Axel Merk: Why Is Anyone Still Waiting to Sell the Dollar?

Tyler Durden's picture

From Chris Martenson

"The Fed can buy billions, even a trillion or so, but if and when the market is moving against the policymakers then there is no stopping. The Fed cannot stem that tide. There is only so much that they can manage and so it is something that they have to watch very carefully. At the same time, they are not terribly concerned. If the bond market is falling, you do not know whether it is because of more economic growth or because of more inflation, and you really only know after the fact.

So for now people think “We have economic growth kicking in”, until the next economic numbers are not as great as expected and so it is a bit like a boiling frog syndrome. You print in all this money, you think everything is great and you have some warning signs but you think “Things are moving along” and by the time that you really see the damage you have created, it is quite late to undo this damage and it is going to be very, very expensive and painful."

So remarks Axel Merk, currency specialist and founder of the Merk Mutual Funds, who is perplexed by those waiting for additional warning signs to sell the dollar. In his view, we have all the evidence we need. He and Chris discuss the inner workings of the Fed and the course it is determinedly charting - and the looming dangers ahead for the US dollar.

Click here to listen to Chris' interview with Axel Merk (runtime 40m:55s):

Read the Transcript of the Podcast
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In this podcast, Axel explains:

  • Why Ben Bernanke is hell-bent on debasing the US dollar to spur economic growth
  • How the politics of the Fed work, where the power lies and which arguments and actions are likely to carry the day
  • Why inflation expectations actually matter more than actualy inflation, and why the Fed will not rest until it is satisfied the market expectations for inflation are higher
  • That the US is on its way to a fiscal trainwreck - a reality our political leadership continues to lack to backbone to address honestly
  • The Fed's powers are prodigious, but not as great as the market. If and when the market moves against policymakers, nothing will stop it. The growing risk is we quickly tip into the inflation the Fed wants, which then quickly leads to runaway prices
  • His outlook for gold and why he thinks this "ultimate currency" can go much higher from current levels
  • How the US is caught in a Catch-22: our loose monetary policy continues to encourages credit consumption that makes us increasingly vulnerable; but we're so indebted already that if the Fed tightens rates, the economy could easily fall into a full-blown depression
  • How currencies mutal funds can responsibily reduce their risk exposure to the US dollar while offering investment gains

 
Axel Merk is president, chief investment officer and founder of Merk Investments. Axel is a noted expert on world currencies and manages several mutual funds that manage currency risks for investors. For years he has been an outspoken critic of US monetary policy, warning investors that the current course risks seriously devaluating the dollar. The past few years have proven his warnings to be accurate. He is also the author of Sustainable Wealth, a very readable guide to understanding our macro economic environment, the risks today’s investors face, and how they can mange their finances to achieve financial stability .


 

Our series of podcast interviews with notable minds includes:

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topcallingtroll's picture

Ted Butler is likely a mild sociopath.

He looks like a morally crusading messiah now, but he is not stupid.

When hysteria is the highest and he is screaming the loudest about a dollar collapse this guy has the balls to sell into the teeth of the hurricane.

He also knows on the other end of the trade will be a frightened rube who will take a big loss. But dont listen to me. Watch what he does if he is man enough to be honest. We all hope to sell to a.bigger fool. I am no better than him, just less competent in my timing.

Dont come around fight club, Ted, unless you are ready to fight. I know you read this.

Tyler Durden's picture

There was an error in the original title. This is a podcast with Axel Merk, not Ted Butler.

topcallingtroll's picture

Sorry ted.

I will fight you later.
I have followed you for a long time, before most of these guys had pubes. But lets have no illusions of what we are, shall we?

People who are not in touch with all aspects of their personality are not whole people. Own and acknowledge your sociopathic component. You would not have had the courage to walk alone without it.

I think it would.be reasonable to delete this series of posts since they do not apply to the current topic. Or leave it up. I dont care.

falak pema's picture

You should read Professor Kotlikoff's paper on level of real USD debt...estimated at USD 200T+. Not the official 14 T level. Thread on this article is on Open thread above page#4.

Now here ...http://fellowshipofminds.wordpress.com/2010/10/29/economist-says-real-us-debt-is-200-trillio

topcallingtroll's picture

Those are future contingent liabilities assumed if present trends continue. They will vanish with a.change in the law. Those are not like bonds which are real current liabilities.

Popo's picture

Bonds too, are just pieces of paper.

topcallingtroll's picture

but they have a tiny bit more legality in terms of obligations as compared to adding up all the value of politicians' future promises

msamour's picture

Any piece of paper that says I owe you on it bears no value what so ever if there is not the ability to collect on the said debt. You cannot get blood from a stone. When the person owing the debt states that he will not pay the debt back because he cannot, no amounts of threatening/retribution/killing the guy's family or destroy the country of the entity owing the debt will bring about resolution and actually have the debt being paid. People who bought bonds gambled, and they lost. That is the real story there. Smart people would have stopped buying bonds a long time ago.

redpill's picture

Tell that to Greek bondholders.

Popo's picture

Heh...  so much for the preceding rant then... 

topcallingtroll's picture

He he.

Maybe i will get another chance later. It is embarrassing to swing at imaginary targets.

RockyRacoon's picture

It's embarrassing only if there is a large audience and has an added spice of having been a smug, strutting peacock in the past.   This is generally speaking, of course.

bigelkhorn's picture

LOL.

The dollar looks horrible here. Those FFT guys have been crushing the market latetly. I am a VIP member and love their technical analysis, but they just uploaded a FREE video of what they think is going to happen in the next few weeks to the S&P 500. Its well worth a watch!

==> http://www.youtube.com/watch?v=Lnt5HuGGcKw

Rogerwilco's picture

The coming rally in the DX and treasuries will find a lot of folks wondering what hit them.

The reset event will set the stage for bank nationalizations, more QE, and Obama's reelection effort.

unky's picture

I seriously think this can happen in the short term. Lets say when QE2 ends in june, they might let the dollar rally and sacrifice another PIGG country or two (restructuring greece, more problems in spain or whatever). but after that QE has to continue i think.

Edmund Dantes's picture

spot on. gold will hit $1,650 in May, then fall to $1300 this summer, which will be the last buying opportunity before we head over $2,000. 90% of PM investors will get washed out on the head fake. QE-3 starts in August.

Confuchius's picture

We have checked with osama soetoro's supporters in Jakarta and he definitely will not be "running" for any public post other than volcano inspector or tsunami clean up leader...

AldoHux_IV's picture

Axel Merk is a douche who's shameless promotion of his mutual funds and pro-euro doctrine is attempting to ride the wave of dollar destruction sentiment while truly not grasping how fucking twisted Bernanke's logic really is-- 'a student of the Great Depression' my ass. The guy doesn't know shit about economics and neither does Merk-- fucking bandwagoning self-promoter.

topcallingtroll's picture

I slightly disagree, but not enough to slug it out with you. Everyone has to promote and has a viewpoint, but i believe he has been honest about his calls and he does eat his own cooking. I cant expect more from a trader/investor.

THE DORK OF CORK's picture

I agree - Merk is a typical German Euro conservative - he deliberately fails to see the problem is the shadow bank sector, not entitlements which he wishes to cut which will crash demand into the Regolith.

Of course when you realise that the Euros construction was designed to crush sovereignty using private debt has a sledgehammer his views make sense.

The central banks goal since the wage inflation of the seventies which hurt their clients is to create a global wage deflation environment which until recently was fueled by private debt creation.

Now that this credit engine is dying the Central banks do not know how to engineer a effecient solution to protect their clients equity funds whose value is dependent on wage austerity.

To me the solution lies in the destruction of credit completly by global wage inflation.

IQ 145's picture

 Excellent. I knew there was a reason why I liked your posts; the reason is, you can think.

falak pema's picture

unlike you : Fukushima meltdown impossible!

Confuchius's picture

And what kind of promoter are you?

Fancy Bear's picture

Gold is the ultimate currency bitchez

Popo's picture

As invested as I am in gold, that statement belies an ignorance of history.

Gold has its moments.  It will soar like you've never seen it.  But it will be squashed again -- mark my words.  

If gold were the ultimate currency, it would not have been so easily demolished for 30 years by a currency which goldbugs dismiss.

The dollar is indeed, fucked.   But there will be other "ultimate currencies" which supplant gold.  All of them will rise and fall -- over the course of decades.  The RMB will likely be the world's next reserve -- if it's not some unnatural hybrid currency like SDR's or IMF-bucks.  

Hold your gold.  But don't walk around like a wet eared newb thinking that it's a good hold forever.   It can and will be smashed again.  The only question worth asking is:  By whom?

 

 

topcallingtroll's picture

A metacurrency like the sdr is the best solution. The controversy is only about the components.

A gold standard is a sign of societal failure, not success.

terryg999's picture

I am pulling for the World Mark. 

Calmyourself's picture

Metacurrency backed by what? The full faith and resources of the U.N.? The SDR is an illusion and a great way to start WWIII but not a currency.

topcallingtroll's picture

it is comprised of national currencies at various percentages, but only currencies that have true price discovery, meaning a free float.

 

It is less flexible than gold, but still a better store of value than an individual sovereign currency.  Think of it as buying a bond fund, versus buying an individual bond.

blunderdog's picture

SDRs?  Metacurrency? 

Um yeah ok.

But as cool as the whole new world odor/one-world gummit thing could be, there's still some of us looking to smash the state, ya know.  See ya on the other side.

RockyRacoon's picture

And you were doing so well with your red-faced apology above.

Now you go and make silly statements like these.

How can I come to admire your intellect when you go off the deep end?

Flakmeister's picture

An honest currency that is practical, would be based on Energy.

topcallingtroll's picture

too inflexible.  You will allow the money supply to shrink if energy resources shrink?  That would cause a depression.  At least gold grows about two percent a year.

Confuchius's picture

Gold does not "grow"

It also does not shrink.

Which is why it is money and has always been, for thousands of years.

RockyRacoon's picture

The supply does actually increase, which I believe was his point.

Milestones's picture

But it is not depletable also?       Milestones

RockyRacoon's picture

The amount used to plate relay contacts tends to decrease as the cost increases.

FreedomGuy's picture

A gold standard is an acknowledgement of the failure of men in power, not necessarily society. Is is the acknowledgement that fiat currencies return to their intrinisic value of zero. Long before that it is an acknowledgement of the manipulation of that currency and therefore the manipulations of government.

topcallingtroll's picture

agreed.  it is the failure of the controllers of the currency, not the society at large.

Justaman's picture

If that is the case, why does the experiment keep failing?  Any paper currency accepted by a society eventually becomes manipulated and just a managed tool by the government at large.  We all know every paper currency has failed so why keep it as a means to an end.   An end of an empire that is.  The hope that it will work next time IS in fact a failure of society because it eventually speaks about the society and culture it so represented. Good luck with paper and any manipulated, I mean, managed currency. 

FreedomGuy's picture

It fails because of the fallibility of men. It is actually the same reasoning behind our multiple branches of government. Men are fallible. So don't give any one of them too much power and divide the power among many (branches). All of this was to dilute power and minimize the evil side of men. It worked well for awhile but has no pretty much broken down.

My hope is that people/society will reason their way to the next step which is to fully limit the power of government to something approaching zero. Libertarianism is the next advance in civilization, not the collective. However, I fear it may take a few centuries to get there.

RockyRacoon's picture

Ding, ding.  You win the Kewpie doll.

Bicycle Repairman's picture

Mankind cannot and will not ever reach the gold standard.  Only a fool would expect it.

RockyRacoon's picture

I tend to think that gold standards (there have been many) are a condition of economies that are reverted to, rather than deliberately established.   They work for a period of time during which the centralization of power degrades the practical nature of the standard itself.   Over the longer term greed and avarice further dismantle a perfectly usable system when markets are truly free.  Market interventions by government, usually in the cycle of financing war(s), eliminate free markets and thereby the store of value aspect of gold.

The way to survive is to keep one's head above the noise and confusion and observe the natural course of these events.   Swinging in and out of the prevailing financial forces at predetermined times is the way to preserve purchasing power of the currency, whether it be fiat or precious metals.   Of course, other forms of physical assets can be utilized according to the expertise of the investor/saver.   It has been shown that art, philately, precious stones, base metals, and many other areas can be utilized; but a knowledge of the field(s) and their markets is a must.   Precious metals is easy because not much knowledge other than how to procure or dispose of one's holdings is needed.   It's sort of one of those no-brainer methods to preserve capital.  

There are several drawbacks to this:  PMs are volatile since semi-literate financiers get involved in the buy/sell side.   Goverments tend to bend the "value" curve in order to preserve their fiat dominance.   Others can be added to the downside list, but it is easy to see that the downside is an offshoot of the lack of free markets.

Sathington Willougby's picture

If by success you mean the ultimate cradle of filth and corruption, then keep your silly fiat.

 

Society fails one individual at a time and to think it can be preserved by government oversight is ludicrous.

Caviar Emptor's picture

Your words all pre-suppose an orderly, rational world where people are ready to just hand over power and wealth in the name of peace and harmony. Good luck with that. Until that day comes, gold is it. 

Rogerwilco's picture

No, they will use the power at the end of a gun barrel to make the necessary adjustments. You will either comply or fight. This is the "end game" when the rule of law no longer applies. And you prescient PM owners, you get to choose sides too. Just know that whatever side you throw in with, they will likely confiscate your stash to finance the fight.