Selling Dollar lunacy

August 15, 2008

Can somebody please explain how the US dollar is any more attractive today than it was 1 year ago? Nobody in their right mind believes the banking crisis has bottomed, we haven’t even seen the Option ARM resets, the right-downs on student loans and auto loans and credit cards, the mass wave of baby-boomers set to retire, peak oil, the result of soaring inflation and a Federal debt with an average maturity of less than 3 years. We haven’t seen the bulk of our more serious problems – and critically, most of these problems originate in the US – so how could the currency of a bankrupt nation be seen as a safe haven? It’s preposterous. The last few months can’t possibly be anything more than a dead cat bounce, it’s a sucker rally.

The world doesn’t need America to consume on its behalf, China needs to resume its role as leader of the global economy by allowing its currency to float freely. Rising living standards in China will be more than enough to sustain the global economy, but they must appreciate the RMB. There is no reason to believe the American banking crisis must spread to China, if anything a consumer collapse in America will liberate more resources for their enjoyment.

And gold, my goodness, has sentiment ever been this negative for a reason more flawed – faith the US dollar will continue to rise? That’s a strong buy signal. Why would foreign governments continue to hold US dollars in reserve as America debases the currency with asinine programs and wars? I say, step aside while the herd jumps off a cliff then pick up their leftovers. Why the hell would you want to hold US dollars with Fed auction facilities throwing billions of dollars at the banks every month, 2% interest rates, soaring inflation causing negative real interest rates even if you believe the official numbers, and a $1 trillion deficit around the corner? Give me a break. What we are witnessing in the gold market is suppression by manipulation, the last desperate gasps of a dying empire.

The only thing that surprises me is the reluctance of China to assert its influence over American foreign policy. That may be next in this saga, after the Olympics. “Stop debasing your currency with war and bailouts or we’ll make your economy scream.” You think a $160 billion stimulus is a lot? Imagine $1.8 trillion. You think a 20% decline in the US dollar has hurt the market? Imagine 200%. China holds all the aces, how can a creditor nation go bust before its debtors?