Fiat Currency: The U.S. Wants To Devalue The Dollar, Mr. Dines & The Nuclear Age

September 15th, 2007

Today I was listening to a great radio show, Money Talks with Michael Campbell. One of the guests was Jim Dines, of The Dines Letter. In case you don’t know, Jim Dines is famous, obviously rich (he’s able to spot new opportunities and trends YEARS before anyone else even mentions them…) and is very accurate. He has decades of experience and one of the best track records of any financial newsletter.

Today one of the main discussions was about fiat currency. It was mentioned that the real rate of inflation is about 13%. In the short term it might help the politicians pay for things but in a long term situation, it screws us all. Inflation is the enemy of the working class. It was mentioned (I don’t know if Dines said this or if the host said it) that Social Security will pay you your money when you retire… it will be around… the problem will be that the $2,000 or whatever social security gives you won’t increase and won’t buy much in the future.

It’s a sad reality but Dines has basically strengthened my belief that the U.S. dollar is heading down. He mentioned that the U.S. WANTS to devalue the currency so they can compete and begin to export goods again. The problem I see with that is the U.S. is a net importer and driving down the price of the U.S. dollar is bound to hurt until it ramps up its manufacturing to become an exporter again, which may be hard to do without the baby boomers (they are starting to retire).

I’ve always thought inflation would be used by the government so they can afford to pay all the bills that are upcoming… debt, interest, social security, etc. It just makes so much sense. Why are they going so far into debt, printing so much money and acting like they don’t care about the value of the dollar? This isn’t by accident… they aren’t completely blind and stupid, it is by design. The government knows that hard assets (oil for example) are more important and of strategic importance to a country than the number of paper dollars (which aren’t backed by anything). This is another reason why the government is not afraid to spend loads of cash securing these hard assets. While inflation and devaluation of the dollar will help some (mainly those that owe money) it will hurt many others (those that have some savings and plan on retiring!).

Russia is said to have a 50% real inflation and Canada about 10%. It seems many countries are printing more money. I do think there is a real problem with fiat currency. Mr. Dines said that everyone should have a portion of their portfolio in precious metals as a safety portfolio… a special portfolio that you hope never goes up dramatically… but if it does it will mean the world has changed (ie, the fiat currency is falling and becoming worthless and/or crashed). I guess you can never be too safe and I also believe in investing a portion of your money in safe places.

The Nuclear Age Begins

Mr. Dines has been bitten by the uranium bug before uranium was popular, at ~$8 a pound in 2002, it now trades in the $100 to $150 range. Mr. Dines believes that once you look at the fundamentals of the energy used in the world today, uranium is the only solution that will work for the next couple of centuries. He believes that we are in the beginning of a nuclear age and while alternative energies might be good (and he is all for them), they are only used for a few percent of the solution, they aren’t the entire solution… uranium is where it’s at, the energy of the future that can satisfy our needs. With the recent pullback in the uranium prices, Mr. Dines said this now the best time to get in! Even at current prices, many of the uranium mining companies can make a fortune… these companies used to survive on $7 a pound uranium… so $100+ is good enough for them to do quite well.

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