THE FINANCIAL WARNING YOU WERE NEVER SUPPOSED TO HEAR 25
But once the sterling lost its lead reserve currency role to the
dollar, inflation exploded. The index hit 757.3 by 2005. In other
words, during the 255 years of the index, prices increased by
200% in the first 185 years while the sterling was the lead reserve
currency, but went up 5,000% in the 70 years that followed.
Price stability seems to be the norm for money with reserve
currency status, but once that status is lost, inflation is dominant.
The decline of the dollar as a reserve currency started in
2000 with the advent of the euro and accelerated in 2010 with
the beginning of a new currency war. That decline is now be-
ing amplified by China’s emergence as a major creditor and
gold power. Not to mention the actions of a new anti-dollar
alliance consisting of the BRICS, Iran and others. If history is a
guide, inflation in U.S. dollar prices will come next.
In his 1925 poem The Hollow Men, T. S. Eliot writes: “This
is the way the world ends/ Not with a bang but a whimper.”
Those waiting for a sudden, spontaneous collapse of the dollar
may be missing out on the dollar’s less dramatic, but equally
important slow, steady decline. The dollar collapse has already
begun. The time to acquire insurance is now.■ On the Knife-Edge of Runaway inflation and
Destructive Deflation
Today’s investment climate is the most challenging one you
have ever faced. At least since the late 1970s, perhaps since
the 1930s. This is because inflation and deflation are both pos-
sibilities in the near term. Most investors can prepare for one
or the other, but preparing for both at the same time is far
more difficult. The reason for this challenging environment is
not difficult to discern.
Analysts and talking heads have been wondering for five
years why the recovery is not stronger. They keep predicting
that stronger growth is right around the corner. Their forecasts