US Dollar: Tracking the Demise of a Reserve Currency.

[TheRandyMan]

I am starting this thread to begin tracking this sad process so that others can clearly see what is coming. The loss of the US dollar as the world's reserve currency will be the linchpin...the key...to the cascade of events leading to the default of the US on its debts and unfunded obligations. Expect to see regular postings of evidence to this process and related processes that connect to the sad decline of American preeminence on the world stage. I recommend that your set your notification button so that you can get messages regarding future posts in this thread as it is sure to be worth your reading.

http://money.cnn.com/2011/02/10/markets/dollar/index.htm

 

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[TheRandyMan]

China's rise on the world stage...buying gold to establish a base for their currency in preparation for... I will let you figure it out but your clue is... new world reserve currency.

China may increase gold reserves beyond ‘Fort Knox’ level – Hale
By: Martin Creamer

CAPE TOWN (miningweekly.com) – China’s central bank is being advised to increase its gold holdings nearly tenfold to a level greater than the world’s biggest bullion depository, the US’s "Fort Knox".

Global economist David Hale, who addressed the packed Mining Indaba in Cape Town attended by a record 5 700 people, says that China’s gold reserves are currently at 1 050 t – only $30-billion to $40-billion compared with the country’s total assets of $2,8-trillion.

Various officials in China have proposed the central bank should increase its gold reserves to 10 000 t, which would give China larger gold reserves than Fort Knox.

“This would be a huge development for the gold market,” he says, with global mining output of gold only at 2 500 t a year.

“China will probably start to buy gold in the near future, but they won’t report it for two or three years,” Hale says.

When China announced new gold reserves from 600 t to 1,050 t in April 2009, purchasing had been done in the preceding years..

“The odds very much favour China making, over five years, very large gold purchases, and this in turn makes me bullish on the gold price,” he adds.

In addition to the central bank purchases of gold, preliminary data suggests that the Chinese private sector has bought 300 t of gold in the last year, compared with zero three to four years ago.

Given the rising Chinese incomes and inflation, Chinese private demand for gold could increase in the next few years to the historical levels of India, which for many years has been the world’s largest private buyer of gold.

“China offers the prospect of very healthy demand for gold and this could over the next couple of years set the stage for further major gains in the price of gold.”

 

[TheRandyMan]

Here is an article with almost 5,000 replies to it. Seems like quite a few people are interested in this topic. The states are developing backup plans as they can see the writing on the wall...

http://news.yahoo.com/s/yblog_thelo...na-lawmaker-wants-separate-currency-for-state

 

[TheRandyMan]

France...ah...our old ally. Saved their buttz just a few decades ago...feel the knife turn in your back, America??

RTE News/Business

France, as current head of the Group of 20 countries, will help the transition to a global financial system based on 'several international currencies', French Economy Minister Christine Lagarde said today.

Lagarde, speaking ahead of a G20 finance ministers meeting in Paris on Friday and Saturday, said the world had to move on from the 'non-monetary system' it now has to one 'based on several international currencies'.

Accordingly, France wants to see less need for countries, especially the emerging economies, to accumulate huge foreign reserves, she said.

At the same time, international capital flows should be better regulated and the role of the Special Drawing Rights issued by the International Monetary Fund should be reinforced by the inclusion of China's yuan in the system.

China, whose booming economy now ranks second only to the US in size after overtaking Japan, has accumulated massive forex reserves of more than $2.5 trillion on the back of its sustained trade surpluses and foreign fund inflows.

Washington says the build-up reflects an unfair undervaluation of the yuan, a charge Beijing rejects.

France has previously said it wanted to see the global financial system reduce its reliance on the dollar for a more broad-based arrangement.

 

[TheRandyMan]

Bad...very, very BAD.


Federal deficit on track for a record this fiscal year
Government debt to exceed U.S. economy
By Stephen Dinan
12:16 p.m., Monday, February 14, 2011

President Obama‘s budget, released Monday, was conceived as a blueprint for future spending, but it also paints the bleakest picture yet of the current fiscal year, which is on track for a record federal deficit and will see the government’s overall debt surpass the size of the total U.S. economy.

Mr. Obama‘s budget projects that 2011 will see the biggest one-year debt jump in history, or nearly $2 trillion, to reach $15.476 trillion by Sept. 30, the end of the fiscal year. That would be 102.6 percent of GDP — the first time since World War II that dubious figure has been reached.

And the budget projects the government will run a deficit of $1.645 trillion this year, topping 2009’s previous record by more than $230 billion. By contrast, 2007’s deficit was just $160 billion altogether.

Still, amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.

In one often-cited study, economists Carmen Reinhart and Ken Rogoffhave argued that when a nation’s gross debt passes 90 percent it hinders overall economic growth. The government measures debt several ways. Debt held by the public includes the money borrowed from Social Security’s trust fund.

Actual debt held by the public will reach 72 percent of GDP in 2011 and will climb as the Social Security trust fund’s finances continue to deteriorate.

Republicans argued Monday that the Obama administration‘s new budget fails to appreciate the depth of the country’s fiscal plight.

“I still don’t see a sense of urgency from the president about the massive federal debt,” said Sen. Lamar Alexander, Tennessee Republican. “His budget calls for too much government borrowing — even though the debt is already at a level that makes it harder to create private-sector jobs.”

White House budget Director Jacob “Jack” Lew said the goal was to get to a point where the debt is at least stabilized by the middle of the decade.

“The government will no longer be adding to our debts, and as a share of the economy, we’re going to stabilize the deficit,” he told reporters. “We’ll, in short, be paying for what we spend every year. The goal, to put it simply, is for the deficit to be in the range of 3 percent of our economy by the middle of the decade.”

And indeed that’s what the numbers show. Nominal debt will peak in 2013 at 106 percent of the economy before dropping to 105.2 percent in 2015 and 2016, though only if the economy booms.

While the Obama administration assumes a fast economic rebound after two years of sluggish growth, the nonpartisan Congressional Budget Office last month offered a more pessimistic view, saying that this recovery will be slow for years to come.

But the recovery could have other, less-beneficial effects, including higher interest rates. The government currently is benefiting from rates that are a fraction of their historic level, which means substantially lower borrowing costs for corporations and individuals.

Lawmakers said those low interest rates can’t last. Sen Tom Coburn, Oklahoma Republican, said for every point that interest rates increase, the government would be paying an extra $140 billion a year on its debt right now.

© Copyright 2011 The Washington Times, LLC

I do not need to tell you that inflation is kicking up secondary to the massive printing of money by the Federal Reserve (QE 1 and 2) ... It is only a matter of time before the interest payment on the debt becomes insurmountable.....

 

[TheRandyMan]

My prediction....PAIN!



By Greg Hunter’s USAWatchdog.com (Revised)

Saturday, the House of Representatives passed legislation with more than $60 billion of budget cuts. It is the proverbial “drop in the bucket” when compared to the $14.1 trillion (and counting) outstanding federal debt. Soon, this ever increasing national debt will eclipse the Gross Domestic Product (GDP.) That means America will owe more than all the goods and services it produces in one year. When you owe more than you make, isn’t that a sign you need to change course? The new Speaker of the House, John Boehner, said this just after the budget cut vote, “We will not stop here in our efforts to cut spending, not when we’re broke and Washington’s spending binge is making it harder to create jobs.” I think it is ironic Congress wants to cut $60 billion today and then turn around and consider raising the debt ceiling $1 trillion tomorrow. This is crazy, but that is exactly what’s going to happen because if we don’t, Treasury Secretary Tim Geithner says it could cause, “catastrophic damage to the economy.”

I don’t think most people grasp just how serious America’s budget problem really is. When Mr. Boehner says, “we’re broke,” he’s not kidding. America is broke. The only reason this has gotten so out of control is the U.S. dollar is the world’s reserve currency, and the government can just print money whenever it needs funds. Right now, the Fed is creating $75 billion a month to help finance government operations. This is met with a shrug, like it is no big deal. But, it is a big deal, and it comes with a significant downside—inflation. Sure, there is deflation in housing, but everything else is going up in price.

It is not just the federal government that’s swimming in red ink, but more than 40 states in the union are also tens of billions of dollars underwater in deficits, pensions and health-care obligations. The union protests in Wisconsin are just the tip of the iceberg. Contrary to what left wing commentator Rachael Maddow says, the $137 million deficit problem in Wisconsin was not caused by Governor Walker’s tax-cut bills approved in January. Here’s how The Wisconsin Journal Sentinel summed up the false story, “There is fierce debate over the approach Walker took to address the short-term budget deficit. But there should be no debate on whether or not there is a shortfall. While not historically large, the shortfall in the current budget needed to be addressed in some fashion.”

I was a guest on the nationwide radio show Coast to Coast AM last week. I was there to talk about the protests in Wisconsin and elsewhere. I said this was only the beginning because many states were billions of dollars in the hole. The states cannot print money, so unions will have to take cuts to pay and benefits. I got some very foul and angry emails from listeners. One wrote, “. . . F*** YOU! Unions are the only reason we had good wages and decent places to work in the USA. It’s greed by companies that have destroyed this country.” Another anonymous email said, “. . . You don’t have any idea of what is going on. Now you think the Gov’t workers should get screwed. You subservient dick.” I wrote back and said, “. . . What you are angry about is something we all face. The nation is broke, and we are headed for a crash. In the end, we are all screwed, government workers are just first.” But that really is not correct. I should have said, “It is now the government workers turn to feel the pain the rest of America has been feeling.” These emails are examples of how Americans will just not accept that we are out of money. The sovereign debt problem is here today staring us all in the face.

State and city budgets are so deep in red ink that former L.A Mayor Richard Riordan said recently, “Throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.” Things have gotten so bad that investors are starting to shun municipal bonds. (This is the state version of printing money.) Sales are way off, and one reason may be that Congress has been quietly talking about letting states go bankrupt. Here’s how the New York Times reported the story last month, “Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.”

On one end of the spectrum, I see, at the very least, high inflation. On the other end of the spectrum of possibilities is the financial collapse of the United States. Economist John Williams of Shadowstats.com has been talking about this possibility since I first met him in 2008. He says hyper-inflation leading to collapse is a definite possibility. Williams is not the only one who thinks there is a potential breakdown coming. Dmitry Orlov, author of the new book “Reinventing Collapse,”witnessed firsthand the Soviet meltdown in the early 1990’s. Orlov says, “Something similar is happening here where we have people in all branches of government, both political parties trying to prop up the financial industry, which has become completely irrelevant to most people in the United States, who don’t have savings and are not creditworthy. They’re basically trying to use up people’s savings and use up people’s retirement to prop up this set of institutions that only help the very rich people, and these very rich people are only rich on paper, they are “long paper,” all of them. What they own is pieces of paper with letters and numbers on them, which will turn out to be worthless. So this is all just basically musical chairs, and something very similar was happening in the Soviet Union, and something like that is happening here.”

Just the fact that collapse is a possibility should be sobering to anyone. Americans are fooling themselves if they think we can get back to the way things were before using borrowed and printed money.

Thinking individuals are coming to the conclusion that there will be no way to avoid the inflation that is coming and thus no way for the US to catch up to the INTREST on its unfunded obligations, much less the principle.......... that means DEFAULT.......

 

[TheRandyMan]

Inflation.... Federal Reserve Chairman Bernanke thinks its no big deal....the biggest bond fund in the world thinks otherwise...

http://www.bloomberg.com/news/2011-...pimco-s-flagship-fund-zero-hedge-reports.html

Hmm...let me think... go with the chairman or go with someone who manages a lot of REAL money...

 

[TheRandyMan]

What politicians have no way to stop...they adopt...



The Telegraph Tuesday March 15, 2011

US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is "quite open" to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.

The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.

"The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said.

Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world's dominant reserve currency ... for a long period of time" but the seeds of doubt have been sown.

The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.

"I don't believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world," he said.

The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a "super-sovereign reserve currency" under IMF management, turning the Fund into a sort of world central bank.

The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a "widely-accepted means of payments".

Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world's $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.

Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.

Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. "China holds almost 30pc of the world's entire reserves. What they say matters," he said.

Mr Geithner's friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.

By Ambrose Evans-Pritchard 6:05PM GMT 25 Mar 2009

No surprise here but if it surprised you...better get busy on collecting things that have REAL worth...instead of worthless paper. Political doublespeak is the only thing worth less than a Federal Reserve note...

 

[TheRandyMan]

My friends...this catastrophe in Japan has had some very bad ripple effects on the financial situation in this country and around the world.

Read below...

Bank of Japan Intervention Soon?
Posted: Mar 16 2011 By: Dan Norcini

That is the big question weighing on the minds of currency traders. The initial knee jerk move higher in the Yen, due mainly to repatriation of funds by Japanese companies and citizens to the mainland, can explain the rally in the Yen during the early part of this crisis. However what now appears to be happening is a potential unwind of the Yen carry trade which has been blowing up due to the massive move away from risk. The price action in the Yen compared to the price action of the US equity markets is evidence that many hedge funds were borrowing Yen and then using the cheap money to leverage up on US stocks. While the carry trade using this particular currency is nowhere near the size it was back in 2008, it is still very large. Back in 2008 when the credit crisis erupted in the US and spread around the globe, the Yen staged an enormous rally.

Hedge funds, which had acquired massive leveraged positions using the Yen as the funding currency, commenced a headlong rush to the exits en masse. In effect they had acquired a massive short Yen position which the Japanese monetary authorities were more than happy to condone. When the Yen began moving higher, suddenly the trade began souring as gains in the leveraged positions were being dragged underwater by losses on the currency front due to gains in the funding currency. As commodities and stocks were sold off, the trade because to collapse. Their panic to deleverage forced the Yen sharply higher even as the stock markets and commodity markets were obliterated to the downside.

Once again we can see what appears to be an exact repeat of late 2008. Given the fact that the Japanese economy has been devastated by recent events, the last thing that the Japanese monetary authorities want to see is a soaring yen, which will effectively cut off their export markets at the knees by hurting their price competitiveness on the global markets.

What we might see begin to happen is the BOJ coming in and beating the fire out of the speculators by selling enormous amounts of Yen on the foreign exchange markets this evening or very soon. One wonders what they might do with all the US Dollars that such action would accumulate in their coffers. In the past they would sterilize the intervention effort by purchasing US Treasuries.

If that were to happen this time around, the Fed could sit back and watch the BOJ do its QE work for it.

Again, this situation is very fluid and can turn on a dime but it is highly unlikely that the BOJ and the Japanese Ministry of Finance are not keenly watching what the hedge funds are doing to its currency.

The difference between what happened to commodities and other assets in 2008 was that the Fed was not engaging in any form of QE at the inception of the crisis. It could well be that we now have QE3 set in stone.

"QE3"would be another nail in the coffin for the coming US default...got gold yet?

 

[TheRandyMan]

More confirmation of a "Currency Meltdown"... friends ... this is not a matter of "IF", it is a matter of "WHEN". Please take special note of the italicized paragraph below.

By Greg Hunter’s USAWatchdog.com (revised)

16 March 2011

The situation in Japan is getting worse, not better. There are shortages in food, fuel and warm dry shelter. To make matters exponentially worse, nuclear power plants there continue to burn out of control and emit high levels of radiation. Japan is a stark reminder of how fast a modern technologically advanced society can be brought to its knees by an unforeseen calamity.

On the other side of the Pacific, the devastating pictures from that island nation are taking the attention away from our own, much more predictable, calamity coming from a tsunami of debt. As the U.S. and other world governments continue to print money to keep the banks and system solvent, a ball of debt is growing. It is on course to swamp the system. In his latest report, Martin Armstrong, former Chairman of Princeton Economics and an expert in the study of economic cycles, said events happening in places like Japan or the Middle East are not the main issue the world is facing. Armstrong was just released from prison after an 11 year stay. He pled guilty to a conspiracy in 2000, but spent most of his time in jail for contempt of court. Armstrong’s tail is a highly unusual criminal and civil case involving a very brilliant economic scholar. Armstrong has written many articles from prison. His latest comments were the last from his incarceration. Armstrong said, “This is coming at a time when governments are broke. We have state and local governments in a debt crisis and that meltdown is very real!!!!!!! Government is collapsing. That is the issue.” Armstrong says because of all the money created to bail out failing banks, gold is gaining in price. “This is not just inflation. We are on the verge of a currency meltdown this time,” said Armstrong.

The latest analysis from economist John Williams of Shadowstats.com agrees with Armstrong. In a special report released yesterday, Williams warns a “great collapse nears.” Williams said the collapse will take the form of “a hyper-inflationary great depression. Such will encompass a complete collapse in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system as we know it. . .” The hyperinflation will come from bank bailouts and ongoing Quantitative Easing (QE or money printing) used to keep the financial system from collapse. Calamities in places like Japan will likely accelerate QE. The Fed will have to make up for the loss of Japan as a buyer of our debt. Williams said,“. . . the economic and systemic-solvency crises appear to be worsening, not improving, suggesting more, not less, quantitative easing.” This, in turn, will quicken the loss of buying power for the buck. So, we have a vicious cycle of QE coupled with declining tax revenue that is accelerating the “great collapse” scenario.

The big question is when? Williams says, “Outside timing on the hyperinflation remains 2014, but there is strong risk of the currency catastrophe beginning to unfold in the months ahead. It may be starting to unfold as we go to press. . .” Meaning, the process of hyperinflation may have already started. Recent inflation numbers and spiking gas prices talked about on this site and many others seem to confirm Williams’ analysis.

If the financial system and government are headed for a shutdown, what should the average person do? Here is what John Williams said, “With no viable or politically-practical way of balancing U.S. fiscal conditions and avoiding this financial economic Armageddon, the best that individuals can do at this point is to protect themselves, both as to meeting short-range survival needs as well as to preserving current wealth and assets over the longer term. Efforts there, respectively, would encompass building a store of key consumables, such as food and water, and moving assets into physical precious metals and outside of the U.S. dollar.”

There is no way of telling how this financial crisis will unfold, or what extremes will be reached. It can be anything from an ongoing deep recession to a complete “Mad Max” style breakdown. If Williams and Armstrong are only half right, then we will experience something in between. At the very least, tough times are coming and they are going to be with us for a while.

Sure, you think you have heard paranoia from the survivalist types in the past...but these guys are not the rednecks selling MREs and fallout shelters....think carefully about it.

 

[TheRandyMan]

Hello friends...just a small diversion here into the mind of a long term gold bug. I thought it had many good points well worth repeating here as we face the future.

Enjoy...and learn.

Posted: Mar 25 2011

Gold Is Getting Wild, Get Used To It

"Experts rush to urge caution after an intraday plunge (hit) in gold and silver. They use words like outside reversal day and an unstable parabolic trend. An outside reversal day will be little more than "noise" within a secular trend in a few months, but fear is driven by the moment. As for a parabolic trend, yes, it’s critical to correctly identify them. Is the current parabolic trend extended far beyond previous advances? Discipline says no." Jim Sinclair

As Jim writes, you must realize that the point of correctness in the article How & When that is true is his $5000 to $12,500 and not prognostications of the next 90 days. Discipline sees not only the trees but also the forest.

Armstrong also suggests that the correction into June does not necessary have to be down. Corrections can be down, sideways, or periodically in a strong market a running (upwardly sloping) correction can form. The message from the market is most important here.

Commetary: Martin Armstrong just wrote an paper on gold titled, "How and When"

My question to this article is WHY?

Why in the world, if you believe that the gold price can go to $5000 and $12,500, as the article says, do you give a flipping damn about the next 90 days.
You must realize that the economic and political damage is already done.
You must realize that the mountain of OTC derivative paper is not going away.
You must realize that all the old Legacy asset, (broken OTC derivatives) demand to be adjusted at each market turn in order to maintain any semblance that they are serious contracts.
You must realize that this adjustment means adding on new OTC derivatives.
You must realize that this means the mountain of OTC derivative weapons of mass financial destruction can only grow.
You must realize that it is not if, or not, QE will continue, it is what it already has done to the Western Economies that much higher gold prices will reflect.
You must realize this is not a business problem, but rather a debt problem as it applies to the gold price.
You must realize the monumental change in the Middle East is NOT positive for the West in any manner, shape or form.
You must realize that the change in the Middle East is from some form of government to Chaos.
You must realize that the beneficiaries of Chaos in the Middle East is Iran and Russia.
You must realize that the main product of the establishment of a no fly zone in Libya is to benefit the Rebels.
You must realize that the rebels are an unknown factor in Libya.
You must realize that a second product of the no fly zone is greater hatred in the Middle East for all things West.
You must realize that the Peak Production of Energy is behind us.
You must realize that the production of energy in chaos will be less than under some form of rule.
You must realize that this combination of monumental Middle East change and the Peak Oil means Peak oil is no longer a consideration for 10 to 15 years from now, rather it is now.
You must realize that the Angels, gold prices, are not simple talk but rather a method used by the great market maven Jesse Livermore.
You must realize that on the next trip to $1444, that price will FALL to the long term bull market on gold.
You must realize that $1650, a place where gold will trade is so low as to be comical looking back from 2015.
You must realize that "QE to Infinity" is not a choice but all there is the left in the tool box of US Fed.
You must realize the truth of today’s comment by Dallas Federal Reserve Bank President is true.
You must realize that what the President of the Federal Reserve Bank fear will occur.
You must realize no sovereign country needs to go broke.
You must realize they simply refer to QE as policy.
You must realize that it is the currency that breaks, not the country.
You must realize that the point of correctness in the article How & When that is true is his $5000 to $12,500 and not prognostications of the next 90 days.

Author: Ciga Eric

Why indeed...why look back on this time of opportunity as an opportunity wasted? Remember how cheap silver at $16.00 an oz. last summer looks NOW...

As Miguel De Cervantes said... "Forewarned, forearmed; to be prepared is half the victory."

Be prepared my friends.

 

[TheRandyMan]

Hello again friends...another post pointing to the double dip recession/inflation monster that we are facing...and the key to living and prospering through it...

We are Way Over the Edge Right Now
28 March 2011
By Greg Hunter’s USAWatchdog.com

Last Friday, I wrote a piece called “Could America be Pushed over the Economic Edge?” It was about how Libya, Japan or even covert economic warfare (from America’s enemies) could push the U.S. into another financial meltdown. I received a one sentence email from my friend Jim Sinclair that said, “We are way over the edge right now.” His message gave me a sinking feeling. Mr. Sinclair is a world renowned gold expert, but in order to trade that market, you must be extremely knowledgeable in many aspects of economics and politics. Almost everything affects the price of gold. War, government, oil, debt, money creation, the Fed and many other variables can dictate how much the yellow metal costs. Gold is probably the single most difficult market to trade, and Sinclair is the Yoda of gold traders (except much better looking.)

Last week on his website Mr. Sinclair outlined “why” we are already way over the edge right now and why gold is going much higher in price. Here are a few of his reasons that I picked out from his bullet pointed post: “You must realize that the economic and political damage is already done. You must realize that the mountain of OTC derivative paper is not going away. . . . You must realize that this means the mountain of OTC derivative weapons of mass financial destruction can only grow. . . .You must realize that it is not whether or not QE will continue, it is what it already has done to the Western economies that much higher gold prices will reflect. . . .You must realize the monumental change in the Middle East is NOT positive for the West in any manner, shape or form. . . . You must realize that it is the currency that breaks, not the country.”

This is not some far-fetched assessment of the U.S. economy because at least one Fed banker is also sounding alarm bells. CNBC reported last week, “The United States is on a fiscal path towards insolvency and policymakers are at a ‘tipping point,’ a Federal Reserve official said on Tuesday. ‘If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,’ Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt.” (Click here to read the entire CNBC story.) There is absolutely no way a top Federal Reserve banker says this without it being common knowledge in his circle of power–no way. This tells me the Fed realizes the economy is much worse than what anyone would admit

For some real world confirmation of a cliff diving economy, I turn to John Williams, founder of Shadowstats.com. In his latest report, Williams says, “Both existing and new home sales moved sharply lower in February 2011, down 9.6% and 16.9% on a monthly basis . . . Foreclosure activity remained an intensifying distorting factor for home sales, with “distressed” activity accounting for an estimated 39% of existing sales in the NAR’s February reporting, the highest portion seen since Spring 2009, and up from 37% in January.” Four out of every 10 homes sold are foreclosures! That is not a healthy housing market or sign of a recovering economy. There was a record one million homes foreclosed upon in 2010, and experts predict another record breaking year in 2011. Williams is predicting an “intensifying double-dip recession and a rapidly escalating inflation problem.”

To regular readers of sites like this one, the economic problems we face are not surprising. But for every informed person, there are probably hundreds that have no idea how bad the economy really is. As an example, one new reader wrote me last week and said, “We are indeed going through some of the craziest times I can ever remember and although things are crazy, do you really believe we will all NOT get through this as a society? How can the entire country go under?” The answer to the first question is some will get through this a lot better than others. Those people include folks that have little to no debt and have a well-diversified portfolio that includes physical precious metals as the ultimate form of insurance against financial calamity. As for the second question: “How can the entire country go under?” I refer back to what Jim Sinclair said earlier, “You must realize that it is the currency that breaks, not the country.” If you can grasp the enormity of that one simple sentence, you have all the information you need to protect your wealth.

Take special note of that last two sentences in italics...protect yourself, friends...

 

[Digginman]

It doesn't seem like many people are concerned about this, the folks I know and work with have no clue. Right now oil is sold only in US Dollars. Anyone who wants it has to covert their currency to dollars in order to buy it. This is why our gasoline prices are lower than the rest of the world's. When this happens and it has already been announced, our gasoline prices will double overnight. If it's $4.00 it will be $8.00 with no announcement, etc. People will be shocked and blame those evil oil companies. Everything is transported, so the price of everything (food, merchandise, whatever) will double instantly. It may be a lot more with time. I hope the US public is ready for this.

DM

 

[mts]

It doesn't seem like many people are concerned about this, the folks I know and work with have no clue. Right now oil is sold only in US Dollars. Anyone who wants it has to covert their currency to dollars in order to buy it. This is why our gasoline prices are lower than the rest of the world's. When this happens and it has already been announced, our gasoline prices will double overnight. If it's $4.00 it will be $8.00 with no announcement, etc. People will be shocked and blame those evil oil companies. Everything is transported, so the price of everything (food, merchandise, whatever) will double instantly. It may be a lot more with time. I hope the US public is ready for this.

DM

I don't buy this argument. "Converting dollars" doesn't really cost much. There is a very small conversion loss between the world's major currencies and those of the US. Besides, that conversion cost is negated due to the fact that when gas price comparisons are made between countries, they are done in US dollars. So that makes it an apples to "apple-like fruits" comparison. The discrepency seen between countries has to be related to something else as well. What it is I don't know. But it is only partially based on dollar conversion rates.

 

[mts]

Actually, a 5 minute google gives many more plausible explanations for why the gas prices vary so much from country to country.

1. Taxes - some places (like in Europe) tax gasoline at a very high rate. Some as much as 75%.
2. Government subsidies - In Venezuela for example, the gas prices are significantly less than they are here because the government subsidizes the cost.
3. Political pressure - I'm sure that the US puts pressure on some countries to convince them to keep our gas prices low. These countries may sell us gas cheaper to maintain favor.
4. Supply and demand - The free market is not the same everywhere. The US has its own short term supplies of oil that it leverages to affect supplies to meet demands. This makes our supply larger and gives us leverage. Countries with no oil reserves have a smaller supply with the same demand which drives prices up.

Basically, the theory that gas prices are affected greatly by exchange rates can't hold water because the US has gas prices that are about in the middle of what everyone else pays. Some countries are higher, some are lower. If the US dollar is the world currency and exchanging currencies cost so much, ALL countries would have higher gas prices than us. Quite frankly, I'm doubting that currency exchange rates have hardly anything at all to do with gas prices. It defies logic to believe that it would be a major factor.

But hey, what do I know. I'm one of those guys who runs around with his "head in the sand".

 

[TheRandyMan]

Friends, I am posting this link here so that the many who check this thread will not miss it...

I will also be posting this in the "Everything Else" section in an attempt to get a broader readership of this must read article.

Please, do not miss this.

Knowledge is Power!

http://fofoa.blogspot.com/

 

[TheRandyMan]

Friends, I have found a short article with one of the CLEAREST explanations I have seen to date of how Quantatative Easing and the massive devaluation of the dollar will result in a severe drop in the standard of living for Americans in general and anyone who does not own gold and silver in specific. Well worth the read.

Here is an excerpt...

The Energy Report:

Standard & Poor's (S&P) has given a warning to the U.S. government that it may downgrade its rating by 2013 if nothing is done to address the debt and deficit. What's the real impact of this announcement?

John Williams: S&P is noting the U.S. government's long-range fiscal problems. Generally, you'll find that the accounting for unfunded liabilities for Social Security, Medicare and other programs on a net-present-value (NPV) basis indicates total federal debt and obligations of about $75 trillion. That's 15 times the gross domestic product (GDP). The debt and obligations are increasing at a pace of about $5 trillion a year, which is neither sustainable nor containable. If the U.S. was a corporation on a parallel basis, it would be headed into bankruptcy rather quickly.

There's good reason for fear about the debt, but it would be a tremendous shock if either S&P or Moody's Investor Service actually downgraded the U.S. sovereign-debt rating. The AAA rating on U.S. Treasuries is the benchmark for AAA, the highest rating, meaning the lowest risk of default. With U.S. Treasuries denominated in U.S. dollars and the benchmark AAA security, how can you downgrade your benchmark security? That's a very awkward situation for rating agencies. As long as the U.S. dollar retains its reserve currency status and is able to issue debt in U.S. dollars, you'll continue to see a triple-A rating for U.S. Treasuries. Having the U.S. Treasuries denominated in U.S. dollars means the government always can print the money it needs to pay off the securities, which means no default.

TER: With the U.S. Treasury rated AAA, everything else is rated against that. But what if another AAA-rated entity is about to default?

JW: That's the problem that rating agencies will have if they start playing around with the U.S. rating. But there's virtually no risk of the U.S. defaulting on its debt as long as the debt's denominated in dollars. Let's say the U.S. wants to sell debt to Japan, but Japan doesn't like the way the U.S. is running fiscal operations. It can say, "We don't trust the U.S. dollar. We'll lend you money, but we'll lend it in yen." Then, the U.S. has a real problem because it no longer has the ability to print the currency needed to pay off the debt. And if you're looking at U.S. debt denominated in yen, most likely you would have a very different and much lower rating.

TER: Is there a possibility that people would not buy U.S. debt unless it's in their currency?

JW: It is possible lenders would not buy the Treasuries unless denominated in a strong and stable currency. As the USD loses its value and becomes less attractive, people will increasingly dump dollar-denominated assets and move into currencies they consider safer. And you'll see other things; OPEC might decide it no longer wants to have oil denominated in U.S. dollars. There's been some talk about moving it to some kind of basket of currencies—something other than the U.S. dollar, possibly including gold. This would be devastating to the U.S. consumer. You'd get a double whammy from an inflation standpoint on oil prices in the U.S. because the dollar would be shrinking in value against that basket of currencies.

Here is the link for the entire article...

http://www.theenergyreport.com/pub/na/9452

Knowledge is Power!!!

 

[motell6]

Only small percenatage of citizens hoard gold and silver thinking it will come in handy if the dollar really takes a deep dive.The real problem is the Walllmarts of this country will never be able to convert food and other goods they sell from the dollar to the gold or silver standard. Hoarding gold or silver in my opinon is a scam. It will just take more dollars to purchase any item. The reality is our country will just keep printing dollars and raiseing the debt level and renewing social programs like food stamps.

 

[mts]

Only small percentage of citizens hoard gold and silver thinking it will come in handy if the dollar really takes a deep dive.The real problem is the Walllmarts of this country will never be able to convert food and other goods they sell from the dollar to the gold or silver standard. Hoarding gold or silver in my opinon is a scam. It will just take more dollars to purchase any item. The reality is our country will just keep printing dollars and raiseing the debt level and renewing social programs like food stamps.

The idea is that silver and gold "tend" to hold their value in the face of inflation. So you can convert that gold and silver into inflated dollars which can then be spent at Walmart. But not just gold and silver. Any physical "commodity" can be sold: guns, bread, books, computers, clothes, and on and on. So it isn't necessary to have silver and gold, just "stuff" that people may want. However, finding someone who will want your books or clothes is not as easy as finding someone who will take gold in exchange for what you need. Gold and silver are universally accepted as having intrinsic value so people are willing to accept them with the idea that they can then trade them to someone else. That's the very nature of "money".

By the way, I read a story somewhere last year where a group of grocery stores were actually accepting gold as payment for groceries. I don't remember how it all actually worked though. Perhaps it was just an elaborate "cash 4 gold" scheme. But if things really get bad you can best believe that Walmart will want to be paid in gold rather than worthless paper. They will "make it happen" if need be.

Also keep in mind that the world is not black and white. There are other reasons to own silver and gold besides waiting for a global meltdown. It's also very useful as a hedge against moderate inflation. In fact, that's the main reason most people own silver and gold. Not because they think the dollar is going to go to zero.

 

[motell6]

I dont believe there will ever be a global meltdown, gold and silver may be good for investors buying and selling for profit, gold is priced to high for the average investor to play with, and silver is retreating in value along with the price of oil. Th U.S. will never allow its AAA rateing to erode and the dollar will not dip below a certain level. Price controls will most likely be put on food and other neccesary goods.The middle class will shrink further , the government will take more control over our lives and the sheep will fall in line. Quid- Pro-Quo,we have alredy been trumped and there isn"t much we can do about it.