November 25, 2008

After the recent panicked flight to 'safety' in the US dollar, is a dollar 'debasement' now right around the corner?


Ben Bernanke told us it would be. He thought a 40% debasement against gold was pretty cool.

Schiff says a dollar collapse is in the cards.

And watch this video.

It's coming folks. I don't know when, and I don't know if it happens slowly or overnight, but it's coming. The incentives for Bernanke and Obama to debase the dollar are just too great. It's almost as if they HAVE to do it. They have no choice.

And those of us holding dollars, we better start thinking what we want to do next, and when. It was a fun ride these past few months, but time to get off.

The dollar mini-bubble is almost over.

We were warned.

Here's Bernanke again, from 2002:

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation.

A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly.

33 comments:

keith said...

One more - here's Jim Rogers:

Rogers Says Dollar to Be `Devalued,' Buys Commodities

Nov. 25 (Bloomberg) -- The U.S. dollar will be ``devalued'' as policy makers seek to weaken it, undermining the greenback's role as an international reserve currency, said Jim Rogers, chairman of Rogers Holdings in Singapore.

``They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term,'' said Rogers. The ICE's Dollar Index has gained 19 percent since Rogers said in an interview on April 27 he expected a dollar rally ``about now.''

The dollar advanced against 15 of the 16 most-traded currencies since the end of June, losing out only to the yen, as a global financial crisis drove investors to the perceived safety of Treasuries. U.S. politicians want to reverse those gains to revive growth, Rogers said.

The dollar is ``going to lose its status as the world's reserve currency,'' Rogers said yesterday in a televised interview with Bloomberg News. ``It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.''

http://tinyurl.com/5krqol

keith said...

Here's a list of "get out of the dollar" ideas. Add to this folks:

OIL
DBA
GLD
SLV
FXY
FXF

Roccman said...

Yep it hath been foretold a long time again keith.

So was this:

http://www.guardian.co.uk/environment/2008/nov/22/food-biofuels-land-grab

That's right Keith it is coming...the great food grab.

So along with your gold you shold have some farm land.

Really keith.

Food (and water) is really all that has ever mattered.

Catton will not be denied.

Hanson will not be denied.

Duncan will not be denied.

prepare accordingly...

The four horsemen are in town at the stable getting shod for their final ride.

It is time for the great dieoff of the human species.

Most all of us (90%) will perish in 10 years.

Dr. Huxtable said...

Thanks for the picks Keith.

I wonder if we should avoid foreign currencies. It seems like assets would be more certain to increase. Seems like other currencies could possibly encounter their own issues.

And what about Real Estate? Will house values go back to peak values as a result of the USD decline? Is it time to also load up on Real Estate?

keith said...

It's happening folks. He told us in 2002 what he would do, and now he's doing it.

What I don't understand though is why we needed Congress to approve a $700 billion TARP, when Bernanke and the Fed can do whatever the f*ck they want.

Someone wanna explain that to me?

Fed Says It Will Buy Mortgage-related Assets- AP

The Federal Reserve says it will buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis. The Fed says it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

http://biz.yahoo.com/ap/081125/mortgage_debt.html

Banana Republicrat said...

Coming "soon"...

UCO
YCL
UGL
AGQ

DOPES 2 said...

HELLO AGAIN TOOLBAGS!!!!

GOT GOLD?!?!?!?!

I DON'T HAVE ENOUGH!!!!

I'M REALLY GLAD I HAVE TWO SCREENS . . . AS I JUST PUNCHED ONE OF THEM THROUGH THE FU*KING WALL!!!!!!

THESE STUPID TOOLS MOCKING SCHIFF AND THEN FAILING TO PAY UP AND ADMIT THEY WERE IN FACT THE UBER TOOLS!!!!!!!

THAT FILTHY LONG HAIR AND MR. HA HA HA, WHAT DOLTS!!!! I HOPE THEY ARE HOMELESS AND GETTING GANG RAPED BY A PACK OF GREAT DANES!!!!!

THIS GIG SUCKS!!!!!!!!!!!!

TWITS!!!!

NITWITS!!

DIMWITS!!

DOLTS!!!!

DOPES!!!!

Anonymous said...

Holly shit! Another $1 Trillion check just written by the FED.

Wind Farmer said...

Here's one you're sure to like:

KOL

I like all your picks.

DANM said...

$700 billion TARP

------------

It's a red herring Keith.

Most people still don't get it. They are now starting to prepare for deflation! Look at The Economist's cover page (just like they called 5$ oil). That's what the governement wants.... to finance all its debt at 1-3%!

The TARP is just there for people to think the are doing something because most don't understand that they can print money out of thin air. Most don't know about the Fed but all know about the President and his team.

keith said...

Get popcorn folks. This epic battle between inflation and deflation is still early innings.

And right now, I'd be just as expectant of a dollar rally as I would be a dollar free-fall. It's crazy.

http://www.kitco.com/ind/nadler/nov252008B.html

On Nov. 3, the department tripled its estimate of planned debt sales in the final three months of the year to a record $550 billion. Paulson told a conference in Washington Nov. 17 that the U.S. will issue some $1.5 trillion worth of Treasury securities in the fiscal year that began Oct. 1. That number, too, could grow. Lawrence Summers, Treasury secretary under President Bill Clinton and an adviser to President-elect Barack Obama, told the same conference that the U.S. needs a “speedy, substantial and sustained” stimulus package to aid the economy.

“Government may have to spend $600 billion to $700 billion next year to reverse the downward cycle,” Robert Reich, another Obama adviser and a professor at the University of California at Berkeley, wrote in his personal blog Nov. 9. Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, and former chief economist at the International Monetary Fund, says the new administration will also have to ask Congress for more money to repair the financial system, over and above the $700 billion already authorized for Paulson’s Troubled Asset Relief Program.

“By the time all this ends, the TARP is going to be closer to $2 trillion than $1 trillion,” ISI’s Gallagher says. Paulson has already committed $290 billion from the program to buy preferred shares in banks and troubled insurer American International Group Inc.

There’s always a danger the Fed and Treasury may go too far, setting the stage for a big rise in inflation or another asset bubble down the road as the economy revs up and investors get back their nerve. That’s what happened in the early part of the decade as ultra-easy Fed policy and Treasury tax cuts helped fuel a credit boom since gone bust. Bernanke and Paulson might welcome a bit of that exuberance right now -- even at the risk of higher inflation later -- as they try to prevent the biggest credit catastrophe in decades from sending the economy into a deflationary nosedive.

“It’s true that, over the long run, too much money creates inflation,” says Lyle Gramley, a former Fed governor now at the Stanford Group Co. in Washington. “But they’re trying to keep the economy from going over the precipice and into the abyss.”

menlobear said...

add to Keith's list:

HAP
MOO
DGP
GDX
DBE
CEF

vanilla ice said...

"I'M REALLY GLAD I HAVE TWO SCREENS . . . AS I JUST PUNCHED ONE OF THEM THROUGH THE FU*KING WALL!!!!!!"

That's just the attitude I want to see more of! If we don't, we're never going to stop this con job.

Wind Farmer said...

WEA
REA
LLR
EAL
LYF
UCK
ED!

Hope this gets by the censor.

Investorazzi.com said...

Legendary investors Mark Mobius and Marc Faber also see a dollar sell-off coming:

"Mark Mobius: U.S. Dollars, Treasuries Will Lose Their Attraction"
http://www.investorazzi.com/2008/11/21/mark-mobius-us-dollars-treasuries-will-lose-their-attraction/

"Marc Faber: Asset Markets May Rebound Within 3 Months"
http://www.investorazzi.com/2008/11/21/marc-faber-asset-markets-may-rebound-within-3-months/

satan said...

The four horsemen are in town at the stable getting shod for their final ride.

you talk my language...

Your Friend...
Satan.

happy snapper said...

Keefer, OIL is the only item on your list I disagree with.

I believe that the alternative energy momentum will not be reversed, it may slow down with cheap oil but renewable and alternative technologies, nuclear etc. will continue nipping away from the demand for oil.

LibVet said...

Natural Gas is dirt cheap just now.

Peter H said...

Remember everyone - this is not a healthy market driven by fundamentals. This is a casino driven by leverage, fear, and state intervention.

Politicians seldom do things for only one reason (e.g. invasion of Iraq) . At the federal and global level there are always plans within plans and various contingencies. If they tell you otherwise they are either lying (e.g. military claiming not to keep body count) or breathtakingly incompetent (e.g. Iraq reconstruction, Katrina). What we would think of as a political masterstroke of backstabbing is what happens before breakfast in the corridors of power. So much goes on that is never really known.

What I mean by all that is that for the US much of it comes down to China. China lent an eager hand to getting us into this mess. They skillfully exploited weaknesses in our economic model and drives. I have little doubt that there are many players in Washington and Wall St. who scheme to take a notch out of our favorite "strategic global competitor". Debasing the dollar would be a one-two punch - simultaneously crippling a large sector of exports, while devaluing much of China's reserves. So long as oil jumps in dollar-price to compensate. Cheap energy for China is not in the cards as part of any US government actions.

So, while there are other motives, China issues could well be the fuse for igniting the money bomb. China is not stupid. They probably understand it better than we do. They will attempt to position themselves to minimize the damage or profit from it. The US will want to get there first. So it's kind of a stare down at the moment. Both sides undoubtedly have plans, simulations, and models. The question is who will flinch first, and what form that will take.

I have a hunch based on what Obama has been saying that they understand that we've had too much capital chasing around too little real-world profit. Hopefully, they're keeping some of the powder dry (i.e. the money bomb) and waiting for the hot air to be let out of the system before they invoke inflageddon. The TARP and the stimulus plans don't really matter - market deleveraging will eat every last penny. My gut tells me that they actually make the bottom come along faster by being "sacrifical wealth" like an anode. But if your plan all along is to drop a money bomb, it really doesn't hurt to spend massive amounts of dollars which will soon be comparatively worthless. Especially when most of the money is given to you by your competitors. Still, they're going to hedge their bets, and try to pull us out of this without the money bomb if they can.

On the flip side, I don't think the inflation will properly be hyperinflation. We still have a reputation to maintain. We don't want to sacrifice our dominance position just to improve the domestic economy. Our leaders will do their best to remain a trusted destination for money and to keep oil priced in dollars. My only fear on that matter is if we have been manipulated into a corner where there are no truly good ways out of the mess.

Since what we are really dealing with is a solvency crisis, some good old-fashioned wage inflation tied into domestic consumption would be just what the doctor ordered. I really hope there is someone in the gov't who has read and understood Bernard Litaer's work. If I had stable employment at the rates I used to in the mid 90's, I would be going long and paying down my debts. "Jobless recoveries" are not recoveries at all.

As it is, I'm using proshares ETFs on the short side of the volatility, and will probably put in my dollar position right around the inauguration. I don't see massive action happening before then unless something extraordinary happens. As it is I'm looking at being long on the Yen, Silver, Railroads, and domestic non-solar alternative energy - short on the 20 year treasury, the UK, and technology. I'm already positioned on metals extraction, which has potential to gain on both the metals prices as well as their recent devaluation relative to the metals themselves.

questions -
Which other countries will follow suit and drop money bombs?
Who needs to?
Who has the ability to?
Who wants/needs to f*** over whom?
Who will be forced to by other players doing so? (export-oriented economies like Germany anyone?)
Will there be a timing difference which can be exploited?

Will Obama's presidency convince other countries to come together on the issue instead of looking out for their exclusive interests? (big game-changer, possible coordinated money bombs or concessions granted to losers/financers in that matter)

What will the big institutional players go to as a safe haven?
Japanese treasuries?
Who will definitly NOT drop a money bomb?
If you took a trader who has not planned for this and asked them to make a snap decision, what would they do?

Will oil reserves take the place of gold reserves as backstops to currencies?

If we make giant strides on the Israel/Palestine question will gulf states bail us out as part of a backroom deal?

What is the new administration's game plan on Energy? With prices currently low we don't hear much about it. Now that we're getting grownups in charge, they'll certainly consider this in dropping the bomb.

How will China respond vis-a-vis their exchange rate (being pseudo-pegged) and their treasury holdings? Will they try to beat us to the punch and liquidate before the bomb? Will we do something other than a money bomb in order to avoid that? They've also been dipping their toes into exporting to third-world economies - would they be able to regear their export industry and cut the US loose? The keystone is likely energy.

Anonymous said...

i think it will start soon. I going to close out my euro short positions and collect my profit.

Anonymous said...

What I don't understand though is why we needed Congress to approve a $700 billion TARP, when Bernanke and the Fed can do whatever the f*ck they want.

Someone wanna explain that to me?

------------------------------

i suspect it was all for show. you are right, they are doing whatever they want to do. but doing TARP shows a unified government (congress, president, etc) working to solve the problem.

the currency system is all about perceptions.

Anonymous said...

Was at the post office yesterday. Even the postal workers were talking there about the bailout. Citi plastered on the front page of the paper. Where is my 50K? Let me just pay my debt.

Main street getting pissed.

Joe sixshooter said...

Never underestimate the power of the angry mob.

There are many good points on this blog, particularly Peter H's but there is one component and that's the angry mob mentality that will take hold if things start to get really bad.

The glue that holds societies together is much more than economics or monetary policy - it's the faith of the people in the system and when that has beeen abused or used up, then all bets are off. What are the possible scenarios and what does that mean to the USA as a society?

When crime rates climb, it won't matter what lifestyle you are used to. You're going to be living in a lawless society or something to that degree.

Forget the police because they'll be no better than the mafia at that point. You're on your own - just as long as you have money to pay for protection

Who will be willing to play by the rules at that point.

I would argue that the underlying reason for these huge bailouts is not just to let the banks off the hook, it's to stop the complete and utter breakdown in society.

Because as some have pointed out here, they are truly angry and armed to the teeth. What's to stop YOU dear reader from taking out your anger on someone you see as a threat or cause of your specific pain?

Anonymous said...

didn't the US Dollar Index decline from 120 to 72 between 2002 and 2008?

Time for plan B?

Dazed and Confused said...

What now?

Moved the 401k and IRAs out to cash prior to October crash (not enough and not soon enough- should have listened to HP). Managed to get others over to short term treasuries. Still have a few stocks like Kraft, Altria, Phillip Morris.

Saw the signs years ago and managed to sell the house two years back at a modest profit.

Where do we go now? Hate to see my life savings evaporate to 30% value if the bomb gets dropped but just as confused as everyone else and clueless on where to find shelter.

Damn, just damn. Unbelievable it came to this.

Anonymous said...

Inflation:

My father built a house for $3000 after the war. It just re-sold for $299,000.(good neighborhood)
He built a house in 1964 for $30,000, sold for $215,000 in October (market down).

So, without inflation, the houses would be worth what they were when they were built.

And we have accepted this as normal.

_______________

Maybe some day in some century far away, everyone will be able to work and do as they please and be able to have the things they need without being ripped off and taken advantage of at every turn.
Maybe life will make sense.
Maybe we are still in the dark ages of economics.
Maybe we are still in the dark ages of socialism, capitalism, communism...in the dark ages of how best to fairly and justly have a world in which people are happy.

Anonymous said...

Get out of the dollar is a great idea, but what to get into is the real question.

Paul E. Math said...

"Get out of the dollar is a great idea, but what to get into is the real question."

There is no real question: get into gold. Gold and agricultural commodities.

There are many ways to get into gold. If you really see an armageddon scenario then only actual physical gold will do. I have not yet made that leap.

I am in GDX. It's an etf following an index of major gold mining companies. You can buy it like any stock through your etrade (or sharebuilder or whatever) account.

GDX also acts a little like an ultra long etf of gold itself. ie: when the spot price of gold rises 5% then gold miners and GDX rise 10%.

I will also probably buy some agricultural commodity based etf or etn like DAG, which is a double long etn on corn, sugar, wheat and soybeans, which are the most liquid (heavily traded) agricultural commodities.

Tyrone said...

Marc Faber bullish on gold
7:50
"But at some point, in January to March of next year, you have to get out because the global economy is imploding. I am repeating, imploding; and there is not going to be a recovery, despite all the government intervention."

All righty then.

i've had it said...

Others to look into as hedges against inflation:

DBB
American Eagles (gold coins)

The gold coins are hard to come by. I bought some in Sept and the mint I purchased from told me ten weeks till delivery...I doubt they will hit that date. Also heard today the Perth mint has stopped accepting orders because demand was so high they have run out.

Don't know really.what to do here. If they drop, or trickle out a money bomb (which it looks like they are doing) then hard assets look to be the only investments.
I'm wondering if their plan is to drive the dollar down in the hope that folks will pile into real estate - a hard asset - and drive prices back up. It seems that is the govt's strategy since they are working so hard to get people to take out mortgages.

And as far as the commenter above re: postal employees talking about citi and bailouts, well, mainstreet knows what's going on big time. They are getting scared now. Three 20 somethings who work for me all have condos that are underwater; one of them even has two! I'm paying her 55k per year so she has got to be hurting. She rents out one of the properties. I feel bad for these three. One was terrified about what is happening because her friends and family are getting fired and having their hours cut back; honestly, she was terrified when telling me this stuff.
She does not have a college education but she knows something real bad is brewing out there since she sees it with her own two eyes.

Yes, Mainstreet has woken up and I'm afraid now they will be heading for the exits and forming mobs in the future..

Pamela said...

You need to talk to people who have lived through this before.

My husband's grandfather owned textile plants in Hungary during the 20s and 30s; he was a self-made man and a millionaire, back when that meant something. When the Nazis came they told him he would make uniforms for them. He was still in charge, but at the barrel of a gun. When the Communist Russians came, they took his factories away and threw him in jail. He managed to convince them he was of peasant stock and so was released from jail. His partner and BIL did not fare so well and died on a forced march to Russia. Apu raised his BIL's son as his own.

The Russians told Apu he could teach engineering at the University. Around this time hyperinflation reared its' ugly head. Hyperinflation in Hungary was worse than Weimar Germany. He put all his money: gold which he had hidden during WWII, into art: oil paintings and Galle vases. Every inch of the walls of that apartment, which had been divided down to a quarter of its' former size by the Commies, was hung with a painting.

During the nearly 50 years under the Iron Curtain, he would sell a piece of art or a vase every few years and was able to live comfortably. I could go on about all the ruses, bartering and black marketeering that goes on under this sort of system. Believe me, people figure it out; the true value of goods is obvious.

That said, we still have most of the vases and art; although the best painting went to the Museum in Budapest upon his death. The almightly dollar works wonders in getting things across borders.

These debt ridden clowns and sleazy derivative traders who have eroded the value of the dollar are no better than the Nazis or Communists.

Tyrone said...

i've had it,
The are not 20 somethings. I call them...
20-dumbthings.

So totally filled with self-entitlement, that I eagerly await the collapse. (not really, but they need a life lesson)

Anonymous said...

I agree with what Ive had it said.
-------------------------------
"Don't know really.what to do here. If they drop, or trickle out a money bomb (which it looks like they are doing) then hard assets look to be the only investments.
I'm wondering if their plan is to drive the dollar down in the hope that folks will pile into real estate - a hard asset - and drive prices back up. It seems that is the govt's strategy since they are working so hard to get people to take out mortgages."

They need people to stay in their homes and not walk away otherwise the game is over. Why else do we have this crisis right now? Because bad loans are taking apart the banking and investment industry.

I plan to buy real estate when inflation really kicks in. The longer I wait the less time I have to spend being a landlord, along with waiting out the price declines.

As for gold I think that will be manipulated all the way. If they can throw 2 Trillion at the financials, image what they can do to gold? Other commodities such as agriculture, will be controlled to a certain extent because people still need to eat. That's the last straw which would envoke the most feared mob mentality.

Just my opinions. (and I'm not a realtor)