From its peak in July 2001, the US Dollar Index has lost about 33% of its value. Many Americans remain unconcerned about this precipitous drop, thinking that they will not be affected by this loss in the dollar's value against the world's other currencies. However, this thinking is dangerous because it defies both logic and history.

It defies logic because in today's globally connected world of instantaneous communication, markets are inextricably interlinked. And to use just one example from history, it would be prudent to keep in mind Treasury secretary James Baker's comment about the dollar in October 1987, which is particularly relevant today as the stock market climbs toward the highs reached at the height of the bubble in 2000. Many people believe that Mr. Baker's comment, which showed little concern about the dollar's drop back then against the European currencies, was an important contributing factor to that month's US stock market crash.

Thus, the external exchange value of the dollar does have an impact within the United States. This conclusion can be seen by the rise in domestic US consumer prices, with crude oil being the most obvious.

Don't be lulled into thinking that domestic US prices are not rising, just because the Consumer Price Index has not yet reached levels at which red flags would be flying. In fact, red flags are flying most everywhere else. This phenomenon is neatly dissected by Richard Benson in "Inflation Disinformation", an wonderful article from which I obtained the following data.

As Mr. Benson sensibly observes:

"The prices above surely indicate there is a whole lot of inflation going on now and in the 'price pipeline'. The magnitude of real inflation is around us everywhere. An example of this could be seen in New York where taxi cab prices increased by 25 percent, while nationwide college tuition, health care, insurance, drug prices and property taxes are, in most cases, running near or above double digit annual rates of price increase."

Thus, the dollar's exchange value and its domestic purchasing power are clearly related. The dollar's ongoing decline means more domestic US price inflation in 2005, and lost purchasing power for everyone who holds dollars.

Lastly, consider the comments of Warren Buffett in the latest issue of Forbes, "A Word From A Dollar Bear":

Says Buffett: "The rest of the world owns $10 trillion of us, or $3 trillion net." That is, U.S. claims on foreign assets run to only $7 trillion. "If lots of people try to leave the market, we'll have chaos because they won't get through the door." In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: "If we have the same policies, the dollar will go down."

I wholeheartedly agree. Tragically, most everyone in D.C. is fiddling while the dollar burns. So buy gold to protect yourself from this conflagration.

James Turk

Goldmoney.com

James Turk is the founder of GoldMoney (www.goldmoney.com) and the co-author of The Coming Collapse of the Dollar (www.dollarcollapse.com). Copyright © 2007 by James Turk.  All rights reserved.

Published by GoldMoney
Copyright © 2008. All rights reserved.
Edited by James Turk, alert@goldmoney.com

This material is prepared for general circulation and may not have regard to the particular circumstances or needs of any specific person who reads it. The information contained in this report has been compiled from sources believed to be reliable, but no representations or warranty, express or implied, is made by GoldMoney, its affiliates, representatives or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report reflect the writer's judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. To the full extent permitted by law neither GoldMoney nor any of its affiliates, representatives, nor any other person, accepts any liability whatsoever for any direct, indirect or consequential loss arising from any use of this report or the