Monday, February 28, 2011

The Market Is Telling Us That The Dollar Is Finished

Clearly the dollar was beginning to fall out of favor.

Fast forward to today. Mubarak. Gaddafi. Khalifa. Al Said. Ben Ali. Etc. There is no shortage of turmoil right now... yet we are seeing the dollar get clobbered while gold, silver, and smaller currencies like the Swiss franc rise. This represents a major shift in the way that the market views risk.

It's true that nothing goes up or down in a straight line... but long term, the market is telling us that investors are washing their hands of the dollar as a safe haven asset.

So what happens from here?

In the long run, the law of one price will prevail; the US dollar cannot become so cheap relative to other currencies that a multimillion dollar home in Malibu only costs the equivalent of six month's wages in Switzerland... or that a new Corvette equals the price of an electric bicycle in Singapore.

Foreigners will swoop in and mop up US inventory long before that happens, not to mention foreign governments will manipulate their own currencies in order to avoid missing out on a 300 million-strong consumer market.

We're already seeing this now as the ridiculous game of international capital controls tries to masquerade as a free market. I suspect the regulatory environment will only worsen as the political lemmings follow one another off the cliffside.

(yes I know it's a myth, but so is the notion of fiat currency as sound money...)
More Here..

1 comment:

  1. Where is that strong 300 million-consumer market now?
    Does it still really exist in America today?

    The growing millions of unemployed and tens of millions living on government food stamp charity handouts have little to spend and those living in poverty can get no new credit to expand their buying power. So, there is a one in six person hole in that old 300-million strong consumer market.
    Foreign Credit supply for the markets died in 2008 with the collapse of the bond and derivatives bet markets. The Ponzi economy market, with the ability to purchase things on credit is grinding down to its end.
    America in recent decades under the dollar hegemony system was running on credit.
    The past profitability of that three hundred million people strong market was only an economy of Americans selling each other services at their value, enabled by borrowing any profits from foreigners as investment loans and from the sale, (40% to foreigners) of now dud Ponzi property bonds.
    The fees, commissions, usury on loans and fraud of the finance sector, pre crisis counted for 40% of all profits! And about 40% of the share markets value.
    This sector has turned belly up, but is propped up by government bailouts.
    The middle class too had supplemented their incomes by credit supply, by using their houses as an ATM and from property flipping, providing jobs for those in the real estate sales and mortgage supply sector.
    That Ponzi finance driven economy and housing construction died.
    All that exists now is a government stimulating the markets of an insolvent debt ridden economy by huge annual deficits spending and for loans to banksters in the trillions of dollars.
    America now “prints its profits” by money printing handouts and credit supply /loans from the bailed out finance sector are increasingly now hard to come by ,as the consumers and even the middle class is already maxed on its ability to even service its past debts to finance capital.
    Millions are losing the value of their past investments in housing, millions more are already losing their houses as the property bubble bursts.

    The value of middle class savings are being slowly looted in a growing inflation with a low interest regime imposed by the Fed at the banks, they and their pension funds are forced to turn to try and save, or preserve their wealth, to low interest paying government Treasury Bonds, or to risky investments in a clearly manipulated Share market.

    The government had funded its wars and a lot of its services, not from real taxpayer revenues, but by deficit spending of printed debt money.
    The rising cost of wars the final straw on the camels back.

    The balance of trade has been running at a deficit for decades. But as foreigners particularly export of wealth countries, puppet Oil Sheiks, the Japanese and Chinese, provided vendor finance by investment of their own $ profits re-circulated back to America, such as by buying US treasury and property bonds, helped to prop up the illusion of a strong Fiat dollar. Because the worlds people thought the $ represented real, stable, savable value.
    America was often able to export printed $ paper in return for real things. The cost of the goods to America was free, only printers costs, dollars could be exchanged for real goods, once the dollar boomeranged, it only had to pay a small interest on the invested dollars. Other exported $ paper included “aid”

    Total corporate after tax profits pre crisis were only about equal to the total annual foreign investments in Treasury and other bonds.
    This means that the American economy was parasitical and the American working people, on the whole, created no physically real commodity profits in manufacturing in America .
    So American factories and jobs were exported,
    Third World cheap labor profits were got in America by selling imported cheap labor goods in Wall mart and other retail outlets.
    Often by time payment and credit card loans. Until the credit dried up.


Everyone is encouraged to participate with civilized comments.