Wake up and smell the coffee! The dollar is a “dead man walking”! U.S. monetary policy is casting the dollar’s future in stone and by so doing it is also determining the future for gold. The Fed’s “quantitative easing” policy is pushing the eastern nations towards a new reserve currency by 2010. The time table may vary by a little, but not by much, because the dollar is a “dead man walking”.
Here is the understatement and quote of the week! This statement embodies both the arrogance and the stupidity of ultimate power. Little Timmy had this to say about the US dollar.
Timothy Geithner Tues. July 14th
“Given the dollar’s role in the international financial system and the significant impact of the U.S. economy on global economic conditions, we fully recognize that the United States has a special responsibility to play. The policies of the United States are designed to lay the conditions for a strong dollar and more stability in the international monetary system.”
Somebody Please Tell Me! Does Anyone Out There Believe This Line I Am
Meanwhile the printing presses are operating so fast that they are literally smokin’. They truly must think that we are incredibly stupid. The U.S. population may well be stupid, but the rest of the world players in this play can see where this script is taking the U.S. dollar. The dollar is a “dead man walking” and once the secret is out, gold will quickly move up to fill in the void.
The Treasury Department reported that the deficit in June totaled $94.3 billion. June’s deficit pushed the deficit for the fiscal year to over $1 trillion in just three quarters of the year. The speed at which the deficit ran to $1 trillion is amazing with yet another quarter to go until the end of the fiscal year in September.
Spending in June surged 37 % to $309.7 billion while revenue fell 17 % to $215.4 billion according to the Treasury Department. The 17% drop in revenues was the first since 1991. Individual and corporate tax receipts are diminishing while unemployment continues to rise and spending is ramping up and rapidly growing out of control. All this is going on while the administration is starting to float balloons about a “second stimulus package”.
Financing this ponzi-scheme is going to become more difficult shortly. Interest rates will have to rise from their current low levels. So far this year, the interest on the government’s outstanding debt was $320.7 billion. As rates rise, the interest on the debt will rise and more debt will be needed for the government to continue it’s hand out programs. There are only two ways out of this. Either reduce spending or raise taxes.Â Which do you think this government will choose?
1. “Dead Man Walking!”
DPJ’s Nakagawa Says Japan Should Diversify Reserves
By Keiko Ujikane and Kyoko Shimodoi
July 13 (Bloomberg) Japan’s opposition party, leading in polls ahead of next month’s election, said the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds.
In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing, Masaharu Nakagawa, the shadow finance minister in the Democratic Party of Japan, said in an interview in Tokyo on July 9. Many countries are starting to diversify their reserves.
Japanese investors are the biggest foreign holders of Treasuries after China with $685.9 billion of the securities in April, and Finance Kaoru Yosano said last month his trust in the bonds is unshakable. The DPJ yesterday beat the ruling Liberal Democratic Party in elections for Tokyo’s city assembly, boosting its prospects ahead of national polls that Prime Minister Taro Aso today called for Aug. 30.
The current reality of Japan’s foreign-currency reserves is that their heavy weighting toward dollar assets means any fall in the dollar’s value leads to valuation losses, said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. The DPJ is opposed to a foreign-currency reserve policy that is so wholly skewed to the dollar.
2. “Dead Man Walking!”
China’s position was made clear at last week’s G-8 meeting by the People’s Bank of China. To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s de-linked from sovereign nations.” The IMF should expand the functions of its unit of account, the Special Drawing Rights. Governor Zhou Xiaochuan’s proposal in March was restated, which added great weight to the odds that China will diversify its currency reserves, which are currently the world’s largest at $2 plus trillion dollars. Zhou Xiaochuan thinks the current international financial system is out of balance, putting too much emphasis on the U.S. dollar as a reserve currency. They feel that the U.S. dollar should depreciate to address the global imbalance. If this were to happen it would put the rest of the world into a severe monetary crisis too! China will act shortly to adjust their own reserve policies for the benefit of China.
China, the biggest foreign holder of U.S. debt, is already in the process of cutting its dollar holdings. China cut it’s U.S. dollar holdings by $4.4 billion to $763.5 billion in April. China is proceeding slowly so as not to panic the financial markets which would send the dollar plumeting if they felt China was quickly leaving the dollar market. China is not alone in this reduction of dollars. Russia holds only Euros in its reserves now, a direct result of their concerns about the dangers facing the U.S. dollar.
3. “Dead man Walking!”
Is the Yuan set to replace the U.S. Dollar as the world’s reserve currency? Time will tell, shortly!
The Yuan looks as though it will be moved to an international reserve currency, or part of a basket of currencies some time after 2010. Two factors will come together to make this happen. The timetable that the Chinese use for reducing their dollar holdings and the I.M.F. schedule for the review of the composition of the S.D.R. in 2010. In order for this to work, the Yuan must have a heavy presence in international markets by that then.
China will release huge amounts of the Yuan into international markets between now and the end of 2010. By selling the cheapest and most sought after manufactured goods in the world, Chinese products will continue to grow in the world markets and as a result, it will be easier to demand payment in Yuan. Until the rest of the world’s manufacturers can produce goods as cheaply as China, this juggernaut will roll on and set the foundation for the Yuan to become the world’s reserve currency, or at least the largest player in the basket of currencies that are used as the world’s reserve currency.
Where Does This Put The Dollar?
Despite what “Timmy” and Bernanke are saying to the contrary, the dollar is being undermined by the Fed’s quantitative easing policy. Anything that is said about the desire for a strong U.S. dollar is strictly showboating in an effort to buy time. The threat that the U.S. dollar policy poses to the international monetary system is huge. The lack of acknowledgment of the effects of U.S. monetary policy on international dollar problems, has eastern central banks deeply concerned due to the extent of their dollar holdings and the potential that they could be severely diminished in value in the years to come.
The eastern powers realize that the U.S. has a great deal to gain by depreciating the dollar and through inflation, inspite of the impact on the U.S. economy. The problem is how to get away from the dollar without collapsing the global monetary system. The answer is quite simple. First move to a basket of currencies and accept payment for energy and manufactured goods only from that basket of currencies. Because the U.S. no longer manufactures things, nor do we produce enough energy, they hold all of the cards. A transition from the basket of currencies to a single reserve currency will sort itself out over time. The strong currency will survive and take over the dollar’s current roll.
Where Does This Put Gold?
None of these changes will occur in a vacuum, nor will they occur overnight. This whole process may take two to four, six, eight or more years to complete. During this time gold will be the “go to” currency of default. It will most likely be part of the basket of currencies during the transition phase. Gold will rise dramatically in order to counter the massive over printing of currencies that the global quantitative easing policies have injected into the world’s currency markets. There is no doubt about this! The only thing in question is the timing and the duration of gold’s rise. My feeling is that we will see the first leg up by fall ’09 at the latest. From that point on we will have to reevaluate as the situation warrants. Gold and gold stocks are the place to be at this time and the latest pullback offered great entrance points for both. If, as many pundits are saying, gold tests $880 or $820, it will be one more opportunity before the excitement begins.
One thing is for certain, the dollar is a “dead man walking”!
Till next time, good luck and good trading!
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