The Dollar, Asia and Largest Tax Increase in U.S. History

Special report from New Delhi, India

India has traditionally been a huge repository of U.S. dollars and gold. India is the world’s largest consumer of gold. Every household, for the past 50 years, has kept a small hoard of U.S. dollars and gold, “for emergencies”. Historically, the dollar has gone up in value more than the Rupie. But, in the last 12 months a remarkable social change has taken place in India. Indian’s have ridded themselves of U.S. dollars. One intellectual told me; “It is no longer a good investment. Indian Rupies are a better investment than U.S. dollars”.

The implications are enormous, considering that the dollar had declined over 20% in the past 12 months. Indians understand the importance and value of a strong and stable currency. Americans in general do not. Americans don’t recognize the huge “silent” tax increase that they have been subjected to because of the dollar decline. Since the U.S. is an import nation, and since 80% of our consumer products are imports, a lower dollar means that every foreign car, every computer made overseas, every consumer item imported, every item made with imported components, every meat and vegetable that the U.S. imports, every gallon of oil that the U.S. imports, is more expensive to Americans by the factor of 20% decline in the dollar.

Thus while the Bush Administration “gave” the American people a 1.5% tax cut to “stimulate the economy and give the people’s money back to them”, he has effectively levied a 20% tax on every American by allowing the dollar to decline over 20%. No period in U.S. history has seen such a high “tax increase”.

But Americans generally don’t understand, or realize the significance of a weak dollar. They could learn much from Indians in this regard.