The Demise of the Dollar.

The rumor is that the dollar is collapsing. Or is it? If you listen to the gold pundits, you will need gold to buy bread. “We should all buy gold,” saith the gold sellers. However, the last time I checked, I could not buy milk with gold, or a car, or pay my power and light bill with gold. I just called my tennis club and they said,” Mr. Sherwood, we will not accept gold in payment of your dues, only dollars.” What a relief that was for me because I do not have any gold. It could be to paraphrase a famous writer that the rumors of the demise of the dollar have been greatly exaggerated. I agree.

According to many currency commentators, the pound collapsed in 1920. However, if you go to England, you had better be prepared to pay for your hotel in Pounds, they still do not take gold. The ATMs in England, by the way, dispense Pounds not gold, and there is no plan on the horizon to have them dispense gold. In the USA, our ATMs dispense dollars, and in more than 75 countries around the world the ATMs dispense the currency of the country, not gold.

Then the question still begs for an answer. Is the dollar collapsing or not? The dollar may be collapsing as a currency investment. Gold has certainly done much better in the last 5 years. It has more than doubled in value as an investment. However, no store accepts gold as payment. The collapse of the dollar is really only related to the value of the dollar relative to other currencies. Is it important? Absolutely!

If I am Wal-mart and I purchase goods from China and agree to pay in Chinese currency and the dollar decreases in value relative to China currency, then Wal-Mart loses money on the currency exchange. Why? Because it takes more dollars to pay the vendor in Chinese currency. Do these fluctuations effect the price of goods? Yes. But are they harbingers of the collapse of the dollar as a currency to buy milk in the USA? No.

Should you run out and buy gold? It probably is a good investment. But so is IBM and Google. Should you take delivery of gold at your home to pay your gas bill? Don’t waste your time. And if the world should collapse, gold is worthless. A can of corn or a bottle of water would be worth much more in trade than some useless gold dust. There is an old story that the suppliers who sold the food, pots, pans, picks and shovels to the gold miners made more money than all the gold miners put together.

After WW II, the German Mark “collapsed.” If you go to the October Fest in 2011, 70 years after the war, bring German Marks to spend, they do not accept gold. They do accept good old American dollars by the way.