The turn of the year saw a rapid decline in the value of the American dollar as international confidence in the United States and its currency declined. What is the meaning of this for Americans, and what does it portend for the future?
Americans have long thought that they are the wealthiest nation on earth. Individually, Americans believe they are better off than they would be anywhere else.
But is this the case?
I have five brothers living in England. Four of them annually visit other countries, something that few Americans can afford to do. Three of them have visited the United States.
Additionally, they have all had HDTVs for some time, a quality of picture still lacking in my home. They and their families all eat out as much as people do on this side of the Atlantic. They also all seem to have the latest vehicles, albeit usually smaller than those in the United States, perhaps reflecting the fact that parking spaces are few and far between!
It's not difficult to see why they are doing so well. Just take a look at the currency markets: The dollar has fallen over 15 percent in a few weeks. It now takes two U.S. dollars to buy one British pound. In fact, with commission and charges, it will cost you more than that to convert greenbacks into British notes in any bank.
So now, in dollar terms, my brothers are getting almost twice as much value for their pounds as they did 20 years ago when the pound and the dollar were almost at par.
Inflation in real estate
Another reason they are doing well is real estate inflation. With a much higher population density than the United States, and with limited space, house prices in the United Kingdom have shot up, so that now any British homeowner is among the richest people in the Western world.
We visited a couple of friends in London a couple of years ago. Their home was then worth 540,000 British pounds, at the time almost $1 million. Yet it was a small dwelling with very cramped rooms and no garage. Also, the home was a terraced house, meaning it was in a street full of homes with no gaps (or garages) between them. Parking was a constant nightmare as everybody had to park on the street. Sometimes they had to park on another street! (No wonder people have smaller cars!) If this couple sold their home in London, they could move to the U.S. Midwest, buy a bigger home for $150,000 and deposit the balance in the bank, living off the interest for the rest of their lives!
In 1984 my wife and I were living in the United Kingdom. We bought a home there for 38,000 pounds. At the time the pound was worth $1.04, so the house cost $39,500. I've recently been told that the home is now worth 400,000 British pounds, an increase of over 1,000 percent in 20 years. That's 1,000 percent in British pounds. In dollars, it's gone up twice as much, 2,000 percent or $800,000! Unfortunately, we sold it less than a year after we bought it, when we were transferred.
It's not surprising that when British people retire, they sell their homes and often move to cheaper countries, living off the nontaxable proceeds!
The dollar's decline in value is one of the most significant developments of our time, yet goes barely reported in the United States. Most Americans remain oblivious. Television programs and newspaper articles will boast that the U.S. economy is growing at a greater rate than many other countries, but if the currency is falling, America is still going backwards financially.
If, for example, in 2005, an American's salary was $50,000 and, in 2006, he or she received a 5 percent increase, the salary would be $52,500. However, a year ago that $50,000 was worth 27,700 British pounds. Today, with the 5 percent increase, the salary has actually gone down to 26,250 pounds, courtesy of the dollar's decline. In comparison to the euro, the value has decreased even more.
This is also happening to the U.S. national economy. An annual growth rate of 5 percent means roughly 10 percent negative growth, because the dollar has declined internationally by 15 percent.
Does the dollar's decline matter?
Clearly, if this is nonnews to most people in the media, it's not having much of an effect upon Americans. So should Americans worry?
The reason a decline in the value of the U.S. currency is having little effect at this time is due to two things that work in America's favor. The first is that the United States produces most of its own food, which keeps the price of food stable.
Secondly, oil and most commodities are priced in dollars—for now. There was a time when most commodities were priced in sterling, the British currency. But as sterling weakened and became an unpredictable currency (meaning it might not hold its value), individuals and nations switched to U.S. dollars.
Now they are gradually switching to euros, arguably today the world's most sought-after currency.
Does it matter?
The primary reason a currency falls in value against other currencies is a lack of confidence. Central bankers and eventually ordinary people will get rid of their dollars because they fear its value will decline. As more and more banks divest themselves of their dollar assets, even more people will want to get rid of theirs. This will drive the value down, in the same way that a glut of tomatoes will drive down the price.
There are a number of reasons international confidence in the U.S. currency has declined, some political and some financial.
Dollars to euros
Amid growing talk of a U.S. defeat in Iraq and Afghanistan, confidence in the United States is declining. Robert J. Samuelson summed this up well: "With hindsight we may see 2006 as the end of Pax Americana. Ever since World War II, the United States has used its military and economic superiority to promote a stable world order that has, on the whole, kept the peace and spread prosperity. But the United States increasingly lacks both the power and the will to play this role" ("Farewell to Pax Americana," Washington Post, Dec. 14, 2006). Americans are increasingly turning inward, focusing on their internal problems, of which there are many.
Financially, the biggest global concern is of America's deficits, a record both in the United States and internationally. No other nation in history has ever accumulated so much debt.
There's the rapidly growing federal budget deficit, which the media frequently highlights if only to make political gains. But there's also the trade deficit as America buys more from the rest of the world than it is able to sell.
Most countries could not do this, as they must have dollars, euros or pounds to buy foreign goods. Because the United States, long the world's strongest economy, prints the dollars, other countries have taken the U.S. currency as payment for goods, without question.
That may change as the dollar declines. It could eventually become a "soft" currency, like most of the currencies in the world. A soft currency is one that is not easily convertible into other currencies. Nations with soft currencies must sell goods to receive "hard" (convertible) currencies before they can buy goods, including oil, from others. This could happen to the United States, meaning that the country would need euros to buy oil.
This would greatly impact the United States, as it would mean that it could not purchase anything from overseas unless it had the euros to make the purchase. The only way to come by those euros is to sell goods to Europeans, but U.S. manufacturing has declined greatly in recent years, which means that few euros are coming in.
The big crisis will come if oil is priced in euros (first crisis) and only euros are accepted (second and much bigger crisis). Some oil-producing nations have already called for this. Others have diversified their foreign currency holdings, preferring to hold more euros in the bank than dollars. The United Arab Emirates, a major oil producer in the Persian Gulf, became the latest nation to announce diversification just before the end of the year.
Initially, if oil is priced in euros, price fluctuations at the pump will be even greater than they are now. Right now, those price changes reflect supply and demand on the international oil markets. If oil is priced in euros, currency fluctuations will also impact the price of gas at the American pump. As the dollar seems set for further decline, this would mean continuing significant price increases.
But the real crisis would come if the dollar is no longer accepted in international trade, something that hasn't happened since the American Civil War, when the country's future was uncertain. Most currencies are not accepted outside their own borders. Some are not even wanted within their own borders as they are deemed worthless. Reckless overspending and increased debt could result in the dollar suffering the same fate given time.
If this happened, the United States would have to earn the euros to buy the oil! America's leading role in the world would come rapidly to a close and Americans would be reduced to living a third world existence!
Is this possible? Certainly, it is. No nation can go on overspending as the United States has. Reckless overspending, increasing debt and expensive overseas military commitments have been three factors in the decline and fall of most of the major powers throughout history. The United States is simply repeating a pattern that goes back millennia.
Seismic shift in global economy
In Daniel:2:21 we learn that God is behind the rise and fall of nations: "He removes kings and raises up kings."
We also see in the same chapter that one more superpower is going to dominate the world before the return of Jesus Christ (verse 44). This superpower will be a revival of the Roman Empire, the "fourth beast" mentioned in verse 40. It will be a union of 10 European nations, symbolized in this passage by "ten toes."
In Revelation 17 these 10 toes are "ten horns which...are ten kings who have received no kingdom as yet, but they receive authority for one hour as kings with the beast. These are of one mind, and they will give their power and authority to the beast" (verses 12-13). This short-lived revival of the Roman Empire will be overthrown by the Kingdom of God: "These will make war with the Lamb, and the Lamb will overcome them, for He is Lord of lords and King of kings" (verse 14).
Before this great military power can come together, the world must move from a U.S.-dominated economic system to one centered on Europe. This is what is now happening with the dollar's decline and the increasing role of the euro, although it could still be some time before the euro fully replaces the U.S. dollar.
Revelation chapter 18 is a prophecy about the fall of the mighty economic system that lies behind the revived Roman Empire. Contrary to what some believe, it is not a prophecy about America's fall, as the United States has not been responsible for the "blood of prophets and saints" (verse 24). This responsibility lies with the Roman Empire and its successors, both secular and spiritual, throughout history.
The decline of the dollar and the rise of the euro are symptomatic of a gradual change in the world's economic power structure, which is leading us inexorably toward the fulfillment of Bible prophecy. WNP