The Falling Dollar

Remember the phrase, sound as a dollar? It meant that something was solid, trustworthy, and dependable. Those are not the characteristics of today's American dollar.
This is what happens when a government spends in unprecedented ways, runs up massive debt, and borrows too much from foreign countries. America's financial future does not look good. The Obama administration predicts a permanent pattern of federal deficits for the foreseeable future.
Judy Shelton, author of Money Meltdown, notes that U.S. debt is set to exceed 100 percent of GDP in 2011. It's no wonder other countries are looking for alternative ways to preserve wealth. Why would another nation want to accumulate assets denominated in dollars when its value is sinking? Holding dollars means you are holding onto a shrinking unit of account. Judy Shelton asks: "If you were a foreign government, would you want to increase holdings of Treasury securities knowing the U.S. government has no plans to balance its budget during the next decade, let alone achieve a surplus?"
It's worth noting that in the European Union, countries that want to adopt the euro as their currency must limit that government debt to 60 percent of GDP. They do so mindful of the runaway inflation of Germany's Weimar Republic. Imagine what Europeans must think of the American dollar given that the U.S. debt load could not even meet the current European Union qualifications.
Over the last few weeks, we have been hearing of countries proposing other currencies to replace the dollar. The Obama administration is also advancing a plan from an agreement at the recent G20 meeting that would set up special drawing rights at the International Monetary Fund. One or more of these proposals may end up replacing the U.S. dollar as a global currency.
We shouldn't be surprised that countries are looking for alternatives to the dollar when politicians pursue political and economic policies that make our currency no longer sound as a dollar. I'm Kerby Anderson, and that's my point of view.