Dollar, Euro No Match for the Glitter of Gold by Terry Savage on Creators.com

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Dollar, Euro No Match for the Glitter of Gold

It isn't working. They can throw all the euros — and dollars — they want at the Greek financial situation. But the markets won't believe it. The euro is heading straight down toward parity with the U.S. dollar.

That wouldn't be the end of the world, if the two reached parity. Remember, when the euro launched in January 1999, it was priced at parity with the U.S. dollar. And amid great skepticism over the possibility that Europe could create a common trading community, with common laws and currencies bound to each other, the euro quickly fell to 84 cents.

It wasn't until July 2008 that the euro traded at its highest exchange rate — over $1.57, before the current financial crisis began. The euro slipped in the rush to the safety of the U.S. dollar in fall 2008. But as recently as last October, the euro was once again trading above $1.48 — as it appeared that Europe would weather the financial crisis better than the United States.

Now that optimism has disappeared amid the reality that while Germany and some other countries have taken a disciplined approach to their economic situation, euro-partners Greece, Spain and Portugal are unable to repay their debts, since they are tied to the euro, and cannot print drachmas or pesetas to pay their bills.

We're getting a firsthand look at what happens when the world loses faith in a government, and therefore in its currency. For most of us, the idea of Germans pushing wheelbarrows full of currency is historical hyperbole. But it really happened. And in my wallet, I carry a 100 trillion-dollar note from the Reserve Bank of Zimbabwe, printed a year ago. Today, it wouldn't buy a loaf of bread in that devastated African country.

At the moment, the world is rushing out of euros and into U.S. dollars. That's pushing yields on Treasury securities down to well below 3.5 percent on 10-year Treasuries.

So with all this dollar-buying, is the U.S. dollar once again the undisputed reserve currency of the world? Or is it simply the current lesser of all evils? Your answer to this question will have a significant impact on your investing, financial planning and retirement plans.

I think it's only a matter of time before the rest of the world turns to the United States and sees the same profligacy that it has already reacted to in Greece. Ultimately, the world will look at the huge budget deficits being run up in a vain attempt to "stimulate" our economy into prosperty, and they will come to the same conclusions: The currency is not worth the paper it is printed on — or the keystrokes that create the credits on the books of the banks.

Then there will be only one reserve "currency" — GOLD. We're only at the beginning of the flight from some paper currencies — and into hard assets. Dollar selling has pushed gold up to record levels in dollar terms. But euro-selling has pushed gold even higher against that currency.

We're closer to the beginning of this move into gold than we are to the end. After all, even Rumplestiltskin knew he couldn't spin straw (or paper) into gold. But he kept trying!

Gold is forever. And that's the Savage Truth.

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. She is the author of the new book, "The New Savage Number: How Much Money Do You Really Need to Retire?" To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.

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