Fortunately for all Americans, an extra 130,000 votes in Ohio last week spared us from post-election chaos and, potentially, the greatest domestic divisions since the Civil War.
But it did nothing to stop the nearly non-stop plunge in the U.S. dollar.
As I told you last week, even before the election, the dollar had been falling steadily against the euro, busting to the lowest levels of the year.
Then, on the day after the election, the decline accelerated.
The dollar nosedived by a dizzying 1.01% on Wednesday, by another 0.33% on Thursday, and by 0.66% on Friday … busting to the lowest level against the euro in history … driving international investors into panic … and catapulting gold to 16-year highs.
This is a frightening downward spiral for our currency. In addition to the euro, the dollar is falling against the yen, the pound, the Swiss franc, and even some third-world currencies. It’s falling in terms of how much corn, wheat, soybeans, beef, copper, silver, and gold it can buy. And in one way or another, it will affect just about every American alive today:
It will bring higher prices for gas, imported goods, and American goods that compete with them.
It implies a looming danger to bonds, stocks, and virtually all other traditional investments.
It could reduce American economic power, political power, and even military power.
Yet, most people don’t understand it, and among those that do, few seem to care. But it wasn’t always this way.
The Great Budget Battle of ’59
I take you back 45 years and 10 months – to January 3, 1959.
The federal budget looked as if it was going haywire. The estimates for the deficit were running close to $13 billion, and in those days, that was huge.
In response, President Eisenhower gave one of the most important – and least remembered – state of the union speeches in American history. Reading in a monotone from a device on his podium that scrolled the text a few lines at a time, he warned:
“We must avoid extremes … of waste and inflation which could reduce job opportunities, price us out of world markets, and shrink the value of savings. To keep our economy sound and expanding, I shall … present to the Congress a balanced budget.”
Eisenhower’s big-picture view was simple: To compete with other countries, the U.S. had to keep its costs down; and to control costs consistently over time, the federal government had to maintain a balance in our federal budget and in our trade with foreign nations.
Eisenhower didn’t have to wait two decades to learn that budget and trade deficits would lead to a falling dollar. Nor did he have to wait until November 2004, when the dollar plunged to all-time lows against a currency that didn’t even exist in his time – the euro. He knew it all too well back in 1959.
But today, even after all the debates of a heated presidential election, it is neither understood nor accepted in Washington.
Actually, it wasn’t immediately accepted back then, either: The most conspicuous reaction to Eisenhower’s speech came in the form of a rude but unspoken interruption from the second row of the House chambers – an unrestrained yawn by the Senate Democratic leader, Lyndon B. Johnson. It was the first warning of a major battle over the budget.
The opponents charged that Eisenhower’s balanced budget “comes close to being a fraud on the American people. … The individual budget items are an intricate combination of defeat, deception and denial.” With this diatribe, it looked as though Congress would defeat Eisenhower’s proposal and allow the budget deficit to run haywire.
That’s when my father, J. Irving Weiss, decided to play a role.
The Sound Dollar Committee
With the blessing of two prominent Americans – presidential adviser Bernard Baruch and former president Herbert Hoover – Dad formed a small non-profit, non-partisan lobbying group, naming it the “Sound Dollar Committee.”
And within just a few months, he had helped organize the first and last major grassroots campaigns for fiscal responsibility in the history of America. Years later, Dad told me the story with these words:
“I heard Eisenhower’s speech on the radio, and the very next morning, I ran down to check the papers. I looked for a headline such as IKE PROPOSES BALANCED BUDGET. But I couldn’t find it anywhere. No one seemed to care.
“Soon a flood of economic experts paraded before Congress, testifying that the deficit was ‘manageable,’ and inflation was not ‘a present danger.’ The problem of a falling dollar was even further from their minds.
“Then, in early February 1959, a White House spokesman announced that Ike was planning a grassroots campaign to combat spending legislation beyond his budget and would make a strong public appeal in his news conference the next day.
“But the appeal was weak. And in the days that followed, there was no grassroots campaign. No protests, no editorials, no voter appeals to Congress.
“I simply could not accept that. So I organized a committee. I called a good friend, Jim Selvage, of Selvage & Lee, a public relations and advertising agency. I also called Dean Alfange, my attorney, who had run for governor in the state of New York. The three of us had lunch, and I recommended the name ‘Sound Dollar Committee.’ They agreed.
“Our first full-page ad in The Wall Street Journal merely set off the first sparks.
“Then one day, Chicago Tribune owner McCormack called and asked if it was OK if he placed his own two-page ad at his own expense. The Los Angeles Times and the New York Daily News followed suit. Soon, scores of newspapers and magazines joined the Sound Dollar Committee bandwagon in a national mail-in campaign to balance the budget, prevent inflation, and protect the dollar.
“Congressmen would walk into their offices in the morning, be struck immediately with the clutter of mailbags, and ask their clerks: ‘What the hell is this? Where did all this mail come from?’
“It was an avalanche! According to an informal survey by the Chicago Tribune on the Hill, the total response was twelve million postcards, coupons, letters, and telegrams.
“By mid-March, the public’s attitude had switched from apathy to intense interest. According to Business Week, ‘leaders in Congress began the session talking like big spenders; now they were talking about cutting Eisenhower’s budget.’
“Senator Proxmire, who had been steadfastly in favor of the spending programs, changed his mind and voted for the budget cuts. One Congressman after another shifted his vote to support the Eisenhower budget. And the budget was balanced!”
Voices
“Now, Martin,” Dad told me before he died, “I have a very important suggestion for you. All my Sound Dollar Committee documents and memoirs are packed away in a cardboard box in the corner of your company’s warehouse. When the time is right, dig ’em out. Bring the Sound Dollar Committee back from its grave.”
Earlier this year, I finally followed his advice and had Dad’s memoirs delivered to my office. He had said there was just one box. In reality, there were dozens.
The sun was down, but Florida’s evening brightness flooded my office, much of it reflected from the lake below. I picked one box to open at random, and a surge of grief rolled up my chest. It was the first time I’d looked through any of Dad’s papers since he passed away.
In the box, personal letters were mixed with public statements – some loose, some in folders or envelopes, some neatly joined with rusted paper clips. Most date back to the 1940s and ’50s, and from each, I could hear voices speaking to me almost as if they were here today …
Bernard Baruch
One letter to Dad, yellowed by four and a half decades, is from Bernard Baruch and is dated April 6, 1959.
Baruch’s bold-faced, Madison Avenue letterhead competes with his Kingstree, South Carolina address typed lightly in the upper right corner. The word “Private” is handwritten across the top.
In the early days of the Committee’s formation, Dad had spoken and written to Baruch several times, seeking to enlist him as the Democratic co-chairman of the Committee. Former President Herbert Hoover would have been the Republican co-chairman. But Baruch was reluctant to be his counterpart.
“Inflation,” he wrote, “flows from the selfish struggle for special advantage among pressure groups. Each seeks tax cuts or price increases or wage raises for itself while urging the others to make the sacrifice, and with little regard for the national interest. …
“Ever since the end of World War I, I have tried to show what the results would be – giving all of my time and resources to this. But alas, my efforts have not succeeded. …
“I hope that you and those associated with you will be more successful because it is just and should win.”
Leonard Paul Spacek
The box also contains four sheets of the original Sound Dollar Committee stationery. The names of 17 members, printed in dark blue ink, line up neatly along the upper left margin.
Some of the names I know; some I do not. But my research reveals that each man on the list has his own urgent message for us today – words that we can choose to heed with respect, or ignore at our own peril.
One of the messages comes from Leonard Spacek, who, not coincidentally, had a lot in common with Dad.
Back in 1928, around the same time as Dad was meeting his first important boss on Wall Street, Spacek met his as well – a man whose name you will surely recognize: Arthur E. Andersen, the founder of the accounting firm that would become the largest and most prestigious in the world.
After Andersen’s death, Spacek took the helm as the second managing partner in the firm’s history, emerging as a fiercely outspoken champion of shareholders’ rights.
He advocated strengthening audit procedures. He fought for standardizing accounting rules so that financial statements could be fairly compared. And in 1958, one year before joining Dad in the Sound Dollar Committee, he declared that “the man on the street … has the right to assume that he can accept as accurate the fundamental end results shown by the financial statements in annual reports.”
This approach may not seem radical to you today. But it was then. And with it, Spacek made history. But he also made some enemies, a foreshadowing of greater troubles yet to come.
If he were alive today, I can just imagine some of the feelings he’d have about those who followed in his shoes.
He dedicated his life to sound accounting. He’d be horrified by those who led his own great firm down the path of accounting hocus-pocus. He’d have no pity for those who allowed Andersen to become the first accounting firm in history ever to be convicted of fraud.
And most of all, he would be mortified if he could see the current state of the federal government’s own accounting: It’s in such a mess, the Comptroller General of the United States has refused to certify it for the past six years.
As former SEC Chairman Arthur Levitt said in a eulogy, “there aren’t any Leonard Spacek’s in the industry any more.”
I think there are. But most Americans have yet to hear from them.
General Leslie R. Grove
Also on the list of members of Dad’s Sound Dollar Committee are two retired generals.
Why did they join? Dad told me that it was because they saw the connection between fiscal prudence and homeland security; financial soundness and physical safety.
Both goals, they believed, were threatened by the same human weaknesses – lack of discipline and outright greed. Neither, they insisted, could be achieved without the other for very long.
Leslie R. Groves was one of them, and he played an entirely different role in America’s history from any of the other Committee members.
Groves was a major force in the construction of the Pentagon. And he was the de facto leader of a secret weapons project based in the New York District of the Army Corps of Engineers: The Manhattan Project, where the first atom bomb was made.
Here’s why I think this is so important and relevant to the sorry state of the world we live in today:
Groves advocated no sharing of nuclear technology with allies. Even within the U.S. government, he zealously embargoed information from most agencies and departments, including the White House itself.
If Leslie Groves were here today, I think he’d be the last to say “I told you so.” Instead, he’d be insisting on a sound dollar and a balanced budget. At the same time, he would take charge and lead the battle to make the homeland more secure and end nuclear proliferation peacefully.
Dean Alfange
As the legal counsel to the Sound Dollar Committee, Dean’s is the last name to appear on its stationery.
When I was a young boy, I used to like seeing him at the Committee’s headquarters at 500 Fifth Avenue. He was like an uncle, always welcoming me with open arms.
Dad told me Dean had run for governor. And just recently, I discovered from my research that he was a founder of the liberal party of New York – more evidence of the broad, eclectic membership of the Sound Dollar Committee.
Interestingly, though, many of Dean Alfange’s beliefs seemed to have been more Ayn Rand libertarian than New York liberal, as evidenced by his credo:
“I do not choose to be a common man.
“It is my right to be uncommon if I can.
“I seek opportunity not security.
“I do not wish to be a kept citizen, humbled and dulled by having the state look after me.
“I want to take the calculated risk; to dream and to build, to fail and to succeed.
“I refuse to barter incentive for a dole. I prefer the challenges of life to the guaranteed existence; the thrill of fulfillment to the stale calm of utopia.
“I will not trade freedom for beneficence nor my dignity for a handout.
“I will never cower before any master nor bend to any threat.
“It is my heritage to stand erect, proud and unafraid; to think and act for myself, enjoy the benefit of my creations, and to face the world boldly and say, this I have done.
“All this is what it means to be an American.”
At The Mercy of Foreign Investors
Today, being an American means to be in hock – not only to mortgage banks and credit card companies, but also to foreigners. Two charts tell the story most vividly.
The first, from The Grandfather Trade Report, shows the deteriorating U.S. trade deficit since 1959, the year Dad founded the Sound Dollar Committee.
Thanks in part to the success of the Committee, the trade balance was stable until the early 1970s.
But by 1975, a new wave of spending had swept through Washington, and those fighting for fiscal responsibility had been long ago shoved aside. The federal budget began to go haywire, ultimately reaching nearly a half trillion dollars by 2004. And, as you can see in the chart, the U.S. trade balance literally collapsed, also reaching a half trillion by 2004.
The second chart, showing the U.S. trade balance from month to month, is even more alarming. Look how it has deteriorated – from $10 billion per month just six years ago to over $50 billion per month now!
Day of Reckoning
What does this have to do with our debts to foreigners?
Simple: Every time we run a deficit in our federal budget, our government officials must go, hat in hand, asking for money from central banks and investors in Europe, Asia, and the Middle East.
And every time we run a trade deficit, spending more on imports than we make on exports, we must run back for STILL more money from Europeans, Asians, and Middle-Easterners.
Now, after thousands of such trips, and billions of such transactions, the biggest percentage of America’s wealth of all time has literally been sold off to foreigners or thrown into hock.
Most people in Washington seem to think this can go on forever, or that it may even be “good for our country,” helping to make our exporters more competitive. But it obviously hasn’t worked that way: The dollar has been falling for a long time, and so has our competitive power.
Most people on Wall Street also pooh-pooh the trade deficit and the falling dollar. They figure foreign investors will just continue to “recycle” the dollars back into our stock and bond markets. “So who cares?” they say to all those who might protest.
True, for many years, our day of reckoning has been postponed. Foreign investors felt they had no choice but to invest their excess dollars in our markets. They figured U.S. stocks and bonds were, for the most part, the only game in town.
In the 1980s, it was primarily cash-rich Japanese who led the way, investing billions into U.S. stocks and bonds, helping to lift the Dow and the Treasury bond market out of their worst slumps of the postwar era. And in the 1990s, it was mostly Germans that played that role, helping to drive our big tech boom.
But now, after two decades of massive, virtually nonstop capital flows into the U.S. from abroad, we now suffer …
The Worst Reliance On
Foreign Capital Since Franklin
Our reliance on foreign investment is now the greatest since October 26, 1776, when Benjamin Franklin departed from Philadelphia for Paris to solicit financing for the American Revolution.
At the last reckoning, foreign investors owned an estimated $1.3 trillion in U.S. government securities … plus another $1.2 trillion in corporate bonds … plus more trillions in other U.S. assets. All told, about 30% of U.S. debts are held by foreigners.
And suddenly, more of these investors are waking up each morning to the discovery that, in the new millennium, the U.S. financial markets may not be the only big game in town after all.
They can shift their money to the euro, a currency representing an economy that now competes on nearly even footing with the U.S. They can diversify to Japan, Southeast Asia, even China, representing a far larger population. They can sell the U.S. dollar without much restraint.
No, these foreign investors won’t dump all their American holdings overnight. But to cause major disruptions in our markets, they don’t have to. All they have to do is make some adjustments in their relative allocations – a few percentage points less to the dollar, a few more to stronger currencies. That alone will cause serious dislocations in U.S. financial markets.
You saw a small taste of that phenomenon last week when the dollar plunged after the U.S. presidential election. But the dollar decline has barely begun.
And never forget: When foreign investors are selling, they’re not just selling the currency. They’re selling all the investments they bought with the currency – stocks, bonds, private businesses, real estate, and more.
When they sold the Brazilian real in the early 1900s, they were selling Brazil … and Brazil went down. When they sold the Thai currency in 1997-98, they sold Thailand, and Thailand went down. When they’re selling the American dollar, they’re selling America … and America can go down as well. We must not let this happen.
A Special Invitation: November 16 in Washington
The new Sound Dollar Committee has been officially formed, and next week, I will hold a reception in Washington to welcome the new Advisory Board.
Please join me.
I apologize for the late notice – we didn’t finalize arrangements for the hall until this week. But if you can make it on short notice or, certainly, if you live in the D.C. area, it’s an historic occasion that you must not miss.
| Time: | Tuesday, November 16th, 2004, 6-8 p.m. |
| Place: | The Mansion on O Street 2020 “O” Street, NW Washington, DC 20036 202.496.2000 |
| Visit this page for directions … | |
| http://www.omansion.com/contact/dirpopup.html | |
| And for more information about location, check out … | |
| http://www.omansion.com | |
If you are planning to join me, be sure to RSVP via email gsoles@mrss.com.
The time is now. We can no longer sit back and watch passively while our dollar and our nation’s finances are destroyed.
Help me fight this battle before it’s lost again … and possibly, forever.
Good luck and God bless!
Martin D. Weiss, Ph.D.
Editor, Safe Money Report
Chairman, Weiss Ratings, Inc.
martinonmonday@weissinc.com
