A Strong Dollar is in Our Country’s Best Interests?

 

Why do we end with a question mark? This has been the lament of Treasury Secretary Hank Paulsen at the slightest hint that the US is purposely allowing the dollar to fall against other currencies which would not be well received by other countries investing in our Government bonds. The question mark is there because we are questioning if this is true then haven’t the policies of the US over the past several years been an unmitigated disaster for our future? If a strong dollar is in our best interests then it must follow that we are really screwed. It is getting to be more and more visible to more and more people that that is exactly the case. All of the ridiculous under-reporting of inflation, the fabricated strong economic reports, all the plays on words to avoid stating the reality of the situation are coming home to roost. Foreigners are increasingly not accepting dollars; even some of the oil producing countries are turning their heads away from the dollar. The subprime bailout plan Paulsen spoke up for is ridiculously incompetent. It was really about bailing out the banks which were “still dancing” as Chuck Prince, ex CEO of Citigroup, said. It did insure one thing, that instead of very, very few buyers of subprime debt there would be no future buyers of subprime debt. Why would anyone be stupid enough to buy something that could have the payment stream adjusted to their detriment while it was already risky enough on its own merits? We are truly seeing the Keystone Cops in action. One of the latest schemes to keep the feel good society in tact involves doing repos as long as 43 days of total garbage paper to get it off the books of the banks for the year end dog and pony show.

The producer price index recently hit a 34 year high, the CRB index hit an all time high, M3 money supply in the US is now up to +15.3%, yet most investors are only mildly worried about inflation or not at all. Central banks have injected over a $1 trillion since August 9th. If you do any shopping in the supermarket or pay any bills at all you will know that inflation is already far out of control even if you are economically illiterate. Yet people still believe the Government’s version of inflation. My water bill is what my electric bill was a few years ago and my electric bill is what my rent used to be. I don’t think the average American will grasp the severity of the situation until they are literally starving and because of all the statistical deception and misplaced trust our people will be the last to move to protect themselves – a true tragedy. Foreigners already shun the US dollar and are trading them in for real money – gold, especially in China. India, Russia, and the Middle East. Eight of the ten richest men in Russia are heavy accumulators of gold. Meanwhile, South Africa and Australia are still reporting declining gold production. How have we managed to fill the gap when production is dropping yet demand has been soaring? Perhaps some of the less sharp buyers are accepting promises of gold in the future rather than gold. They will end up with broken promises while the buyers of gold in their possession will reap the rewards of the price that will soar higher than thought possible when it is discovered that the promised gold will not be fulfilled. Even gold suppressor extraordinaire, Barrick Gold has stated that mine supply is going to fall much faster than is believed.

It is ever more impressive that gold is in the $800’s even with all the high level efforts to undercut its price to keep it from reaching free market levels that would sound the alarms that the financial system is completely unsound. Commercial shorting on the Comex has been unrelenting and unprecedented and it seems the commercials are on the verge of getting run over. The Bank for International Settlements reported total gold derivatives are now over $1 trillion which is equivalent to a third of all the gold ever mined. One piece of advice – know your counter party!
2007 has been a disappointing year in regards to the leverage that gold stocks have provided relative to the gold price, in fact it has been negative. 2008 will go down as the year when that leverage returns in a big way. 2008 will be the year it is discovered why mining costs were going up faster than the gold price; why gold went down when super bullish news or events should cause it to go up; that reason being it was artificially suppressed.

I think what I regard as the quote of the year as far as gold goes explains it best. Rob Kirby stated, “Isn’t it amazing how we can have a four billion negative miss on the Trade report, import prices higher than expected (inflationary), zero reaction in the bond market, gold getting pummeled and the US dollar going higher? I better not drop my coffee cup in amazement – it might fall up!”

Richard J. Greene

Clearwater, Florida

January 3, 2008