Street Smarts by Jim Rogers

Author:Jim Rogers
Language: eng
Format: mobi
ISBN: 9780307986092
Publisher: Crown Publishing Group
Published: 2013-02-04T16:00:00+00:00

9

“CAPITALISM WITHOUT BANKRUPTCY IS LIKE CHRISTIANITY WITHOUT HELL”

The Federal Reserve chairman, by law, is required to report twice a year to Congress on the Fed’s monetary policy and is called to testify on numerous other issues at various times. I heard Bernanke testifying on one of these occasions—I was in a hotel room somewhere, and the television was on—and when asked to comment on the decline of the dollar, he answered that it was of absolutely no consequence except to Americans traveling abroad. I stopped what I was doing and looked very closely at the man on the TV screen, to see whether he was lying, or if he really did not know. Making a statement like that is a little bit like saying that whether the sun comes up in the east is of no consequence to the average American unless he or she happens to be looking east.

Say you own IBM, and it goes from $100 to $200. You have made money in US dollars, but if the value of the US dollar declines by 50 percent, you have not made any money at all—you cannot afford any more Scotch whiskey than you could before, you are no better-off in terms of your ability to buy a Toyota, both of which imports have effectively doubled in price. You are no better-off in terms of purchasing anything from abroad. Including things like petroleum. Even if the value of everything else stays the same, the fact that your dollar has declined means your standard of living has declined.

If the dollar goes down, imported tires go up in price, and that affects you as an American even if you do not buy your tires from Michelin, because Goodyear is going to raise its prices, if for no other reason than to cover the increased cost of imported rubber. If the dollar declines, Saudi Arabia, which sells oil denominated internationally in US dollars, is receiving less value. How long do you think that is going to be allowed to happen? For every sheik, the price of a Mercedes goes higher. Just to maintain their standard of living, the Saudis are going to have to raise the price of oil, and the smart and most effective way to do so is to cut the supply.

This is the nightmare of inflation. You may think you are better-off because your IBM shares have doubled in price—or maybe your salary has gone up—but then when you look around, you see that you are paying more for everything. You are paying more for gasoline. You are paying more for food. Your dollar is worth less and less against everything … against other currencies, against rice, against gold …

If the dollar goes down, the decline has a widespread effect on everything you as an American buy, everything you do, and pretty much everything that goes on in the rest of the world. It is Economics 101. Bernanke, testifying before Congress that the dollar’s decline is inconsequential, did not

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