bonds, so the effects that were negative of the government deficits were subdued. Whereas presently, the growth of low interest rates are creating fear among the nations which are: The United States, Canada, Italy, France, Japan, Germany and The United Kingdom. The United States’ deficits are uncontrollable and has threatened the U.S. Treasury securities which are abroad. Although central banks have not yet given up hope for the dollar, they have slowed down their purchase of this currency. If the market outside of the United States dries up, the federal reserve, will be forced to monetize a larger amount of the debt to make the government continue working, like what happened to the German central bank of the 1920s.