Peak Oil
Donate Bitcoin

Donate Paypal


PeakOil is You

PeakOil is You

The Last Days of the Dollar?

Discussions about the economic and financial ramifications of PEAK OIL
Post a reply

Re: The Last Days of the Dollar?

Postby Euric » Sun 08 Apr 2007, 20:04:22

$this->bbcode_second_pass_quote('Kingcoal', '
')What's so great about the Euro, other than being the anti-dollar?


The great thing about the euro is that it is the first currency that is able to effectively challenge dollar hegemony and be the catalyst to end the debase monetary system developed around it.

$this->bbcode_second_pass_quote('', ' ')Am I guarantied a flat, gold based, non-inflating currency?


What is so wonderful about gold? Gold served its purpose in the preindustrial world as the accepted medium of exchange. But there isn't enough gold in the world to effectively back up a modern economy. Do you honestly think that people will accept gold as a medium of exchange? No one is used to it and wouldn't know what to do with it? how exactly will gold serve a post modern economy? Why should anyone artificially assign a value to a lump of metal? You thoughts on gold are obsolete. Old fashioned thinkers, like users of non-SI measurements, cling to ideas and methods no longer workable.


$this->bbcode_second_pass_quote('', 'T')he way it appears to me, the Euro deserves a huge amount of its popularity from being an alternative to dollars. People hate monopolies and would rather see competition, hence the popularity of the Euro.


Exactly! But it must not end with the euro. The euro is only a start. The world needs a basket of currencies. It isn't that the dollar must disappear, but the dollar must become "one of many"among the world's currencies. The reason I see the dollar losing its status entirely and collapsing is because the US will never accept a plurality of currencies and will fight to have everything for themselves. Thus their greed and arrogance will be the reasons for their collapse.

$this->bbcode_second_pass_quote('', 'W')hat you are describing is the world dumping the dollar system and replacing it with a Euro system based on faith that Europe will do a better job at managing the world economy than the US does. I'm not saying that the status quo is so great, I'm just saying that the Euro is not a gold backed currency and therefore the EU will have to take on the full time job of adding value, just like the US has done since 1971. Those things include exporting most of Europe's exporters. With a dominant fiat currency, you have to buy from the world, not export. Developing countries like China don’t want to buy, they want to sell! I don't see EU countries doing that, sorry. The labor unions are just too strong.


I'm not saying that at all. I've said all along that the world economy needs a basket of currencies. The euro is just the first and will be the catalyst. You have to start somewhere and the euro is the starting point.

European Central Banks do hoard gold. Here is an article that explains it:

http://www.miningmx.com/gold_silver/720251.htm

Even if they do it is impossible to back your entire economy with it, as most, if not all economies have out grown gold. There isn't enough gold to support teraeuro economies. There is also nothing wrong with fiat currencies as along as fiat currencies are not hegemonic. As long as there is a balance between what a currency region produces and what it consumes, the fiat currencies value can and always will have a strong, stable value. The euro now is a strong, stable fiat currencies not plagued by multitude of deficits the dollar is plagued with.

I disagree with you assessment that the EU will have to do what the US has done. That is utter nonsense. It is because the US made the dollar a hegemonic currency and thought it could get everything for free from the world that it became the consumer of last resort. In a world economy that is based on a basket of currencies and where each currency region becomes both producer and consumer, then everyone prospers equally or as close to equal as possible. A system of checks and balances would maintain stability. Everyone everywhere should be exposed to the same opportunities, the same pluses and the same minuses. Dollar hegemony is failing because it creates a huge imbalance, forces the US to become a consumer nation that produces next to nothing. The final outcome is going to be immense poverty for US citizens unless some form of global re-balancing can be achieved to prevent a US dollar collapse.

In a balanced world economy, there would be no dominate fiat currency and no need for one. The US model failed and there is no reason to repeat it in the future.
User avatar
Euric
Tar Sands
Tar Sands
 
Posts: 622
Joined: Sat 04 Dec 2004, 04:00:00
Top

Re: The Last Days of the Dollar?

Postby MrBill » Mon 09 Apr 2007, 03:24:52

$this->bbcode_second_pass_quote('CrudeAwakening', 'O')k, on further reading I think I've answered my own question. Still not sure about Russia though. Isn't the rouble no longer closely pegged to the dollar?


No, the ruble is not pegged versus the US dollar. It has gone from 6 rubles to one US dollar in 1998 to 32 rubles in 1999, and now stands at approximately 26 rubles to the US dollar. That is not much of a peg!

As two-thirds of Russia's imports come from the eurozone there is a closer correlation between the EUR/RUB than the USD/RUB. 34.7 rubles to the euro at the moment give or take.

Prices in Russia are displayed in international currency units (ICU) and then by law all transactions have to take place in rubles. Years ago the ICU = USD. But in 2004 when the USD experienced its last bout of weakness vis a vie the EUR (circa $1.3560) the Russians switched to displaying ICU = EUR (a 25% price increase overnight) for most goods. As the RUB stabilizes one would expect them to simply show prices in rubles. However, inflation in Russia is still above 10% p.a. (and money supply growth is +40% per year as well), so there are still monetary issues for them to deal with.

The CBR amoung the central banks has been one of the more aggressive diversifiers away from the USD, but they still hold them for lack of alternatives along with CHF, GBP, EUR and some JPY. The CBR do not officially release their reserve compositions, so it is a market guess to what they hold in their basket.

But in answer to your question there is nothing stopping Russia from diversifying away from the US dollar.

Euric wrote:
$this->bbcode_second_pass_quote('', 'Y')ou have debunked nothing. When you are wrong, nobody believes you. You aren't preaching to the choir here.

The "theory" has always been that if you price in dollars, if you collect and pay in dollars, you will keep your funds in dollars (at least most of them), because you don't want to lose out on the exchange rate or lose value if the other currency drops against the dollar. Thus before the euro, the major holdings of all the central banks were mostly in dollars, at least 80 % +.

Now because of the euro, the dollar has lost value and the conditions that would keep one loyal to the dollar no longer apply, except maybe threat of invasion. With the general trend of the dollar value being downward there is no longer an incentive to hold onto dollars even if you price and collect in dollars. This is proven by the fact that world reserves in dollars has dropped to 64% and euro reserves are up to 26 %.



Believe me, Euric, I would be much more worried if you ever agreed with me. I would be sure I had gotten something wrong then!

US dollar reserves dropped to 64%, euro reserves are 26%? Wrong on both counts. Central banks also hold CHF, GBP, JPY and usually a handful of other currencies that depend on their bilateral trade needs.

Directly proceeding the introduction of the euro in 1999 central bank allocation of foreign reserves was no where near 80% for the US dollar. Closer to 65%.

But before the euro, central banks generally held a lot of deutschmarks as well as US dollars. The deutschmark was the number two reserve currency before the euro. The percentages change, the euro has gained some traction vis a vie the US dollar in official foreign exchange reserve allocation, but in absolute terms central banks still hold record number of US dollars.

IF deutchmark reserve holdings were 20% (+/-) of overall allocation and IF then euro holdings are now 26% (+/-) as you state (without any reference naturally) then +6% (+/-) is not much when you consider that their allocation to FRF, NLG, ATS, IEP, GRD, etc. dropped to 0% effectively when the EUR was adopted to replace in total 11-national currencies.

The real faillure, if you want to call it that, based on real trade flows (that should determine relative currency weights) is that central banks are not willing to hold more JPY or CNY. Your obsession with EUR/USD ignores completely the trade and investment flow dynamics of dozens of other currency pairs. We focus on EUR/USD because it is one of the most freely traded currency pairs. It is a failure of many central banks, governments and finance ministries that they have not developed their own domestic capital markets to absorb those trade flows in their own local currencies forcing them to park their savings in either USD or EURs instead of putting them to work at home.

dr_doom wrote:
$this->bbcode_second_pass_quote('', ' ')MrBill...the world is round...the sooner you accept that fact the better it will be for you.


I am really not sure what this is supposed to mean? So, like, whatever?
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby CrudeAwakening » Mon 09 Apr 2007, 03:54:46

Thanks for your comprehensive explanation, MrBill.

So it seems that the benefits to the US from pricing oil in dollars relate more to the various incentives for oil selling countries to retain their oil revenues as USD denominated assets, rather than simply the fact of pricing oil in USD alone?
User avatar
CrudeAwakening
Tar Sands
Tar Sands
 
Posts: 834
Joined: Tue 28 Jun 2005, 03:00:00
Top

Re: The Last Days of the Dollar?

Postby MrBill » Mon 09 Apr 2007, 04:32:16

$this->bbcode_second_pass_quote('CrudeAwakening', 'T')hanks for your comprehensive explanation, MrBill.

So it seems that the benefits to the US from pricing oil in dollars relate more to the various incentives for oil selling countries to retain their oil revenues as USD denominated assets, rather than simply the fact of pricing oil in USD alone?



Absolutely. Especially if you think/feel/believe strongly that global imbalances correcting mean that the US dollar has to weaken against a basket of currencies in order to be competitive once again.

Then it would only make sense to keep your savings in anything but USD. Even if you had to sell your tolars/krowns/lira to buy US dollars, to immediately sell, to buy oil denominated in USD.

One other point. We have a pretty good understanding of official foreign exchange reserve numbers from central banks for example. But less of a feel for what oil producers do with their export receipts if those investments are made on behalf of the government via a state investment agency. Those flows only show up indirectly.

So it very hard to say with precision whether those indirect flows are increasing, decreasing or staying roughly the same. Then you have to look at the external value of the US dollar, and if it has not moved, conclude that inflows and outflows are roughly balancing one another out?

UPDATE:
p.s. do not get me wrong. So long as countries do use the US dollar the USA benefits from this 'free float' as it is a cheap source of funding.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby evilgenius » Wed 11 Apr 2007, 04:57:52

Britain is considering tax breaks for business done outside of the country. The belief is that it will boost the pound. Some see resistance at the 1.98 level. Those same people think this scheme could send the pound over the 2.00 level.

Is it possible that 2.10 is explosively around the corner?

What will the gold price go to in that event? Silver? And the biggest problem for all of us, grain?
When it comes down to it, the people will always shout, "Free Barabbas." They love Barabbas. He's one of them. He has the same dreams. He does what they wish they could do. That other guy is more removed, more inscrutable. He makes them think. "Crucify him."
User avatar
evilgenius
Intermediate Crude
Intermediate Crude
 
Posts: 3730
Joined: Tue 06 Dec 2005, 04:00:00
Location: Stopped at the Border.
Top

Re: The Last Days of the Dollar?

Postby MrBill » Wed 11 Apr 2007, 05:49:36

$this->bbcode_second_pass_quote('evilgenius', 'B')ritain is considering tax breaks for business done outside of the country. The belief is that it will boost the pound. Some see resistance at the 1.98 level. Those same people think this scheme could send the pound over the 2.00 level.

Is it possible that 2.10 is explosively around the corner?

What will the gold price go to in that event? Silver? And the biggest problem for all of us, grain?


Well, we have certainly seen Sterling over $2.00 in the past, but on a PPP basis it is getting quite strong relative to the US dollar (+21% according to The Economist). However, it is not 'particularly' overvalued against the euro (+21% vs. +19%).

But let us say that anecdotally many foreign manufacturers have chosen to locate in the continental EU, so as to eliminate this currency risk completely. Especially now, as they can relocate to places like CEE where the costs of doing business are lower and then they still have access to the EU free market zone as well.

That is two strikes against British manufacturing. The high cost of real-estate in the UK is strike three! Ouch!

However, even if you lose manufacturing. As bad as that is. You would still prefer to have incorporation and head office in the UK as then at least you harvest a portion of the corporate taxes paid as well as keeping some head office salaries and 'front-office' jobs in sales & marketing, etc.

As to your second concern. The price of gold, silver and grain. Of course, a stronger pound makes commodities priced in US dollars cheaper, so it lowers imported inflation. Your Sterling goes further, so the costs of imports are lower.

So eventually the UK will become a service only economy unless radical steps are taken to boost productivity in manufacturing high enough to overcome a strong pound, high interest rates, real-esate costs and foreign exchange uncertainty vis a vie the euro.

Of course, Mr. Brown sunk one cost advantage the UK used to have. Mainly competitive personal tax rates that used to be significantly lower than on mainland Europe within the EU-15. New Labor looks a lot like Old Labor when it comes to tax & spend policies!
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby I_Like_Plants » Wed 11 Apr 2007, 15:12:00

Here's a good, a bit long, article on the "last days of the dollar"

http://www.counterpunch.org/whitney04112007.html
I_Like_Plants
Intermediate Crude
Intermediate Crude
 
Posts: 3839
Joined: Sun 12 Jun 2005, 03:00:00
Location: 1st territorial capitol of AZ
Top

Re: The Last Days of the Dollar?

Postby MrBill » Fri 13 Apr 2007, 02:57:57

$this->bbcode_second_pass_quote('CrudeAwakening', 'T')hanks for your comprehensive explanation, MrBill.

So it seems that the benefits to the US from pricing oil in dollars relate more to the various incentives for oil selling countries to retain their oil revenues as USD denominated assets, rather than simply the fact of pricing oil in USD alone?


A little bit more meat on the bones. Not up to date data, but as up to date as you can get. Still, it shows that the CBR did diversify away from the US dollar. And somewhat implies that this diversification did help the US dollar to lose ground against the euro. That supports the arguments made by many here that central bank diversification does cause the US dollar to fall, so the early birds impose those FX losses on the late diversifiers. In this case, China & Japan to name just two.

$this->bbcode_second_pass_quote('', '2'). Russia, by contrast, did diversify. That isn't a surprise. Russia said as much last June.

Russia's total holdings of US debt rose by $35b between the end of June 2005 and the end of June 2006. Its bank deposits – best I can tell – fell by about $15b over the same period, for a net inflow of $19b.

During that period, the bank of Russia reports that it bought $91.4b of foreign exchange. If the Bank of Russia had wanted to hold the dollar share of its reserves constant at 70%, given fluctuations in the euro/ dollar and pound/ dollar, it would have needed to have bought about $70b of dollars. Cutting its dollar share from 70% to 60% would have implied about $45b of purchases. Bringing its dollar share down from 70% to 50% would have implied $20b or so of purchases.

Draw your own conclusions.

Actually, the US data isn’t definitive. Many countries hold a large share of their dollar reserves in the international banking system (India is one example, but Libya and Nigeria are others), so changes in US holdings are not a perfect proxy for changes in dollar holdings. Indeed, the fall in Russia’s “onshore” dollar deposits was likely offset by a rise in Russia’s “offshore” dollar deposits.

However, Russia also reports the valuation gains (and losses) on its fx portfolio. Judging from the size of its reported valuation gains, Russia hadn’t diversified in advance of the big dollar move in q2 but it had diversified in advance of the big dollar move in q4.

My guess is that Russia was actively diversifying during the second quarter, and quite possibly contributed to the dollar’s fall then. It then drew down its dollar balances to cover the big payment to the Paris Club in q3, bringing the dollar’s share of its total reserves down to around 50% by the end of q3.
What have the world's central banks been up to?
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby eXpat » Fri 13 Apr 2007, 19:26:48

Article "Euro hits new two-year high against dollar" link
"I learned long ago, never to wrestle with a pig. You get dirty, and besides, the pig likes it."
George Bernard Shaw

“You can ignore reality, but you can't ignore the consequences of ignoring reality.” Ayn Rand
User avatar
eXpat
Intermediate Crude
Intermediate Crude
 
Posts: 3801
Joined: Thu 08 Jun 2006, 03:00:00
Top

Re: The Last Days of the Dollar?

Postby MrBill » Mon 16 Apr 2007, 02:52:27

$this->bbcode_second_pass_quote('eXpat', 'A')rticle "Euro hits new two-year high against dollar" link


Predictions are always risky, especially when they are about the future.... BUT the EURJPY is way overbought! It hit 162.42 overnight after the G7 meeting and now it is a screaming sell!!

On the trading envelopes the daily spot price is more than 2 standard deviations from the 21-day moving average and is not far from the 3rd stdv. at 163.50.

Although not particularly overbought on the RSI (65.78 vs. 74.86 all time high) the last correction this past month took place when it was only overbought at 62.30 when EURJPY was 159.63 and then it dropped to 34.04 or EURJPY 150.72. Now we are 161.75 and 65.78, so there is definitely room to the downside.

I cannot trade this cross directly. I just called my boss and he nixed my suggestion to buy OTM options or take a futures position. Shame. But we are closing a lot of other speculative positions in other markets in expectation that something nasty is about to happen. If not tomorrow, then possibly this week.

Remember I am on holiday at the end of April, beginning of May, and markets have a habit of crashing either just before my vacation or when I am away. Usually the day I have to leave. Dunno why? But just because you're paranoid, doesn't mean the world is not out to get you! So be forewarned. The stars are alligned and there's a bad moon arising.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby Micki » Mon 16 Apr 2007, 02:59:24

$this->bbcode_second_pass_quote('', 'B')ut we are closing a lot of other speculative positions in other markets in expectation that something nasty is about to happen. If not tomorrow, then possibly this week.


Want to share what you specifically have bad feelings about?
It doesn't sound like the usual "sell in may and go away..."

Something more severe than last May???
Micki
 
Top

Re: The Last Days of the Dollar?

Postby Monk » Mon 16 Apr 2007, 03:24:02

$this->bbcode_second_pass_quote('MrBill', '
')Predictions are always risky, especially when they are about the future.... BUT the EURJPY is way overbought! It hit 162.42 overnight after the G7 meeting and now it is a screaming sell!!


This is hitting the resistance from the 1999 high right now..... very likely that the EUR will have to retrace/consolidate before an attack on this resistance line.
User avatar
Monk
Peat
Peat
 
Posts: 151
Joined: Tue 02 Aug 2005, 03:00:00
Top

Re: The Last Days of the Dollar?

Postby MrBill » Mon 16 Apr 2007, 03:34:24

$this->bbcode_second_pass_quote('Micki', '')$this->bbcode_second_pass_quote('', 'B')ut we are closing a lot of other speculative positions in other markets in expectation that something nasty is about to happen. If not tomorrow, then possibly this week.


Want to share what you specifically have bad feelings about?
It doesn't sound like the usual "sell in may and go away..."

Something more severe than last May???


So many previously unrelated asset classes are now heavily correlated. If I pull up daily charts like EURJPY, CRBI, RTS, GSPE (S&P Energy Index) they all look very similar. Why? I guess it is because they all are so-called yen carry trades and/or they have benefited from asset price inflation from too much global money supply. And not just US dollar money supply, but money supply growth in Australia, Brazil, Canada, China, EU, Russia, etc. The world is awash in cheap money.

With global GDP still expanding by 4.9% in 2007, yen interest rates of 0.50%, or even EUR rates of 3.75%, are still stimulative. Regardless of what the Fed does or does not do. It does not help if the Fed raises rates to 5.5% or 5.75% IF you can still borrow JPY or CHF cheaply or IF China is printing 8 yuan for every US dollar they sterlize and then re-investing those US dollars into interest bearing assets.

Asset price inflation is not the same as wage & price inflation, but if you then monetize those gains by borrowing against those paper gains then one can lead to the other. There is a lot of inflation right now. It is not all the Fed's fault. They are not the world's central bank. But if you can borrow JPY cheaply, sell JPY, buy USD to pay for USD denominated energy, metals or commodities then US rates have to be punitively high for a long-time to make an impact. However, due to the US' budget prolifigy and current account deficit those rates probably are not high enough to offset the effect of others like Japan keeping their interest rates too low or for China that is not allowing the yuan to appreciate fast enough.

But that is all old news. My panic stems from this weekend's G7 meeting where obviously they failed to single out the yen as being a major contributor to global instability as both a funding currency for other carry trades, and because the yen is 40-50% under-valued on a trade weighted or purchasing power parity basis against the euro.

There is a technical pattern common to over-bought markets that are about to crash. This is called a broadening out formation. It occured in the US stock markets leading up to the crash in 1929. Basically, you have an extended rally. A new high. Then a correction. Then a new high. Etc. Until it collapses. What it means is that the market is unsure whether the rally is over, but nervous just the same. However, as new investors buy into each dip and then they subsequently get a new high, those who took profit and are on the sidelines think they be missing the start of a new rally. So when it dips next time, they start to buy again. But eventually there are no new buyers and the market just collapses of its own volition. That is the pattern I am seeing in the EURJPY, and by default in all those other daily charts that all look similiar.

A friend of mine is a teacher in China. She invested 100.000 yuan and turned it into 250.000 yuan in the Chinese stock market in less than a year. She thinks that is great! Easy money. Those valuations of 40X price to earnings ratios and higher bear no resemblance to reality. It is just speculation. Not even the 9% drop last month woke investors up. Nor interest rate rises from the PBoC or increasing reserve requirements. So I told her to be very careful. It is a speculative bubble waiting to burst! That one and many others.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby Dukat_Reloaded » Mon 16 Apr 2007, 10:53:51

Great post there MrBill, yeah alot of assets are in a bouble, even gold, but these boubles depend on the extent of central banks to keep pumping out the liquidity, as soon as there is any downturn, they will just flood the markets with money again, so in reality with the supposed "greenspan put" it puts a floor under the market. The question is not will the central banks continue to increase liquidity, the question is when will the markets be willing to continue to absorb all this liquidity and that is the better question to ask, and if that is true, more people are still going to jump on the bandwagon, such as little micky who works at McDonalds buying shares and foreign investments on leverage, when everyone is in, thats when liquidy will stop, the bursting housing bouble may provide that effect or maybe something more will be needed, I would buy gold and not get seduced buying local or foreign CD's/Bonds & Currencies expecting a sweet 5-8% interest rate (which half generally goes to be paid in taxes). Generally you avoid that with gold, a currency can drop in value to zero, Gold will not and I think in these times it is prudent to be heavly invested in gold.


$this->bbcode_second_pass_quote('', 'E')ven if they do it is impossible to back your entire economy with it, as most, if not all economies have out grown gold.


Euric, No body has outgrown gold, it was dumped in 1971 because the US $20 had printed on it "exchangable for 1 ounce of gold" and the government inflated the paper and was impossible to convert the paper into gold anymore. If we were still on a gold standard, prices would have been deflating, a person working a job would beable to save money up and buy a house without having to goto a bank for a loan, the longer he waited and saved the more house he can buy, unlike today the long you wait and save the less house you will beable to buy (up until afew months ago anyway). Going to a gold standard will cut out alot of the useless jobs out there like banking, investment industry, white collared jobs etc etc, the econmey will be alot leaner and life would be better.
User avatar
Dukat_Reloaded
Tar Sands
Tar Sands
 
Posts: 953
Joined: Sun 31 Jul 2005, 03:00:00
Top

Re: The Last Days of the Dollar?

Postby Monk » Mon 16 Apr 2007, 12:37:50

$this->bbcode_second_pass_quote('Dukat_Reloaded', 'G')reat post there MrBill, yeah alot of assets are in a bouble, even gold



You think gold is in a bubble???? Couldn't be farther from the truth.
User avatar
Monk
Peat
Peat
 
Posts: 151
Joined: Tue 02 Aug 2005, 03:00:00
Top

Re: The Last Days of the Dollar?

Postby Kingcoal » Mon 16 Apr 2007, 12:42:22

$this->bbcode_second_pass_quote('', 'T')he ECB held its benchmark rate steady at 3.75 percent last week, but set the scene for an increase to 4 percent in June. That would be aimed at countering threats of inflation in the euro zone, a bloc of 317 million people that accounts for more than 15 percent of the world's global domestic product.
Link

Is inflation that big of a threat to the EU that they have to keep raising rates? On the other end of the spectrum, the US should raise rates because the threat of inflation is much greater here, or at least that's my opinion. In other words, the ECB should cut rates and the US should raise rates - almost the opposite of what's happening.
"That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
User avatar
Kingcoal
Expert
Expert
 
Posts: 2149
Joined: Wed 29 Sep 2004, 03:00:00
Location: Pennsylvania, USA
Top

Re: The Last Days of the Dollar?

Postby MrBill » Tue 17 Apr 2007, 04:48:26

$this->bbcode_second_pass_quote('Monk', '')$this->bbcode_second_pass_quote('Dukat_Reloaded', 'G')reat post there MrBill, yeah alot of assets are in a bouble, even gold



You think gold is in a bubble???? Couldn't be farther from the truth.


I would not say gold is in a bubble, but it has benefited from the same global liquidity & easy money policies as all other assets such as energy, base metals, commodities, real-estate, emerging markets, stocks, bonds, etc. Take away that stimulus and all asset prices deflate together. Gold will not resist that downward pull anymore than any other 'real (non-financial) asset'.

In the context of a weaker US dollar I took a look at some of the metals and commodity indices to get a feel for how far this rally could run in the short-term (keep in mind my time horizon is for trading not making strategic, long-term investments).

The only metal I found over-bought on the RSIs was copper (75.25%), and that may very well be for fundamental reasons? I do not know. I was surprised that nickel was not over-bought because I had read about strikes and physical shortages. But it was only 55.35, which is fair value as far as technicals go.

Gold & silver RSIs were 66.10 & 64.59, so getting up there, but not over-bought. Having said that there is some real resistance between $693-702 in the XAU and at $14.15 in the XAG. Plus rumors of more central bank sales in the pipeline that could cap a half-hearted rally, unless the US dollar breaks decisively above $1.3575 (recent high) to $1.3675 (previous high in 2004) against the euro.

So I agree that gold is not in a bubble. But as an investor I would not be buying just ahead of resistance at $693-702 when I see support at $655, and the US dollar has yet to conclusively break through the $1.3675 previous high. However, it pretty much depends on your time frame and your ultimate purpose for buying.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby MrBill » Tue 17 Apr 2007, 04:48:58

$this->bbcode_second_pass_quote('Monk', '')$this->bbcode_second_pass_quote('Dukat_Reloaded', 'G')reat post there MrBill, yeah alot of assets are in a bouble, even gold



You think gold is in a bubble???? Couldn't be farther from the truth.


I would not say gold is in a bubble, but it has benefited from the same global liquidity & easy money policies as all other assets such as energy, base metals, commodities, real-estate, emerging markets, stocks, bonds, etc. Take away that stimulus and all asset prices deflate together. Gold will not resist that downward pull anymore than any other 'real (non-financial) asset'.

In the context of a weaker US dollar I took a look at some of the metals and commodity indices to get a feel for how far this rally could run in the short-term (keep in mind my time horizon is for trading not making strategic, long-term investments).

The only metal I found over-bought on the RSIs was copper (75.25%)*, and that may very well be for fundamental reasons? I do not know. I was surprised that nickel was not over-bought because I had read about strikes and physical shortages. But it was only 55.35, which is fair value as far as technicals go.

Gold & silver RSIs were 66.10 & 64.59, so getting up there, but not over-bought. Having said that there is some real resistance between $693-702 in the XAU and at $14.15 in the XAG. Plus rumors of more central bank sales in the pipeline that could cap a half-hearted rally, unless the US dollar breaks decisively above $1.3575 (recent high) to $1.3675 (previous high in 2004) against the euro.

So I agree that gold is not in a bubble. But as an investor I would not be buying just ahead of resistance at $693-702 when I see support at $655, and the US dollar has yet to conclusively break through the $1.3675 previous high. However, it pretty much depends on your time frame and your ultimate purpose for buying.

*RSI >70% = overbought <30% = oversold
EURJPY = 161.62 RSI = 71.75%
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
User avatar
MrBill
Expert
Expert
 
Posts: 5630
Joined: Thu 15 Sep 2005, 03:00:00
Location: Eurasia
Top

Re: The Last Days of the Dollar?

Postby dr_doom » Thu 19 Apr 2007, 23:46:39

$this->bbcode_second_pass_quote('MrBill', '
')I would not say gold is in a bubble, but it has benefited from the same global liquidity & easy money policies as all other assets such as energy, base metals, commodities, real-estate, emerging markets, stocks, bonds, etc. Take away that stimulus and all asset prices deflate together. Gold will not resist that downward pull anymore than any other 'real (non-financial) asset'.


I think you've got gold totally wrong. The "global liquidity" has been used to more effectively manipulate the price of gold downwards, keeping it within a "safe" trading range. Take a look at GATAs research.

Do you honestly believe the USD became detached from the gold-standard in 1971, to usher in a new age of never-ending fiat prosperity. Yeah right, the petrodollar is a conspiracy theory, you've debunked it and it doesn't exist, right?



$this->bbcode_second_pass_quote('', '
')Gold & silver RSIs were 66.10 & 64.59, so getting up there, but not over-bought. Having said that there is some real resistance between $693-702 in the XAU and at $14.15 in the XAG. Plus rumors of more central bank sales in the pipeline that could cap a half-hearted rally, unless the US dollar breaks decisively above $1.3575 (recent high) to $1.3675 (previous high in 2004) against the euro.


The central banks sell gold to drive the price down. Greenspan has testified before congress to say as much, "central banks standing ready to lease gold in increasing quantities should the price rise?".

The central banks cannot continue to do this forever. Physical demand will be what eventually ends the rigging. Oil price goes up -> inflation rises sharply -> gold demand can't be met and price goes to the moon -> game over.

Maybe the other fiat currencies too, seeing as they're all based on confidence and are valued relative to the dollar. I don't think anyone really knows what would happen because as far as I know, the global reserve currency collapsing has never actually happened before.
"All we need is the right major crisis and the nations will accept the New World Order."

David Rockefeller - Sept. 23, 1994
User avatar
dr_doom
Wood
Wood
 
Posts: 34
Joined: Sun 26 Mar 2006, 04:00:00
Top

Re: The Last Days of the Dollar?

Postby mattduke » Fri 20 Apr 2007, 02:15:02

I hate it when people say "liquidity" and "easy money". Call a spade a spade; it's money printing.
User avatar
mattduke
Intermediate Crude
Intermediate Crude
 
Posts: 3591
Joined: Fri 28 Oct 2005, 03:00:00
Top
PreviousNext
Post a reply

Return to Economics & Finance

Who is online

Users browsing this forum: No registered users and 5 guests