As I stated in my last post, the government is bankrupting our economy. I asked Chuck Butler of Everbank.com “why is the government trying to weaken the dollar and if there was any advantage to having a weak dollar?”

He was gracious enough to answer my question:

It’s a political thing… If the Gov’t can show that they are doing what they can for Manufacturing, that equals votes. The main thing though is the dollar is used to attract foreign investment. I’ll explain.

The Gov’t is running a huge deficit, and as long as they are running a huge deficit, they are in need of foreign investment to finance that deficit. The amount of financing needed each day is over $2 Billion.

When a Gov’t needs to attract investment, they can do 1 of 2 things.
1. They can raise interest rates aggressively to attract investment, or…
2. they can allow a debasement of the currency, which acts as a clearing mechanism for investments. When a foreign entity buys a U.S. asset, they need to convert their currency for dollars… If dollars are cheap vis-a-vi the foreigner’s currency, they are in essence buying that asset at a discount.

Given these two choices, a Gov’t will always choose #2… raising interest rates would bring an economy to its knees… so #2 is the always the choice… and that’s where we are today.

There you have it folks! Debasing the currency is always the better choice! I’m so glad I bought some gold. There also seems to be some evidence that foreign countries are finding the US dollar cheap enough to bring manufacturing jobs back to the US!

An added bonus to debasing the currency is that the 30 year bond, which pays less than the current rate of inflation, will be worthless in 30 years. In other words, the government will be repaying its debt with worthless currency. Suddenly the $57 Trillion of future debt obligations (Social Security and Medicaid) doesn’t seem so bad!