Friday, September 24, 2010

Another Day, Another (Drop In The) Dollar.


The fate of the currency of the realm is something I'm keenly interested in for personal and intellectual reasons. In truth, everyone who uses, however modestly, the dollar as a medium of exchange, and heaven forfend, as a store of wealth, ought to be riveted by matters related to The Greenback's prospects, which, I am sorry to report, are, like all fiat, dismal.

Why should this be so? Putting aside the history of currencies, even reserve ones, whose viability rests ultimately on nothing but the existence of a solvent and subservient citizenry pliable to government taxing schemes, the dollar- which, since the inception of The Federal Reserve in 1913 has already lost 94 percent of its purchasing power- is destined to be devalued at an increasingly faster rate, perhaps to the point where it becomes shunned as a medium of exchange, because the vast majority of the taxable citizenry, contrary to economic reports that might suggest otherwise, are quickly being reduced to penury.

Add that condition to the existing burden to pay for all that needs to be paid for by way of pubic spending, as well as the need to repay borrowed funds- two requirements that are consuming the host like a late stage cancer- and it is as close to a certainty that, within a few years, if not sooner, there will be crisis on these shores of the sort that, in years gone by, would have only seemed fitting in places like late 20th century Argentina and Chile.


Lately, the authorities have been trying to pressure China into devaluing their own currency, the Yuan, the idea being that inducing a drop in Chinese currency would improve the United States' prospects for export. The diplomatic efforts, if that is, indeed, what they were, seem to have failed, and, so, the U.S. powers that be are engaged in skinning the cat via another time honored method, ergo the dollar's precipitous fall of late.

In truth, all currencies around the globe are in a race to the bottom as governments attempt to prop up their export trade with beggar they neighbor policies. This will, of course, simply exacerbate the already fragile condition of the world economy, but when winning elections are at stake, and the tempers of the citizenry are frayed, governments invariably opt for these sorts of measures. Rarely does anyone express concern that inducing weakness in one's currency carry any sort of real long term risk such that the weakness may start to take on the cast of a fatal illness. Even so, that shouldn't stop us, on this occasion, from being on guard for the already sick patient's transfer to the critical ward.


27 comments:

Johnny D. said...

Most things end up blowing up in my face, Edwardo, but I can truly say that I am quite happy with my decision (made a couple of years ago) to begin purchasing silver and gold. I don't have much gold, but I do have a lot of Morgan's. I think it will pay off in the long run. So, how's things going for you? Thanks for all the great blogs. I read them all, but generally don't comment.

Edwardo said...

Hi, Johnny.

It's nice to hear from you. I think your Morgan's will continue to serve you well-I own silver myself- and you'll be very pleasantly surprised by the purchasing power of the gold you possess. Things are going okay for me, and I'm glad to hear that you enjoy reading the blog.

Debra said...

Only one problem with the gold and silver solution, folks... It's that... you gotta have something to PURCHASE with that gold and silver.
May I humbly suggest that your FAITH that you will have something to purchase with that gold and/or silver astounds me no end ??
Since it all hangs together...
It LOOKS like the Titanic is going down, and EVERYBODY is scrambling for the lifeboats.
WILL THERE BE ANY ??
I'm not so sure.
On the other hand... LEARNING SKILLS in order to be able to take care of yourself AND YOUR NEIGHBOR TOO (selfishness takes your society down, since society is based on cooperation, and we have unfortunately really forgotten this in our greed...), that's a good idea. Learning how to make, and grow stuff. Learning how to share too.
As usual, American exceptionalism is really a big problem. Our economies (at least the French one) have been in this depressed mode for quite some time, and WE are not talking about Armageddon, and the Apocalypse...
Time for U.S. citizens to wake up and figure out that they are actors among others in the world.
The end of empire...

Edwardo said...
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Edwardo said...

Debra wrote,

"Only one problem with the gold and silver solution, folks... It's that... you gotta have something to PURCHASE with that gold and silver."

May I humbly suggest that your FAITH that you will have something to purchase with that gold and/or silver astounds me no end ??"

Continue to be astounded, Debra, since faith has very little, if anything, to do with it. There will always be things to purchase for what should be obvious reasons. And if, for some reason, those reasons aren't obvious, nothing I can say will assist your understanding.

I do agree with your assertion that "learning skills" is a good idea, which, in the end, is nothing more than an admission that a strategy to deal successfully with the challenges of the future will likely require more than one tactic.

Debra said...

Please explain to me WHY there will always be things to purchase ?
What is the LOGIC behind that statement of.. BLIND FAITH ??
Buying tomatoes with little nuggets of gold ??
Is THAT what you're talking about ?
How far do you think your gold is going to take you along THOSE lines ?
I really don't understand...
It looks like all that much touted "rugged frontier individualism" that American culture has been so fatuously proud of MAY END UP BOOMERANGING...

Edwardo said...

I think think the onus is on you to find one period In the last several thousand years of human history when there weren't many things to buy and sell. As for trading a gold nugget for a tomato, while that is certainly possible, I don't envision gold in even the smallest, most crude form, being exchanged/traded for such things. Silver, quite possibly, but not gold. Nor do I forsee the return of the gold standard, per se.

Rupert said...

One thing I would like you to clarify for me Edwardo, and it is along the lines Debra is skating I think; do you have a collection of silver coins locked in a safe hidden behind a Dali? Or perhaps shares in some ingot sitting in a vault somwhere? Krugerrands? Are we talking about a collpase of fiat and a return to the gold standard here? Or are we still on the subject of intrinsic value?

Edwardo said...
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Edwardo said...

Hello, Rupert.

As I remarked to Debra, it is not my view that we are going to see a reinstatement of "The Gold Standard", though, in time, gold will trade freely, and it will be revalued at a much higher price against the U.S. dollar specifically, and global fiat generally. The dollar is on its way out as the world's reserve currency- i.e. primary medium of exchange for global trade- with profound consequences for U.S. residents.

I didn't know we were ever on the subject of intrinsic value as such, but, having said that, arguing against gold's value as a wealth storage mechanism is akin to arguing against rich, loamy, well irrigated soil as a decent substance in which to grow crops.

Debra said...

Have there always been things to buy and sell in our civilization ?
... I think I'm going to try to find that Gotterdammerung Pasolini film that is set during one of the major plague episodes in Italy.
It doesn't look, in that film, like there are tons of things to buy and sell...FOR MOST PEOPLE, let's say.
FOR US PEASANTS. (Because that's what we are, whether we like it or not. And it's not even an insult. We're. LITTLE GUYS AND GALS in the world order. That's not going to change in the next few weeks.) Maybe I'm wrong.
In the world that COULD be coming up, Edwardo, I'm not sure that bright shiny metals will have very much value to us. That they will BUY indispensable things.
They never did have intrinsic value, when you consider that some indigenous Indian populations actually preferred those Murano glass beads...in exchange for THEIR GOLD, (when they had it..).
I had a hell of a time trying to explain this to some curmudgeon over on another blog...
Gold=value in WESTERN CIVILIZATION.
Will Western civilization OVERRUN THE REST OF THE PLANET ? Has it already ?
I don't know. I hope not.
I don't like my civilization very much these days...
I keep on voting for the underdog.

Edwardo said...

Not a compelling argument, Debra, when you have to reach back to a plague period in Medieval Italy, one seen through the eyes of a leftist film maker, mind you, as a potential point in time where gold may not have had (much) utility.

The problem with your formulation is, even then, amongst the healthy, amidst all the agony and death, there was still buying and selling going on. And it's a safe bet given the time period in question that it was almost certainly being done using silver and gold coins-probably some that were minted many centuries before during The Roman Empire-even if trade was not quite as brisk as other, less fraught, times.

In the meantime, I suggest that, given your vision of the future, one that clearly sounds as if it has a very primitive, almost stone age, cast, that you opt for the Murano beads.

As for the fellow with whom you were discussing related matters on another site, his first mistake was in proffering the errant idea that gold=value in just Western Civilization.

Johnny D. said...

Rupert, for me personally, it's just another hedge. I would not recommend anyone put all their "eggs in one basket." Gold and silver are just an edge - nothing more - nothing less.

Look at it like this. Here we are 2000 or so years later, and people still pay $70 US (or more) for a Roman Denarius (the silver version). There will always be someone, somewhere, willing to pay for old coins with real precious metal in them - especially when that coin is from a failed empire.

I tell everyone I know to get into gardening. Get into repair. Learn medical care and first aid. Store up food. Store up ammo. Put some of your wealth into precious metals. Store up anything you can think of. Not only is it just good old common sense and worth your effort from that perspective - but it is a hedge. Like gold and silver, it is just another hedge(s).

I have a safe. A big safe. I paid good money for that safe. It weighs 800 pounds and is lag bolted to my floor. I suggest you do the same.

attempter said...

One thing I don't get about the goldbug thing. (Just using that as a general term, Edwardo - I know you don't use that term.)

Since most goldbugs also seem to assume the government will try to confiscate gold as it did during the 30s, how would you plan to use the gold safely unless you're already ensconsed in organized crime?

It seems to me that if I were a robber who identified an illegal hoarder who's not "with" anybody, under those circumstances I could rob him with impunity.

After all, what can he do - go to the cops?

I've asked people that question a few times and never got much of an answer. But isn't it something gold hoarders need to have a plan for?

Edwardo said...

The answer is that government will not confiscate private gold, they won't even try to tax it, except minimally.

Government will confiscate, most likely via windfall taxation- when gold versus currency is re-priced vastly higher- the operations of gold mining outfits. Over the generations authorities have done a marvelous job of convincing the vast majority of Americans that gold is not a preserver of wealth, ergo hardly anyone owns physical.

People, to the extent they own it at all, own gold through paper proxies and they are going to be royally screwed as a result. In truth, they already have been since only a small percentage of gold mining companies have paid off over the last decade. In contrast, physical gold has been, so far, a five bagger.

In conclusion, to make this long response less long, gold, physical gold that is, will, in future, trade freely, which is not the same thing as asserting there will be a gold standard.

Debra said...

Sigh... when I think of all those BEAUTIFUL OBJECTS that have been made with gold, and how they COULD get melted down to make filthy lucre, well, I think that we are an incredibly stupid animal.
On hoarding.. I suppose that that old chest stuck in a hole in the garden solution is still viable.
I can just see it now. Lots of people sticking their stuff in chests and surreptiously digging holes in their gardens...
How the mighty have fallen.

Edwardo said...

You may find, Debra, that many objet d'art made of gold will go untouched since the mere knowledge that the melt value is elevated will, at least amongst the modestly thoughtful, preclude them from transforming beautiful and historic items into bullion.

The principle here is no different than that found amongst gold or silver coins that possess a premium over their metallic content. They have a premium, to some degree, because of their aesthetic appeal.


As for the stupidity of man, I suppose that's true enough, but in this case, the epic stupidity of late has been based on an attempt by western nations, particularly the U.S., to engage in practices that, among other travesties, denied the rightful and sensible place of gold in a monetary system.

Rupert said...

Hello chaps
I think I'm going to invest in the relationships I have with my neighbors and friends. There's time well spent.

Johnny D. said...

Russ, my answer remains the same. It's a hedge. It may work out, it may not. It's just another trick in the bag of tricks - as it were. Some of the tricks will work - some will not. I have much more silver than I do gold. Primarily because silver is the poor man's gold, but also because I don't recall any attempt to confiscate silver coins - especially antique silver coins.

Edwardo said...
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Edwardo said...

I'm sure that will serve you well, Rupert, but I see no reason why one should preclude the other, as Johhny suggests. And it occurs to me that you may find that those near and dear to you may have taken steps you seem disinclined to take. Best of luck.

attempter said...

I guess a hedge does sum it up, JD. No guarantees about any of the things we do.

Edwardo, what you said reminds me of some stuff I read saying that they sold far more paper gold than physically exists, and that if enough people wanted physical redemption it would be exactly like any other bank run.

Edwardo said...

Yes, at some point the paper physical market will fail. Some number of observers will make the mistake of thinking that gold has plummeted, but it will simply be the paper market that has imploded while physical gold will be in a very different condition.

Debra said...

I agree with Rupert.
I am a.. cricket by nature...

Edwardo said...

Well, Debra, you do, indeed, do a lot of chirping.

Debra said...

Thank you Edwardo.
I will assume.. that was a compliment, hein ? ;-)

Edwardo said...

Please take it as one, Deb.