Whether you are an Obama fan or not, what has transpired over the last week has been a travesty and the U.S. by extension looks foolish, incompetent and sadly weak. I was only a teenager back in 1973-74 when Richard Nixon went through the gauntlet of Watergate but I do remember it fairly well as it was of interest to me. One thing I remember for sure was that inflation was a problem and a chorus began to grow regarding the value of the dollar versus foreign currencies.
What is happening now from a financial standpoint is far worse in so many ways than what we experienced back then. What is also worse is that now we have a President who has lost more credibility than even Richard Nixon did. The current scandals are one thing (even though the public seems to have slept through them) but President Obama acting wishy-washy while Vladimir Putin teaches him the art of chess is very dangerous at “this stage of the game.”
I say “this stage of the game” because we are financially incredibly vulnerable whereas back in 1974 we still had options left which no longer exist today. The president of any company is the same as the “CEO of the corporation.” Whether it be president, prime minister or dictator, the person at the top is the “CEO” and thus “face and spokesman” of/for the country. The currency and bond market of any nation are the “common stock” of the country and will be generally bought with a credible leader in charge and sold if the leader (country) should lose credibility.
This is where we are now, foreigners had already gone on strike when it comes to our Treasury auctions, this past week can only serve to give foreigners more reason to outright sell our Treasuries. I know that I’ve spent an inordinate amount of time on this subject and you may be tired of hearing it but there is nothing more important in finance AND foreign relations than “credibility.” There is also nothing more important to a fiat currency than confidence. The actions of our president over the last week have served to undercut credibility and faith. I would go so far as to say that we have even lost “face” because WE are supposed to be the voice of reason.
If there truly is a growing consensus (which I believe there is) within the G-20 to dethrone and supplant the dollar as the world’s reserve currency, the last week has surely served to embolden the mutineers and hasten the dollar’s demise. As you know, China has been circling the globe “spending” dollars on projects everywhere and trading dollars for “hard assets”. Another example of foreigners “spending” (getting out of) their dollars was posted yesterday on Zero Hedge. Foreigners have been buying our real estate with cash transactions in a frenzy. The article points out that this is a way to “launder” dollars but you can rest assured that if these foreigners believed in the “strength” of the dollar they would not be dumping them.
This has been occurring in the “luxury” real estate market and has caused prices to rise. I have been asked several times “why” inflation would rise if foreigners en masse dumped their dollars. This is a prime example. If the dollars floating around the globe were to suddenly (and in volume) start to “come home” then the “inflation” that had previously been “exported” will come back here. In other words, a glut of “returned” dollars will be within OUR borders rather than all over the world and will compete to purchase the goods (limited supply) available for sale. Inflation will rise …very rapidly.
The point I am trying to put together here is that weakened confidence in the U.S. as a country will ultimately spill over and be reflected in the value of the dollar. You can argue all that you’d like that “deflation” will be the problem, but I won’t buy it. Not when we have a central bank willing (desiring) to print madly and foreigners being pushed and prodded toward selling their dollars.
Obviously another example of these foreigners wanting out of dollars has been the demand for gold and silver as a replacement. Demand has overwhelmed supply and the Western central banks have made up the difference for years. How much gold is left in Western vaults is unknown and attempting to purchase gold AFTER we find out the answer will not work. Will the West sell every last ounce available or will they give up the game while they still at least have “some” left? I don’t know the answer to this but I can tell you that if the U.S. continues to lose face and credibility at the same pace of the last 7 days, we will find out very soon just how much gold is left. Just as Nixon took us off of the “Gold standard” back in the early 70’s, our current president will be presented with a “cash call.” No, I don’t mean that foreigners will try to redeem their dollars for U.S. gold. They will increase their rate of dollar sales and gold purchases on the open market. The Fed may be able to soak up much of the dollar sales temporarily but gold cannot “magically” be created for delivery. This is a “call” that cannot be met.
There is zero doubt about it. Inflation is inevitable. It is built into our fiat currency system. Foreign held dollars will come home to roost and the U.S. Government will create more of them; they have to, they have NO OTHER WAY of financing their unfunded promises to the masses. Further they cannot stop Quantitative Easing (the operative here quantitative, i.e., increasing the quantity of the dollars in circulation). They cannot allow higher interest rates as they cannot afford the increase they would cause to the payments of their own debt. Our government is caught between a rock and a hard spot with no way out but to inflate.
These things are as plain as the nose on your face – so if your eyes are open, you cannot help but see them.
For many years I have heard that Carter was one of the worse presidents that we have ever had, but I believe Obama has now taken that title away from Carter. I bet Carter is feeling better each month that goes by.
It’s plain to see the devil’s lies are out in the open and the entire world sees them plainly.
I think the fat lady is going to sing fairly soon.
Admit that the gold bubble is bursting. I know you have to sell gold to make Money, but please just admit it. Thanks in advance.
John.
Gold bubble? Really? Fool?
The bubble is in dishonesty and corruption…
Bill Black: SEC Flacks Paint Lehman’s Looters as the Victims of a “Political” SEC
Yves here. With the fifth anniversary of the Lehman collapse nearly upon us, the financial media is awash in crisis-related retrospectives. That’s including more than a little revisionist history. Here, Bill Black corrects the record on some SEC propaganda that the New York Times saw fit to run. The idea that the SEC deemed Lehman’s Repo 105 transaction (which allowed it to hide $50 billion of liabilities, when its total balance sheet was $660 billion) to be not material is such a preposterous notion that, if anything, Black’s treatment is restrained.
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posed from New Economic Perspectives
This is the second installment in a three-part series correcting the NYT propaganda that seeks to transmute the SEC’s refusal to hold any of Lehman’s looters accountable for their myriad frauds. For the purposes of this article I assume that the reporters have accurately represented the SEC officials’ positions. I discuss the journalists’ analytical flaws. In my next column I’ll address critical facts excluded by the SEC and the reporters. Those facts demonstrate that Lehman was an “accounting control fraud.” The NYT article ends with this morality play about the SEC’s anti-enforcement “team”:
http://www.nakedcapitalism.com/2013/09/bill-black-the-sec-flacks-paint-lehmans-looters-as-the-victims-of-a-political-sec.html