John Rubino: Gold, Green And The Fate Of The Dollar

June 26, 2009

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Let's face it: The dollar's in bad shape right now, and it's not clear when a rebound might be in the cards. But for John Rubino, the greenback's current troubles are no surprise: He and colleague James Turk predicted this would happen back in 2004's eerily prescient "The Collapse of the Dollar, and How to Profit From It."

A Wall Street veteran and longtime financial commentator, Rubino has written three other books, including his latest "Clean Money: Picking Winners in the Green-Tech Boom" (Wiley, December 2008). He now writes for CFA magazine and edits the popular blog/news sites Dollar Collapse and Green Stock Investing.

Recently, HAI's associate editor Lara Crigger caught up with Rubino to chat about the fate of the greenback, the gold/green connection and how investors can profit from the clean tech revolution.


Lara Crigger, associate editor, (Crigger): Back in 2004, you and James Turk published "The Collapse of the Dollar," in which you predicted soaring mortgage rates, tumbling home values, skyrocketing commodities prices - even the government's response of printing gobs of money.

John Rubino, author, "Clean Money" (Rubino): Yeah, so far so good for all those predictions.

Crigger: I don't know if "good" is the right word.

Rubino: Well, basically, the scenario we envisioned back in 2004 involved a few stages. The first stage is that [The United States] would borrow immense amounts of money, more than we could ever hope to pay off, which is what we did from the 1970s through 2007. Then that load of debt would cause a financial crisis, in which the banks got wiped out, mortgages defaulted on an unprecedented scale and people went bankrupt. That too happened. Then the next step is that world governments would open the floodgates: In order to avoid a 1930s-style Great Depression, they print as much new paper currency as it takes. And that's what's happening now.

The final step in this scenario is that this supply of paper currency not backed by anything causes the dollar and other paper currencies to start dropping dramatically. At some point in the maybe-not-so-distant future, people realize the cash in their pockets and bank accounts are being inflated away, and they bail on the whole concept of paper currency.

That's when we have a "rush to the exits" by everyone who owns dollar-denominated debt and cash. They try all at once to convert their paper currency into hard assets. You get selective inflation: soaring prices for real things that can't be created in infinite quantities by governments, like oil, precious metals and some kinds of farmland.

Crigger: That sounds pretty dire. Is there no way to save the dollar then?

Rubino: Well, if we changed course and decided to let the financial collapse just happen and flush out all the bad debt, then it's conceivable. We would have something similar to the 1930s instead.

But that doesn't seem to be the political reality. No major government is willing to let that happen. So they've chosen to try to inflate their way out of the crisis. And they're going to succeed, because we've got a finite amount of debt and an infinite printing press on the other side. These guys can create as much paper money as they want to, with the stroke of a pen or a mouse click, and they've proven they're willing to do it. Trillions mean nothing anymore. So it really looks like the destruction of the dollar (and most of the other paper currencies of the world) is inevitable at this point.

Crigger: So as people "rush to the exits" and into hard assets, it sounds as if it will create a panic in the commodities markets in the next few years.

Rubino: It does look like the governments are going to inflate until they can't anymore. When that turns into a buying panic for commodities, we can't know. But it's a reasonably safe bet that at some point, there's so much increasingly worthless paper currency out there that you get everybody trying to pile into real assets. And when that happens, we'll have a spectacular move. But there's no way to know when that will happen.


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