It's not an Oil Crisis it's
a Dollar Crisis
May 23, 2008
It is unfortunate that the
Supreme Court, in its ruling this week that U.S. currency is
unfair to the blind, did not make the next logical step and declare
it unfair to everyone who buys gasoline.
In their search for explanations as to why oil has surged past
$130 per barrel, Washington, Wall Street, and the financial media
are as clueless as cavemen after a freak summer snow storm. Despite
the head scratching, the blame game is nevertheless in full force.
Speculators and big oil companies are being trotted out as scapegoats,
and increased margin requirements and taxes on windfall profits
and futures trading have been mentioned as appropriate sanctions.
It should be clear that this is pure farce, and that no one understands
what is actually happening.
The reality is that after years of reckless consumption and dollar
debasement, Americans are now being priced out of markets over
which they formerly held unchallenged title. As more affluent
foreigners consume more of the resources and products they previously
supplied to us, Americans are being forced to cut back. The rising
dollar-based price of gasoline is simply an illustration of this
Poorly concealed behind contrived government statistics, the
signs of America's falling standard of living are everywhere;
all one has to do is look. We are unloading SUVs for less desirable
compacts, and are paying more to fly on crowded planes (where
we pay to check luggage and dine only on what we bring onboard).
We drink our lattes at McDonalds or not at all, and we increasingly
forego dining out, trips to the mall, and vacations, just so
we can scrape together enough to fill our gas tanks and kitchen
pantries, pay taxes and insurance, or make credit card, mortgage
or car payments.
The collective belt tightening is simply the down payment on
the Government's massive bailout of Wall Street investment banks
and mortgage lenders. As the Fed creates money to buy bad mortgages
and other shaky securities held by banks and brokerage firms,
the value of the savings and wages of everyone on Main Street
will continue to fall. As a result, the costs of products previously
taken for granted have begun to bite.
The various housing bills and stimulus packages now passing through
Congress will add significantly to the staggering final price
tag. In the end, the "free lunch" currently being dished
out by Washington will be the most expensive meal ever served.
The cost will be borne by ordinary Americans citizens every time
they open their wallets. Four dollar gasoline is just the beginning.
For all the talk of increased global demand, few seem to understand
from where it actually comes. The surge in global demand is both
a function of the increased purchasing power of foreign currencies
and the fact that foreigners are choosing to spend more of their
incomes themselves. In other words Greenspan's famous "global
savings glut" is turning into a global consumption binge,
with Americans unable to crash the party. This trend will only
get worse as the dollar-denominated price of just about everything
that is either imported, or capable of being exported, goes through
We can look for scapegoats all we want but the simply fact is
Americans are going to have to get used to a much lower standard
of living. Those who have been putting all the food on
our tables are finally pulling up chairs themselves.
For a more in depth analysis
of our financial problems and the inherent dangers they pose
for the U.S. economy and U.S. dollar denominated investments,
read my book "Crash Proof: How to Profit from the Coming
Economic Collapse." Click here
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C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.