US Dollar to Sink Further as Debt, Housing Crisis Deepen

Suddenly, the question marks are back. Such as: how much is that in Polish zloty?

The trouble with the financial world is that nothing stands still. We read in today’s paper that houses in the United Kingdom are down – for the second month in a row. During the housing bubble, British housing rose even more than in the United States; it probably has a lot further to go down.

But…what’s this…measured in gold, housing in the UK has been going down for the last three years!

Let’s see, if you measured US housing in gold (measured in US dollars), the average house probably cost about 650 ounces in ‘97. Now, the same house costs only about 500 ounces.

And measured in euros, the average US house cost about 250,000 in ‘98. Now, even after doubling in dollar terms, it costs only about 275,000 euros. After the costs of maintenance and taxes, the homeowner has lost ground .

But what do you care what your house is worth in euros or gold?

“Wall Street and dollar take another beating,” is the headline in the Times of London this morning.

Colleague Steve Sjuggerud forwarded a chart showing that real estate declines and bear markets on Wall Street always come together. “It’s only a matter of time…” says Steve.

Hold that thought, dear reader. And don’t worry. In today’s Markets and Money , we will clarify things. After a very long time when things seemed so very sure…

…when everyone knew the US of A. had the world’s most dynamic, most profitable, and most secure economy…when property prices were clearly going up…when there was definitely a bull market in stocks…

…suddenly, the question marks are back:

…what is the meaning of the credit crunch …?

…is Bernanke fighting inflation…or fighting deflation…?

…are stocks going up? How about the dollar? Is gold hitting another peak ?

…and what is ANYTHING worth…when EVERYTHING floats on a bubbly sea of shifting exchange rates?

Relax. Most of these questions are unanswerable…so don’t trouble yourself with them. Instead, let us look at a few things that don’t float. Let’s go back to the eternal verities…the North Star for investors.

There are a few things you can count on. Stocks always go down. Paper money always loses its value. Government always lies.

First, let’s look again at the dollar.

A couple of years ago, we dared to guess that the greenback would hit US$1.50 to the euro. At the time, everyone thought the dollar would go down. Even Warren Buffett, who doesn’t like speculation of any sort, was betting against the dollar.

It seemed too easy. Too obvious. Markets don’t usually work that way. People rarely get what they expect, because what they expect is already reflected in current prices. Instead, markets usually surprise us.

How would the dollar surprise us, we wondered?

Either it would not fall…or it would fall much more than people expected. We guessed it was the latter. And so, it is. Oil is already getting friendly with US$100. Gold is getting very close to meeting up with its highest level ever – US$850. And the euro is trading over US$1.47.

Can you count on the dollar losing more value? Yes, you can. The dollar is the I.O.U. of the USA…a nation more deeply in debt than any has ever been. It’s a cinch to go down… Central banks around the world are turning to other currencies to stock their vaults. Celebrity models are demanding payment in euros. Investors are getting interested in gold.

But exactly how…when…and against what will the dollar decline? Oh dear reader, you’re asking too much.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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2 Comments on "US Dollar to Sink Further as Debt, Housing Crisis Deepen"

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Whats more, China is holding onto USD$1 trillion in reserves.. When they decide they want out of US dollar and they use it to buy other assets, we should see a terribly big drop.

By the way, great site.

Coffee Addict
Yes but as Bill and Dan say, the tide goes out just before the tsunami comes in. Today, the US dollar is up and the Aussie is down as carry traders run for the cover of their home currencies (at least at the start of trade). People are starting to cotton on to something I’ve been pushing for a long time……… that is, everything the Fed Reserve is doing is deliberate. I can joke along with other commentators that Bernacke is an idiot but in truth he isn’t an idiot. Even if he doesn’t know much about economics he has… Read more »
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