Monday, September 7, 2009

Gold’s Advance Indicates Failures of Bush-Obama-Congress Weak Dollar Policy

The U.S. dollar is teetering on the edge of relative worthlessness, but polite market reporters won’t really say it that way.

The news in recent days has been gold’s advance , from roughly $930 an ounce to $990 an ounce in the last few months. Gold’s luster isn’t from demand for jewelry or industrial applications for the metal. Instead, it’s climb is due entirely to a lack of faith by international businesses and investors in the value of the dollar.

This Bloomberg story spells it out clearly:

“The underlying factor [in the movement of gold’s price] is still the dollar,” Dan Smith, a Standard Chartered Plc analyst in London, said by phone today. “If we do see a break in the dollar, it could be one of the triggers to take gold higher.”

To interpret City speak for you, “a break in the dollar” means that dollar-holders in international markets will sell the dollar in order to buy other currencies. People sell a country’s currency when they see current or future weakness in its economic outlook. If they don’t think your economy will come out of a recession any time soon, or they your political situation stinks, they sell the currency. If they think your monetary policies stink – including the printing a lot of paper and flooding markets with it to create a short term ‘stimulus’ – then they sell that currency. Who wants to hold a currency that’s as good as toilet paper?

That’s what we’ve seen with all these “bailouts” and “loans” from the U.S. government to industry. It’s been an increase in supply in dollars. More dollars chasing fewer goods creates inflation, which means everyone’s current dollars are worth less and less. And hard assets, like gold, whose supply can’t be artificially inflated, increase in value.

A lot of blame can go around, to Alan Greenspan, George W. Bush, Ben Bernanke, Barack Obama, and the feckless idiots in Congress. Whoever you chose to blame, we’re in for a continuing rough ride, if gold’s move to $1,000 and beyond is the indicator it has been in the past. I think it will.

Oh yeah, just so you might recall, gold was selling for roughly $250 an ounce in 1999 or so. The inflationary policies of our government aren’t neatly pinned on one political party or another. There’s something else going on that’s more dastardly, as government pushes its continuing reckless spending onto our pensioners and elderly. It’s truly unforgivable what our so-called leaders are doing to us, now and in the past ten years. It’s also unforgivable what we’ve been electing to office, in terms of complete idiots, from both parties, at nearly every level of government.

Enjoy the ride. It’s going to be a doozy.


SG said...

Nice article!!

China & Russia have been wanting to move away from the dollar as a reserve currency. However, the UN recently proposed eliminating the dollar as a global currency.

Things need to change. If we don't get the debt under control, it will not play well for the US. Even Warren Buffet, an Obama supporter, is warning of the US moving toward a Banana Republic economy.

SG said...

BTW, I just posted an article called "National Debt: A Clear & Present Danger."

We are beyond the discussion of "it could" and have entered the discussion of "it is."

Joe Gimenez said...

The Wall Street Journal's lead story above the fold today discusses the collapse of the dollar yesterday. The story spins the collapse as symptomatic of international seeing better opportunities in Europe and elsewhere, in terms of higher rates of return. That means interest rates in the U.S. will need to increase to attract that money back to U.S. debt, both national and corporate.

But there's also the sense that the U.S. economy won't be making money in the near future. That's a change from last year when the WSJ had numerous experts saying the U.S. was more likely to recover quicker than Europe and elsewhere. That's not happening and that is being reflected in international money flows.

I wonder if George Soros is shorting the dollar, even as he advises the president on more economy damaging initiatives.