The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

Why Is the Dollar the World’s Favorite?

The Fed is basically the credit card that the Treasury uses to finance the government’s budget deficit.

Now hear this, foreign central banks do the same thing! And it’s not because they love the United States or they want to help finance its borrowings. It’s because they want to spend, spend, spend themselves.

Bank regulators from the domestic all the way to the big macro Basel authorities consider U.S. bonds as such high quality assets that you don’t need bank reserves to back them up. So when foreign governments want to spend, they’ll make good their overleveraged balance sheets by filling up on U.S. Treasuries. That’s exactly why only 10 to 20 percent of the U.S. Treasury’s debt is held by the private (read: nonbank, nongovernment) market.

The catch, as it was in the 2008 crisis, is to get on firm ground before the music stops. When newly created money flows through the banking system, you want to be the person who gets to it first, not last. And nobody wants to reveal the true cost of this money. They want to tell you it’s free.

In 2002, when Ben Bernanke was a lowly new Fed hire addressing D.C.’s National Economists Club, he said just this:

Under a fiat [that is, paper] money system, a government [in practice, the central bank in cooperation with other agencies] should always be able to generate increased nominal spending and inflation, even when the short term nominal interest rate is at zero. . . . The U.S. government has a technology, ...