The U.S. Dollar is Toast.

REITS rocket, Asia up, market unchanged, VOL unchanged. Sweet.

For three years I have tried to keep politics out of my commentary. To the extent that it affects the dollar, I can’t – I apologize in advance.

You might have heard about the “IPOD law” on the news yesterday. For the benefit of readers overseas, a New York State lawmaker has proposed banning the use of IPODs, cell phones, or Blackberrys while crossing the street.

I have been walking to work for years while listening to music without getting doused by a New York City bus, dragging my lifeless limbs down Eighth Avenue. So how does my listening to Intergalactic by the Beastie Boys on the way to work affect anyone else? It doesn’t. This is a matter of the state telling you what to do for your own good (and if you know what’s good for you).

First cell phones in cars. Fine. Then trans fats. I read one yesterday about criminalizing not going to parent-teacher conferences. Now this.

We know what a totalitarian society look like because we have Charles Jenkins. In 1965, as an American soldier, he walked across the border to North Korea and defected. He was young and impetuous. He spent 40 years there. As an old man, he was released and now we have his stories to help us understand what pure Statism looks like. He was told what to eat, when to sleep, and when to perform an intimate act (twice a month). Albany is slouching toward Pyongyang.

Most people think their politics lies along a Democratic-Republican axis. This has absolutely nothing to do with Democrats and Republicans. There is another axis, the Statist-Libertarian axis that currencies care about, that the dollar cares about, that markets care about. Democrats and Republicans both have elements of Statism and Libertarianism. But since September 2001, both political parties have abandoned any libertarian thought and have embraced the idea that only government can save us all. People don’t flee countries to escape liberals or conservatives – they flee to escape Statists.

If you make it illegal to listen to IPODs outside, you make it more likely that entrepreneurial people like me are going to get fed up and try to get out of the country before the barbed-wire fences and watch towers go up. For the people that are left behind (including the Mexicans who foolishly thought coming to the USA was a good idea), they will have little ability, incentive or desire to produce anything.

The Dollar is intrinsically worth nothing now, so it is a paper promise of value. U.S. Treasury debt instruments are promises to pay you back in more paper. Underlying the whole system is confidence that the dollar actually means something. Not just that the United States is productive today, but that it will be productive tomorrow - that its educated people won’t pull the ripcord – that people will still have incentive to innovate and work.

The U.S. Dollar is toast.

By a Market Professional

Posted February 8, 2007 11:33 AM
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