Sometimes there are things in life that happen so suddenly that they take us completely by surprise. But there are other things that happen so slowly over a period of so many years that you can see them happening from a mile away. The collapse of the U.S. dollar falls into the second category. For years, many observers have been warning that if we did not fundamentally alter our economic policies that the U.S. dollar would eventually collapse. In fact, U.S. Representative Ron Paul has been warning about the demise of the dollar for decades. We can all see it happening in slow motion, and yet the U.S. government still does not seem to have the will to do anything about it.
In fact, the financial crisis of 2008/2009 greatly accelerated the ultimate collapse of the U.S. dollar. Former Treasury Secretary Hank Paulson says that the U.S. economy came "very close" to collapsing into a second Great Depression during that time, and he is actually correct. If the U.S. government and the Federal Reserve had not stepped in with massive bailouts at that point, we would have had a financial apocalypse.
But while the bailouts helped stabilize the U.S. economy for the moment, they actually made our long-term problems much, much worse.
It turns out that instead of $700 billion, it was actually $23.7 trillion that the Federal Reserve gave banks access to during the financial crisis. During the financial crisis, the U.S. government and the Federal Reserve flooded the U.S. financial system with dollars.
This helped the U.S. banking system weather the storm, but it also hastened the ultimate destruction of the dollar.
Why?
Because each time more dollars are introduced into the economy, the value of each existing dollar goes down. Just check out the following chart from DollarDaze.org....
When the number of dollars goes up, the purchasing power goes down. It is simple mathematics.
Every time the amount of money in circulation goes up, it destroys each dollar that you own by just a little bit more.
So did all of those bailouts put our economy back on the right track?
No.
In fact, those in charge of monitoring the TARP program are warning that it may have created an even bigger financial crisis to come.
The Inspector General for the Troubled Asset Relief Program recently released the Quarterly Report to Congress for the period ending 12/31/2009. The executive summary of that report contains a frightening assessment of the impact of TARP. You have got to read this....
The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.
- To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.
- To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
- To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.
- To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.
Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.
Wow.
Remember, this is an official government report.
For an official government report to say that "we are still driving on the same winding mountain road, but this time in a faster car" is absolutely stunning.
The truth is that the U.S. economy and the U.S. dollar are headed for big trouble.
The U.S. financial system will fail again, and more bailouts and more government cash will be needed.
So what will happen next time?
For the moment, though, life is good for companies that have been bailed out. For example, AIG was scheduled to distribute about $100 million in bonuses to its employees on Wednesday.
Ouch.
It is time for the American people to wake up and realize what is happening to their economic system. It is slowly dying, and in the short video below, Ron Paul actually warns that when the U.S. economy and the U.S. dollar do die, we may see a complete breakdown of law and order in society.....
