I’ve received a number of questions about the significance of the US$ Index.

The US Dollar Index is an average of six foreign currencies, weighted in accordance with somebody’s perception of their relative importance in the year 1973, when the world’s major nations first let their currencies start to float “freely” against one another:

1. 1. Euro - 57.6%
2. Japanese Yen - 13.6%
3. British Pound - 11.9%
4. Canadian Dollar - 9.1%
5. Swedish Krona - 4.2%
6. Swiss Franc - 3.6%.

In 1973, the US$ Index started with a base of 100 for the US dollar. On Friday, September 28, 2007, for the very first time, the figure fell below 78, the previous low-water mark set long ago. That means that the dollar has decreased in value by over 22% versus those six currencies since 1973.

The highest point it ever reached was 121.29 on July 6, 2001.  From it’s high to the low of September 28 is a fall of 36% in 6 years.

Here is a chart of the US Dollar Index for the past 30 years (click for full-size image).

Yes, the dollar was as much as 60% higher than the index of those six currencies in the early 1980s. Then, in 1992, the dollar reached almost all the way down to 78 briefly. In fact, the US Dollar Index managed to threaten the level of 82 only a half-dozen times in its history, crossing under 80 only once.

This is why the recent drop below 78 is so significant - it’s only the second time it’s happened in 30 years.

Here’s the same chart for the past year or so, since the chart above ends in mid-2006. Click to enlarge:

When the markets closed on Friday, September 28, the dollar was at its all-time low: 77.61. It is twitching slightly just now in the overseas markets, but tomorrow morning will tell us, finally, whether WhirlyBen and his Mad Hatter Tea Party crowd at The Fed are throwing the dollar overboard. If they don’t pull the dollar back up, then pull out the party hats, because it is time to play musical chair. That’s just like musical chairs, except only one person gets to safety when the music stops.

In reality, the damage already is done. The world watched the dollar breach 78 and then sit there over the weekend. Now they know it is possible.

All those foreign holders of massive dollar stashes have got to be eyeballing each other, wondering when the first will make a mad dash for the exit and try to sell his dollars before they become totally worthless. That, alone, now ensures the dollar’s demise.

Now for the bad news. All the currencies used in the US Dollar Index are inflating, meaning becoming ever more worthless. In other words, on our plunge into the abyss, the US dollar is simply falling a little faster than the Japanese and the Brits and the Europeans.

Then how do we tell how we are doing? That’s where so-called real money comes in and why the bankers have been so eager to disconnect it from their increasingly-worthless paper money in their attempt to convince you that it is just a relic.

That’s the ultimate definition of fiat currency, you know: it is worth its intrinsic value. In Zimbabwe today, the currency actually is a much cheaper alternative to toilet paper, believe it or not. What’s a US dollar worth? What’s a hundred-dollar bill worth? Yep. And, yes, that is exactly where the dollar is headed, folks.

What’s real money? Gold and silver, but especially gold. Here’s a chart of “CPI-adjusted” gold. The problem is, the government lies about everything now and says that CPI (Consumer Price Inflation) is just 2% or so. In fact, it is close to 15% and has been for a while.

An honest chart of gold would look more like the silver chart, below. Problem is, the silver chart also is “CPI-adjusted,” which tells you just how cheap silver really is today (cheaper than it ever has been, save only a couple of years ago, when it jumped from 6 to 14 in a few days).

Before things get worse, they will get much worse, rest assured. And you will be able to tell just how bad by the prices of gold and silver. The central bankers are on the verge of losing control of the price of real money. The first paper gold seller to default will topple the entire house of cards.

We’ll keep you posted…

With thanks to Edgar Steele.

Date posted : September 30th, 2007 by Michael Haupt Last Modified : October 7th, 2007 / Filed under : 2007 Liquidity Crisis, Wealth Creation / Report a Concern Navigate : Previous post / Next post / Top of Page
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