Tuesday, December 30, 2008

Addison Wiggin's The Demise of the Dollar

Addison Wiggin co-authored two good books, I.O.U.S.A. and Empire of Debt. As a result, I was looking forward to reading The Demise of the Dollar (and why it's even better for your investments). I should not have been so eager. Unless you are a gold bug, skip this book, or get I.O.U.S.A. instead.

First, the title, "The Demise of the Dollar, and why it's even better for your investments," is misleading. Readers don't get any tips or insight on why the dollar's fall would be good for investments until page 157. (My paperback edition has only 181 pages). If you do buy this book, and you agree the U.S. dollar will collapse, you may want to save yourself time and skip to the end if you're looking for investment ideas.

Predictably, the author likes gold and commodities and dislikes the Federal Reserve: "As the value of the dollar begins to fall, a corresponding and offsetting rise in the value of commodities, raw materials, and tangible goods will rise." [p. 157] Gold is mentioned several times as an "ultimate dollar hedge." [p. 175] Wiggin says that America's "decision to go off the gold standard was devastating," [p. 8] and "[n]o fiat money system has ever succeeded." [p. 71] As for the Fed, Wiggin calls it a "banking cartel" and "not part of Congress," making it unconstitutional. [p. 22]

The entire gist of Wiggin's book can be found on page 152:

The consequences [of a declining dollar] will be huge declines in the stock market, savings becoming worthless, and the bond market completely falling apart. As the value of the dollar falls, that dollar will no longer be worth a dollar; it will be worth only pennies on the dollar. It will be a rude awakening for everyone who has become complacent about America's invulnerability.

When Wiggin isn't repeating the same anti-dollar ideas, he makes some good points. For example, he laments the loss of domestic manufacturing: "We've given up making things to sell elsewhere, closed the store, and gone shopping. But we're not spending money we have; we're borrowing money to spend it." [p. 10] Those are good lines, but The Wire said it better:

You know what the trouble is? We used to make sh*t in this country, build sh*t. Now we just put our hand in the next guy's pocket.

A much better way to get the information in Wiggin's books is to watch his movie, I.O.U.S.A. More information, including an excellent 30 minute film, after the jump:

I.O.U.S.A. the Movie

While I recommend the I.O.U.S.A. movie and book, I cannot recommend Demise of the Dollar. It reads like the author finished it in one day and then handed it to students to add the citations. Demise contains nothing that hasn't been said before, by someone else, with more eloquence. That's one reason I.O.U.S.A. is so much better than Demise--it contains interviews with Warren Buffett and other investors who explain the economic times much better than Wiggin, and without the hysterics. (Read my take on the situation here and here.) Readers should skip Demise of the Dollar and watch/read I.O.U.S.A. instead if they're into economic horror stories.

As for me, I agree the U.S. dollar is in for a bumpy ride. That's why I've already bought a commodities ETF (DBC) and some Swiss francs (FXF).

Some stats from Demise:

At the end of 2006, foreign holdings of U.S. dollars had a market value of $16.295 trillion. [p. 43]

U.S. borrowing has expanded to the point that foreign central banks own major portions of the U.S. debt. The Bank of Japan held $668 billion of Treasury securities in 2004, compared to the Federal Reserve holdings of $675 billion. In other words, the Bank of Japan nearly matched the Fed in ownership of U.S. debt...If you just add in China, South Korea, and India, central banks own a lot more debt than the Fed does. [p. 153]

[O]ur actual inflation rates are understated by around two percentage points per year. [p. 30] For more on this phenomenon, click here.

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