How Long Will the Dollar Remain the World's Reserve Currency?

Ron Paul, is spot on--again.

http://paul.house.gov/index.php?option=com_content&task=view&id=2008&Itemid=69

Iran Opens Oil Bourse - Harbinger of Trouble for New York and London?

Iran's nuclear program isn't the only reason Washington is eying Iran.  It may not even be the biggest threat.  The threat to dollar hegemony may be Washington's biggest fear.

http://oilprice.com/Energy/Crude-Oil/Iran-Opens-Oil-Bourse-Harbinger-Of-Trouble-For-New-York-And-London.html

Peter Schiff: We’re headed for a real economic collapse regardless of who wins this election.

http://youtu.be/izwr_thVZc8

Swiss bank vows to hold franc down

In a central bank world gone mad, even the traditionally staid Swiss National Bank is devaluating their currency, the Swiss franc.  Yes, it's a quick-fix for exporters to remain competitive, but this race-to-the-bottom currency war will ultimately destroy citizens' purchasing power and standard of living, because of higher prices for imports.

http://www.ft.com/intl/cms/s/0/23278860-f5df-11e1-bf76-00144feabdc0.html#axzz25UEuG5zZ

Full Interview With Billionaire Frank Giustra

This is long, but must-see video on Frank Giustra.


http://youtu.be/9o30gNfPq_k

A Tarnished Dollar Will Put The Shine On Gold

Read this remarkably prescient article by Frank Giustra on the topic of the tarnished USDollar and the shine in gold.  It's prescient because of the date at the bottom of the article:  December 19, 2002.

http://www.gold-eagle.com/editorials_02/giustra121902.html

I'm going to guess the price of gold had rallied to approximately $300/oz. off its lows of $250 in 2002.  With hindsight, his call was spot on.

Another tragically comedic reference is this:

Meanwhile, fiscal budget surpluses are a distant memory, with this year's deficit expected at more than $150 billion. With the prospect of "war on terror" costs, war with Iraq expenses, talk of permanent tax cuts and a slowing economy (read: lower tax revenues), the U.S. government will have no choice but to continue to issue debt at a dizzying pace for years to come.

 Sound familiar?  $150 billion?  The current Administration and Congress have been running deficits of $1.5 TRILLION annually.  It is no coincidence that as America's debt and deficits climb this slippery slope, the price of gold is joined at its hip.

No, gold is not a bubble.  It is the US government's finances (and its Treasury bonds) which are bubbles.  That--and human stupidity.

Silver gives you more - at least potentially

http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=158052&sn=Detail&pid=110649

Silver Is Golden In August, As Gold Bests S&P Returns In Last Month

This is not gloating.  This is a serious issue, involving cold, hard cash, and in the future, could be the difference between surviving and thriving--or something much worse.  Fact: measured against a time line spanning a decade, four decades, a century, or millennia, gold and silver have retained their stores of value.  The gold bears have been calling a top with every correction--and even the bullish traders who desire to scrape a few dollars on technical rallies miss the central point:  gold is money.  Hence, its price based in USDollars, Euros, yen, yuan, ruble, etc. is irrelevant.  What is relevant is accumulated ounces.  When the next perfect financial storm descends, gold and silver priced in dollars may be astronomical, but meaningless if the numeraire is destroyed.

http://www.zerohedge.com/news/silver-golden-august-gold-bests-sp-returns-last-month

Gold Wagers on Rally Jump to Five-Month High on Stimulus

http://www.bloomberg.com/news/2012-09-02/gold-wagers-jump-to-5-month-high-as-fed-spurs-rally-commodities.html

Workers Shot At Another South African Gold Mine As Miner Strike Spreads

I blogged yesterday about the probability of strikes among miners to proliferate going forward here.  As I outlined, the bullish case for the price of gold is many-fold.  But this article suggests another reason:  a hedge against nationalization of the mining sector, which will inevitably destroy the infrastructure and productive capacity.

http://www.zerohedge.com/news/workers-shot-another-south-african-gold-mine-miner-strike-spreads

Even The Wall Street Journal says gold mining shares are undervalued

While the fundamentals of why gold is a safe haven asset is missed by the author, the fact the Wall Street Journal published a bullish article on gold is in itself worth noting.  I won't belabor the misconceptions on gold in this article as the details can be found in numerous other blog entries, but I would like to point out one important falsehood, because it has far-reaching and pragmatic ramifications, and that is one of counterparty risk.

While I agree the GLD ETF has to a large extent replaced investments in gold equities, as investors blindly trust the integrity of the ETFs, I would like to warn readers that in the event of distressed financial markets--or in the event of a default at the LBMA and/or COMEX (i.e., despite gargantuan trading of paper markets, the physical stock of gold and silver could evaporate), holders of GLD could be in for a very nasty surprise.  GLD and SLV are not 100%-backed by gold and silver, respectively, so redemption into physical gold and silver bullion, could prove problematic.  Also, market prices may bifurcate in the event of a default, with "street" prices of physical bullion soaring even as paper prices remain suppressed.  Cash settlement of contracts will rule the day, and longs expecting physical delivery will be sorely disappointed, whether they hold futures contracts or ETF shares.  As far-fetched as that may sound, it has already occurred with nickel in the London Metal Exchange.

You've been warned--again.  In the event of financial crisis, possession is 100% ownership.  Everything else is merely a legal claim against inventory that may have been re-hypothecated, sold, or leased out multiple times.  In other words, good luck on taking possession.

http://www.gata.org/node/11709

The gold price and the exponential growth of our problems

http://www.goldmoney.com/gold-research/alasdair-macleod/the-gold-price-and-the-exponential-growth-of-our-problems.html?gmrefcode=gata

Blink! U.S. Debt Just Grew by $11 Trillion

http://www.bloomberg.com/news/2012-08-08/blink-u-s-debt-just-grew-by-11-trillion.html

Critical Changes Impacting The Gold & Silver Markets

The Fed is gambling that money grows on trees, and hoping to maintain its poker face as to not tip off markets.  But the strain of the continuing financial crises is showing up in Bernanke's visage, as it's becoming increasingly difficult to mask the desperate money-printing policies.  There will be coordinated QE among the Fed, ECB and other over-indebted central banks to stave off the next crisis.  They just need a crisis to justify the bazookas, in another attempt to "save" the world economy.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/9/2_Critical_Changes_Impacting_The_Gold_%26_Silver_Markets.html

Bagus' Bernanke Rebuttal - Redux

http://www.zerohedge.com/news/bagus-bernanke-rebuttal-redux

Money printing cannot make society richer; it does not produce more real goods. It has a redistributive effect in favor of those who receive the new money first and to the detriment of those who receive it last. The money injection in a specific part of the economy distorts production. Thus, QE does not bring ease to the economy. To the contrary, QE makes the recession longer and harsher.

The injection of new money into the economy reinflates old bubbles and generates new ones. Most importantly, QE facilitates government deficit spending — additional distortions and rigidities in the economy. Malinvestments can endure. Factors of production are not shifted to places where the consumer wants them to be most urgently.

Thus, QE2 would be better called, "Quantitative Straining," "Quantitative Destruction II," or "Crisis Prolongation III."

Or we might name it after the intentions behind it: "Currency Debasement I," "Bank Bailout I," "Government Bailout II," or simply "Consumer Impoverishment." Finally, we might also name it after its essence: "Money Printing I and II." Or, if we follow Bernanke, who pointed out that most of the new money is created in a computer, we can call it "Money Creation I and II." This might be the most neutral term.

The rhetorical tricks should not distract us from the fact that QE is simple money creation. The aim of Money Creation II is to finance government spending, debasing the dollar. We should dismiss the term QE and instead call money creation what it is: inflation.

Is 11% This Election's Most Important Number... And If Not, Why Isn't It?

Home values are the single biggest determinant in defining the average American household's net worth.  And the housing industry is still bumping along its bottoms.  Yet, the topic is curiously avoided by both presidential campaigns.  Call it bipartisan denial.

http://www.zerohedge.com/news/11-elections-most-important-number-and-if-not-why-isnt-it

First Platinum, Now Gold: As South African Miners Strike Spreads, Thousands Of Ounces Remain In The Ground

I had a feeling platinum miners going on strike, seeking higher wages for the dangerous working conditions, would not be a unique situation.  Expect strikes, attempted wage controls and worker unrest in other parts of the mineral-extraction world.  And it won't be just platinum mines.  Expect higher precious metals prices--and it won't be just from currency debasement.  It'll be due to soaring demand and supply shocks, too.  But hey, everybody who doesn't know $hit from shinola about gold and silver keep telling me gold is in a bubble.  Of course, they've been saying it since the turn of the century.  Meanwhile, gold has risen almost 7-fold, and silver has soared almost 10-fold in that span.

Instead of recognizing and acknowledging they've missed the boat, the gold top-callers are hoping the fundamentals will just reverse themselves.  Today, there are more reasons to remain bullish on gold than a decade ago, when it was bouncing off the bottoms at $250/oz.--trillions of reasons, in fact.  So despite the nice decade-long run up, the bullish fundamentals of gold and silver remain in place, as strong as ever.

http://www.zerohedge.com/news/first-platinum-now-gold-south-african-miners-strike-spreads-thousands-ounces-remain-ground

Rulers and Ruled

http://www.zerohedge.com/news/rulers-and-ruled

Property rights are a prerequisite for any kind of exchange - direct or indirect. The ability to exchange is fundamental to any type of viable economic activity. The efficiency of exchange is fundamental to the success of that economic activity and the resultant prosperity of the nation that engages in it. Indirect exchange using a MEDIUM of exchange or money is hugely more efficient than direct exchange or barter. That makes money the most important economic good in existence. The tragedy of our present global plight is the simple fact that money is also the least understood economic good in existence.

The first pre-requisite of the establishment of a “society” of the rulers and the ruled has always been the same. The rulers must gain control over the medium of exchange. For obvious reasons, no nation can ever progress to a state of advanced economic activity until a medium of exchange is established. Once it is established, there is no going back. An advanced economy cannot operate by means of barter. The problem is that once the government or the rulers gain control of money, it progressively ceases to be a medium of exchange and becomes a medium of control. That impinges on the functioning of markets which in turn impinges on the maintenance of property rights. Thus, we come full circle from a free society to a command society. There has never been any shortage of those who want to rule. The problem has always been with the vast majority who are content to be ruled. Today’s global outcry for the manufacturing of more and more “money” out of thin air is an eloquent testimony. It shows that most people have no understanding of freedom, markets or money. Lacking such understanding - and having no desire to gain it - most people have accepted government as their masters.

As Robert Heinlein stated the problem - it is impossible to free a serf or a slave. He or she must free themselves and most are much more terrified of that prospect than they are resentful of being ruled.

World food prices jumped 10 percent in July-World Bank

http://in.reuters.com/article/2012/08/30/worldbank-food-prices-idINL2E8JU7WS20120830

This IS Your S&P 500…On Inflation

http://bloom.bg/TFJnDU

China, Germany plan to settle more trade in yuan, euros

With China possessing the second largest economy in the world and forming bilateral trade agreements with the 3rd largest (Japan) and 4th largest (Germany), as well with all their other trading partners, the role of the USDollar as the global reserve currency is further eroded.  The unintended consequences are a weakening USDollar and higher domestic inflation for US citizens, both detrimental to their standard of living.

Proponents will defend a weakening dollar as positive for exports, but the insidious effects on the purchasing power of its citizens is undeniable.  Nobody likes rising consumer prices.

http://www.reuters.com/article/2012/08/30/germany-china-yuan-idUSB4E7JG00D20120830

Ben Bernanke says high unemployment means that the Fed can do more

http://economywatch.nbcnews.com/_news/2012/08/31/13593025-ben-bernanke-says-high-unemployment-means-that-the-fed-can-do-more?lite

We Are Staring At Economic Destruction & Soaring Inflation

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/9/1_We_Are_Staring_At_Economic_Destruction_%26_Soaring_Inflation.html

The Monetary Endgame Score To Date: Hyperinflations: 56; Hyperdeflations: 0

The debate of hyperinflation vs. deflation is easily resolved with a simple understanding of human nature.  In periods of deleveraging after credit bubbles burst, the correct thing to do is to simply allow the deleveraging to occur naturally--asset prices drop to their economic levels, bad debts are defaulted on, malinvestments go bust, and market price discover mechanisms perform their clearing functions.  After all, you can't clean house if you don't throw out the cockroaches.

Instead, what we have is an interventionist Fed which aborts the market clearing process, manipulating and distorting asset classes in an attempt to stave off the necessary, but painful recessionary (and deflationary) forces.  After all, no one complains when their stock portfolios and home prices rise in value.  But when asset values crash, the masses certainly don't want further declines.

Quantitative easing (QE) temporarily suppresses interest rates, but their effects are diminishing with each round.  Why?  Because it also increases the Fed's balance sheet--the debt burden.  Propping up equities to stimulate the wealth effect and ignite "animal spirits" are also temporary once participants understand the fictitious nature of this fake prosperity.  In the Fed's extend and pretend policies, they don't prevent recessions--they merely exacerbate and delay the bust into something deeper and worse.

Easy monetary policies are temporary band-aids, and have been instituted as permanent policy since the Bush II administration and metastasized during Obama's tenure.  Referring to the human nature comment, it perfectly explains the pathology of politics: if indeed a collapse was inevitable, those currently in office will do everything in their power to ensure the collapse occurs on someone else's watch.  Governments and politicians never want to confront the ugly truth regarding insolvency--they'd rather delay it so the next regime will have to deal with it.  With that in mind, every politician will turn on the money printing press to delay the day of reckoning, proverbially kicking the can down the road.  The problem is the can eventually becomes a tank, and the road eventually reaches a brick cul-de-sac.

So while economies collapse globally, including the Euro zone, Asia, and the US, governments will jawbone deflationary fears into the masses, justifying their money printing bazookas.  They'll claim inflationary fears are overblown.  But what they don't tell us (or don't understand themselves) is that money creation by itself is inflation, by definition.  What many call "inflation" could potentially become hyperinflation if confidence in the soundness of the paper currencies collapses.  At that point, instead of hoarding dollars, consumers will quickly dishoard them like hot potatoes, in order to purchase tangible assets.  Economists correctly call this money velocity, which will usher in hyperinflation, as the trillions of dollars of liquidity change hands quickly.  People will buy things today with the knowledge that prices will rise tomorrow.  Instead of cash being king, it'll be confetti.

So will we get deflation or hyperinflation?  The answer is probably both, with the former occurring first, and the latter occurring later as central banks worldwide will turn to the printing press in a short-sighted attempt to maintain the status quo.  However, these high priests of finance should revisit history.  Reckless money printing eventually leads to pitchforks.

http://www.zerohedge.com/news/monetary-endgame-score-date-hyperinflations-56-hyperdeflations-0

The Shape of 40 Years of Inflation

http://azizonomics.com/2012/09/01/the-shape-of-40-years-of-inflation/