Ron Paul took a few minutes off from laughing about how right he's been over the past year in order to talk economics with CNN, and something he said feels eerily familiar. The housing bubble existed because, for a while, people were greatly overestimating the value of property and buildings. Those who believed that a porta-potty in downtown L.A. wasn't actually worth $2.4 million could keep right on pretending that it was as long as someone else believed it was worth that much. The collapse only happened when a certain tipping point was reached and no one would pay the $2.4 million anymore, causing a snowball of selling. This effect is, of course, best illustrated by Eddie Murphy trading orange juice:
Sadly, Ron Paul wasn't talking about orange juice. If he was, his interview wouldn't have been nearly as ominous. No, Paul was talking about the dollar, which has, over the past few months, seemingly been disconnected from reality. Congress has been dumping trillions of dollars into failing companies, most of them created out of thin air. Obama's budget deficit is projected to be over $1.2 trillion, which also comes from thin air in the form of green-tinted I.O.U.'s we ship to China. Obama has also said to expect trillion-dollar deficits for "years to come." More and more dollars poofed into existence.
Yet the value of the dollar hasn't significantly dropped in the face of trillions of new greenbacks on the way. In fact, over the past couple of months, it's actually trended upward against most foreign currencies. This is likely because the world traditionally rushes to the dollar in bad economic times. But it seems increasingly likely that there is a dollar bubble, and sooner or later someone is going to start screaming, "Sell!"
