It seems that the title of this article is a cheap attempt to attract as many readers as possible. However, anyone who is aware of current trends affecting the greenback’s future value knows that the title is more prophetic than cliché. Yes, recently, the dollar has gotten relatively stronger against other currencies. But, due to a combination of events (past, present, and future) this won’t last. As a matter of fact, at some point in the future the dollar may need life-support to survive.
Life support? Those are fairly harsh words you might say. Well consider this, the standard definition of inflation is too many dollars chasing too few goods. This week it was reported that unemployment hit a 25 year high at 8.1 percent. If you include all the discouraged workers who have given up looking for work, like the government use to include in the rate, the number balloons to between 14 and 20 percent!. We have not seen numbers like this since the 1930s. It makes sense that this many unemployed workers will generally reduce national production of goods. Combine this reduction due to unemployment with the trillions of new dollars the Fed and Treasury have injected into the economy in the last year and you have a recipe for a strong decline in the value of the dollar and much higher prices.
So, where has all that new money the government and central bank has injected into the economy gone? The answer is into savings accounts and bank balance sheets. Government figures show that the household savings rate jumped to 5 percent in January from 0 percent last spring — the highest rate since 1995. Back in December, the cash reserves of banks in the U.S. increased to $774.4 billion from $604.7 billion in November and an incredible $2.39 billion in December 2007. Thus, the new money along with trillions pulled out of the stock market sits on the sidelines and not in circulation where it would be making for higher prices. At some point, when banks resume lending and consumers spend their savings on fewer goods, the deluge of cash into circulation will significantly debase the value of the dollar and cause an inflationary depression the likes of which we have never seen.