T Nation

The Ever Decreasing Dollar

Gold shot up $21 yesterday. Since the start of 2006, it has moved from $530 to $700. People are starting to notice.

The globe is lop-sided. Everywhere we look, things are out of kilter, like a house of mirrors, where nothing quite looks the way it should. We have to check our glasses to make sure it isn’t us.

And, yesterday, we also felt… deserted… alone… abandoned by our friends.

Stephen Roach, chief economist at Morgan Stanley, threw in the towel. He was the last bear standing on macroeconomics matters, according to the Guardian (The Guardian editors do not spend much time in the woods).

Like us, for many years, Roach lamented and bemoaned the “unbalanced” world economy, which he saw becoming more and more unbalanced as time went on. But recently, it seems that it is Roach himself who has become unbalanced; yesterday, he imagined balance being restored by the coordinated efforts of bureaucrats at central banks all over the world.

Actually, the relationship between East and West is not so much imbalanced as it is parasitic. One side makes; the other side takes. One saves; the other borrows. One grows rich acting poor; the other grows poor believing itself rich.

In the West, people live beyond their means and expect to continue doing so at least until the Second Coming. Their top economists tell them that they have nothing to worry about, no day of judgment. Savings? Who needs that? We have something better - credit!

But where does the credit come from, without a pool of savings from which to draw? Well, it comes from the East - where people do save. Here, the Wall Street Journal weighs in with some facts. Developing nations already hold reserves - mostly in dollars - of $2.9 trillion. China, Russia, and Saudi Arabia are laying in huge supplies of capital - earned from the export of oil and manufactured goods. Most of this money was once owned by Americans; now, it is owned by foreigners.

Every day, more than $2 billion, net, shifts further from one end of the teeter-totter to the other - from the chunky spenders down to the skinny savers.

China, Russia, and Saudi Arabia may not be the world’s most developed nations, but they weren’t born yesterday. And, what they don’t know between them - about mismanaged economies, political corruption, incompetence, and worthless paper money - is probably not worth knowing. Sitting there, surrounded by trillions of dollars, they are likely to wonder what each one is actually worth. And then, they are likely to turn their gaze to the country that issues them - and wonder again.

“What is behind the dollar?” they will ask themselves. Just faith, comes the answer. But faith in what? Is it in the financial future of the United States? Talk about unbalanced; no nation in the history of the world has ever had such a big gap between what it earned, and what it spent. U.S. public and private finances are out of whack, and on the evidence, becoming more and more out of whack with each passing day.

What faith can you have in its paper currencies? Its notes? Its bonds? And then, the foreigners turn to the Middle East and ponder even more.

In Mesopotamia, the Americans’ war against “nobody-in-particular” is also lopsided. The Untied States is the world’s only superpower, and probably the most powerful nation that ever existed. Against the most sophisticated fighting force ever assembled, the “nobodies” on the other side can launch no planes, field no tanks, assemble no armies, and dispatch no ships. An estimate from the Pentagon is that they have no more than 10,000 partisans, most of them neither seriously armed, nor seriously trained, nor seriously led.

Still, it is an incredibly expensive war - but only on one side. The United States will spend about $120 billion this year alone; the enemy, whoever he or she may be, spends peanuts.

[quote]Tithonus81 wrote:
Gold shot up $21 yesterday. Since the start of 2006, it has moved from $530 to $700. People are starting to notice.

The globe is lop-sided. Everywhere we look, things are out of kilter, like a house of mirrors, where nothing quite looks the way it should. We have to check our glasses to make sure it isn’t us.

And, yesterday, we also felt… deserted… alone… abandoned by our friends.

Stephen Roach, chief economist at Morgan Stanley, threw in the towel. He was the last bear standing on macroeconomics matters, according to the Guardian (The Guardian editors do not spend much time in the woods).

Like us, for many years, Roach lamented and bemoaned the “unbalanced” world economy, which he saw becoming more and more unbalanced as time went on. But recently, it seems that it is Roach himself who has become unbalanced; yesterday, he imagined balance being restored by the coordinated efforts of bureaucrats at central banks all over the world.

Actually, the relationship between East and West is not so much imbalanced as it is parasitic. One side makes; the other side takes. One saves; the other borrows. One grows rich acting poor; the other grows poor believing itself rich.

In the West, people live beyond their means and expect to continue doing so at least until the Second Coming. Their top economists tell them that they have nothing to worry about, no day of judgment. Savings? Who needs that? We have something better - credit!

But where does the credit come from, without a pool of savings from which to draw? Well, it comes from the East - where people do save. Here, the Wall Street Journal weighs in with some facts. Developing nations already hold reserves - mostly in dollars - of $2.9 trillion. China, Russia, and Saudi Arabia are laying in huge supplies of capital - earned from the export of oil and manufactured goods. Most of this money was once owned by Americans; now, it is owned by foreigners.

Every day, more than $2 billion, net, shifts further from one end of the teeter-totter to the other - from the chunky spenders down to the skinny savers.

China, Russia, and Saudi Arabia may not be the world’s most developed nations, but they weren’t born yesterday. And, what they don’t know between them - about mismanaged economies, political corruption, incompetence, and worthless paper money - is probably not worth knowing. Sitting there, surrounded by trillions of dollars, they are likely to wonder what each one is actually worth. And then, they are likely to turn their gaze to the country that issues them - and wonder again.

“What is behind the dollar?” they will ask themselves. Just faith, comes the answer. But faith in what? Is it in the financial future of the United States? Talk about unbalanced; no nation in the history of the world has ever had such a big gap between what it earned, and what it spent. U.S. public and private finances are out of whack, and on the evidence, becoming more and more out of whack with each passing day.

What faith can you have in its paper currencies? Its notes? Its bonds? And then, the foreigners turn to the Middle East and ponder even more.

In Mesopotamia, the Americans’ war against “nobody-in-particular” is also lopsided. The Untied States is the world’s only superpower, and probably the most powerful nation that ever existed. Against the most sophisticated fighting force ever assembled, the “nobodies” on the other side can launch no planes, field no tanks, assemble no armies, and dispatch no ships. An estimate from the Pentagon is that they have no more than 10,000 partisans, most of them neither seriously armed, nor seriously trained, nor seriously led.

Still, it is an incredibly expensive war - but only on one side. The United States will spend about $120 billion this year alone; the enemy, whoever he or she may be, spends peanuts.[/quote]

Not to hijack: I put A LOT of my retirement money into a gold mutual fund back when gold was in the 200’s. I also bought into a energy service mutual fund when oil was in the low 20’s. My last was to put a chunk into a defense/aerospace fund as soon as the markets opened after 9/11.

If you assume that politicians will always spend more than they acquire through extortion (taxes), if you assume that they will do stupid things, you can prosper in an increasingly stupid and violent world.

[quote]Headhunter wrote:
Not to hijack: I put A LOT of my retirement money into a gold mutual fund back when gold was in the 200’s. I also bought into a energy service mutual fund when oil was in the low 20’s. My last was to put a chunk into a defense/aerospace fund as soon as the markets opened after 9/11.

If you assume that politicians will always spend more than they acquire through extortion (taxes), if you assume that they will do stupid things, you can prosper in an increasingly stupid and violent world.

[/quote]

I don’t think this was a hijack in the pure sense. I think that what you wrote is very true and accurate in a scary, real world way.

[quote]ALDurr wrote:
Headhunter wrote:
Not to hijack: I put A LOT of my retirement money into a gold mutual fund back when gold was in the 200’s. I also bought into a energy service mutual fund when oil was in the low 20’s. My last was to put a chunk into a defense/aerospace fund as soon as the markets opened after 9/11.

If you assume that politicians will always spend more than they acquire through extortion (taxes), if you assume that they will do stupid things, you can prosper in an increasingly stupid and violent world.

I don’t think this was a hijack in the pure sense. I think that what you wrote is very true and accurate in a scary, real world way.[/quote]

That was probably the first post of HH I agree with 100%.

I am no investment guru but I bet people that are buying gold for 700 an ounce will be kicking themselves while the people that are selling it for 700 an ounce are getting rich.

I suspect that this was written by a seller.

I remember when gold dropped to around $360, South Africa was quite upset at this fact. Shame I was too young to have the money to invest.

I invested in South Africa back when apartheid was the ‘buzzword’. Made some serious cash. Allows me to work as a teacher.

If you guys want to make serious cash, get into a biotech mutual fund. Do you think any of those companies are working on alternative fuels?

One of these companies is developing a grass that grows until you mow it, then will not grow any taller. Mow once per year. Think of the implications – less gasoline used and less work. Fucking brilliant!!

[quote]Zap Branigan wrote:
I am no investment guru but I bet people that are buying gold for 700 an ounce will be kicking themselves while the people that are selling it for 700 an ounce are getting rich.

I suspect that this was written by a seller.[/quote]

I know you wouldn’t listen to me, but put a stop on it at about $650. With interest rates rising, there’ll be some weakness, until we attack Iran.

Better to buy defense stocks. Blue chips of the next 20+ years.

Hey, I’m sorry I stole this thread. I will STFU now.

HH

[quote]Zap Branigan wrote:
I am no investment guru but I bet people that are buying gold for 700 an ounce will be kicking themselves while the people that are selling it for 700 an ounce are getting rich.

I suspect that this was written by a seller.[/quote]

Just wanted to clarify that I am not holding any gold or gold related investments. The story was more of a wake up call then a plug for gold.