Discussion of Housing Bubble, US Dollar, Debt, Trade Deficit, Oil, Gold, Consumer Spending, Central Banks, Inflation, Outsourcing and the Bleak Future of the US economy
This Blog and/or the articles contained within have been referenced, linked or quoted in: Businessweek online, WSJ Online, Dollar Collapse, Safehaven, Silverbear Cafe, Financial Armageddon, Yahoo & Google Finance -- among many other blogs & web-pages... Thanks for stopping in for a read!
Monday, October 05, 2009
Open Forum
Please feel free to share your thoughts, post up links of interest, hold a discussion, etc here.
1) The US Dollar is oversold and is likely to make a (short-term) turn up.
2) DOW and S&P are overbought (daily AND weekly)and are likely to correct downwards.
3) Gold is overbought on the daily chart (weekly doesn't look too bad) and this current pullback will likely correspond to the actions of the US Dollar - (Inverse Barometer) - If the dollar indeed does strengthen, gold will continue falling. Strong support however ~ $960-$970 (I don't think we'll breech this level though)
"Love Canal Nation" comes to mind. This won't be over for 6 years and I am being optimistic. The only accelerator to recovery will be the increase in world population due to the multiplier effect. Next up CRE! Then the automobile finance default explosion and the inability of millions of those foreclosed, repossessed and closed credit account owners who have to hoard cash to give them same peace of mind their ability to get easy credit gave them.
PALO ALTO, CA - An international mathematics research team announced today that they had discovered a new integer that surpasses any previously known value "by a totally mindblowing shitload." Project director Yujin Xiao of Stanford University said the theoretical number, dubbed a "stimulus," could lead to breakthroughs in fields as diverse as astrophysics, quantum mechanics, and Chicago asphalt contracting.
"Unlike previous large numbers like the Googleplex or the Bazillionty, the Stimulus has no static numerical definition," said Xiao. "It keeps growing and growing, compounding factorially, eating up all zeros in its path. It moves freely across Cartesian dimensions and has the power to make any other number irrational."
Jean-Luc Brossard, a researcher with the European consortium CERN, said the number is so staggeringly large that it is difficult for even mathematicians to grasp, let alone lay people.
"The number itself is incomprehensible by human minds, and can only be theoretically understood in a fractional parallel universe which we refer to as the DC dimension," said Brossard. "The best way to understand a stimulus is to imagine a dollar sign followed by a packed string of hexidecimal nanodigits, wound into a triple helix, woven into a dodecahedron, and stacked on top of one another. Now imagine you were a black hole on the far edge of the universe, trying to escape the stimulus at 30 times the speed of light. The stimulus would still catch up to you and ram your black hole with such furious, repeated force that it would cause your entire reality itself to collapse."
Xiao said the team discovered the number with the help of an international network of 24 nitrogen-cooled Cray Ultracluster supercomputers, the CERN particle accelerator, and "three pounds of Humboldt County Chronic."
"The exciting news is that with more powerful computers and drugs, we believe we are on the verge of discovering an even larger number, which we refer to as a 'stimulusconferencebill,'" said Xiao. "Speaker Pelosi has already promised us the funding."
The BLS has again shown its incompetence. A recent report shows that Silicon Valley employment has declined by 17% during the "recovery" of '01-'08. Employment declined in 8 of 11 industries. Amazingly, it also says that wages have increased by 36%. The BLS never considers how wages could be rising when our universities have graduated millions of computer programmers, scientists, and engineers in the last 9 years and there is virtually no demand for their labor. Both statistcs cannot be true. I'm guessing the former is more accurate. I also don't think that the labor profile in Silicon Valley is that different from other high tech areas around the country, except for DC, which has an economy based more on gevernment. http://www.bls.gov/opub/regional_reports/200908_silicon_valley_high_tech.htm
Good blog, Randy. First time visitor here, and you may thank Edgar at Petropest Launchpad for posting a link to your blog. http://pppad.blogspot.com/
Also don't have an econ degree but have been reading up on everything going on in terms of investing, housing, the general economy, etc. these past few years and have come to the conclusion that we are indeed in the midst of a major economic transformation.
But unfortunately, my crystal ball is too fuzzy for me to see what is coming next.
Thanks for stopping in Mammoth - I'll have to check out Edgar's Blog.
So, what comes next?
Massive Monetary Inflation (ZIRP + Monetization) coupled with Severe Asset Deflation (Credit Crisis + Collapsing asset values) and high unemployment = A HYPERINFLATIONARY DEPRESSION
1. (Hyper-)inflation ? Sheer nonsense !!! In the CURRENT situation there'll be no (hyper-)inflation at all. As long as the FED prints money at a SMALLER rate than credit is destroyed (hyper-)inflation doesn't stand a chance. But if (when ???) the economy collapses and the currency collapses as well and the FED would continue to print money like there's no tomorrow then (hyper-)inflation could/will take root.
2. The dollarindex is for approx. 80% a ""Europe vs. USA"" game. Because Europe is in a bad (if not worse) economic shape as the US the dollarindex isn´t a particular good gauge to measure the economic health of the US See this graph for the composition of the USDX.
3. Higher taxation is because the government thinks they need more money. Higer prices for food and energy is the result of inbalances between demand and supply. And one of those inbalances is higer taxation. And in the current monetary situation that's VERY DEFLATIONARY. Because consumers can NOT leverage up anymore to pay for those higher expenses and this is the heart of the matter.
Though I certainly love your perspective on things, I honestly feel you will be proven wrong over the longer run, as Hyperinflation gets set in motion - not entirely by excess printing - but by lost faith in the US Dollar as the world's reserve.
See my similar comments and links added to comment section under "$15K gold"
Deflation, inflation, hyperinflation. So much is unpredictable, in spite of the graphs. What I can say for sure was that here in Pittsburgh, the G-20 brought all of us an exercise in Marshall Law! In 2001, approximately the same number of troops were on the ground in Kabul (16 sq. mi.) as were in a portion of Pittsburgh covering 7 sq. miles! Why? Because there were 25-50 so-called anarchists under the age of 25 throwing the fear of chaos into the souls of our military? So, they were the reason we all had to accumulate a cost of hundreds of millions or even a billion dollars? And that was why the LRAD sonic sound machine was brought in to fight off a bunch of sneaker wearing kids fighting back by pushing a dumpster down a hill toward the LRAD? LRAD had never before been used against Americans, and the National Guard was actually arresting people.
This fool-hearty attempt to practice exercises in Marshall Law was obscene. I documented the event as I roamed around the city observing this crap.
It is clear that the US government is preparing for something.
Yes, could be a new Integer invented by man. That such an invention comes from the USA is by no means surprising. Because USA is also the research hotbed of that most intractable of physics challenge - string theory.
After 30 years of intense research by the brightest of string theorists, they have produced a most 'unique' solution to the theory of everything. That solution, however, contains 10**500 separate solutions! One solution for each of the 10**500 universe.
Could STIMULUS = 10**500?
If so, string theory offers a sound scientific foundation to the solution of US economic problems. Wow! The land which produces STIMULUS also produces 10**500 solutions to everything.
Everyone who thinks (hyper-)inflation will set in as a result of lost confidence in the USD is mistaken.
Inflation is caused by an increase of money and credit. Deflation is the result of a shrinking amount of money and credit. So, when foreigners are withdrawing their money from the US then the result will be DEFLATIONARY.
Yes, a USD going down against e.g. the Euro and Yen will increase prices for US citizens. But are those US citizens able to borrow more money (=credit) to pay for those higher prices ? No, because banks aren't willing (and able) to lend, to increase the amount of credit to the consumer. To the contrary, credit is being destroyed at an unprecedented rate and therefore we currently experiencing DEFLATION.
The money the FED currently is printing doesn't benefit the US consumer. Instead it's used for speculation: Stocks, bonds (see what happened to the corporate high yield ETF called HYG since march 2009 in spite of the fact that defaults on junk bonds are at an all time high).
It´s up to the US government and the FED whether (hyper-)inflation will kick in or not. IF they keep printing money like there's no tomorrow then and only then (hyper-)inflation does have a chance.
(Hyper-)inflation can kick in only when the destruction of money and credit is overwhelmed by the printing of money.
I would recommend everyone to buy and read the book "Conquer the crash" written by Robert Prechter. Although I do not agree wiht him for the full 100%, he makes a very good case why deflation is currently in play.
I see a number of reasons why the US gov. would need to print money like there's no tomorrow:
1. Perpetual war. (Afghanistan, Iraq etc.) 2. Foreign countries are selling their Agency debt (Fannie Mae, Freddie Mac etc.) to the US gov. They started doing so in june/july 2008. And that's why both Agencies were nationalized in early september 2008. 3. Keep Congress satisfied. Keywords "Pork barrel spending". 4. The bail out of firms from Wall Street at the expense of the taxpayer and in the end at the expense of the USD as well.
But the results of that printing of money won't be felt in the next say, 12, 18 or 24 months.
I would recommend to go the website of mr. Michael Hudson or to www.kpfa.org and search with the words "Michael Hudson" and listen to the audioclips that pop up. A must read and a must listen. He's using the words "Kleptocrat" over and over again.
"From 1800 to 1929, the value of the dollar was stable – there was essentially no change in consumer prices for 130 years. It is ironic that the beginning of the inflation tidal wave started shortly after the creation of the Federal Reserve Bank in 1913, an entity designed to preserve price stability."
This is another interesting website: www.howestreet.com
From that website: This article seem to suggest stockmarkets, the euro are about to go down again and the USD, Yen are about to go up (again). http://www.howestreet.com/articles/index.php?article_id=10988
Listen to the various audioclips with Bob Hoye and other interesting persons available at that website.
About the De-/In-flation debate raging on this website: I am, like Willy2, for the time being, firmly in the deflation camp. The big question is: How long will this deflation last ? 6, 12 months ? 1, 2, 3 or more years ? Time will tell !
Deflation means - IMO - USD, Yen, Treasuries, Gold, Silver up and Euro, stocks, corporate bonds ,commodities down.
Do you really think that the costs for health care/phamecuticals/medical equipment are going to decrease?
How about insurance costs? How about taxes? How about food? (That 2007 $0.99 price for a humble 10# bag of potatoes is now $2.50.)
Perhaps the price for non-necessities, like typical made-in-china crap, will drop just enough to sucker the consumer back into the stores, but we may not want to hold our breath waiting for the cost of those things (listed above) we can not do without, to deflate.
Just suppose that 'everyone' knew that the dollar was going to take a dirt nap. Many people would short the dollar in various ways. Some of these ways push ol' Bucky into the mud. And if enough people do them, they get what they pay for.
The BLS is cooking the books on the topic CPI inflation. CPI numbers don't include price fluctuations in food and energy. That's why the official CPI numbers is lower than actual price inflation.
But Mike "Mish" Shedlock has proof that the actual CPI numbers is (in one way) higher than the actual inflation.
The world's oil producers, as well as China and France, are planning to end using the dollar as the currency to buy and sell oil, the Independent newspaper reported.
The move would see oil priced not in dollars but in a unit based on a basket of currencies including the Chinese yuan, the Japanese yen, and a new currency intended for use by the Gulf emirates, according to a report in Tuesday's Independent newspaper. The paper added that the transistion from the dollar to a new currency will take almost a decade.
Finance ministers and central bankers have held meetings in Russia, China, Japan and Brazil to discuss the idea, which the Americans are aware of, the Independent said.
"Eventually there will be a move to non-dollar commodity contracts, and it may be the next big risk for the dollar," Ben Simpfendorfer, chief China economist for Royal Bank of Scotland, told Bloomberg. "At the same time, I don't want to overplay the importance of the story. There's no credible sources there."
The financial crisis has intensified speculation about the eventual demise of the dollar as the world's reserve currency. In the last six months, Russia, Brazil, India and China have already discussed buying each other's debt as a way of cutting their dependence on the dollar, while the United Nations last month proposed a new global currency to replace the greenback.
The dominant role of the dollar in world trade and financial markets - a position it inherited from sterling - has already been under threat since the formation of the euro and the emergence of China as a major economic power.
The amount of the the world's currency reserves held in dollars has fallen over the past decade, with the it declining to a record low of 62.8pc in the second quarter, figures from the International Monetary Fund showed last week. The euro's share climbed to 27.5pc from 25.9pc.
But few experts expect the dollar's status to be quickly eclipsed.
Niall Ferguson, a Harvard University Professor, said yesterday that there wouldn't be a dollar collapse given the lack of proper alternatives. “There are enormously strong arguments for maintaining a substantial pile of your reserves in dollar form,” according to Professor Ferguson. "That is still the currency of choice for most of the trade that goes on in the world.”
However, there seems little doubt that China's fears over the fate of the dollar have increased recently. Timothy Geither, the US Treasury Secretary, has sought to ease China's worry that America's combination of record low interest rates and a policy of printing money will spark a sharp decline in the currency. China is America's biggest international creditor.
Given the rise of the gold price to new all time highs today, I'd like to draw attention to Yamana, which is one of my favorite core holdings in gold miners. This morning it updated production guidance and came in ahead of many analysts' expectations. I read a good summary and analysis of their news release at http://www.goldalert.com, where it also mentions that there's been some speculation that the company may be looking for a suitor. I think Yamana, along with many other gold mining companies with leverage to the gold price, will continue to outperform due to the government's efforts to prevent deflation at all costs. The dollar is close to new 52 week lows, and the willingness of our govt to debase the currency should continue to benefit gold, in my opinion.
Also, good intraday updates on the gold price at Gold Price Blog
28 comments:
Charts of interest:
Gold Charts
US Dollar Index Charts
DOW Charts
S&P 500 Charts
What do I see in charts above?
I'm not a trained chartist, but I can spot:
1) The US Dollar is oversold and is likely to make a (short-term) turn up.
2) DOW and S&P are overbought (daily AND weekly)and are likely to correct downwards.
3) Gold is overbought on the daily chart (weekly doesn't look too bad) and this current pullback will likely correspond to the actions of the US Dollar - (Inverse Barometer) - If the dollar indeed does strengthen, gold will continue falling. Strong support however ~ $960-$970 (I don't think we'll breech this level though)
Officially, 14.9 million Americans are unemployed. That number will double
Unemployment: The Gathering Storm
"Love Canal Nation" comes to mind. This won't be over for 6 years and I am being optimistic. The only accelerator to recovery will be the increase in world population due to the multiplier effect. Next up CRE! Then the automobile finance default explosion and the inability of millions of those foreclosed, repossessed and closed credit account owners who have to hoard cash to give them same peace of mind their ability to get easy credit gave them.
New Integer Discovered!
PALO ALTO, CA - An international mathematics research team announced today that they had discovered a new integer that surpasses any previously known value "by a totally mindblowing shitload." Project director Yujin Xiao of Stanford University said the theoretical number, dubbed a "stimulus," could lead to breakthroughs in fields as diverse as astrophysics, quantum mechanics, and Chicago asphalt contracting.
"Unlike previous large numbers like the Googleplex or the Bazillionty, the Stimulus has no static numerical definition," said Xiao. "It keeps growing and growing, compounding factorially, eating up all zeros in its path. It moves freely across Cartesian dimensions and has the power to make any other number irrational."
Jean-Luc Brossard, a researcher with the European consortium CERN, said the number is so staggeringly large that it is difficult for even mathematicians to grasp, let alone lay people.
"The number itself is incomprehensible by human minds, and can only be theoretically understood in a fractional parallel universe which we refer to as the DC dimension," said Brossard. "The best way to understand a stimulus is to imagine a dollar sign followed by a packed string of hexidecimal nanodigits, wound into a triple helix, woven into a dodecahedron, and stacked on top of one another. Now imagine you were a black hole on the far edge of the universe, trying to escape the stimulus at 30 times the speed of light. The stimulus would still catch up to you and ram your black hole with such furious, repeated force that it would cause your entire reality itself to collapse."
Xiao said the team discovered the number with the help of an international network of 24 nitrogen-cooled Cray Ultracluster supercomputers, the CERN particle accelerator, and "three pounds of Humboldt County Chronic."
"The exciting news is that with more powerful computers and drugs, we believe we are on the verge of discovering an even larger number, which we refer to as a 'stimulusconferencebill,'" said Xiao. "Speaker Pelosi has already promised us the funding."
US Gvt Stages Fake Coup to wipe out National Debt
The BLS has again shown its incompetence.
A recent report shows that Silicon Valley employment has declined by 17% during the "recovery" of '01-'08. Employment declined in 8 of 11 industries. Amazingly, it also says that wages have increased by 36%.
The BLS never considers how wages could be rising when our universities have graduated millions of computer programmers, scientists, and engineers in the last 9 years and there is virtually no demand for their labor.
Both statistcs cannot be true. I'm guessing the former is more accurate. I also don't think that the labor profile in Silicon Valley is that different from other high tech areas around the country, except for DC, which has an economy based more on gevernment.
http://www.bls.gov/opub/regional_reports/200908_silicon_valley_high_tech.htm
Good blog, Randy. First time visitor here, and you may thank Edgar at Petropest Launchpad for posting a link to your blog.
http://pppad.blogspot.com/
Also don't have an econ degree but have been reading up on everything going on in terms of investing, housing, the general economy, etc. these past few years and have come to the conclusion that we are indeed in the midst of a major economic transformation.
But unfortunately, my crystal ball is too fuzzy for me to see what is coming next.
Cheers,
Mammoth
Thanks for stopping in Mammoth - I'll have to check out Edgar's Blog.
So, what comes next?
Massive Monetary Inflation (ZIRP + Monetization) coupled with Severe Asset Deflation (Credit Crisis + Collapsing asset values) and high unemployment = A HYPERINFLATIONARY DEPRESSION
A hyperinflationary depression!
Social Consequences of an economic meltdown?
1. (Hyper-)inflation ? Sheer nonsense !!! In the CURRENT situation there'll be no (hyper-)inflation at all. As long as the FED prints money at a SMALLER rate than credit is destroyed (hyper-)inflation doesn't stand a chance. But if (when ???) the economy collapses and the currency collapses as well and the FED would continue to print money like there's no tomorrow then (hyper-)inflation could/will take root.
2. The dollarindex is for approx. 80% a ""Europe vs. USA"" game. Because Europe is in a bad (if not worse) economic shape as the US the dollarindex isn´t a particular good gauge to measure the economic health of the US
See this graph for the composition of the USDX.
3. Higher taxation is because the government thinks they need more money. Higer prices for food and energy is the result of inbalances between demand and supply. And one of those inbalances is higer taxation. And in the current monetary situation that's VERY DEFLATIONARY. Because consumers can NOT leverage up anymore to pay for those higher expenses and this is the heart of the matter.
Willy2,
Though I certainly love your perspective on things, I honestly feel you will be proven wrong over the longer run, as Hyperinflation gets set in motion - not entirely by excess printing - but by lost faith in the US Dollar as the world's reserve.
See my similar comments and links added to comment section under "$15K gold"
Deflation, inflation, hyperinflation. So much is unpredictable, in spite of the graphs. What I can say for sure was that here in Pittsburgh, the G-20 brought all of us an exercise in Marshall Law! In 2001, approximately the same number of troops were on the ground in Kabul (16 sq. mi.) as were in a portion of Pittsburgh covering 7 sq. miles! Why? Because there were 25-50 so-called anarchists under the age of 25 throwing the fear of chaos into the souls of our military? So, they were the reason we all had to accumulate a cost of hundreds of millions or even a billion dollars? And that was why the LRAD sonic sound machine was brought in to fight off a bunch of sneaker wearing kids fighting back by pushing a dumpster down a hill toward the LRAD? LRAD had never before been used against Americans, and the National Guard was actually arresting people.
This fool-hearty attempt to practice exercises in Marshall Law was obscene. I documented the event as I roamed around the city observing this crap.
It is clear that the US government is preparing for something.
http://eye-on-washington.blogspot.com
jerry
STIMULUS
Yes, could be a new Integer invented by man. That such an invention comes from the USA is by no means surprising. Because USA is also the research hotbed of that most intractable of physics challenge - string theory.
After 30 years of intense research by the brightest of string theorists, they have produced a most 'unique' solution to the theory of everything. That solution, however, contains 10**500 separate solutions! One solution for each of the 10**500 universe.
Could STIMULUS = 10**500?
If so, string theory offers a sound scientific foundation to the solution of US economic problems. Wow! The land which produces STIMULUS also produces 10**500 solutions to everything.
Everyone who thinks (hyper-)inflation will set in as a result of lost confidence in the USD is mistaken.
Inflation is caused by an increase of money and credit. Deflation is the result of a shrinking amount of money and credit. So, when foreigners are withdrawing their money from the US then the result will be DEFLATIONARY.
Yes, a USD going down against e.g. the Euro and Yen will increase prices for US citizens. But are those US citizens able to borrow more money (=credit) to pay for those higher prices ? No, because banks aren't willing (and able) to lend, to increase the amount of credit to the consumer. To the contrary, credit is being destroyed at an unprecedented rate and therefore we currently experiencing DEFLATION.
The money the FED currently is printing doesn't benefit the US consumer. Instead it's used for speculation: Stocks, bonds (see what happened to the corporate high yield ETF called HYG since march 2009 in spite of the fact that defaults on junk bonds are at an all time high).
It´s up to the US government and the FED whether (hyper-)inflation will kick in or not. IF they keep printing money like there's no tomorrow then and only then (hyper-)inflation does have a chance.
(Hyper-)inflation can kick in only when the destruction of money and credit is overwhelmed by the printing of money.
I would recommend everyone to buy and read the book "Conquer the crash" written by Robert Prechter. Although I do not agree wiht him for the full 100%, he makes a very good case why deflation is currently in play.
HYG is an ETF for high yield corporate bonds.
Read this outrageous story !!!
Speaking of outrageous American Police Force in Hardin, Montana - MUST SEE!
Be sure to follow the link given to The American Police Force site.
Justin_N_IL
A bit more on that....American Police Force hits Hardin, Montana
Yes, same name but different article. Start googling. Alex Jones show from the 29th is an excellent listen to on this story.
Justin_N_IL
I see a number of reasons why the US gov. would need to print money like there's no tomorrow:
1. Perpetual war. (Afghanistan, Iraq etc.)
2. Foreign countries are selling their Agency debt (Fannie Mae, Freddie Mac etc.) to the US gov. They started doing so in june/july 2008. And that's why both Agencies were nationalized in early september 2008.
3. Keep Congress satisfied. Keywords "Pork barrel spending".
4. The bail out of firms from Wall Street at the expense of the taxpayer and in the end at the expense of the USD as well.
But the results of that printing of money won't be felt in the next say, 12, 18 or 24 months.
I would recommend to go the website of mr. Michael Hudson or to www.kpfa.org and search with the words "Michael Hudson" and listen to the audioclips that pop up. A must read and a must listen. He's using the words "Kleptocrat" over and over again.
"From 1800 to 1929, the value of the dollar was stable – there was essentially no change in consumer prices for 130 years. It is ironic that the beginning of the inflation tidal wave started shortly after the creation of the Federal Reserve Bank in 1913, an entity designed to preserve price stability."
http://seekingalpha.com/article/164322-expect-gold-to-reach-3-000
- very interesting article on the history of monetary policy and the implications for the gold price and the dollar
Interesting website, Randy !
This is another interesting website: www.howestreet.com
From that website: This article seem to suggest stockmarkets, the euro are about to go down again and the USD, Yen are about to go up (again).
http://www.howestreet.com/articles/index.php?article_id=10988
Listen to the various audioclips with Bob Hoye and other interesting persons available at that website.
About the De-/In-flation debate raging on this website: I am, like Willy2, for the time being, firmly in the deflation camp. The big question is: How long will this deflation last ? 6, 12 months ? 1, 2, 3 or more years ? Time will tell !
Deflation means - IMO - USD, Yen, Treasuries, Gold, Silver up and Euro, stocks, corporate bonds ,commodities down.
This Inflation/Deflation thing has stripes.
Do you really think that the costs for health care/phamecuticals/medical equipment are going to decrease?
How about insurance costs?
How about taxes?
How about food? (That 2007 $0.99 price for a humble 10# bag of potatoes is now $2.50.)
Perhaps the price for non-necessities, like typical made-in-china crap, will drop just enough to sucker the consumer back into the stores, but we may not want to hold our breath waiting for the cost of those things (listed above) we can not do without, to deflate.
-Mammoth
@Mammoth: Yes, prices are going up but that's very deflationary.
Just suppose that 'everyone' knew that the dollar was going to take a dirt nap. Many people would short the dollar in various ways. Some of these ways push ol' Bucky into the mud. And if enough people do them, they get what they pay for.
The BLS is cooking the books on the topic CPI inflation. CPI numbers don't include price fluctuations in food and energy. That's why the official CPI numbers is lower than actual price inflation.
But Mike "Mish" Shedlock has proof that the actual CPI numbers is (in one way) higher than the actual inflation.
Weblink.
THIS IS HUGE!!!!
Dollar's demise plotted by oil producers, China and France
The world's oil producers, as well as China and France, are planning to end using the dollar as the currency to buy and sell oil, the Independent newspaper reported.
The move would see oil priced not in dollars but in a unit based on a basket of currencies including the Chinese yuan, the Japanese yen, and a new currency intended for use by the Gulf emirates, according to a report in Tuesday's Independent newspaper. The paper added that the transistion from the dollar to a new currency will take almost a decade.
Finance ministers and central bankers have held meetings in Russia, China, Japan and Brazil to discuss the idea, which the Americans are aware of, the Independent said.
"Eventually there will be a move to non-dollar commodity contracts, and it may be the next big risk for the dollar," Ben Simpfendorfer, chief China economist for Royal Bank of Scotland, told Bloomberg. "At the same time, I don't want to overplay the importance of the story. There's no credible sources there."
The financial crisis has intensified speculation about the eventual demise of the dollar as the world's reserve currency. In the last six months, Russia, Brazil, India and China have already discussed buying each other's debt as a way of cutting their dependence on the dollar, while the United Nations last month proposed a new global currency to replace the greenback.
The dominant role of the dollar in world trade and financial markets - a position it inherited from sterling - has already been under threat since the formation of the euro and the emergence of China as a major economic power.
The amount of the the world's currency reserves held in dollars has fallen over the past decade, with the it declining to a record low of 62.8pc in the second quarter, figures from the International Monetary Fund showed last week. The euro's share climbed to 27.5pc from 25.9pc.
But few experts expect the dollar's status to be quickly eclipsed.
Niall Ferguson, a Harvard University Professor, said yesterday that there wouldn't be a dollar collapse given the lack of proper alternatives. “There are enormously strong arguments for maintaining a substantial pile of your reserves in dollar form,” according to Professor Ferguson. "That is still the currency of choice for most of the trade that goes on in the world.”
However, there seems little doubt that China's fears over the fate of the dollar have increased recently. Timothy Geither, the US Treasury Secretary, has sought to ease China's worry that America's combination of record low interest rates and a policy of printing money will spark a sharp decline in the currency. China is America's biggest international creditor.
http://www.youtube.com/watch?v=xn3BxoOs6B4
Beware, another economic tsunami coming
Given the rise of the gold price to new all time highs today, I'd like to draw attention to Yamana, which is one of my favorite core holdings in gold miners. This morning it updated production guidance and came in ahead of many analysts' expectations. I read a good summary and analysis of their news release at http://www.goldalert.com, where it also mentions that there's been some speculation that the company may be looking for a suitor. I think Yamana, along with many other gold mining companies with leverage to the gold price, will continue to outperform due to the government's efforts to prevent deflation at all costs. The dollar is close to new 52 week lows, and the willingness of our govt to debase the currency should continue to benefit gold, in my opinion.
Also, good intraday updates on the gold price at Gold Price Blog
Post a Comment