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The screeching from our gloom and doomster friends on the Right has become deafening in recent months: they say the US dollar is on the very verge of collapse!

It's monotonous, and I usually just hit the "delete" button. Occasionally, though, when the mood takes me, I reply with some such innocent question as "When?" or "To be replaced by what?" or "Collapse, relative to what?" and when I do, the response so far has always been a deafening silence.

One partial answer I've seen was published by Peter Schiff; he says the dramatic strengthening of the dollar is a temporary thing, caused by a rush by foreign central banks to secure their reserves. Maybe so; we'll come back to that.

Lest any think I've taken leave of my specie-based senses, let me preface this by saying that the dollar, along with all other fiat currencies, will most certainly collapse--but not yet, I think. They will each disappear when the government printing them disappears, and sometimes sooner, as in the present case of Zimbabwe; though a fair question is how long Mugabe's government there can survive. There was an exception in Germany too; the mark collapsed in 1923, yet its government survived--though to do so, it had to turn off the printing press and invent a fable about tying the new currency to German "land." What saved it was the pulling of the plug, not the fable.

Exceptions aside, the big task is to deflate government, and then its pretended "money" will disappear too. Thus, in my Transition to Liberty, I foresee a well re-educated American public withdrawing the support of its labor for all government, at which time--not sooner--it will implode, its dollar will become totally worthless and the market will choose real money. Meantime, the screeching continues and the questions above are pertinent. The key one is: "By what might the dollar now be replaced?"

Every country in the world has a central bank in some form, and they all print "money" on demand. This has been so for three generations; few are alive who can recall anything different. As a boy, I do remember seeing on a local bank teller's countertop (it was at chin level) an interesting device: it was a weighing scale, with standard weights on one side and on the other, a small tray with coin-shaped hollow spaces. The idea was that if a customer brought a gold or silver coin for deposit, the device would measure its weight and if its shape fitted the hollow, the metal's composition would be verified by density. I'm glad to see modern and no doubt more accurate devices called gold testers are coming on the market again today. So presumably, if the dollar is losing value, it must be that money-savers are exchanging it for either gold or for one of those foreign currencies. To the extent that that happened, we'd certainly see a rise in the dollar price of those alternatives. Have we?

No. Generally, the opposite has taken place.

Immediately following the collapse of the US financial trade last Fall, the dollar price of most foreign currencies dropped like a rock, and that is the precise opposite of what would have taken place if the dollar itself were collapsing. Nearby are charts (whose © copyright is held by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada) showing how dramatic has been the rise in the dollars' purchasing power; last June one US dollar would buy about €0.63 but today, €0.80; then it would buy £0.50 while today, it can bring in £0.70. Far from falling, therefore, in terms of the Euro and the Pound, the US dollar has gained, respectively, 27% and 40% since the recession hit. Those are the facts, whether convenient or not.

One exception is the Japanese yen; last mid-year $1 would buy ¥107, and today about ¥97; another is gold; its current price is about the same now as it was last June, i.e., around $900 an ounce or 0.0011 ounces per dollar.

The yen, however, is the fiat currency of a government that for a couple of decades has mismanaged its country's economy as badly as Obama seems set to mismanage ours; for all the praise Japan attracted from business magazines here in the 1970s and '80s, central long-term planning hasn't worked a whole lot better there than it did in the Soviet Union. Now, at very long last, it may be emerging from its torpor and so its currency may be in slightly better favor. Anyone who wants to bet on it can be my guest. As for gold, certainly in the long term (i.e., as the government era draws to a close), its price in dollar terms will approach infinity, so in the long term, it's a perfect investment. In the shorter term, it has wobbled and will continue to wobble.

There are two kinds of thinking that can be used to predict the dollar's future: rational or irrational. The rational or scientific method is to:

* observe the facts

* postulate a theory to explain them, and

* test the theory by experiment

Then, of course, to modify the theory in the light of experimental results and repeat the cycle until no modification seems necessary or possible. In contrast, those favoring irrational thought or Revealed Truth follow this approach:

* begin with the explanation, then

* twist the facts until they fit

So there are still self-appointed experts who insist that Up is Down, regardless of what can be plainly seen as above; they swear the dollar is falling at the very time it is gaining strength. You'll be shocked to learn that when young, I would not infrequently contradict my parents, in this discussion or that; and while I usually came out ahead, my late mother would quite often wrap things up by saying "Don't confuse me with facts." That phrase has entered our family lore as a piece of proprietary whimsy, along with "Pass up thy mug, Sam"--a reference to the reported very healthy thirst of my paternal great-grandfather.

I promised to get back to Peter Schiff's explanation of why, quite contrary to expectation, the dollar has recently gained so much strength: that foreign central banks are rushing to top-up their reserves. Perhaps they did, but why? Obvious answer: the dollar is the least unstable bit of paper in the world, and those whose future is at stake are betting it will stay that way.

So for now, my opinion is that the grass is not greener overseas and that like it or not, the world is stuck with the greenback until government itself unwinds, taking its obscene money-presses along with it into history's trash can. Of the world's governments, I see none more likely to suffer support-withdrawal sooner than the American one, and even here it will be a couple of decades before the prerequisite universal re-education has done its work. Meantime, we might reflect on what it means to claim the honor of having the world's strongest currency in our wallets.

One factor is that back in 1944, up the road here in Bretton Woods, NH, the world's governments agreed to make the US Dollar the universal reserve currency. Since the other key agreement made then (that the Feds would exchange $34 for an ounce of gold) has been abrogated Lo! these 40 years, I don't know how much weight that still carries--but the other thing it seems to me to mean is that nobody thinks any government is more likely to be able to continue extracting wealth from its citizens than the American one. Ultimately that is the bet being made by every investor in US Treasury bonds; he knows very well that his principal and interest will return to him only if the Feds extract it from productive Americans; and if, of course, we productive people continue to produce. This is the inherent difficulty facing all governments; if (as always) they want more money, the simple solution of raising tax rates doesn't necessarily work. The more they steal, the less work we do; so the returns diminish. Laffer is right.

So to the extent that foreign central bankers are buying dollars for reserves, it means they all think the Feds have the biggest, baddest tax collection machine on the planet, and that Americans will continue indefinitely to work hard while suffering the loss of half of all we earn. To put that differently, they judge that nowhere more than here have otherwise intelligent humans been so fully hornswaggled by the myth of government. We are certainly going to prove them quite wrong--but our prosperity in the meantime depends on our doing it quietly.