- - Sunday, July 13, 2014


Cutting to the front of a line, while defying school lunch dictates promulgated by the first lady, President Obama let his inner bear loose last week. Our President slurped down Texas barbecue, scant miles away from the latest humanitarian crisis his administration manufactures, choosing to avert his own eyes though he had spent your money to get close enough to our southern border.

The mind reels, with bad or downright awful news spreading everywhere — no inept step is ruled out by whoever may make final decisions for this executive branch. No fundraiser is too far away, no golf course or vacation is too selective, and no lie is too bold to tell for an administration already billed by erstwhile allies as the worst in decades.

Bad as things already are, much more severe damage looms, arguably of existential proportion — soon we shall suffer under an equal opportunity destroyer that will punish all Americans. Transition to a world where the U.S. dollar no longer dominates is in our near-term future. There will be blood, especially for the unprepared.

Artificial dollar demand not forever

Since Aug. 15, 1971, when President Nixon suspended the right that holders of our currency had to convert U.S. dollars into gold, all who use dollars to pay expenses, purchase imported goods, and invest what little we may have — every single one of us, middling, rich or poor — led lives of privilege.

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For 43 years, counterparties around the world exchanged valuable stuff they produced for scraps of paper and electronic entries calibrated in the once mighty American dollar. Moreover, because there was no viable alternative, investors worldwide suspended disbelief and assented to trapping a significant portion of their massive pile of wealth in securities denominated in U.S. dollars.

Too many pundits ignore structural changes that now erode demand for our currency, and further constrain America’s options and influence.

Listening to politicians, central bankers, and Wall Street titans, you would think the global financial system returned to robust health, thanks to their selfless and heroic efforts. The hard truth is cold and unforgiving. Your savings are not safe.

Estimates prepared by our Federal Reserve Bank researchers that show households rich with an estimated $81.8 trillion in net worth do not fairly depict how the overwhelming majority of American households live — most with no financial safety cushion of any meaningful size.

The best available government data indicate that the bottom 60 percent of American households earns just 17.5 percent of all interest, dividends and rents.

Because of this skewing, the top 40 percent faces outsized exposure in the next down leg (their investments are chiefly allocated to securities whose principal is not protected). Meanwhile, the bottom 60 percent have less than a “smidgen” of protection — their financial safety nets are tiny fractions of their monthly operating expenses.

The trouble with trust deficits

We cannot run monumental budget deficits forever nor force borrowing rates below inflation ad infinitum.

When foreign investors and national rivals surge in revolt against reckless Obama policies, dollar interest rates will climb, the cost of financing government will soar, asset values will plummet and our fragile banking system could buckle.

If you believe Ed Klein’s tour de force “Blood Feud” and read it after refreshing your recollection of his 2012 precursor “The Amateur,” you will understand why America, under Valerie Jarrett and Barack Obama, has unprecedented credibility problems managing the superstorm of supposedly phony scandals.

When you complete the trifecta, by poring over Sidney Powell’s “License to Lie,” you will conclude that the rising bear case against America will be virtually impossible for Team Obama to refute, let alone put down.

Our President may enjoy his strolls, and he surely has held off financial bears (who may profit when the system crashes) while in office, but no politician is strong enough to suspend the rules of global economics forever.

As Mr. Obama frolics, real bears get ready to feast.

Charles Ortel serves as managing director of Newport Value Partners (NewportValue.com), which provides economic research to executives and to investment firms.

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