|
|
Introduction
As the dollar continues its steep descent to 75 on
the Dollar Index, and the syndicated US propaganda machine's hacks, and
talking heads, continue in their shallow "analysis" of the markets,
the momentous importance of the world reserve currency's demise, and the
underpinning fundamentals behind it, are all but glossed over, in order that
Joe Public does not really understand the fate that will shortly overwhelm
him. The DJIA, SPX and NASDAQ enjoy their pre-festive season bear market
rally, and everyone is provided with the apparent impression that all is just
fine and dandy on the good ship "USS America". The key thing is
that consumers must not lose confidence in the all-important Christmas - New
Year spending spree, and suddenly start to demonstrate a modicum of financial
prudence.
Be that as it may, the storm clouds are gathering
fast for the US
economy and its ill-founded financial system. Time, that
most valuable and irreplaceable commodity, is ticking by remorselessly. Neither the US Administration or the Federal Reserve has
shown any wish to halt the dollar's collapse, instead citing its importance
in reducing the US
twin deficits. This sleight of hand, of course, overlooks several key issues,
namely:
1.
foreigners, who hold
trillions of dollars of US$ denominated securities and equities, are being
defrauded by wholesale currency debasement on a truly epic scale. The size of
the US$ devaluation offsets the apparent gains in the rise of bonds and
equities, as opposed to those being made in European and Asian bourses, with
the currency effect double whammy;
2.
US senior citizens, and savers generally, are
watching their pensions and capital savings destroyed before their eyes, at a
time when they will need the money to pay for fast rising day-to-day living
expenses, medical care and accommodation;
3.
the psychological impact of watching the world's
reserve currency behaving like a "banana republic's" pretty colored
banknotes will have a long-term and damaging impact on foreigners willingness
to retain the US$ as the world's "seigneur" currency, with all that
this means for US economic advantage. This will cause a seismic shift in
foreign exchange transactions around the globe, as individuals and countries
rush to diversify currency transaction risks out of the US$.
The current collapse of the US dollar will not stop
at 75 on the index. Sure, there will be a rally from an oversold condition at
some point, however, until the fundamentals are addressed, which there is
currently no willingness to do, the dollar will
continue its collapse well into the New Year. No-one dare predict where the
end is, because no-one knows. The vital question is "At what point does
confidence finally fail in the US$?".
With no link between any paper currency in the world, and any tied physical
asset constraint, such as gold, paper money is only worth what people
collectively think it is. To a large degree, this is set by the markets. In
effect, it's a large confidence trick. However, so long as the markets accept
the exchange for goods and services, the entire structure somehow works. However,
Mr. Greenspan, America's
great financial engineer and digital alchemist, is set to test the theory,
quite probably to complete destruction. After all, people do not like being
defrauded on a grand scale that all but amounts to legalized grand larceny. This
is what the Fed is currently doing.
Meanwhile on the home front, individual Americans
and, to a slightly lesser extent their European and Australian counterparts,
continue to spend up to the hilt, using their house as a private bank to draw
off capital, to keep the engines of growth churning along. The Real Estate
bubble remorselessly grows ever larger to become by far the largest asset
financial bubble the world has ever seen. Only the "galactic scale
derivatives and hedge funds" monsters exceed it. The distortions in the
global economy are at breaking point. All it needs is the trigger. The
collapse of the US$
is the trigger.
The Precious
Metals Bull Market
Mr. Greenspan is a man in a crisis with no levers to
pull. He cannot raise rates as the bond, equity and real estate markets would
collapse. This would develop into a "black hole - gravitational
implosion scenario", where one event fed on the next until the entire
financial system quite literally caved in. The alternative is for President
Bush to raise taxes and cut back on Government spending. This too will have
virtually an identical effect. Furthermore, with the "hors
d'ouevre" Iraq virtually pulverized, Iran is lining up to be the
"main course" in this Middle Eastern smorgasbord of conquest, which
will ultimately result in the US controlling, with (behind the scenes)
Israel, the entire Middle East and its vital petroleum resources. Of course,
an extended Mid-East military campaign is likely to be another pricey
military adventure, where lowering taxes and cutting expenditure is not an
option. Right now, foreign, military, policy, outweighs any domestic US agenda,
regardless of what ordinary American citizens want, or realize is in the
immediate interests of their country and its people.
As a backdrop to the US
domestic scene, there is the wider global one, in which rapidly developing
economic and population giants, China
and India,
have entered the global resources market in a very big way. No longer are the
fortunes of the commodities markets the preserve of the developed economies
such as Japan, Europe and North America, and the manipulations of their various
powerful and wealthy multinational corporations to the detriment of "third
world" and other producing nations who have been effectively raped for
centuries. China
alone has as many people as all of the developed countries put together. Furthermore,
it has a little sum of US$455 billion in US$ denominated assets piled up. This
tidy sum increases by the day as the Fed's daily appetite for foreign funds
runs at a cool US$ 2.7 billion. What is China going to do with this vast
depreciating pile of essentially worthless FIAT paper? What would you do with
it? Spend it on hard assets? .... well, this is
precisely what China
is doing. It has its eyes cast wide on gold, silver, nickel, iron and copper
mines in Canada, Mexico, Chile, to mention but a few, and oil fields around
the world. It is buying access to vital foodstuffs and consumables at an
accelerating pace, because it fully realizes the shape of the world to come. The
US,
in 120 years of extreme profligacy, has wasted its natural resources on a
scale hitherto unseen and unimaginable. The US
internal development strategy will be shown to be severely wanting, and the US internal
social, infrastructural and other problems will be thrown into sharp relief
by the coming global financial crisis. Going forward, resource-poor America is
highly vulnerable to global competition in the resource markets. The
ballyhooed "War on Terrorism" is a great big smoke screen for
sorting out Israel's foreign policy, in a manner it could never otherwise do,
or hope to get away with, and, moreover, to control vital Mid East oil
resources to prop up the US economy, and the US$ as a global currency. The
Arab world fully realizes these "twin nation" objectives.
Since 2001, commodities, such as gold, silver,
nickel, copper, lead, zinc, cotton, soya, cocoa etc have been in a bull
market that mirrors the decline of the US$, in which they are all quoted on
world markets. As the US$
continues its descent to unfathomed depths, the clamor for hard, commodity
based assets accelerates. Furthermore, the Fed, now facing the chess game
equivalent of "Zugzwang" (every move it now makes will lose), can
do nothing other than stand by and watch the dollar decline continue until
the point is reached where the US faces an "International Dollar
Crisis". Then, like it or not, the Fed has to act and act resolutely. At
this juncture, interest rates will skyrocket, bringing the great
"Equities - Bonds - Real Estate Party" to its ultimate demise;
i.e., a total train wreck that will make 1929 look like a children's tea
party.
Before all this happens, the precious metals will
have their revenge on the Fed's great FIAT experiment. Gold, in particular,
will rise to US$ dollar prices that people would currently regard as
completely insane. However, it is worth bearing in mind that in the 1930's,
gold was fixed at US$16 an ounce. There are now
US$185,000 in global circulation for every known ounce of gold on this
planet. The rush for gold has already started, as the yellow metal enters
Phase 2 of the greatest gold bull market the world has ever seen. In 2005,
this rush is going to develop into an all-out stampede. Right now, all the
world's precious metal mining companies put together have a market
capitalization less than the Coca Cola company. This is going to change by
entire orders of magnitude.
When the bond, equity and real estate markets finally
collapse, as they will, the scramble for precious metals will become the
greatest mankind has ever seen. It will be propelled by mans most basic
instincts: fear and survival. Remember, no man or country has ever issued
digital currency or paper currency in the unconstrained, uninhibited and
totally uncontrolled manner in which the US has done. No country has ever
amassed debt on such a mind boggling scale. No country has ever allowed its
savings to collapse to such a pitiful level. The misallocation of resources, and dislocation of the economy is quite simply
enormous and unsustainable. These vast distortions cannot continue much
longer. Like the laws of pure science and economics, the correction is long
past overdue as the fundamentals that drive society take over their natural
control of events. Mr. Greenspan and his Federal Reserve are just mortal
human beings, after all. There is one much mightier than he. Hubris has
always been, and will always be, mankinds' ultimate undoing.
December, 6 2004
Nigel H. Maund
|
|
