Dollar crashes against yen! Time to act!

Martin here with an urgent update on the dramatic events that took place late last week and what they could ultimately mean for you …

Just when the worldwide onslaught against the U.S. dollar seemed to be temporarily subsiding, a new round of attacks hit Friday — this time from Japan.

On August 30, in a landslide election victory that shook the world, the left-of-center Democratic Party of Japan derailed the ruling party and swept a new leader to power, Yukio Hatoyama. It was the most significant tipping point in that country’s politics since 1955.

Now, 30 days later, we are starting to see the repercussions for the U.S. dollar: For the first time in decades, the new Japanese regime is effectively giving up supporting the greenback in the currency markets!

The consequences are immediate: Just this past Thursday, the U.S. dollar could buy 91.27 Japanese yen. By the end of the day Friday, it could only buy 89.63 yen.

In just 24 hours, the dollar fell by 1.81 percent, more that it would typically fall in 24 DAYS!

But if you think the dollar decline is far removed from your daily life, think again.

The Dollar Decline Could Deliver
A Major Blow to Your Wealth

Right now, American households own $67.2 trillion in assets, including stocks, bonds, and real estate.

Here’s the key: If measured in terms of Japanese yen, just between the close of business Thursday and close of business Friday …

Over one trillion dollars in American wealth was wiped off the map! All in just 24 hours!

Unfortunately, most people have no idea this is happening, and even if they did, no sense of how it could impact them. Their typical reaction:

“I don’t care how much the dollar is falling in Japan, Europe, or any other country. All that concerns me is what happens with my money right here in the United States.”

But there are four fatal flaws to this rationale:

Fatal Flaw #1. Your money isn’t just falling in far-away markets. It’s falling everywhere.

When the value of your money crashes globally, it also falls domestically.

Already, the cost of more than 90 percent of the products sold at Wal-Mart (all produced overseas) is being impacted.

Already, the vast majority of products sold in electronics stores, furniture stores, and appliance stores are being affected.

Ditto for the lion’s share of the oil, gasoline, and heating oil you buy.

So when the dollar falls, you ultimately pay.

Fatal Flaw #2. Your money isn’t really yours. A lot of it is actually theirs.

It’s been loaned to America by the very same foreign countries where the dollar is falling the fastest — Japan, China, the eurozone, and other countries. And it’s being loaned to America …

To finance the massive $1.58 trillion federal budget …

To fund our addiction to debt …

And to once again fuel the borrow-and-spend binging that helped create the financial crisis in the first place.

Fatal Flaw #3. When they want their money back, they GET it back.

When foreign central banks and investors want to pull their money out, they don’t have to grovel to the U.S. Treasury Department or wait on line at the Fed. They merely issue sell orders to liquidate their U.S. investments, convert them into cash, and exchange them for other currencies.

So far, this process has typically been orderly, with no panic. But if the action in the Japanese yen on Friday is any indication, it may not stay that way for long.

Fatal Flaw #4. They can sink YOUR investments.

The more the dollar falls, the more they want to sell. And the more they sell, the further the dollar falls.

But dollars aren’t sold in a vacuum. Whenever foreign investors and governments sell U.S. our dollars, they’re also selling U.S. stocks, bonds, and real estate.

And that’s how it comes back to bite ordinary Americans on the rear end, causing potentially big losses in the $67.2 trillion of household wealth.

The Unfathomable Risk
Our Leaders Are Taking

The U.S. dollar is not going to die. But our leaders are taking an unfathomable risk with our money and our destiny as a nation.

Every time we run budget deficits, we must go, hat in hand, asking for money from central banks and investors in Asia, Europe, and even Latin America.

Every time we run a trade deficit, spending more on imports than we earn on exports, we run back for still more money from Asians, Europeans, and Latin Americans.

And now, after thousands of such trips and billions of such transactions, the U.S. now has a total of $7.9 trillion in liabilities to foreigners.

Why It’s Now Far More Difficult to
Postpone the Day of Reckoning

Until recently, we were able to continually postpone our day of reckoning as a nation.

The U.S. dollar was king, the only reserve currency. And the U.S. financial market was the only game in town big enough to satisfy the needs of overseas investors. So they had to keep most of their money in dollars, whether they liked it or not.

They had no choice.

Whenever they lost faith in other countries — Argentina, South Africa, Thailand, or even a country like Great Britain — they could pull out along with hoards of others, sending those financial markets into a tailspin. But when the United States made similar mistakes, it got away with it.

And so it was that we merrily ran huge deficits, borrowed to the hilt, and continued to party as if nothing were wrong. And that’s why, despite it all, overseas investors continued to pour more and more money into America.

In the 1980s, it was primarily cash-rich Japanese who led the way, investing billions in U.S. stocks and bonds, helping to lift the Dow and Treasuries out of their worst slumps of the postwar era.

In the 1990s, it was mostly Germans who played that role, helping to drive the big tech boom.

And in the 21st century, China has become the big provider of new funds to the U.S.

But now all of this is changing and we’re nearing the end of the line:

• Foreign central banks have sought — and begun to find — viable alternatives to the U.S. dollar as a reserve currency.

• China and others have pushed progressively harder to replace the dollar with a basket of currencies.

• The United Nations has proposed a similar scheme, creating a new monetary system.

• And this past week, as I mentioned at the outset, even Japan, America’s staunchest and richest financial ally, is beginning to abandon its long support for the U.S. dollar.

But U.S. authorities remain conspicuously complacent. Despite rhetoric supporting the greenback, both the U.S. Treasury and the Federal Reserve have actively pursued policies that merely sink the U.S. dollar further — a national debt that will grow by $9 trillion by 2019 … and massive money printing to finance it.

Clearly, our government can think of no better response to the new pressures than to flood the world with still cheaper dollars.

Time for Action

Many years ago, my father tried to protect the U.S. dollar, and prevent it from declining.

He founded the Sound Dollar Committee.

He enlisted the support of men like Bernard Baruch who was the former adviser to many presidents … Herbert Hoover, the former president who presided over the worst of times … and Bill Martin, who was Chairman of the Federal Reserve.

He organized a massive grassroots campaign to balance the budget, fight inflation, and protect the American dollar.

He helped President Eisenhower achieve one of the few solid, balanced budgets of the 20th century. And he won several landmark battles for the dollar. But he lost the war.

Today, I am the Chairman of the Sound Dollar Committee and I wish I could accomplish as much as Dad did to stop the dollar’s decline. But the forces driving it down are too powerful; our leaders, too complacent.

Thus, today, my primary course of action is different and I will tell you more about what I’m doing next month.

Right now, however, your first urgent step must be to defend yourself from this madness with the investments we’ve been recommending that go up when the dollar falls.

Your second step: To go on the offensive, aiming for the unusual wealth-building profits that only crises like these can generate.

Stand by for further instructions.

Good luck and God bless!

Martin

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.