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Dollar Peg Removed?

Q. Countries keep announcing they are ending or lessoning the dollar peg. What does it mean? And what does it matter to Americans? Is it some sort of threat to me? It sure sounds like it. If so, what kind of actions or steps should I take to protect myself and my family?

Answer:

You are wise to ask these questions. We're concerned that most Americans don't care and don't understand how it affects their lives and futures. Yet, it is happening before our eyes as we speak.

Dollar Supremacy

Since WWII purchases of oil and many other things have been in U.S. dollars worldwide. These dollars were called "petro dollars." For countries to trade oil they had to keep large reserves of U.S. currency on hand.

Foreign Reserves

The foreign reserves of U.S. currency kept the dollar strong and valuable to Americans and other countries. By pegging their own currencies to the dollar it kept local currencies stable and valuable, too.

Euro&Chinese Currencies

But, now that the euro and other currencies are available to other countries, many prefer trading in other currencies apart than dollars. They dislike American foreign policy, and they dislike the dollar which has been losing its value against almost all currencies. The falling dollar is causing inflation in their own countries. So they would rather "peg" their own currencies to the euro or other more stable currencies. (Note that the euro isn't in great shape either).




SDR Basket

Syria and other Arab nations, Russia and China are among the latest to announce their departure from holding U.S. reserves. They will begin to tie their currency to a basket of currencies held by the IMF (Intl. Monetary Fund) called the SDR (Special Drawing Rights).

This basket includes the dollar, euro, yen and British pound. By using the SDR as a peg for their own currency, they will have more stable prices within Syria, Russia and elsewhere. Many suspect that the SDR could soon become a controlled global currency - a one world currency - prophesied in the Bible! (Rev. 13:16).

Worth-Less Dollars

Remember that as long as the dollar held its value, almost all countries wanted U.S. reserves. But, now that the U.S. is "printing" more and more dollars to fund wars, entitlement programs and enormous debt, it is becoming worth less worldwide.

It is eventually going to cause inflation for Americans. We will see it in the cost of gasoline, foods, healthcare premiums, college tuition and "feeage" everywhere. Have you noticed such a pattern?




Deflation

However, be aware that we may be entering a period of "deflation" as more and more states, cities, organizations and people default upon their debts. This could last for several years according to the best experts. So be careful where you keep your cash funds - highly rated banks and treasury-bills may be best.

Meaning of Printing Dollars

By the way, note that "printing" more dollars is not a literal term - it doesn't mean that we are making more green paper-dollars. Rather, it means that there are more and more computer entries for debt. This will eventually cause costs to rise everywhere. That is because since our dollar is worth less it will take more dollars to buy things.

ENRON Dollars

To illustrate this think about what happened to Enron stock several years ago, for example. As long as traders wanted the stock it traded at around $80 per share. But, as soon as people realized that it was becoming worthless they tried to dump it on the market. Sellers flooded the stock exchange with sell orders. But, who was willing to buy it? Since there were no buyers its value plummeted. In the same way, once countries no longer use or want the U.S. dollar, it will plummet in value. This is what we see happening now.

Flash Crash

We saw the same thing happen on May 6, 2010, during the so-called "flash crash." Decent stocks and ETFs selling for $80 per share crashed to pennies within a short period of time. There were no buyers.




Hyperinflation

After a short period of deflation experts tell us we may enter a period of hyperinflation. For example, as the dollar falls we could see milk rise from $3.50 per gallon a few years ago to around $15 in the near future. Gas may rise from $2.50 several years ago to around $5 or $10 per gallon. If it really gets bad we might purchase a jar of coffee for $9 in the morning but find it sells for $20 per jar by evening. This is what "hyperinflation" looks like. Argentina, Israel, and Russia have experienced this within the last decade.

If something does not change soon, we will see healthcare premiums look like unstable costs in South America, or in hyperinflationary Germany before Hitler rose to power.

For instance, we have friends who paid $185 monthly for healthcare insurance. But, then their premiums were raised to $1200 monthly for even fewer services! This did not happen gradually. The premiums were hiked within one month. This is why more and more Americans are dropping health insurance. They can no longer afford it. Hopefully this will change soon. But, don't count on it.



Protection

What can we do to protect ourselves?

1. Pray

First, remember to pray the "Lord's Prayer" to our Father. He tells us to pray: "Give us our daily bread" (Matt. 6:9-13). He has promised to supply all of our needs: "And my God will supply every need of yours according to his riches in glory in Christ Jesus" (Phil. 4:19). And He reminds us to ask for everything: "Ask, and it will be given to you" (Matt. 7:7-8).




2. Purchase things on Sale

In times of deflation when things are on sale, buy them in quantity. Buying "stuff" is one way to fight future hyperinflation. Because the value of the dollar will eventually drop quickly in value, things like toilet paper or canned goods can become a form of "currency" to replace the falling dollar. Soon, Americans may find that buying and selling things on eBay becomes the new currency!

Toilet Paper Brings Better Return Than Bank Rates

Many Americans will learn that buying necessary goods in quantity pays a better return than keeping money in the bank! We earn zero percent in the bank while goods increasingly cost more at the store. Buying toilet paper in advance costs less today than it will cost tomorrow. If we just let our money sit in the bank we will have to use more of our funds to buy the same things tomorrow. Be wise!

3. Lower Living Standards

The Bible tells us not to "desire your neighbor's house, his field, or his male servant, or his female servant, his ox, or his donkey, or anything that is your neighbor's" (Deut. 5:21).

This is one of the Ten Commandments. Yet, we have forgotten it!

All of us need to quit competing with our neighbors for fancy houses, furniture, clothing, and cars. We need to lower our standard of living and become more grateful for what we do have. (For instance, when did you last thank the Lord for hot water and modern plumbing? For food? For clothing? Shelter?).

4. Focus on Things that truly Matter

Memorize and teach your children:

"One life to live twill soon be past -
Only what's done for Christ will last."

King Solomon said it this way:

"The conclusion, when all has been heard, is: fear God and keep His commandments, because this applies to every person. For God will bring every act to judgment, everything which is hidden, whether it is good or evil" (Ecclesiastes 12:13-14).

_________________________________




References


Alcorn, Randy. 2003. Money, possessions and eternity. Wheaton, ILL: Tyndale.

Boss, Shira. 2006. Geen with envy: why keeping up with the Joneses is keeping us in debt. New York: Warner Business.

De Graaf, Wann,&Naylor. 2003. Affluenza: The all consuming epidemic. San Francisco: Berrett-Koehler.

Simon, Arthur. 2003. How much is enough? Hungering for God in an affluent culture. Grand Rapids, MI: Baker.










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