Many Global Investors Losing Faith In Dollar

With the US debt level steadily rising, many global investors would rather put their faith in gold. The US dollar continues to lose credibility as the global currency …

With the US debt level steadily rising, many global investors would rather put their faith in gold. The US dollar continues to lose credibility as the global currency standard, and experts are predicting that gold will keep increasing in value over the long-term. See the following article from Commodity Online for more on this.

As US dollar declines and global currencies turn volatile, more and more global investors and investment advisors are turning their heads towards the hottest investment asset these days: gold.

James Grant, a global financial expert, is reposing his faith in gold in place of the US dollar. “Return to the gold standard is the best possible solution in these times of financial troubles,” he says.

In an article in The Wall Street Journal, Grant points out that that investors around the world are losing faith in the dollar and the problem lies with its management. “The dollar is a glorious old brand that’s looking more and more like General Motors…There is nothing behind it but congress.”

Grant now agrees with global commodities guru Jim Rogers that the value of US dollar as a foreign exchange reserve for several countries is declining and coming to an end. Rogers has been proclaiming loud these days that US dollar is practically dead and it is time to dump dollar and diver investments to commodities and other asset classes.

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James Grant, editor of Grant’s Interest Rate Observer, said in his article: “The dollar is faith-based…But now the world is losing faith.”

He says Federal Reserve Chairman Bernanke fails to appreciate the fact that “the pure paper dollar is a contrivance only 38 years old, brand new really, and that the experiment may yet come to naught.”

Grant recounts the history of the gold standard and the current lack of an “adjustment mechanism” to prevent balance of payments deficits noting that “not since 1976 has this country consumed less than it produced: a deficit of 32 years and counting.”

The cause of the credit crisis and ensuing recession was too much credit and too much leverage. The prescription offered by central bankers and politicians to cure the disease has been more of which made the patient sick in the first place – more credit and more leverage; this time not from the private sector but from the public sector.

After the sugar high wears off, an even greater amount of debt and deficits will exist than there was pre-crisis and the integrity of fiat currencies across the globe could be obliterated. Mr. Grant insightfully points out that “The lifespan of no monetary system since 1880 has been more than 30 or 40 years.” This is the real story behind the rising gold price – and notwithstanding corrections along the way, a trend that looks set to continue in the years ahead.

Real interest rates (interest on a risk free government bond minus the inflation rate) were negative in the US between 1973 and 1980 and gold returned 32% per annum! Similarly, the median rate of interest has been negative since 2002 and today, a period where gold has returned nearly 19% on a compounded basis. Also, stocks turn out to be a bad investment if gold soars and vice versa.

James Grant is not alone in taking the dollar to the cleaners. Marc Faber, another widely followed investor of our times, also holds a similar opinion. Faber has argued that the Dubai episode is a reminder that governments too can default and hence, investors should steer clear of government bonds of countries that are knee deep in debt and the US is indeed amongst the top contenders for the same. “Nothing has been resolved, it’s just being postponed…The ultimate crisis will not just bankrupt the banking system and financial as happened in 2008, it will bankrupt governments,” Faber has noted. Looks like all roads lead to the US dollar as far as doomsday is concerned.

This article has been republished from Commodity Online. You can also view this article at
Commodity Online, a commodity news and analysis site.


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