Tonight on CNBC there is a major article with warnings that the dollar is dying. That is Phase Three as we described it in our initial Pentagon White Paper from 2008, the official report on Economic Warfare for the Department of Defense in 2009, various briefings and articles in 2010 and 2011 and our best-selling book Secret Weapon last year. The message we have presented has been extremely consistent. It is well-supported by research and intelligence reports. Now, it is happening right before our eyes.
Before we look at today's CNBC story, take a few minutes and review the following posts:
They said it wouldn't happen….dollar to lose reserve status
[This post is important because it documents that in 2009 according to leaked cables, the best economists in the world predicted that dollar would retain its status as the primary reserve currency for decades.]
The Shape of Things to Come
[This post explained how and why China might want to unseat the dollar.]
The Death of the Dollar
[This post explains how Greece wasn't a problem until people decided it was a problem. It explains how the global financial markets could turn on America almost as quickly.]
Don't Worry, Tim Geithner Says the Dollar Will Be Fine
[This post shows that less than a year ago our Treasury Secretary was telling Americans that there should be no worries about the dollar regardless of deficits, debts, and other factors. It also contains quotes from our 2009 DoD report:
The main point is that we are now fully vulnerable to a Phase Three attack as we described starting in early 2009. Here are direct quotes from the report we prepared for the Pentagon:
"The risk of a Phase Three has quickly emerged, suggesting a potential direct economic attack on the U.S. Treasury and U.S. dollar. Such an event has already been discussed by finance ministers in major emerging market nations such as China and Russia as well as Iran and the Arab states. A focused effort to collapse the dollar by dumping Treasury bonds has grave implications including the possibility of a downgrading of U.S. debt forcing rapidly rising interest rates and a collapse of the American economy. In short, a bear raid against the U.S. financial system remains possible and may even be likely."
Yes, It Can Happen Here . . .and it will Unless . . .
In addition to those posts, we also explained how and why a variety of foreign nations would like to see the dollar collapse. Here is a small sample:
But Aren't We Joined at the Hip with China?
The Rise of the Yuan
Putin Wants Russia and China to Join Forces Against the West
Is The Dollar Our Greatest Vulnerability?
BRICS Call For Dollar's Demise
Why is Hugo Chavez Taking His Money Out?
In the case of allies, they see the writing on the wall and are moving away from the dollar as well:
We Are Losing Allies in this Economic War
Now, there are many who will claim that the dollar's troubles are homemade. And they have a point. We have run up enormous deficits. But, if you read Secret Weapon, or review the official DoD report, you will see that much of our debt has been built responding to a variety of economic attacks that have taken place with the intention of forcing us into this very situation. Here is that awareness explained in Foreign Policy magazine:
From Osama bin Laden's earliest declaration of war against America, al Qaeda has linked its attacks to the U.S. economy. He and other salafi jihadi thinkers had long believed that economic power was the key to America's military might; they thus saw weakening Western economies as their path to victory . . .
In October 2001, just after he put this strategy to work by striking the World Trade Center and the Pentagon, bin Laden spoke with Al Jazeera journalist Taysir Allouni (who is now imprisoned in Spain, following his controversial conviction for cooperating with al Qaeda). The terrorist leader emphasized the costs that the attacks imposed on the United States. "According to their own admissions, the share of the losses on the Wall Street market reached 16 percent," he said. "The gross amount that is traded in that market reaches $4 trillion. So if we multiply 16 percent with $4 trillion to find out the loss that affected the stocks, it reaches $640 billion of losses." He told Allouni that the economic effect was even greater due to building and construction losses and missed work, so that the damage inflicted was "no less than $1 trillion by the lowest estimate."
The financial effect of direct terrorism has been substantial, accounting for a significant portion of our overall debt. What's worse, however, is the impact of financial terrorism as we have been documenting. And, the advantage, according to Chinese publications, is that it will go largely unnoticed as an attack but rather be seen as normal economic forces at work. From an official publication of the Chinese Communist Party:
"Of course, to fight the US, we have to come up with key weapons. What is the most powerful weapon China has today? It is our economic power, especially our foreign exchange reserves (USD 2.8 trillion). The key is to use it well. If we use it well, it is a weapon; otherwise it may become a burden," it said.
China, it said, should ensure that fewer countries should keep their forex reserves in US dollars. "China, Japan, the UK, India, and Saudi Arabia are all countries with high foreign exchange reserves," it said analysing each country's ability to align with China against the US.
So in view of this China should "pick up courage" and go for aggressive buying of other currencies, including the Indian Rupee hence taking the lead in affecting the market for US dollars.
This approach, it said, is market-driven and it will not be able to easily blame China.
"Of course, the most important condition is still that China must have enough courage to challenge the US currency. China can act in one of two ways. One is to sell US dollar reserves, and the second is not to buy US dollars for a certain period of time," which will weaken the currency and cause deep economic crisis for Washington.
Given the fact that China is the biggest buyer of US debt, its actions will have a demonstrable effect on the market.
"If China stops buying, other countries will pay close attention and are very likely to follow. Once the printed excess dollars cannot be sold, the depreciation of the dollar will accelerate and the impact on Americans wealth will be enormous.
"The US will not be able to withstand this pressure and will curtail the printing of US currency," it said.
So, keep in mind that the best economists in 2009 fervently declared the U.S. dollar to be the near-permanent reserve currency of the world. We said otherwise. Then, the Treasury Secretary proclaimed the dollar almost invulnerable in 2011 and later in 2012. We said otherwise. Even today, many people still believe the dollar is, well, "as sound as a dollar." We know better. We call this the myth of dollar permanence.
Now, with all that background, let's explore tonight's CNBC headline:
Is the Dollar Dying? Why US Currency Is in Danger
WALL STREET, BUSINESS NEWS CNBC.com | Thursday, 14 Feb 2013 | 12:49 PM ET
The U.S dollar is shrinking as a percentage of the world's currency supply, raising concerns that the greenback is about to see its long run as the world's premier denomination come to an end.
When compared to its peers, the dollar has drifted to a 15-year low, according to the International Monetary Fund, indicating that more countries are willing to use other currencies to do business . . . CONTINUE READING AT CNBC . . . .
Now let's review a couple of quotes from that story:
"Generally speaking, it is not believed by the vast majority that the American dollar will be overthrown," Dick Bove, vice president of equity research at Rafferty Capital Markets, said in a note. "But it will be, and this defrocking may occur in as short a period as five to 10 years."
"To the degree that China succeeds in increasing its market share of the world's currency market, the United States is the loser," Bove said. "For years, I have been arguing that the move of the Chinese makes perfect sense from their point-of-view but no sense for the Americans."
For a country with a budget deficit in excess of $1 trillion a year, the consequences of losing standing as the world's reserve currency would be dire.
"If the dollar loses status as the world's most reliable currency the United States will lose the right to print money to pay its debt. It will be forced to pay this debt," Bove said. "The ratings agencies are already arguing that the government's debt may be too highly rated. Plus, the United States Congress, in both its houses, as well as the president are demonstrating a total lack of fiscal credibility."
"The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world's reserve currency," said Michael Pento, president of Pento Portfolio Strategies. "It's a thousand times more important than a nuclear bomb being tested by North Korea. It's a thousand times more important that we keep the dollar as the world's reserve currency, and yet we are doing everything to abuse that status."
The dollar's seemingly precarious status is why Pento remains bullish on gold and believes the dollar's demise as the premier reserve currency could end even sooner than Bove predicts — perhaps by 2015.
"Five to 10 years — that would be an outlier," he said. "I would say 2015, 2016, that would be the time when it becomes a particularly salient issue. When we're spending 30 to 50 percent of our revenue on debt service payments, we enter into a bond market crisis. The dollar starts to drop along with bond prices. That would set off the whole thing."
We fear that Michael Pento might be too optimistic. Once the world decides to turn on the dollar, it will collapse quickly. As we have documented, there are a number of key global players pushing for that to happen sooner rather than later. The good news is that we can and should prepare a strategy of response. We have outlined some sensible measures in our book and reports. This is a global economic war and we must understand that before it is too late.