PCR: The U.S. should be focused on preserving the dollar’s reserve currency role. This means reducing budget and trade deficits. The budget deficit could be reduced by ending the gratuitous wars and military spending and by halting the bailouts and stimulus spending. The trade deficit could be reduced by taxing corporations according to whether the goods and services that they market to Americans are produced in the U.S. or abroad. There should be low tax rates if the goods are produced in the U.S. and high tax rates if produced abroad.

There are calls to replace the dollar. Our main creditor, China, has called on the U.S. to preserve the value of the dollar or for the dollar to be replaced. EU officials, Russia, and OPEC countries have all shown their reluctance to continue to accumulate dollar financial instruments in exchange for real goods.

EIC: What might replace the dollar?

PCR: The dollar could be replaced by a basket of currencies, or by IMF SDRs, which are a basket of currencies. An alternative would be John Maynard Keynes scheme, which he brought to the original Breton Woods conference. He called it bancor. There is no reserve currency. Instead, there are penalties for both trade budget deficits and surpluses. The penalties are designed to keep each country’s trade in balance. The Americans rejected the plan, because they wanted the power of the reserve currency.

EIC: How will it change our living standards?

PCR: When the U.S. loses the reserve currency role, it will no longer be a superpower. Living standards will decline to lower levels.

EIC: What preparations could people do NOW to best cope under these changing conditions?

PCR: Americans need to have a workable plan as individuals for hedging against domestic inflation and exchange rate devaluation. Gold and silver are probably the best bets. Foreign currencies are problematic. The euro is not the currency of a political entity as the EU does not exist politically. The European states are still sovereign, and there is indication that the various peoples want to keep it that way. The Japanese yen might be a hedge, and the Swiss franc. The Swiss banking system is under assault from Anglo-American interests. If the Swiss give in to the Americans and destroy their bank secrecy, there could be an outflow from Swiss francs that hurt the value of the franc.

Possibly, the massive U.S. budget deficits for 09, 10, and most likely thereafter, could be financed in the initial stage by further declines in the stock markets, which would send frightened investors into “safe” U.S. Treasuries, thus financing the budget deficit. This could forestall the eventual inflation.

As you and I have emphasized, the basic problem with the U.S. economy is the off shoring that is destroying U.S. jobs, diverting U.S. income flows to foreigners, and enlarging the trade deficit, thus threatening the dollar. No one in Washington is paying any attention to this problem. They are using a “crisis” which might be contrived to rip off the taxpayers for the sake of the big banks, who have controlled the U.S. Treasury since Clinton.

EIC: Your comments are most informative and allow everyone to have a better understanding of our plight and our possible solutions. Two more questions if you care to answer. Since Canada’s economy is tied closely to ours, will our devalued money affect theirs?

PCR: I am glad to help your patriot endeavors. To answer your first question, it is impossible to predict the impact of panic. Canada could be hurt, because we have production in Canada, the demand for which could fall. However, the dollar is a huge currency. Panic flight from the dollar will tend to go anywhere that appears more reasonable. If Canada does not have the huge U.S. budget and trade deficits, dollar flight could boost the Canadian dollar.

EIC: Second, how will foreign stocks registered as ADR’s in our stock market be affected?

PCR: I do not know. But, again, flight from a dying currency goes where it can. If every currency falls with the dollar, the flight has to be to something else, gold or silver, for example. The euro is problematic, and the Swiss, if they give in to Anglo-American demands to violate their bank secrecy, could experience an outflow that sends the otherwise stable Swiss franc down. The U.S. dollar can be helped by screw-ups elsewhere.

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