The day the dollar died

It's 4:00 am on a cold December morning.  I get a call from one of my buddies from the investment club.  He is in a panic.  The stock futures, gold, oil and interest rates are all acting crazy today.  It is too early and he's not sure if his mind is playing tricks on him, he needs confirmation.

I go downstairs and turn on the TV.  Jim Cramer is ranting about how we have lost our place in the world.  He looked like he was almost in tears.  The "dollar" , he kept saying "is no longer the world's reserve currency".  "It was bound to happen one day, these idiots in Congress know nothing!!".  Deja vu all over again.

I check the futures.  The Dow points to a 30% decline at the opening.  A potential 4,500 point decline from yesterday. I check the futures for my retirement plan.  I could be down as much as 40% and there is not a single thing I can do just now.  My retirement plans have now been postponed by at least another decade.  I am starting to panic as well.

I text my other buddies from the investment club and we start a conference.  Maybe as a group we can figure out what we can do. It is 4:25 am, it is pitch dark outside and I have this sinking feeling that my life has just changed.  On the call, we start to piece together a picture of what is going on.

The dollar has dropped dramatically against all other currencies during Asian and European trading. The Euro and the Chinese RMB are up 25%.  Gold and Oil have jumped up as well.  The USD long bond is being crushed this morning.  Interest rates for all US government securities have tripled overnight.  Trillions of dollars of value in pension funds have evaporated.  Some markets have reached their limits and have been halted.  We are in the middle of a full blown, worldwide financial panic.  Everyone is a seller.  Only the central banks are doing any buying, backed by freshly printed, imaginary money. The financial house of cards that was kept together with duct tape and bubble gum since the last crisis has finally crumbled.

As Congress left on vacation in December for their break without an agreement on spending, it was anticipated that the US would have another debt ceiling showdown in late January. Dozens of countries increased their selling of USD assets. Some truly large transactions hit at the same time and a tipping point was breached. The dollar started a free fall that fed on itself.  It triggered a new worldwide recession and the end of the dollar as a reserve currency.  The world changed that morning.

In a matter of days, the price of gasoline in the US goes from $3.5 to $6 per gallon.  Most of the prices of food increase.  We are all feeling the pinch but our incomes are not increasing, our investments are worth less and the Fed's hands are tied, they need to print more money to keep the markets working.  Companies start announcing layoffs, as they forecast lower demand for their products.  In less than a month, we are in another place as a country.  It is an economic 9/11. A self inflicted one.

The point of this article is to remind you that all the theatrics in Congress are having a negative effect on all of us.  A small but noticeable one so far, maybe we are growing GDP 1-1.5% less that we would without this Congress driven uncertainty.  This is making the debt issue worse and eroding the confidence of our business partners overseas.

Rein in your representatives, whoever you voted for.  Encourage them to keep the interest of the whole country in mind and to act with decorum.  Right now, their behavior is signaling to the world that the US no longer has a reliable government or a strong currency.  If enough number of people worldwide get to believe this, the markets will make it so.