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Guest Post: Dollar Got Me Down: A Down Dollar Roadmap

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Submitted by JM

Dollar Got Me Down:  A Down Dollar Roadmap

All the talk about a dollar currency crisis is getting ahead of itself.  Quoting Mises won’t make it happen overnight.  It takes years, even decades for a reserve currency to dissipate.  Instead of wholesale collapse, the most likely outcome is a steady decline in the dollar over an extended period of time.  Of course there is a tail possibility of a collapse, and that is why hedges exist.  But the high likelihood trend is persistent policy action to drive the dollar lower with respect the United States trading partners’ currencies, combined with a decline in the dollar’s use as a vehicle currency.  This means serious dollar weakness for the next three years (or more), but not collapse.

The Case for No Collapse

A currency collapse isn’t an issue of preferences or sore feelings about getting screwed by any given printing press.  As long as there is minimal rule of law there will be contracts legally required to settle in a given currency.  This is the interlocking stability of debtors and creditors that inflation will impact by diminished term risk, but as long as contracts remain, the dollar is going nowhere.  The currency is bound tightly to political order, which is more stable than anywhere else in the world.

Second, there is a network of liquidity providing and withdrawing institutions made up of central banks.  If a currency makes a multi-sigma move and the central bank that issues the currency can’t handle the strain itself, other central banks can act in concert to assist.  Note the massive central bank currency swap action that stopped the herd of Mrs. Watanabe’s from skyrocketing the yen back in March.  This can just as easily be accomplished for the dollar or the euro or the dong.   

Further, the dollar holds a privileged place as it is more than a mere national construction.  Like it or not, the dollar is still viewed as more desirable than many emerging market currencies.  The dollar holds a special place in the world.  It is the reserve currency, meaning it is a standard of valuation for international commerce.  More than this it is the vehicle currency for much of the world’s debt.  This international interlocking network of debtors and creditors makes the dollar even less capable of “collapse” than the good old boy central bankers club.
So you have a clear signal that the dollar is going to slide into the gutter for the next few years thanks to the Fed.  This dollar weakness will become self-reinforcing when international debtors and creditors decide to ditch it as the vehicle currency.  Technology and preference to not be screwed will make this happen.  At the same time, there will be bouts of major volatility in the dollar as the interlocking network of debtors scramble to pay off their creditors from time to time.  This volatility will diminish as the dollar’s role diminishes.  There are ways to take advantage of these trends.

Some Right Tail Exposures

CME  All the vol talk to CME, of recent “poison the silver spikenard” and “clearing evil CDS” ill fame.  CMS has a much more lucrative money-maker than these doo-dads that have potential as a great way to exploit the end of the dollar as a vehicle currency.  This is because their currency settlement technology is catching up to the realities of a world that doesn’t want dollars.  CME makes it possible to not use the dollar as a trade vehicle so much.  Here’s a clue to the future:  CME launched a postexecution clearing service for nondeliverable forwards on the U.S. dollar versus the Chilean peso, marking the first step in offering clearing services for over-the-counter foreign-exchange transactions.  Imagine that a transaction can be marked in a currency and then a nanosecond later it is converted into another currency.  This is going from high latency to low latency in touching the stinky dollar. In effect, technology makes getting out of the dollar easier than ever, because conceivably CME can hold a “settlement account” for anybody in any currency.  CME is placed to live off the skim.

TIF  A weak dollar is easier on the rich than it is on the poor.  Because of costs of entry, people with low incomes are forced to store their wealth in dollars, so they will be mercilessly screwed by the Fed and the politicians.  This screwing of the dollar makes exports cheaper, hopefully creating jobs for younger people.  These young people really need the jobs, because they bear the brunt of funding all the welfare, transfer payments, retirement benefits, paying the medical bills for people that have smoked for the last forty years, bailing out mismanaged union pensions, contributing to bank executive bonuses, funding congressional pay raises, and buying school supplies and aerosolized mace for their kids.  They also need a therapist on retainer.  

However, the wealthy take much less of a hit because their wealth is more allocated into real assets.  Because they are wealthy, they spend their money on high-end goods.  Further, as the dollar continues its decline and inflation pressures pick up, there will be persistent over-blown fears of hyperinflation that will drive even more wealth into real assets.  A part of this will end up as shopping sprees for the better halves.  In a word:  Tiffany’s.

SINGY  The growing rich versus poor divide combined with a steady dollar decline will help airlines because there will be plenty of people flying out this country for better opportunities and societies that respect capital.  Southwest is the most financial stable of the airlines, and there will be plenty of people filling their seats as they fly out of here.  Further, when the Gramma and Grandpa want to visit their almond-eyed grandkids, it will increasingly require a flight to the Orient and not a road-trip.

WYNN  As the dollar continues its unrelenting decline, people will be more willing to throw their lot in with gambling what dollars for a random payoff based on well-defined probabilities as opposed to rigged financial market payoffs.  Further, as emerging world incomes move up as the dollar moves down, gambling is a sweet spot.  Wynn understands that there are two things about China that cannot be broken.  One is that a Chinese mother will never ever choose anyone over her only son.  The second is that a Chinese person’s eyes gleam most brightly when they are gambling.  Wynn Resorts provides international exposure to eye-gleaming high-rollers and it has a CEO that verbally flips off the American establishment for killing the dollar every time he gets on Bloomberg TV.    

The Center:  Commodities and the Carry Trade

It is natural to throw out the gold card here.  No offense, but I refuse.  Gold is a measure of financial system risk and uncertainty in general.  But it is now a levered position on general uncertainty, so real chaos will screw it as a derisker.  Also, general uncertainty eventually comes to focus on specific issues, and since it is expensive, there is no justification to buy up here.  Now a declining dollar does make a case for commodities, but as the heightened sense of risk fades, commodities with more inelastic demand (demand that is relatively insensitive to price) are better.  

Also, because emerging markets will develop and become increasingly financialized, these countries will have less organic demand for gold as a store of value.  Their societies will become less cash/hoarding-based and more credit-centric.  That is to say:  if the “developed” world goes all mad max and we live off hard-tack and true little house on the prairie grit, China and the “emerging” world won’t use silver coins when they go to Applebee’s for Dim Sum.

Finally, it will take nothing short of a calamity to get to a gold standard.  Any such calamity will delever the crap out of real assets like gold as people rush to dollars to settle their dollar debts.  Also know that a gold standard takes all the economic adjustment pressure off the currency and on the labor and capital markets.  Emerging societies that place a high premium on employment won’t like this at all.  The gold standard may be stable in a local sense of currency stability, but it is very unstable in a broader social sense.

It is likely that the United States will have sustained low interest rates anchored to Fed policy compared to less demographically challenged countries (fewer old people getting assistance from  taxes on the young).  As a result, just like in Japan, the already massive carry trade will continue to spew out of the front end of the yield curve.  It will grow like the Blob, enveloping everything and then collapsing everything in periodic return crashes.  It is only natural that investors will want to get out of dollars and buy higher yielding local currency debt and equities.  There will be shocks when people cash out when they need liquidity in dollars.  

The Left Tail Hedge is Term Risk

If you want cheap exposure to shocks, buy vol.  Since it probably the most mean-reverting of all things in the universe, it is reliably cheap only when it falls below its long term average.  Even so, there is a carry cost to factor in.  And be careful of the vol you buy.  Those ETFs don’t give you the bang for the buck you may expect.  See below.  Normalizing the price action of VIX, a VIX ETN, and a VIX ETF show major tracking error exactly when VIX provides the most bang.  This can lead to severe disappointment.  VIX call spreads are well-understood way to cheapen this exposure. 


 
Keep in mind that tail-risk killers won’t let the uncontrolled chaos manifested in volatility run around butt-naked for long.  So a hedge needs to function not only for quick-reversing tail events but also for extended grinding dollar rallies that no type of volatility picks up very well.  Pure term risk is the solution to capturing dollar rallies here.  When I say “pure”, I mean minimize hybrid betas:  combining credit risk with the term risk screws up the hedge. 

So the natural exposure to term risk is long dated, dollar denominated bonds.  In my experience, static hedges don’t work well.  So you need bonds liquid enough to trade to make this hedge cost efficient.  Buy when they are cheap within your system and sell when they are rich in your system.  The coupon can fund volatility exposure or accumulate cash that can be reallocated to risk.

As credit risk increases with United States debt levels, protection could make the hedge too costly to keep.  This credit risk will either force the hedge to become static, or the term risk component to be eliminated.  Hedges based on systemic liquidity stress like TED spread widening are an alternative. 

Sayonara 

Guess what.  If you believe what I am saying, then you believe we are pretty much following Japan.  Almost everything I’ve said comes straight out of Japanese contemporary history.  Our demographics are more favorable (better young tax-payer/old check-taker ratio). Our debt situation is different but still a disaster (less corporate debt; more household debt; government debt like a mushroom cloud just like Japan’s did in the nineties, naughties, and now).  However, Japan’s debt is not external.  Generally people and businesses are both creditors and debtors, so impairments to on one side benefit the other side.  Also, when the declining dollar hits incomes sufficiently, there will be less need for Japan (and other marginal buyers) to manage its currency by buying Treasuries.  They will look elsewhere for sales:  emerging markets.  But this will work itself out over slow as molasses. 

The “exodus” theme I threw in is different from the Japanese experience, and this is no wonder.  It is much less likely in recent history, but not rare either, for a Japanese family to uproot and become a stranger in a strange land.  It was more common in the past.  Japanese culture is more homogeneous, elders are respected because they lived responsibly over the years, and there is an implicit belief that, despite poor government and institutions, society as a whole will not permit egregious exploitation.  The United States has none of these things.  Instead, there is a fractured sense of community that exploits division and interlocking handouts from which everyone directly or indirectly benefits.  It has baby boomers—arguably the most selfish, irresponsible jackasses the world has ever seen.  And it has a government that has always been happy to kill its sons in wars for things even less tangible than a barrel of oil. 

 

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Sun, 05/29/2011 - 14:45 | 1320846 dick cheneys ghost
Sun, 05/29/2011 - 15:15 | 1320899 legal eagle
legal eagle's picture

Thanks for the chuckle. "the world's debt is denominated in USD" . Ok captain obvious - that is because it it mostly our debt, which is the whole point, afterall.

Sun, 05/29/2011 - 15:42 | 1320956 Urban Redneck
Urban Redneck's picture

Negatively, but not immediately, as there have been no real recent developments.  Implementation was accelerated during the last US credit crisis, but then slowed with the real estate crash in Dubai.  Look for it to accelerate again when Bernanke & Geithner create the next US credit crisis.

Sun, 05/29/2011 - 14:45 | 1320847 DonutBoy
DonutBoy's picture

You are whistling past the graveyard.  It is a fiat currency collapse and it is already here.  One day you will pull into the gas station and realize "interlocking stability of debtors and creditors" is bullshit.  Debt is being repudiated daily, by home owners, by banks, and very soon by nations.  The lesson of 2008 is interlocking instability.

Sun, 05/29/2011 - 16:42 | 1321053 Re-Discovery
Re-Discovery's picture

"It takes years, even decades for a reserve currency to dissipate"

Yo, smart guy.  You think dollar destruction just started?  It HAS been years and . . .even . . . decades.

And there really have only been a few reserve currencies in the history of the world.  Guess what, the dollar occupies that position now because all the others failed

Not a matter of if the dollar collapses, it's only when.

And, what you obviously fail to understand is that the Japanes benefit from the fact  thattheir debt is held by their own people.  As bad as it is over there, they don't have debtor nation status.  They are a highly poductive society that can be said to have taken the LONG view of debt pay down to their own people.  Good luck with us.  We are loaded to the gills in personl and government debt (with a fair amount of corporate debt as well.)  We have no savings rate to speak of and make very little.  The dollar and military are our main exports.  They are both poised for and historical epic crash.

 

Sun, 05/29/2011 - 17:04 | 1321114 Long-John-Silver
Long-John-Silver's picture

+1

Sun, 05/29/2011 - 17:18 | 1321144 jm
jm's picture

To put it simply:

Japan = bad demographics + huge corporate debt + heinous bank balance sheets + minimal personal savings + 250% gov debt to GDP

USA = not bad demographics + huge personal debt + heinous bank balance sheets + minimal/zero personal savings + 90% gov debt.

We can discuss the particulars all day, but the similarities are striking, and with minimal personal saving, the no external debt issue, while true, looks stretched thin.  One could argue that America is in better shape to replace marginal buyers with savers' money.  

I'm not making comments as to what is desirable or right or fair.  Just saying how I see it and could be worng just like the next guy.

Sun, 05/29/2011 - 18:03 | 1321263 pain_and_soros
pain_and_soros's picture

ah,

Japan = high personal savings (which means the government could issue all that debt, even tho rates were kept arbitrarily low, so that they yen wouldn't appreciate too much & kill their exports & jobs).

US = very low personal savings rate which only picked up a couple of years ago once people figured out that house prices wouldn't skyrocket indefinitely.

And what is the rate of growth in government debt between the two countries (excluding the effect of the recent earthquake/tsunami natural disaster)?

The US was on the verge of hyperinflation back in the late 70s after Nixon took the dollar off the gold standard, despite being in a much more advantageous economic position than it is today.

It was only Volcker raising interest rates to loan shark levels that saved the $US back then - unfortunately we are heading for a repeat occurence on the $US, except this time the US is in a much weaker position economically relative to Europe, and emerging markets of China, India, Brazil, Russia, etc. 

And I'd be a bit concerned about the middle east too, where the US government is up to its neck in supporting & upholding oppressive, failed regimes for decades so they could access cheap oil - I suspect the US will pay a price (perhaps higher oil priced in a new reserve currency) when those regimes are held to account by their people.

There will come a tipping point to the growing realization that the US monetary & fiscal policy is out of control, which even military superiority won't be able to hold back.

When it is reached, the collapse will be quick, complete and irreversible.

 

 

 

 

 

Sun, 05/29/2011 - 19:25 | 1321392 jm
jm's picture

Why wouldn't a reverse currency swap to the Fed mitigate a collapse?

Sun, 05/29/2011 - 23:58 | 1321805 Re-Discovery
Re-Discovery's picture

BTW I tend to get strident when it comes to the dollar's destruction.  It is just so damn criminal.  I think the article was well written but don't believe the comparison to Japan is apt (i've heard before.)  Japan is essentially a nation of hard-working, homo geneous slaves who don't write down debt as a matter of personal honor.  We don't RE-PAY debt as a matter of personal lifestyle. We will never vote for austerity as we are neither homogeneous (adhering to same values) nor hard-working.

Exporter nations aided by their financial facillitators have subsidized our excess to slowly drain our wealth creating machines over decades.  Yes, those same decades during which the dollar has been systematically debased.  Now, the parasite is leaving the host because the "blood" -- the strength of our economy in the form of a strong currency -- has been sucked dry.

"They would never let the dollar collapse because it hurts them just as much as us" you say?  Well, look at where the world's productive resources  reside -- most important among them a hard working populace.  Then ask yourself "Why wouldn't they?" 

(I also don't agree with our 'positive demographics'.  Most of our "growth" comes in the form of recent arrivals to the US and their progeny.  I have nothing against these folks and believe many are excellent additions.  However, the strains on the system in the form of use of government resources that are not adequately replaced by tax revenue actually makes our systemic problems more acute.)

Mon, 05/30/2011 - 08:22 | 1322155 jm
jm's picture

I understand about the dollar destruction. Asian countries have done it purposefully to stimluate export--i.e., work towards full employment.  It's own turn now, and nothing is going to stop Ben.  We need exports because there is nothing left in the US that hasn't been canabalized.  This is the thinking at the Fed and White House.

A strong dollar makes labor markets weak.  The debt binge was a fake way to supplement inxcome.  it is unsustainable.  Either way you look, we are all going to be a lot poorer when this is over.

This is simply a way to take advantage of the trend.

 

Mon, 05/30/2011 - 00:18 | 1321831 Re-Discovery
Re-Discovery's picture

Swap idea is monetary sophistry, not a monetary solution.

Mon, 05/30/2011 - 08:17 | 1322153 jm
jm's picture

It's just what they do.  People with printing presses can borrow from each other can kick the can down the road a long, long, time.

Mon, 05/30/2011 - 11:21 | 1322454 Re-Discovery
Re-Discovery's picture

I agree they can/will try.  But one of the benefits of knowledge is time compression. Unfortunately, the interplay of time compression and knowledge in this case makes the effectiveness of "extend and pretend" policies less and less. 

This has been well-documented on this site when it comes to state sponsored (allegedly) FX market operations.  The half-life of these moves has reduced from months to weeks to days to minutes . . . and ultimately worsens the evntual collapse.

Sun, 05/29/2011 - 17:40 | 1321211 Sudden Debt
Sudden Debt's picture

Indeed, I was thinking just the same.

0,04$ in 1920 bought you the same stuff you buy for 1$ now.

How would you call that otherwise?

Since 1970, the dollar devalued 400%. 10% A YEAR ON AVERAGE!

 

Sun, 05/29/2011 - 19:26 | 1321399 jm
jm's picture

Like I said, this has good and bad effects.  One, it eases the adjustment on labor markets, and two it makes tech innovation more amenable.

A gold standard would alter markets and the rate of innovation massively for the worse... unless you are creditor. 

Mon, 05/30/2011 - 01:35 | 1321913 FreedomGuy
FreedomGuy's picture

That's not true historically. You look at the mid nineteenth century to the end of the gold standard and you see the greatest amount of innovation in mankind's history. Real production, real tech advances, rapid spread of those and real growth, not just inflated GDP's. Gold standards give a fixed measuring point for trade and trading labor.

I can take a gold Panda, Maple Leaf, Eagle or plain ounce and trade it anywhere in the world. No one really cares what is printed on it. It will buy different amounts of labor and "stuff" in different parts of the world, but the measurement is at least the same, just like one foot equals one foot in the U.S. or China. You can change the measurement to meters but the measurements are still the same. No one gets cheated in these transactions.

The natural course of history and currencies with intrinsic value should be DEflation, not inflation. A dollar should buy more in the future, not less due to increased efficiency, productivity and innovation. Frankly, that's good for everyone when managed properly. However, our societies are all based on inflation which is good only for debtors and those who manage money. Governments are net borrowers and through the tax code give us incentives to become net borrowers.

Gold standards have their problems but they do not reduce innovation at all by any historical measures.

Mon, 05/30/2011 - 08:26 | 1322161 jm
jm's picture

The rate of innovation compresses into the twenetieth century by number of patents or any other measure eclipses any other time period hands down. Period.  This may be because most of the century was inh a state of perpetual conflict, I think not. 

Low interest rates makes it easier to take long term risk and tech gambles.  High interest rates puts the focus on short term gains with established cash flows.  This is the benefit of paper money.

Mon, 05/30/2011 - 11:51 | 1322536 FreedomGuy
FreedomGuy's picture

Well, I won't disagree with the interest rate statement. The flip side is simply the availability of money for risk. This should be priced into interest rates so that it is low when lots of money is available and high when short. However, venture capital perhaps at no interest but just a piece of the action comes into play, as well. Perot, Gates and Jobs were not heavily capitalized as they started.

My point is that the gold standard was not an impediment. I would argue that regulation, litigation and manipulation (of currency) are a bigger hindrance, now.

Paper also pays for wars and financed all those lovely twentieth century conflicts which were a waste of humanity and material.

Mon, 05/30/2011 - 14:04 | 1322835 jm
jm's picture

This comment gave me something to think about.  These are very good points, especially about the war and state can fund it by printing.  The issue of low interest rates means that credit risk gets a sudsidy, and thiungs like junk bonds get bought.

I'm not sure in a godl standard poeple would part with their money in risky enterprises nearly as much, and this could slow innovation in things like fusion energy, or cancer cures, or whatever.  This may be good or bad... I think bad.

 

Sun, 05/29/2011 - 14:46 | 1320852 Bindar Dundat
Bindar Dundat's picture

Best post in a week or two! . Straight talk that hits the mark ......But, I will still keep 10% gold...

(just in case :-)

 

Sun, 05/29/2011 - 16:57 | 1321104 DosZap
DosZap's picture

Bindar,

10%,better than nothing.

If you believe what this dude say's,you'll be fine.

My wonderment is he failed to mention that trash Gold, is being sucked up like Dom Perignone at a frat party,when everyone finds out it's free.

CB's, and oh, a few other nations are seemingly having orgasmic love fest's snagging all they can find, or afford.

He also assumes, that WHEN the mkt crashes again, the people holding will fall for the same old crap, as last time.

How did you fare, those that kept it?.I think NEXT time, people will be far smarter.

Silly Rabbit,FRN's are for kids, Gold is For Rabbits.

Sun, 05/29/2011 - 17:15 | 1321146 gmrpeabody
gmrpeabody's picture

+++

Sun, 05/29/2011 - 14:46 | 1320853 Stuck on Zero
Stuck on Zero's picture

No collapse?  Nonsense.  With enormous outstanding debt how can the currency slowly fall in value to half what it's worth today?  If dollar holders get wind of the move they will rush to be the first to dump.  This is like announcing to a theater audience that half the theater ceiling will cave in and expecting that half the people will remain seated.  When Americans ffinally lose faith in their currency watch out below.

Sun, 05/29/2011 - 14:57 | 1320863 SilverFocker
SilverFocker's picture

The dollar backed by the full faith and trust of the U.S. Government......Baaaawwhaaa.

There is no more trust and very little faith.......Epic Fail, hello Motto.

Sun, 05/29/2011 - 15:45 | 1320966 MolotovCockhead
MolotovCockhead's picture

Dollar is back by Daisy Cutter White Phosporus, Depleted Uranium, B52, Unmanned Drone, Black Water Mercernaries........................Who dares to not trust the Dollar??

Sun, 05/29/2011 - 20:59 | 1321035 FEDbuster
FEDbuster's picture

Using fiat (US military backed) dollars to buy goods from China and oil from the Arabs is a much easier way to get what we want for free without having to attack them.  It's only when they won't accept fiat payment for their real goods, that we have to fire up the military machine.

Sun, 05/29/2011 - 16:31 | 1321039 WeekendAtBernankes
WeekendAtBernankes's picture

Countries have been using auxiliary forces to offset deficiencies in their professional military for thousands of years.  The Romans were using them in 200BC (http://goo.gl/S8xlO).

You're right, of course, and I'm no fan of Black Water, but let's use honest language.

Sun, 05/29/2011 - 17:03 | 1321111 DosZap
DosZap's picture

Right you are Sir!.

And how did that end for the Romans?.

Sun, 05/29/2011 - 17:41 | 1321212 Dr Zaius
Dr Zaius's picture

Of course, it did take the Romans another 600 years to fall. But they couldn't dabase their currency with the click of a mouse either.

Mon, 05/30/2011 - 00:13 | 1321819 Re-Discovery
Re-Discovery's picture

Romans owned people.  Whenever they ran into economic problems, they fought wars of subjugation to rob human resources and whipped their slaves harder.  That artifically alleviated many of their currency problems as the world was younger and their were millions to enslave. Think a bank robber who robs one bank a year for $150,000 and supports his family with it.  May work for the first several years, but sooner or later you run out of banks to rob/someone who doesn't like getting robbed stops you.  When the gig is up, its up.

By the end, they f**ked things up so bad, they were begging/bribing barbarians to save them from babarians (and themselves.)

Mon, 05/30/2011 - 00:17 | 1321832 mess nonster
mess nonster's picture

No collapse... weaker and weaker, devalued almost to nothing, but yet the dollar will ot collapse. The author has his reasons, but why take the long way round? I say no collapse because what other currency has a triangle on it that says "New World Order?"

It's the sexiest paper out there. Nothing else comes close! You can learn everything about alchemy and black magic from the Dollar Bill if you study it carefuly enough.

No collapse!

 

Sun, 05/29/2011 - 15:00 | 1320872 jm
jm's picture

What you say is not impossible, but it is not likely in my view.  Dollar weakness is a way to make the debt serviceable, and it is by design.  It is default in miniscule particles instead of default as an all or nothing.

I also think your perspective is too domestic.  Commodity inflation here may be bad, but it is worse elsewhere.  Try China, Vietnam, actually anywhere else.  Did you know that a Chinese company I know was fined for illegally hoarding US dollars?

Central banks know that a dollar collapse would be horrific to them, nbo one would benefit.  So if needed, they'lll throw the swap lines in the other direction. 

Sun, 05/29/2011 - 14:52 | 1320856 SilverFocker
SilverFocker's picture

"It has baby boomers—arguably the most selfish, irresponsible jackasses the world has ever seen."

Please do tell, most interested in this perspective, unless it was used in sarcasm.

Sun, 05/29/2011 - 15:25 | 1320918 gwar5
gwar5's picture

I think this is the same guy that regularly bashes boomers. By the way he personalizes his hatred for an amorphous demographic group, I figure he was sexually abused by a boomer and needs to vent his repressed pain through online screeds. 

.... It's 'arguable' alright, because the boomers are the demographic that have paid the most into the big government Ponzi schemes whose existence predated them. They'll be the biggest losers of all time. The sounds coming from Washington DC these days are the sounds of the all the boomer promises and social contracts being broken -- after decades of the boomers paying into them. 

The Gen Xers and Gen Yers don't have what it takes (or the numbers) to make good for their own generations. Their easy out is to rationalize killing off the boomers (Obamacare) and steal their property....  'progress' these means that they're working on it.

Sun, 05/29/2011 - 15:37 | 1320943 jm
jm's picture

You boomers need to stop smoking weed.  I don't hate anybody.  I see the source of our troubles--the corruption, the fraud, the creepiness that is Goldman as in the large a political failure to put a stop to it.  You guys were in charge in terms of votes and leaders.  Not only are not stopping the failures, but they started on your watch.  Most boomers have saved little for retirement, stat speaking. 

And yet it remains everyone's fault and problem but your own.  You aren't the only people balming others of course.  Just that you're going to eat the proverbial shit sandwich worse than anyone and most can't even see it at point blank range.

Mon, 05/30/2011 - 01:47 | 1321923 FreedomGuy
FreedomGuy's picture

I'm a late boomer and while there are legit criticisms of that generation, realize it is an artifact. Most of the problems we have today stemmed from long before boomers. Fed in 1913, about 33 years before the first boomers. Socialism Security and the massive spread of Federal agencies, 1936, ten years before boomers. The Great Society programs and Medicare 1966. Boomers were not yet voting and were between 20 and 2 years old. Gold standard falls, 1971. Still a bit early for boomers. DE, EPA, etc, 1976. Now the boomers are just starting.

All the seeds for the crap that is happening now were planted long ago. Can you blame boomers for not fixing it? Well, yes, but no one has been up against this stuff before and guys the age of Pelosi and Reid (preboomers) defend this stuff tooth and nail.

Best put the blame where it belongs and frankly, I don't believe the generational thing much. It's more an evolutionary thing that developed over time and multiple generations. It will reach it's natural conclusion.

Mon, 05/30/2011 - 08:30 | 1322165 jm
jm's picture

I agree, this isn't all about babay boomers.  But when I hear all the blamestorming, I think of Japanese people that have lived in tents for months inKobe and Fukushima.  We in contrast default as a convenience. It's breathtkaing and pathetic.  How the rest of the world must look at us if they only saw through Zero Hedge.

While Zero Hedge is focus poitn of discontent, seems like the perception I gotten is that we Americans are weak, spoiled, and incredibly irresponsible.

Mon, 05/30/2011 - 10:38 | 1322360 Matto
Matto's picture

So we have a duty to repay phoney bank debt that doesn't exist? I'd argue maybe, if we actully understood the nature of money before taking on the obligation. The collective obsfucation of the truth about banking means that banking has no claim on the repayment of its 'loans'.

As for naitional debt, the writing has been very clearly on the wall since 1971 at least. I just feel sorry for the japanese for not being able or willing to default a long time ago.

 

The people owe the system nothing.

Mon, 05/30/2011 - 10:45 | 1322375 jm
jm's picture

I've said this at least ten timee before and I'll say it again... it is not nothing.  It is dollars you borrowed.  If it is so meaningless, simply pay back these meaningless things you owe plus the interest you agreed on.

This is why I hate all these theoretical discussions of fractional reserve banking and the nature of money and such... it's not about understanding anything.  It is about making excuses to be irresponsible.

Mon, 05/30/2011 - 12:40 | 1322673 Matto
Matto's picture

Completely disagree JM, 

 

IF there was understanding about what fractional reserve banking was than I would agree. Bank loans (not second stage earned money lending) absolutely does not exist, it is not dollars borrowed at all. It is an electronic sequence of binary code that the banking system agrees to exchange for dollars if people ask for it.

 

If a loan document had a clause that said 'The object of this loan is an electronic digit created by this bank via a computer entry and is deemed to be interchangeable for central bank money by this or other banks if requested (with notice)' THAN we would have transparency.

 

I ask you, if it is not about understanding anything and only about making excuses, why isn't it common knowledge? If you think the banks want this system understood i will eat my words. 

 

My main problem is that there is a complete lack of undertanding on the issue, if people knew how banking worked (isn't withholding relevant information from a dependent party to a contract a means to void it?) than at least they could make an informed decision about their participation and support of that system. Hence I do not support the system simply because its structure and form is obfuscated.  

Mon, 05/30/2011 - 12:53 | 1322698 Britons
Britons's picture

+1 Agreed

Silent Weapons for Quiet Wars

http://www.lawfulpath.com/ref/sw4qw/

Mon, 05/30/2011 - 13:14 | 1322750 Matto
Matto's picture

'Hence I do not support the system simply because its structure and form is obfuscated.'

 

Should read 

 

'Hence I do not RECOGNISE the system simply because its structure and form is obfuscated.'

Mon, 05/30/2011 - 14:02 | 1322832 jm
jm's picture

My point is very simple.  It doesn't matter where it came from.  What matters is you agree to pay it. If you don't, you get a  foreclosure notice.

That banks get a subsidy from the Fed that enables them to not exercise collateral is a separate, and rotten issue. 

Mon, 05/30/2011 - 14:18 | 1322867 Matto
Matto's picture

Yeah sure, my point is also very simple: bank loans are non-functioning agreements and not repayable due to both no consideration and a material lack of disclosure, or even misrepresentation on the nature of the agreement (ie - representing the bank credit figure as a unit of actual currency).

My point stands - if you think banks want people to understand the lending process I'll eat my words.

Not that it detracts from your article, only that it is not dishonourable to not meet the terms of a materially misrepresented agreement (second-tier earned income loans excluded of course).

 

Mon, 05/30/2011 - 14:26 | 1322872 jm
jm's picture

I think the logical conclusion to this is that all loans are inherently fraudulent.  You turn every loan into a fraud there won't be any and the world will be a much worse place for it.

Mon, 05/30/2011 - 15:09 | 1322994 Matto
Matto's picture

You are assuming the world would be a much worse place without lending but you cannot prove this, the proliferation of credit can accelerate development but it can also entangle and ensnare - just look at the great work produced by the world bank and the IMF in Africa, their most active area of operation. 

Regardless, if a contract is a misrepresentation than it is fraudulent. I will not argue wether the world is better or worse without bank lending only that it is up to society to decide this and to do this society must first understand the lending process, which is obviously not the case at present.

So, if society cannot make an informed decision on bank lending because the truth about bank lending is obscured than it stands to reason that society's only defence against debt entrapment (default), is not morally reproachable in this case.

Mon, 05/30/2011 - 15:45 | 1323062 Matto
Matto's picture

PS. I would also be willing to argue the point over banks ability to issue credit = social benefit. 

Mon, 05/30/2011 - 17:06 | 1323167 jm
jm's picture

Somebody else maybe would do a better job at these issues.  It's just too theoretical for me.

Mon, 05/30/2011 - 12:03 | 1322568 FreedomGuy
FreedomGuy's picture

You make a good point but this is a sticky point for me. I say that the American people are better than the government we have, yet we reelect Frank, Pelosi and Reid. So, perhaps we get what we deserve.

I think we have systemic weakness in our government that breeds this irresponsible spending...no matter the party.

I think Americans are strong enough to get out of it, but they/we need clear leadership with the correct answers. That's the condundrum because virtually everyone in Congress has the wrong answers or solutions, Republican or Dem. The average guy doesn't really know who to pick.

In line with another poster here, I agree that we as citizens never agreed to or signed up for this debt that we are accumulating. It is identical to identity fraud. Someone has our name and bank accounts and is running up the tab without our express permission. I wish some idiot politician could present it that way. So, in a sense this debt is being run up without our permission and just like fraud, we do not owe it. I am not one for direct democracy but in matters of spending I could almost agree to it. How should someone else be able to saddle us with debt against our will?

Default is proper and the less traumatic of the ways to absolve our oversized debt. Hyperinflation would crush the economy and break down the economic ties and arrangements but its the chickensh*&%t way to do it. Therefore, that path will be chosen.

Sun, 05/29/2011 - 14:53 | 1320859 Quinvarius
Quinvarius's picture

That, ladies and gentlemen, is called normalcy bias.

Sun, 05/29/2011 - 15:01 | 1320873 jm
jm's picture

Tell me why.

Sun, 05/29/2011 - 16:35 | 1321051 knowless
knowless's picture

how can the incremental devaluation be kept at a sufficiently low pace so that average people don't notice? the majority doesn't think in terms of inflation and risk, they think in terms of why is it getting harder to feed my children even though my wage hasn't changed in years?

the major flaw i see in your analysis is that you think humans will act rationally when the real world is crumbling around them. at no point did you address stagnant wages and unemployment, which to me shows a blindness to what the actual situation is.

as is said by many here; the market is not the economy.

a currency collapse is the statement that TPTB cannot control the herd indefinitely, because eventually reality will be too hard to hide. so maybe it is too optimistic to anticipate a currency crisis, as americans in general couldn't be awoken without a shot in the ass.

Sun, 05/29/2011 - 16:39 | 1321063 jm
jm's picture

Who said nobody will notice?  Everybody is going to notice and as boomer take an income orientation, they is going to be a Japan style carry trade start up here.  Mrs Watanabe meets me and Mrs. Jones...

There will probably be a soon end to the dollar as a vehicle currency.  That should be fireworks enough for anybody, because we won't be exporting monetary policy and importing inflation.

Sun, 05/29/2011 - 16:52 | 1321099 knowless
knowless's picture

a carry trade presupposes that there is infact a stable entity to invest in. with so much money running rampant, any carry trade will be crushed relatively quickly in an accelerating trend of in/deflation bouncing from one currency to another, in and of itself causing rapid swings in exchange rates as people chase the money.

the search for a carry trade will itself destroy the potential for one.

 

Sun, 05/29/2011 - 17:04 | 1321113 jm
jm's picture

Respectfully disagree.  There is always opportunity.  If you know the dollar is going down because of ZIRP 4evah you will invest in higher-yeilding debt and hedging it with term risk in home currency.

This Brasil, Indonesia, India thingy has just freaking started.

 

Sun, 05/29/2011 - 17:29 | 1321179 knowless
knowless's picture

i could agree with you if it weren't for things like this:

http://online.wsj.com/article/BT-CO-20110523-710883.html

http://www.tradingeconomics.com/brazil/inflation-cpi

their stated inflation drops bond yeild down to something like 3.5%, if they are anything like america i would assume a total wipeout.

and whaddya know:

http://www.latinbusinesschronicle.com/app/article.aspx?id=4905

their stated CPI is calculated the same as US, putting real return at -3%

Sun, 05/29/2011 - 17:44 | 1321217 jm
jm's picture

Good points, but I wonder about the maturity you quote.  You get more than 3.5% even at the midcurve in Brazil and you get currency appreciation too.

Sun, 05/29/2011 - 17:29 | 1321190 lawrence1
lawrence1's picture

You are a real paper bug.  When the library of alexandria was burning, I suspect that bookworms were jumping from volume to volume, sure they would find a better paper vehicle.

Sun, 05/29/2011 - 17:45 | 1321221 jm
jm's picture

I actually own gold.  But I won't buy it up here.

Sun, 05/29/2011 - 14:56 | 1320861 gwar5
gwar5's picture

Well, we've been working on it for decades, so that criterion has been met.

Volcker pulled it out of his ass once already 30 years ago with his 20% interest rates, barely 8 years after Nixon closed the gold window.

Then, we won the cold war and became the global hegemon with no alternatives in sight. Now that's been squandered and Bernanke is on record that he would like to intentionally debase the USD... apparently the damn thing just won't die quickly enough on it's own.

The only thing propping up the USD as the WRC appears to be the lack of a suitable alternative. The next step could be that we use our military to force someone to take over the WRC.  Until then PMs appear to be it.

 

Sun, 05/29/2011 - 15:06 | 1320878 ffart
ffart's picture

the most likely outcome is a steady decline in the dollar over an extended period of time. 

You mean like the last 35 years of fiat induced inflation? I think the dollar has had its steady decline phase already. If I was one of our central banking overlords I wouldn't even be able to sleep for fear of what this chart might bring:

http://research.stlouisfed.org/fred2/series/EXCRESNS 

Sun, 05/29/2011 - 15:09 | 1320888 jm
jm's picture

Hey fart.

It is the nature of all currencies, paper or metal to depreciate.  Historically, there is more lead than silver in the coins.  It is just how it works. This is both good and bad.  The good is that currencies adjust a bit, saving some adjustment in the labor market.  The bad is, well, everybody gets that.

Sun, 05/29/2011 - 15:18 | 1320900 H. Perowne
H. Perowne's picture

Wrong. It is the nature of all currencies where government has been given a monopoly to issue said currency to become gradually more debased by said government for political ends (depreciated is so much more neutral, when the fact is that the currency is being destroyed by human action). Please don't post this as a quality of money in and of itself. It demonstrates either a basic lack of understanding on your part or a subtle intellectual dishonesty.

Sun, 05/29/2011 - 15:22 | 1320913 jm
jm's picture

Stop worring about how you think things should be, and accept how they are. 

Sun, 05/29/2011 - 15:44 | 1320957 H. Perowne
H. Perowne's picture

What a well thought out, insightful response. Bet you would have said the same thing to slaves in the field. I think we've established exactly just who and what you are, and there's no need to interact any further. I think Leo and Robo are more your kin than any of the regulars here.

Sun, 05/29/2011 - 16:45 | 1321073 jm
jm's picture

No trying to offend, but it seems you are looking for offense.  Your response was pregnant with theory and theory is ALWAYS a dead end.  Stick with what you can observe.    

 

Sun, 05/29/2011 - 17:32 | 1321200 lawrence1
lawrence1's picture

Theory always a dead end?  You are just plain ignorant and offensive in being pregnant and proud of this ignorance.

Sun, 05/29/2011 - 17:27 | 1321172 gmrpeabody
gmrpeabody's picture

Well said, H. Perowne

+1

Mon, 05/30/2011 - 00:41 | 1321861 mess nonster
mess nonster's picture

+1. And I've been thinking (always dangerous) why does it matter if the money's devalued?

Ultimately what counts is whether or not I have enough to buy whatever it is that I need.

If a piece of bubble  gum costs one cent or one trillion dollars, it doesn't matter as long as I have enough money to buy a piece of bubble gum.

We get screwed when pay is stagnant and prices go up. In some sense, deflation means I have less and less of the money I need to buy what I want. If the deflation in real terms is being disguised by money printing, I find that my ever increasing wheelbarrow load of money buys less and less. If ever more and more money buys ever less and less amounts of goods, that's deflation in disguise.

Somebody correct me if I'm wrong, but doesn't a deflationary dynamic begin when someone defaults on their debt? Then the creditor (leveraged entity) defaults, which leads to more defaults, etc... all the money (ie debt being traded), gets sucked into the black hole of the inverse debt hurricane.

Hyperiflation in such a scenario, is a disguise. But what happens when the money is virtual, not even printed? If the Fed gives a TBTF bank a gazillion dollars which they use to prop up the book value of their worthless derivative junk, how can those computer bytes enter the gasoline and butter economy? Who are they fooling but themselves?

Yeah, maybe you can trade on this stuff, but it all seems like mental masturbation to me. Even if people here start to starve, Americans will support the political system because if they don't, they will be shot. Here is your food handout, now shut the fuck up, or I will put my jackboot in your face. If the political system is stable, no dollar demise. Every other funny money will collapse, but not the dollar. A Greek default? Good newes for the ol buckeroo! It might take a shit-load of them to buy some Twinkies, but... so? The dollar will last until there is a calamity; an asteroid, a nuclear war, an alien invasion.. something that permanently fucks up Business as Usual. Until then, don't talk with your mouth full.

Mon, 05/30/2011 - 08:42 | 1322177 jm
jm's picture

Last paragraph:  If we all get shot and the world goes down the toilet, none of this matters anyway, so I guess I guess it is playing mental gynastics in that case.  I think this is unlikely. 

A focus for masses of retirees is on income.  This particular type of carry trade is how the Japanese solved the conundrum. 

You are right that the Fed can largely control dollar crosses.  Other central banks can make currency control even more robust.

On top of that you have a huge dollar demand simply because so much debt is dollar-denominated.  This is shrinking, but it will take a long time for it to play out.

About inflation/deflation:  QE is over for now.  Oil and food prices need to crater and the Fed will let this happen before they QE again.

 

 

Mon, 05/30/2011 - 04:30 | 1322015 Hephasteus
Hephasteus's picture

Fuck your acceptance.

With great power comes great resistance x current ^2

Sun, 05/29/2011 - 15:10 | 1320885 Hedgetard55
Hedgetard55's picture

The debt situation in Japan in the early nineties was nothing at all like the US situation today, to compare them and not see that is insane. We are a hundred times worse, with no savings at any level, personal, corporate, local or Federal gov.

Sun, 05/29/2011 - 15:15 | 1320896 jm
jm's picture

Japanese personal saving isn't what you think it is.  I do respect the "marginal buyer" issue you bring up.  But 250% isn't the same as 90%(?) debt to GDP either, so it's not roses anywhere.  But just as JGBs show such relience as to be called the "widowmaker", so will treasuries be called the ... "old whore that you can't get rid of".  

Sun, 05/29/2011 - 15:35 | 1320946 Hedgetard55
Hedgetard55's picture

jm,

 

     I was looking at Japan in the early nineties, when they had huge savings and little debt, a net exporter and no need to finance outside their country. As you say, their situation today has seriously deteriorated and is not what it was in 1990.

Sun, 05/29/2011 - 16:44 | 1321080 jm
jm's picture

Yeah, I see your point and respect it.  I think we have some road yet to run, and don't thinkn collapse is in our future.

We accept failure and rebuild better than most societies.  This is probably our greatetst cultural strength.

Sun, 05/29/2011 - 15:10 | 1320892 H. Perowne
H. Perowne's picture

That is to say:  if the “developed” world goes all mad max and we live off hard-tack and true little house on the prairie grit, China and the “emerging” world won’t use silver coins when they go to Applebee’s for Dim Sum.

You do realize that these are cultures with thousands of years of treating the PMs as money, right? Do you have anything to back up your assertions that they will suddenly adopt the Western disease of mistaking pretty colored coupons as real money, or are you just spouting off? 

Sun, 05/29/2011 - 15:17 | 1320902 jm
jm's picture

They have thousand of years of using what the government issued as currency. Just so happened that the Chinese tael was copper, silver, and gold certificate.  Actually I don't know jack about India's monetary history, but turn their gold into rupees when they buy stuff.

The magic is in state power, not a rock.

Sun, 05/29/2011 - 15:23 | 1320914 Jack Sheet
Jack Sheet's picture

"Hyperinflation nonsense in multiple places"

Mish Shedlock, 5/25/11

"...deficits will stay very high. They will lead to very high infation rates, most likely hyperinflation"

Marc Faber (CNBC) 5/25/11

 

 

Sun, 05/29/2011 - 15:28 | 1320921 jm
jm's picture

Just for the record, I never said it was nonsense. 

Sun, 05/29/2011 - 15:32 | 1320937 Jack Sheet
Jack Sheet's picture

I was just digging at Mish, your article is good !

Sun, 05/29/2011 - 15:58 | 1320977 tao400
tao400's picture

Zero hedge shouldn't have posted this guy's drivel. If there is a collapse of the dollar, no one is going to abandon gold for the next twenty five years, that is until the generation who had the money and lost it due to hyperinflation is all dead. Then maybe other countries will discourage gold. Also, though the depreciation of the dollar might be gradual, at some point it has to break apart. I think the whole western world will go down together in that regard, bringing everyone with them. The one who owns the most hard assets will then rise like a phoenix from the ashes. China? I was watching the new movie about the crash with Bill Hurt as Paulson and it occurred to me that what might be going on with the money printing is that these guys know there is no solution. What they are trying to create is an orderly collapse. Also occurred to me, when the next downturn hits hard like it will, war will be the next step taken.  A year ago people were talking about how a collapse will lead to war and I would ask on this site, how. I did not understand it. No I do. With the next collapse, if it happens, there is nowhere else to turn. The ponzi scheme of the US and western nations is at that point exposed and collapsed. The only solution is to start a war and steal people's stuff in other countries. In other words, to get out of debt, you go steal enough hard assets through war to get rid of that debt. The other guy is screwed but you are not. I realized that with what is going on in Libya and the oil. Syria gets sanctions, Barhrain gets ignored and Libya gets occuppied. I am convinced there is going to be a world war if a collapse occurs.

Sun, 05/29/2011 - 16:14 | 1321010 honestann
honestann's picture

Wow, is this author ever delusional.  Yikes.

People are going to run wild to pay off their debts, thereby driving up the demand and price of dollars?  Hahaha!  Give us a break.

No, what will happen is this.  Eventually the world will look around and realize the "Iceland solution" is best for EVERYONE.  Which means, ZERO demand for dollars and other fiat fraud.

Regular old inflation is driven by fundamentals, like money supply, how much is horded by banks versus lent out, and boring reality-stuff like that.

A "currency collapse" AKA hyperinflation happens when people "give up" on a currency.  Yeah, that usually doesn't happen in one month, but it does happen in only 2 to 5 years.  Go look at weimar Germany or Zimbabwe for clues.  Because the US dollar is so central to the world, the actual collapse might happen much faster.

The world will return to a physical gold standard.  Why?  Because the most glaringly obvious modern lesson is --- everything official is:

#1:  a lie.
#2:  a scam.
#3:  a fiction.
#4:  destructive.
#5:  predators consuming producers.

Everyone already knows this at some level.  Once a certain percentage of people admit this out loud the process will operate like critical mass and lead to a mad dash towards the exits.  And since ALL exits today EXCEPT physical gold are identical (fiat, fake, fraud, fiction, fantasy, fractional-reserve, toilet-paper debt), everyone will run for the exit labeled and brightly illuminated GOLD.

Sun, 05/29/2011 - 16:49 | 1321092 jm
jm's picture

I am not against gold, so don't be offended by that.  I am against buying gold at these prices.  If you want an inflation hedge, buy some other commodity, some are relatively cheap in comparison.  If you want to get out of dollars, buy local currcney debt from a repsonsible coutnry with a current accoutn surplus.

This has all been seen beofre in Japan.

 

Sun, 05/29/2011 - 17:18 | 1321145 gtb
gtb's picture

Gold at these prices?  When will gold be cheaper...and still available?

Sun, 05/29/2011 - 17:25 | 1321159 Long-John-Silver
Long-John-Silver's picture

Gold is cheap and so is Silver at today's prices. A switch to Gold as a reserve currency, which is already in process, mandates it's price must inflate to $42,400 an ounce. Gold and Silver prices have been kept low for almost 100 years in order to prop up all the worlds fiat currencies. Silver will continue to outperform Gold simply because it's industrial uses demand it's use where no other substitutes are available. The Internet and so called renewable energy are built on Silver and it's use in the medical industry guarantees much higher prices. If you think Gold and Silver are too expensive now just wait a couple of years. By then you'll look back and think about the price of both like we do now when Gold was $300 an ounce and Silver was $4 an ounce.

Wed, 06/01/2011 - 03:24 | 1327742 honestann
honestann's picture

Is it not amazing that people will advocate for something like utterly worthless fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-note toilet paper "dollars" --- that are backed by ZERO?

Terminal Stockholm Syndrome it is.

Sun, 05/29/2011 - 17:23 | 1321162 lawrence1
lawrence1's picture

Not  offended by ignorance of the difference between price and value.  .. you will be lucky to buy gold and silver at anywhere near these gift prices soon. 

Sun, 05/29/2011 - 17:27 | 1321186 GeneMarchbanks
GeneMarchbanks's picture

You are, however, maybe underestimating it(gold) under these circumstances. I can see how the establishment(Fed,PD's,US creditors etc.) want a gradual process of inflating the debt away, but will they get it? It isn't only up to them, there is still a market out there(however manipulated it may be). The fragility in the system remains, and so, another crises is a matter of time and I'm simply not sure the US dollar will be a safe haven again. Thoughts? 

Sun, 05/29/2011 - 17:44 | 1321226 jm
jm's picture

I just think the gold price reflects massive leverage, and thus will crash like everything else.

Dollars are in excess reserves, and more defaults will make this liquidity go into provisinoing and write-offs.

Sun, 05/29/2011 - 18:53 | 1321354 GeneMarchbanks
GeneMarchbanks's picture

So you think gold(paper gold) is being bought on leverage driving it up in price and eventually the unwind will be a real snapback? If so I can see your point of view. Allow me Devils Advocate status for minute here. What if, the physical market is overtaking the paper market and it's being reflected in price? I prefer not to think of it in terms of paper price, like I'm going to get out at some set number. I bought in long ago to insure against"what can go wrong" as the nice lady from PIMCO recently noted. I'll sell when/if sanity is restored.

Sun, 05/29/2011 - 19:19 | 1321387 jm
jm's picture

I believe the spot price is the spot price.  Gold's not bad at all.  Another thing:  when central bankers, the single most I don't care about price for what I buy group in the world finally get around to bidding it up, I'd say that we are reaching levels that I don't want to chase.

Mon, 05/30/2011 - 06:26 | 1322088 GeneMarchbanks
GeneMarchbanks's picture

Dude, seems to me you've bought into what Taleb calls "The Narrative Fallacy" so I can't help broaden this discussion a little. I, on the other end, think it is severely under-owned by all-institutions or individuals alike- so the panic buying is still ahead. That may be the time to sell, we'll see. Your article seems(to me) to suggest that a time to sell dollars lays ahead of us. I'm sure there will be rallies, but it's still in a bear. Dollar holders be assured you'll be able to get out! I'm not so sure.

Mon, 05/30/2011 - 08:51 | 1322187 jm
jm's picture

You may be right about the confirmation bias.  I try to stick with what I can directly observe, and build on that.  There's bias everywhere.

If there is bias, in a nutshell says the Fed is going to get what it wants:  a weak dollar, no collapse.  I wholeheartedly recommend getting out of dollars at the appropriate time.  As QE winds down, the dollar is due for a bounce, but ZIRP will stay in place for a long, long time.  Blips aside, the bigger trend is get out of dollars and frontrun an aging society's focus on income.

There are other trends too.  Risher get risher, poor get poorer, move where opportunity is, etc. 

Wed, 06/01/2011 - 03:23 | 1327741 honestann
honestann's picture

Wow, you are on a freaking roll.

I totally agree with you again!  Get out of the dollar at the right time.  And when is the "right time"?

1932:  $20 buys 1oz of gold.

Glad we settled this one.

Wed, 06/01/2011 - 03:15 | 1327738 honestann
honestann's picture

Wait.  You're correct.  The current gold (and especially silver) price reflects MASSIVE, ASTRONOMICAL leverage.  I refer to the paper shorts by JPM and others at the behest of the federal reserve who are holding prices DOWN.

They have no fear and no limits, because the federal reserve will cover their losses, no matter how huge.  Frankly, Bernanke could buy all the physical silver in the world for the yearly booze and porn budget at the federal reserve.

You should take a look at gold and silver buying in China and India.  Do the math.  And that is mostly PHYSICAL buying, not bogus paper gold and silver that WILL wipe out someday when everyone finds out they are UTTERLY UNBACKED.

Someday read about "fractional reserve banking".  If you want to worry about leverage, you should stay at least 37 billion light years from the nearest US fiat, fake, fraud, fiction, fantasy, FRACTIONAL-RESERVE debt-note dollar.  And the funniest part about it is, the entire fiat, fraud fractional reserve scam that has created the trillions and trillions of US dollars is leveraged up from core supporting assets equal to ZERO.

Wed, 06/01/2011 - 03:33 | 1327736 honestann
honestann's picture

EVERY currency on earth has been dropping against gold and silver for years.  Every one.  So I'm sorry, but no currency is for me, and neither are paper assets officially "denominated" in any currency.

I totally support looking at all commodities for the best, smartest or safest one for a given period, or some mix that matches an individual's situation.  No reason we must be "gold only".  Massive reasons we should be "reality only" (real stuff).

Sun, 05/29/2011 - 17:17 | 1321140 chirobliss
chirobliss's picture

Your response to a well reasoned article that agrees with all you seem to suggest but explains that it will all take longer than a weekend, exemplifies exactly jm's criticism of your generational childishness.  You want it all and you want it yesterday and you are going to scream and yell and stamp yer feet until someone gives you something to shut you up.

Every time some deep theorist here cites Zim as a precursor for the US it is time to roll eyes and move on... and yet for the simple minded amongst you note the following... do not confer outliers with normative value.

There - simple, succinct, easy to remember.

The "Iceland solution" is viable for Iceland alone because it was never an integrated big hitter in world trade, doesn't withhold substantial assets from major world markets by opting out, and the biggest creditors have neither government authority nor the backing of an aggressive military to bone Iceland for raising the middle finger.  It is an outlier in every sense of the word.  Greece, on the other hand would have been a better example, but of course that doesn't work for you because the raised middle finger is going to be cut off and mailed to relatives.

Jm is not saying the dollar isn't terminal and isn't saying gold isn't a worthy protection in times  we live in, he is simply saying that, as in all systems stability is the norm, insurance (i.e. gold) can, will be and is being exploited to undermine its protective value and, most important of all, you won't win the lottery this week.

Wed, 06/01/2011 - 03:35 | 1327744 honestann
honestann's picture

There is a difference between rational and rationalization.  Look them up.

The debt is soaring.  The congress won't cut 10 cents from the budget - instead they add more spending every week.

The predators can no longer raise interest rates significantly because the government couldn't pay interest on the [now mostly] short term ponzi-bonds they foist on fewer and fewer fools every day (mostly the federal reserve, who doesn't need to work or produce, they just print and become theoretical owners of the universe before long).

Yeah, right.  And gold, which can only be increased in quantity by 2% or 3% per year is gonna crash against currencies being borrowed into existence at the rate of untold trillions per year.

Look up rational.  Then look up rationalization.  Then take your pick.  I already made mine.

Sun, 05/29/2011 - 16:35 | 1321047 hampsterwheel
hampsterwheel's picture

No buying it - nice try. First of all the Yen isn't the reserve currency. Secondly the Japanes are buyers of debt - not sellers... bottom line is that there needs to be a buyer of over $1,000,000,000 US dollars each and every year for the next .....whatever - and no one is buying - in fact some are selling. Therefore you will have QE{x} until all confidence is gone and there is a rush to find the exits. However, I get amazed at all the pundits who say China has a vested interest in a strong dollar they are holding too many Tbills - really - Tbills are as good as cash - have you ever been on a vacation and don't want to carry the foreign currency home? what do you do with it ....spend it!  1 trillion buys the chinese a lot of toll roads, airports, ports, harbors, beach front real estate.... when they decide they have had enough we are one big walmart for them - and with a trillion of US flooding back into the economy - your latte will be $100 - don't think they are going to play that game - they'll be able to make a killing when that happens...don't kid yourself...

Sun, 05/29/2011 - 17:07 | 1321119 jm
jm's picture

Actually the yen was a strong reserve currency until a few years into their QE. The dollar will lose vehicle currency status, then maybe reserve currency status.

 

 

Sun, 05/29/2011 - 16:39 | 1321057 DosZap
DosZap's picture

It has baby boomers—arguably the most selfish, irresponsible jackasses the world has ever seen.

(Which one's and what did they do differently than your Grandparents?.)

And the younger generations are so much better.

Boomers, at least they took care of their elders, and had respect for them.

Now, it's all for anyone except those  boomers that were responsible,when you get older, if you do.

You will appreciate the lack of respect, and blanket damnation you so justly may or may not deserve,but you get it anyway.

Boomers are not running the country..............Elitist,Statist Fascists are.

 

Sun, 05/29/2011 - 16:54 | 1321101 jm
jm's picture

Boomers didn't take care of their elders.  They voted social programs in so that future generations could foot the medical and retirement payments-- care of the Uncle Sam most ZHers hate!

Some of you people are just blind to what is around you.

Blame a fascist = blame your own selves for letting it happen.

Sun, 05/29/2011 - 17:47 | 1321225 gmrpeabody
gmrpeabody's picture

"Boomers didn't take care of their elders" 

I don't know where or how you were raised, but don't assign your family morals to the rest of us. You know not of which you speak, sir.

Sun, 05/29/2011 - 17:47 | 1321234 jm
jm's picture

Speaking solely in terms of statistics.  If you take offense to the truth of Medicare, Medicaid, Social Security as the sacred cows that baby boomers never acknowledge, so be it. It has nothing to do with values and such.  It is about denial... and the piss-off responses that calling it engenders.

Sun, 05/29/2011 - 23:49 | 1321800 StychoKiller
StychoKiller's picture

Boomers, at least they took care of their elders, and had respect for them.

vs:

"Question Authority" AND "Don't trust anyone over thirty!"

Ye know not that of which ye speak.

Sun, 05/29/2011 - 18:18 | 1321293 DosZap
DosZap's picture

jm,

They did?.....................are you 12?.

1933 was a long time ago, and damn sure were not Boomer's.I wasn't around, and did not get a chance to VOTE against it, did you?.

We just inherited our great grandparents program.

Also, Boomer's(just like you) damned sure did PAY,like everyone else did, and is.

So, get your shit straight.

Also, there's a hell of a lot more to taking care of parents and Grand parents than the .gov sending checks.

If your too young to have lived that, you will.

It's  a BLAST.

Also, when you pay in as much as I have( w/no choice),which I highly doubt you have, then preach da' hate bro.

Sun, 05/29/2011 - 19:57 | 1321447 jm
jm's picture

Sadly for your point, Medicare is a product of 1964 legislation.  These programs are the ultimate Ponzi scheme... you need more suckers coming in to fund it, demographics aren't supportive.

Sun, 05/29/2011 - 21:01 | 1321533 cartonero
cartonero's picture

I'm a boomer.  In 1964 I was 12.  My sister, born in Jan. 1946, was 18.  The voting age was 21.  So no boomers could possibly have voted for Medicare if there had been a vote, and certainly none were in Congress.  Get your history straight.

Mon, 05/30/2011 - 01:27 | 1321905 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Once you did reach the voting age you did what to end the ponzi?

You are not responsible since you did not vote on it?

How many times did you ask your reps to change the law?

You are getting a check now right? You are not getting back what you paid in. You are getting the interest on what was spent when you put it in. You are a bernie madoff winner. Those who got in first get paid first. But it has nothing to do with your contribution. You are just greedy.

You are a boomer at heart my friend. You ever a teacher?

 

Mon, 05/30/2011 - 01:55 | 1321931 FreedomGuy
FreedomGuy's picture

You're a bad historian. Boomers were not old enough or even born when the large social programs began. See my prior posts and check your dates. However, it's a moot point now in that it has to be fixed and boomers are at the helm as a generation. It's a myth that all boomers think alike or have the same character.

Mon, 05/30/2011 - 03:12 | 1321987 Bicycle Repairman
Bicycle Repairman's picture

The the endless repetition of 'the baby boomers are evil' plants a meme in the public's mind.  The meme's purpose is to help justify the TPTB's desire to cancel a real debt owed to the baby boomers.  The issue is entirely without merit.

This is a debt reduction strategy that the Japanese would never consider.  The Japanese have a real culture, and would never be convinced to cheat their elders in such a facile manner.  Which makes me wonder what the endlessly elastic USA actually consists of.  After the USA cheats the baby boomers, the newly ascendent East Asians may possibly view Americans as barbarians.  Maybe they will use that meme as a reason to treat Americans as chattel.

Mon, 05/30/2011 - 08:53 | 1322195 jm
jm's picture

I don't think boomers are evil, nor does anybody else.  Just irresponsible... like the majority of us only more so.

About all the dates and stuff... the great issue is the lack of responsibility and thought for future generations.  Boomers are horribly unprepared for life without a govt teat, and that is your penance.

Not that the younger are better prepared, they just know there will be no teat to suck for them.

 

Mon, 05/30/2011 - 09:28 | 1322235 Bicycle Repairman
Bicycle Repairman's picture

The baby boom generation has been no more irresponsible than any other generation.  The only thing that sets it apart is that it is bigger. 

Want to cancel my SS benefits?  Fine.  Just give me back my contributions with interest and we're square.  How?  The next time the FED prints up a trillion, give it to us, not Wall street.  At least we'll put the money to work.  As a bonus gens X and Y can blame themselves for their failures.

This will never happen as this entire issue is a fraud.

Mon, 05/30/2011 - 09:38 | 1322250 jm
jm's picture

You can't have it back, it's already gone.  There's not enough new comers to the Ponzi for you to expect much of anything back.

Mon, 05/30/2011 - 12:10 | 1322588 FreedomGuy
FreedomGuy's picture

Exactly right. I reject the notion that we "owe" the elderly anything. They spent their money and did not save enought to properly fund their Social Security. Dismantling the ponzi scheme hurts everyone but no one is "owed". The elderly are actually far wealthier than anyone else on average and they have 20yr olds who cannot afford their own insurance funding Medicare. 20-somethings need all their money but are paying current recipients with far more wealth. Any rational analysis will show we have the largest wealth transfer in the history of manking from one group to another...younger to older and the older have more wealth to start with.

Everyone has to take a haircut. I agree. Stop SSec but give me the 15.2% back and I have time to make up lost ground. In my economics club we did an analysis of what would happen if you invested your own SS money. You would be depressed at the numbers.

No one in America is "owed" anyone else's money unless they provided a good or service. It's not a boomer, gen x or any other thing. It is the vice of collectivism.

Sun, 05/29/2011 - 16:51 | 1321090 Madcow
Madcow's picture

 This means serious dollar weakness for the next three years (or more), but not collapse.

So, the financial markets will stop working and refuse to discount the long term future and price it into the immediate future?  why?

In a deflationary collapse, the senior currency strengthens against all else until the deflationary collapse is over. 

The senior global currency is GOLD - not the US Dollar. Always has been, always will be.

Sun, 05/29/2011 - 19:55 | 1321450 jm
jm's picture

If the bulk of gold buys are with leverage, the ultimate money is what you levered it with.

Mon, 05/30/2011 - 03:12 | 1321989 Bicycle Repairman
Bicycle Repairman's picture

When fiat currencies collapse they cannot buy goods or services.  Their value is zero.  Gold and silver will always buy goods and services.  Always.

Sun, 05/29/2011 - 17:12 | 1321138 icm63
icm63's picture

What utter rubbish..

Be a fundamental trader and go broke

 

See the UUP in this post

 

http://www.readtheticker.com/Pages/Blog1.aspx?65tf=205_cycles-say-the-bears-are-about-to-roar-2011-05

 

 

Sun, 05/29/2011 - 17:19 | 1321157 jm
jm's picture

This is an inopportune time to put on a carry trade with Greece looming.

Sun, 05/29/2011 - 17:24 | 1321165 Youri Carma
Youri Carma's picture

The elite plan is to kill the dollar by the end of 2012. Will they succeed? I don't know. Fact is that it ain't easy to kill the dollar with it's deep pockets and still is a reserve currency most widely used.

But the elite have other than financial terrorism means to acomplish their goal. One is via the military means creating so much havoc in the Middle-East so that oil resources get cut off rocketing oil to $200 which will surely help to kill off the world economic growth.

An other one is, and not everybody will believe me but I am mentioning it just the same, is HAARP creating dead and destruction as we speak. Follow Dutchsinse http://www.youtube.com/user/dutchsinse to get a grip of what this actually means.

An other way could be to give up the gold and silver manipulation which will make the dollar look very bleak.

Sun, 05/29/2011 - 17:25 | 1321175 jm
jm's picture

So they are manipulating gold and silver down to make the dollar look good... and yet the plan to kill the dollar by 2012.

Please explain. 

Sun, 05/29/2011 - 17:30 | 1321194 JohnG
JohnG's picture

"It has baby boomers—arguably the most selfish, irresponsible jackasses the world has ever seen."

Fuck you you sniveling little bastard.  Here's one baby boomer that would most certainly enjoy meeting you in person.  Be glad to stab you, just NOT IN THE BACK.

Sun, 05/29/2011 - 17:49 | 1321239 jm
jm's picture

That's the spirit!

Sun, 05/29/2011 - 18:02 | 1321251 chirobliss
chirobliss's picture

Hmm, the response would seem to validate the diagnosis, and here I was thinking jm had been a little overly unrestrained.

Sun, 05/29/2011 - 19:33 | 1321406 jm
jm's picture

I am being provocative, but it is increasingly the only way to get people to wake up.

Mon, 05/30/2011 - 03:20 | 1321994 Bicycle Repairman
Bicycle Repairman's picture

If people wake up I think you'll find the baby boom generation owning the political system for the first time in their existence.  And then their benefits will be paid.  In full.

Mon, 05/30/2011 - 08:55 | 1322198 jm
jm's picture

ANd this is why Singapore airlines so attractive.  People will be leaving if what you say holds true.

Mon, 05/30/2011 - 09:02 | 1322205 Bicycle Repairman
Bicycle Repairman's picture

As the USA enters its soviet phase, no one is leaving without the permission of the political class.  That being said, the USA is the safest spot in the world in respects to large scale war.  Let's just call it "flight to safety". 

Sun, 05/29/2011 - 18:22 | 1321298 DosZap
DosZap's picture

JohnG,

He has no fucking CLUE.

Who are the selfish one's?.

 

Mon, 05/30/2011 - 03:05 | 1321979 JohnG
JohnG's picture

His/Her ilk.

Children these days...

Sun, 05/29/2011 - 21:56 | 1321633 HellFish
HellFish's picture

Truth hurts huh, G?

Mon, 05/30/2011 - 02:59 | 1321978 JohnG
JohnG's picture

It is not the truth and that is what pisses me off.

He blames the boomers to US fiscal woes, which untrue.

I was born in 1950, an early boomer.  I could not vote until 1971.  I spent my 19'th and 20'th birthday in a jungle with people trying to kill me.

 

Later on, I started a business, payed my taxes.....endless paperwork.

Produced.

 

JM is placing blmae on a geranlization.  Logical fallacy.

 

Fail.

 

 

(Still I would shank him in an alley, he's an idiot and Darwinism applies) 

Mon, 05/30/2011 - 20:44 | 1323744 jm
jm's picture

You know, I don't blame you for being pissed.  I'm not sure why this sat around and then was posted on Memorial Day.

Sun, 05/29/2011 - 18:46 | 1321344 oldman
oldman's picture

Hey, guys,

I am curious and ignorant about many things, but one of them is this: what is the effect of all of this buying and holding of pms, doesn't this suck up a lot of bucks? And what else?

I need help----fill an oldman in on this stuff, please.

Sun, 05/29/2011 - 19:28 | 1321400 slewie the pi-rat
slewie the pi-rat's picture

party on, wayne

party on, garth

party to the PM store

exodus, stage left

Sun, 05/29/2011 - 20:04 | 1321461 seenod2010
seenod2010's picture

Instead of wholesale collapse, the most likely outcome is a steady decline in the dollar over an extended period of time.

JM,

The US Dollar has been on a steady decline since roughly 1970. While some point towards the immediate effects of the Federal Reserve Act, the Fed had temporarily stablized the value of the dollar arguably due to the gold and silver standard. Does this not indicate that the US Dollar currency crisis has been building for decades now?

This means serious dollar weakness for the next three years (or more), but not collapse.

Is this not part of the Deflationary Collapse argument? The issue here is that the economy is debt saturated. If debt was water, the economy was soil/sedimentary rock (aka sand); the water saturated ground would result in mass wasting (landslides/rockfalls/etc) as a result of the saturation. The system has accumulated more debt; than, our economy can presently absorb. If the economy was the ground and debt water, the economy would be on the verge of mass wasting due to the angle of repose.

As long as there is minimal rule of law there will be contracts legally required to settle in a given currency.

If the political and financial elite or upper clicque of society are not only capable but able to commit fraud, robbery, dump the debt on the public/taxpayer, and conduct torture/other qualifies as minimal, this may be viewed minimal rule of law. Frankly, I believe this places as much loss of confidence in the Judicial system as the economic system.

Note the massive central bank currency swap action that stopped the herd of Mrs. Watanabe’s from skyrocketing the yen back in March.

Was this not a development through the US possesses the world's reserve currency, and the yen was on the verge of exposing the instability to the world's reserve currency effectively negating its ability to extend and pretend/ kick the can down the road?

A weak dollar is easier on the rich than it is on the poor.  Because of costs of entry, people with low incomes are forced to store their wealth in dollars, so they will be mercilessly screwed by the Fed and the politicians.

And of the Fourth Turning, the mood of the country towards Domestic and Geopolitical events, and their reaction?

This screwing of the dollar makes exports cheaper, hopefully creating jobs for younger people.

This argues globalization/supranationalism has gutted the US's capital creation growth or in other words manufacturing/production rendering the job creation predominantly focused on Service Jobs and Consumer Economy. Our exports have been in the negative for decades, so this assessment is patently false.

What depreicated currency does is enable the currency manipulation to offer its creditors debased junk to pay off the debt. It basically says accept junk as payment because I really want you to forgive the debt as a financial hardship. This is precisely what Wiemar attempted to get the war reparations forgiven by the allies, and this actually opened the door to the rise of Adolf Hitler and World War II.

However, the wealthy take much less of a hit because their wealth is more allocated into real assets.

This is linear thinking. The Wealthy takes less of a hit through several reasons:
1). Risk is socialized while profits are corporatized.
2). Inflation protects the political and financial elite as it increased the amount of expensible income onto necessities, and as in 1 losses are socialized therefore subsidized by the taxpayer to Big Bussiness, Big Union, Big Pharmaceuticol, and etc. Not to mention, welfare is a racket for Morgan, and credit/loans are necessary to aka consume.
3). The Wealthy have global or broadened investments.

The middle and poor are forced to invest predominantly domestically; there's no means to diversify their assets abroad and domestically.

If you believe what I am saying, then you believe we are pretty much following Japan.

Obviously by my response thus far, I don't, and I disagree with this assessment as well.
1). Japan's alleged perpetual debt feedback system died a few months ago, and their demographics are horrible for continuing this dually beneficial system with the US. Japan would buy US Treasuries and then feed it back into the US to keep its debt internal and keep the Japanese Yuan valued under the Dollar.
2). The US's debt is predominantly external, and it's being socialized onto the taxpayer based on loose tax codes enabling globalization, eroded Industrial base (Japan still has), and the Federal Reserve makes up the majority of the Treasury Bond purchases with fewer and fewer foriegn buyers (They could statisically alter the few International Bankers to their other base of operation to grant the illusion of foreign buyers who actually do not exist).

By the way, no good alternative to the US Dollar as a reserve currency as a basis that the US Dollar remains preferable is not necessarily true or accurate. This is normalcy bias that the world must possess a reserve currency at all times even though the very definition of reserve currency status requires soverign nations to accept one currency in demonation over another and dislodges nation's soverign right to make treaties of its own; this is why Iraq and Libya were invaded in addition to oil. Heaven forbid, nations seek to create an independent treaty for how they accept and conduct trade.

So they are manipulating gold and silver down to make the dollar look good... and yet the plan to kill the dollar by 2012.

Please explain. 

This is reflective through the NWO that if you listen to what those financial and political elite circles talk about is quite in their vision of the future.
The west is run by very few extremely powerful institutions who has essentially contributed heavily to campaigns to easily buyable/corrupted politicians. To maintain this kleptocracy, it would be in their best interests to introduce a global currency, but they must also present the circumstances necessary to accept this currency introduction.
The US Dollar like the SDR are both associated to bloodletting and contradictory idealism like Democracy when the US is a Republic, and the politicians constantly throw the consumer under the bus in lieu to governmental dependency (If you want to live, you do what I tell you, and you'll do it when I tell you).

Tangible value storage units are the arch nemesis to fiat and credit system like the present dollar.

tao400
I am convinced there is going to be a world war if a collapse occurs.

I largely agree that World War III is likely, but the collapse has little to do with it.
Globalization has greatly weakened the Wests influence especially the US.
Look at industrial manufacturing/production to GDP.
Look at consumerism to GDP.
Then look at the Industrial capacity given to China who when that Dollar surplus is exported back into the US economy will likely be seized.
Iranian-North Korean-Russo-Sino benefit globalization directly or indirectly. China has to support Pakistan in the same manner it has to support North Korea; it creates a useful asset and buffer against US and NATO aggression. Germany also appears to be leaning towards friendly relations with Russia, and China is making new European friends through bailouts.

Mon, 05/30/2011 - 09:06 | 1322206 jm
jm's picture

I think most of your points are simple agreements stated differently or disagreements with my interpretation of the facts, which is cool.

However, the NWO stuff: the "elite" which shift in and out of influence and have such diverse desires as to not be a concrete entity at all do not know how all this will play out.  Nor do I, but I have an opinion shared.  Central banks are doing what thye know how to do. It won't fix a problem that may not be amenable to it:  they print money, they influence the currency.  

Working together, they can generate remarkable stability.  They work together in a crisis.  

Regarding wars and conflict:  I hope for the best and change when the facts point me in another direction.

Sun, 05/29/2011 - 20:45 | 1321515 Rynak
Rynak's picture

The article makes two assumptions:

- That the deus-ex machina called  TPTB has not just high, but total control over the market, and never makes mistakes

- That once the world reserve currency becomes unattractive, other currencies do not stop relying on it and implementing alternatives.... thus taking the "collectivized damage" argument out of the game.

Question: What are the chances, that if the world reserve currency becomes unattractive, others will not move to reduce their involvement in it? Oh wait, it is already happening! But if this is happening, can we even still make an argument for total control by "TPTB"?

The author of this article made the following mistake: He took a valid argument.... that a reserve currency has more resistance against collapse.... and then instead of making a balanced argument, fell for an exaggeration and generalization. If the author could have restrained himself a bit, he could have had a sound argument.

Mon, 05/30/2011 - 09:05 | 1322212 jm
jm's picture

It doens't matter is the dollar is attractive or not if a ten year bond is issued in dollars.  Love them or hate them, to dollars you are bound. 

The US dollar is the vehicle currency for emerging market debt, bank debt all over, corporate bonds. It will take take for this to work iteslf out, although it is happeneing right now.  I'm not saying it's noy going to happen, but that it takes time.

Sun, 05/29/2011 - 20:49 | 1321520 johny2
johny2's picture

I do not have the power to predict the future, but if dollar is falling with QE2 apparently finishing, stocks about to go down, Europe about to break up, japan threatened with radiation, middle east in turmoil, etc...what chance has it got? 

Sun, 05/29/2011 - 20:55 | 1321525 Rynak
Rynak's picture

Yup.

One funny thing is.... certain people always make this argument, that the dollar still can go on for a dozen years - it doesn't need to collapse yet, because its the world reserve currency. Well, guess what? It only HASN'T collapsed yet because it is the WRC.... if it weren't it would ALREADY have collapsed years ago. We are not approaching the WRC-"bufferzone".... we are already in it!

Sun, 05/29/2011 - 20:59 | 1321541 johny2
johny2's picture

I do not know what is happening, and I have lost any faith in free markets some time ago, but at the moment dollar looks like a snowball in hell. Comparing it to Japan seems optimistic and misguided.

Sun, 05/29/2011 - 21:31 | 1321580 PulauHantu29
PulauHantu29's picture
MZM Money Stock (MZM) from St Loius Fed:

http://research.stlouisfed.org/fred2/series/MZM/48

Got Gold?.....Silver?....Oil?

Sun, 05/29/2011 - 21:46 | 1321608 Dirtt
Dirtt's picture

The “exodus” theme. Many moving parts.

I feel for those who have roots too deep in the US to uproot. One of the moving parts in the "exodus" theme more than likely will be your body too.

Sun, 05/29/2011 - 21:55 | 1321621 chartcruzer
chartcruzer's picture

nearly all fiat currencies have failed within 40 years.  The USD will fail.  It will just take time.   The world record US debt bubble assures that it will.   Watch for a breach of support on the following chart (the red line).   Then the shorts get interesting.   Note: we are probably in for a nice USD bounce until the next QE.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s218820698]&disp=P

 

Sun, 05/29/2011 - 22:10 | 1321653 web bot
web bot's picture

60% of all US debt rolls over every 3 years. That's approximately $8,100,000,000,000.

We are looking at trillion dollar deficits ongoing for years to come. When interest rates start to rise by a couple points, it won't take decades to see the collapse of the US dollar.

Mon, 05/30/2011 - 09:09 | 1322220 jm
jm's picture

Most of that roll is in t-bills--essentially a floating rate credit card @ a fed induced teaser rate.

If the Fed induces a liquidity withdrawl, they CAN (possible) drive that money into longer term.  I would argue this is the Japanese policy playbook.

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