Saturday, February 23, 2008

300 Days to Create a Trillion Dollars

Last August, the near meltdown of the Sub-Prime Mortgage Markets led to a panic sell-off of stocks which quickly became a worldwide liquidity crisis. In response, an unprecedented $400 billion dollars was created at the press of a few computer keys to save the entire financial system from a wipe-out, followed by the Federal Reserve lowering interest rates by one-half a percent.

What is the root cause of the dollar crisis? The single leading factor destroying the value of the U.S. dollar is the law of supply and demand. The world has become flooded with paper dollars.

It took the U.S. government 354 years (1620 – 1974) to create the first $1 trillion dollars in circulation. It only took 300 days to create the last trillion dollars of paper money.

Somewhere there's a point of equilibrium where the demand for dollars by foreigners can no longer absorb the flood of the money supply. On that day, our country will no longer be able to pay its bills.

At the same time, everyone holding U.S. Treasury bonds, U.S. debt, or U.S. stocks may create a mad rush for the exits. In a panic sell-off, every single dollar outstanding could fall in value suddenly and dramatically. If you believe the U.S. dollar cannot fail, you'll be very surprised to learn that currency failures are not rare events. In fact, history is loaded with failed currencies around the world.

[Excerpt of an article by Michael Byrd, Austin Report]

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