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Share"There is never a good time to die. Nor is there a good time for a crash or a slump. Still, death happens. Be prepared. Say something nice to your mother. Offer a bum a drink. And buy gold."William Bonner & Addison Wiggin in Empire of Debt - The Rise of an Epic Financial Crisis.
Bonner and Wiggin gave that advice in the last paragraph of their book. But two years before that, in 2004, the authors wrote another tome: Financial Reckoning Day: Surviving the Soft Depression of the 21st Century, in which they said that the trade of the decade is to sell stocks on rallies and buy gold on dips.
"We started advocating it when it was trading at $253 ounce," says Addison Wiggin, one of the authors of these New York Times bestsellers. He is the executive publisher of Agora Financial, an economic forecasting and financial research firm based in Baltimore, US, and the editorial director of Agora's flagship publication The Daily
Reckoning.
Wiggin is also the executive producer and co-writer of the highly acclaimed documentary I.O.U.S.A, which was shortlisted for the 2009 Academy Awards.
In an interview with DNA, Wiggin tells us why the yellow metal still rules. Excerpts:
In your book Empire of Debt, you equate the United States to a Roman Empire. Why?
We used the word "empires" even though US is a constitutional democracy. The US has risen to the level of influence of the empires of the past; militarily we cover 120 countries around the world with troops, culturally, movies from Hollywood are all over the place, economically we have interests in just about every country on the planet and politically anytime any of our leaders show up in a country, security is all over the place.
We have entered a phase of our history where we count on that influence and we abuse it, in the same way as the empires of the past abused their authority around the world. The impact of the (George W) Bush administration and the wars they were conducting is getting us into more trouble than we can afford. And there is the debt part of the empire, where we are having to borrow from the around the world in order to continue to keep up appearances, as they say.
"Great empires look for ways to destroy themselves." How is that happening with the US?
We have run out of enemies so we will have to figure out a way to destroy ourselves. We are collapsing under our own weight. Another way of phrasing it is that we are sort of victims of our own success. We have gotten used to getting our way for a long enough period of time. But you know, all things rise and all things fall. And I think that is natural for nations as well.
After the Second World War, the dollar became the reserve currency of the world, which took the coalescence of power in Washington and distributed it globally. We are still looking at the end of that era now. The question is, how are we going to wean ourselves off the dollar as the standard currency or the reserve currency of the world because so many countries India, China, South Korea and Japan hold massive amounts of dollars, and pretty much universally? Even Americans agree that it is not a good idea to hold them anymore. But there is no alternative (TINA) yet. The rise of the empire has been an interesting story, but like all empires, we have outlived our utility to most of the people that we do business with.
All the dollars that are being printed, where do you see that going?
Every dollar that is printed cheapens the ones before it. Even in normal times, the Fed's target is 2% inflation rate, which means that the dollar loses value by 2% per year. But with all the printing that is going on, you can expect inflation down the road to be much more aggressive. The interesting tension is that they are fighting against the deflationary cycle, a credit bust, which requires all this cash to be poured in. So we don't see inflation on the horizon just yet, but that will be the interesting story to be done.
Everyone is holding dollars and they are going to get less valuable. The big question is, what is going to be the alternative?
Just last week, when rumours floated that oil will be priced in alternate basket of currencies, the dollar got hit by a point-and-a-half that day. Just like that. So if an alternative arises, when most countries aren't prepared for it, we could just see massive inflation overnight, and there would be a run on the dollar. It will be a difficult situation for everyone, since so many people around the world hold dollars and have priced their assets in dollars.
Why this bias against the US dollar? Almost every country is busy printing currency? Why our bias against it?
Mostly because all our assets are in dollars. It makes for a tenuous situation. It seems like a reckless recipe of policy decisions and the dollar will ultimately be the one that will take the biggest hit. Personally, that offends me.
You visualise any catastrophic event that will cause the dollar to go on a free fall or will it happen over a period of time?
History shows that when you move from one currency to another as the reserve currency of the world, like when the pound shifted to the dollar, it took two world wars and a great depression to make that happen. They don't generally happen in a smooth fashion.
