Saturday, November 29, 2008
Sunday, November 23, 2008
The Rising Snowflake
Today is the first day of snowfall this year, and as I'm looking outside, the large snowflakes near my window are actually flying upwards. It seems to be defying all laws of gravity.
Just like the US dollar.
The U.S. economy is collapsing, a recession, no, a depression is imminent and the dollar is rising. Whats going on here??
We are in the midst of a readjustment. Err..., slight understatement... what we are seeing is nothing less than the birth of a new international monetary system . This has to be taken in steps, and while the average observer is left baffled by the fluctuation and contradictory trends of asset prices (equities, currencies, commodities etc..), for viewers behind the scenes the market volatility we are seeing is understandable and natural. But the snow has gotta fall somewhere.
It looks like our friend, The London Banker seems to have a good explanation for this current reversal of trends. A very interesting read.
In [very] short:
1) The Paulson plan required hedge funds raised margin requirements from 15% to 35% worldwide. That resulted in a huge contraction in global liquidity.
2) to meet those margin calls, the money flowed back to the US in form of treasuries, raising the demand and price for the dollar and causing a sharp sell-off in funds, resulting in the decline in commodities.
...but what happens when this is over? "Will anyone want to buy dollars when they don’t need them to repay dollar debt?"
The crash of the dollar and another rise of commodity prices is inevitable. Foreign demand for treasuries is falling and with our debt to foreigners over $10,000,000,000,000 (yes thats 12 zeros!!), paying back that money is much more expensive when the dollar is high. There will be a concerted effort on behalf of the US to again depreciate the value of the dollar so it can deflate its debt. Why give our creditors expensive dollars when we could give them cheap ones?
The system will be aflush with dollars, [hyper?]inflation will kick in, and a crash in the dollar will begin. The money has to go somewhere. Since the dollar is the international reserve currency, and in times of extreme volatility most investors just want a safe store of value. But where else can money be stored? Will it flow into Euros? WilI it will flow into commodities? How about other currencies?
Euro and other currencies: There is an unusual lack of commentary and specalation on the future price of the Euro. It seems everyone is afraid to guess which direction it may go. The eurozone feels its currency is still overvalued and is resisting capital inflows which would increase its value. This goes for other large economies around the world as well. Until an alternative systemic solution can be found, the money will have to flow somewhere. My prediction: until we hve a viable alternative, we will see a rise in the Euro and other currencies with a current account surplus relative to the dollar.
Gold: Hedge funds have been selling assets across the board and turning gold into dollars, or at least the paper gold of futures contracts into greenbacks. This caused the recent price decline, but there has been an over 120% rise in the retail demand for gold this quarter alone! Once hedge funds have no more liquidation to do, we can expect gold as a traditional store of value to remain an attractive target for capital. There is also speculation that there could be an official revaluing of gold (to over 10x its price today!!) in order to monetize our outstanding debt and reinflate asset values. Something similar to what happened in the 1930's. Whatever happens, it probably won't happen overnight. Stock up on gold jewelry, and expect prices to rise again rise to record levels as the USD weakens in 2009.
In summary, we can expect the dollar to sharply decline and gold to sharply rise as the financial crisis unfolds. Time-table? Always the most difficult to predict, but if the trends continue, then by early next year we will have already seen some trend reversals.
But what does the mid to long-term future hold? Can the dollar remain the international currency? What form will the new international monetary order take? Who will be the power-brokers? The money-holders? There are several interesting initiatives and ideas on this I'll take up in my next post....
Just like the US dollar.
The U.S. economy is collapsing, a recession, no, a depression is imminent and the dollar is rising. Whats going on here??
We are in the midst of a readjustment. Err..., slight understatement... what we are seeing is nothing less than the birth of a new international monetary system . This has to be taken in steps, and while the average observer is left baffled by the fluctuation and contradictory trends of asset prices (equities, currencies, commodities etc..), for viewers behind the scenes the market volatility we are seeing is understandable and natural. But the snow has gotta fall somewhere.
It looks like our friend, The London Banker seems to have a good explanation for this current reversal of trends. A very interesting read.
In [very] short:
1) The Paulson plan required hedge funds raised margin requirements from 15% to 35% worldwide. That resulted in a huge contraction in global liquidity.
2) to meet those margin calls, the money flowed back to the US in form of treasuries, raising the demand and price for the dollar and causing a sharp sell-off in funds, resulting in the decline in commodities.
...but what happens when this is over? "Will anyone want to buy dollars when they don’t need them to repay dollar debt?"
The crash of the dollar and another rise of commodity prices is inevitable. Foreign demand for treasuries is falling and with our debt to foreigners over $10,000,000,000,000 (yes thats 12 zeros!!), paying back that money is much more expensive when the dollar is high. There will be a concerted effort on behalf of the US to again depreciate the value of the dollar so it can deflate its debt. Why give our creditors expensive dollars when we could give them cheap ones?
The system will be aflush with dollars, [hyper?]inflation will kick in, and a crash in the dollar will begin. The money has to go somewhere. Since the dollar is the international reserve currency, and in times of extreme volatility most investors just want a safe store of value. But where else can money be stored? Will it flow into Euros? WilI it will flow into commodities? How about other currencies?
Euro and other currencies: There is an unusual lack of commentary and specalation on the future price of the Euro. It seems everyone is afraid to guess which direction it may go. The eurozone feels its currency is still overvalued and is resisting capital inflows which would increase its value. This goes for other large economies around the world as well. Until an alternative systemic solution can be found, the money will have to flow somewhere. My prediction: until we hve a viable alternative, we will see a rise in the Euro and other currencies with a current account surplus relative to the dollar.
Gold: Hedge funds have been selling assets across the board and turning gold into dollars, or at least the paper gold of futures contracts into greenbacks. This caused the recent price decline, but there has been an over 120% rise in the retail demand for gold this quarter alone! Once hedge funds have no more liquidation to do, we can expect gold as a traditional store of value to remain an attractive target for capital. There is also speculation that there could be an official revaluing of gold (to over 10x its price today!!) in order to monetize our outstanding debt and reinflate asset values. Something similar to what happened in the 1930's. Whatever happens, it probably won't happen overnight. Stock up on gold jewelry, and expect prices to rise again rise to record levels as the USD weakens in 2009.
In summary, we can expect the dollar to sharply decline and gold to sharply rise as the financial crisis unfolds. Time-table? Always the most difficult to predict, but if the trends continue, then by early next year we will have already seen some trend reversals.
But what does the mid to long-term future hold? Can the dollar remain the international currency? What form will the new international monetary order take? Who will be the power-brokers? The money-holders? There are several interesting initiatives and ideas on this I'll take up in my next post....
Monday, November 17, 2008
Ron Paul is a Nazi and Obama is a Commie!
When recently confronted on how I can support first and foremost Ron Paul for the presidential ticket and then Obama, since that is absolute political philosophy schizophrenia, I had to give it some thought...
Paul extreme right, and Obama extreme left? Maybe. Although that would mean Paul is a Nazi and Obama a Commi. Am I sorely confused in my political philosophy if I can see myself supporting both at times? Some might say so, but I don't see any contradiction. Where I stand on the pidgeon-holing spectrum is not the issue.
I look in terms of goals. My goal is to have a society that is more egalitarian. Where every person is given similar opportunities despite his financial background. Where meritocracy still stands. Where the difference between rich and poor is not increasing day by day. Where hard work is enough to guarantee a good life. Where dreams can be pursued. Very idealistic and I like it that way.
So far free market capitalism is the best system humans have devised for this end. But just like communism in its ideal form could not be practiced due to the corrupt nature of people, the fanciful free market we have today is anything but free. It is designed, engineered, regulated for the benefit of the rich. It is designed by then rich to ensure they will stay at the top. Just like the international monetary system was designed by America to guarantee its prolonged hegemony. This is human nature.
So when in theory free market capitalism should guarantee prosperity to the highest amount of people, we are instead seeing differences in living standards growing daily. Why? Because this invisible wealth transfer is built into the structure of our fiat monetary system. The systems of debt and interest ensure the rich their premier position, whether we are looking at this nationally or globally.This is a dictatorship masking itself as the freeiest and fairest system of self-governing.
Paul wants a return to monetary ideals. He would like a system that is based on physical wealth, a currency that is underpinned by something of real value. So free market capitalism can truly flourish for the benefit everyone. He sees the Federal Reserve, the international bankers, as the root of evil, the root of all that is unjust. The reason for the war in Iraq. Find the cheerleader, save the world.
Obama sees that as not being possible. At least not under the current power structure. Getting rid of the Fed, attacking the source of wealth for the world's decision-makers, going against the most powerful people in the world might not be the wisest strategy if he ever wants to change anything. If we can't change the system, lets regulated it to make it work for us. Let's redistribute wealth overtly to counterbalance the built-in skew.
Btw...
Far right: less government controlling you fiscally, but more government controlling you socially.
Far left: more government controlling you fiscally and less government controlling you socially.
...and simplified, yes Ron Paul is a libertarian, pretty far right, and Obama is a socialist, pretty far left, but at least they way I see it... their end-goals are a lot closer to each other than the their place on the spectrum. In terms of their goals, the spectrum has come full circle.
There is nothing antithetical about preferring first and foremost a radical change proposed by Ron, but if seen as unreachable, then a compromised but maybe workeable position espoused by Obama. They're a lot closer to eachother than many think. Lets not let the labels fool us. Besides, do we really know whether the left or the right is a better road to prosperity and egalitarianism? If we did, the world wouldn't be as divided as it is now. What we have, doesn't work, so lets try something else...
Paul extreme right, and Obama extreme left? Maybe. Although that would mean Paul is a Nazi and Obama a Commi. Am I sorely confused in my political philosophy if I can see myself supporting both at times? Some might say so, but I don't see any contradiction. Where I stand on the pidgeon-holing spectrum is not the issue.
I look in terms of goals. My goal is to have a society that is more egalitarian. Where every person is given similar opportunities despite his financial background. Where meritocracy still stands. Where the difference between rich and poor is not increasing day by day. Where hard work is enough to guarantee a good life. Where dreams can be pursued. Very idealistic and I like it that way.
So far free market capitalism is the best system humans have devised for this end. But just like communism in its ideal form could not be practiced due to the corrupt nature of people, the fanciful free market we have today is anything but free. It is designed, engineered, regulated for the benefit of the rich. It is designed by then rich to ensure they will stay at the top. Just like the international monetary system was designed by America to guarantee its prolonged hegemony. This is human nature.
So when in theory free market capitalism should guarantee prosperity to the highest amount of people, we are instead seeing differences in living standards growing daily. Why? Because this invisible wealth transfer is built into the structure of our fiat monetary system. The systems of debt and interest ensure the rich their premier position, whether we are looking at this nationally or globally.This is a dictatorship masking itself as the freeiest and fairest system of self-governing.
Paul wants a return to monetary ideals. He would like a system that is based on physical wealth, a currency that is underpinned by something of real value. So free market capitalism can truly flourish for the benefit everyone. He sees the Federal Reserve, the international bankers, as the root of evil, the root of all that is unjust. The reason for the war in Iraq. Find the cheerleader, save the world.
Obama sees that as not being possible. At least not under the current power structure. Getting rid of the Fed, attacking the source of wealth for the world's decision-makers, going against the most powerful people in the world might not be the wisest strategy if he ever wants to change anything. If we can't change the system, lets regulated it to make it work for us. Let's redistribute wealth overtly to counterbalance the built-in skew.
Btw...
Far right: less government controlling you fiscally, but more government controlling you socially.
Far left: more government controlling you fiscally and less government controlling you socially.
...and simplified, yes Ron Paul is a libertarian, pretty far right, and Obama is a socialist, pretty far left, but at least they way I see it... their end-goals are a lot closer to each other than the their place on the spectrum. In terms of their goals, the spectrum has come full circle.
There is nothing antithetical about preferring first and foremost a radical change proposed by Ron, but if seen as unreachable, then a compromised but maybe workeable position espoused by Obama. They're a lot closer to eachother than many think. Lets not let the labels fool us. Besides, do we really know whether the left or the right is a better road to prosperity and egalitarianism? If we did, the world wouldn't be as divided as it is now. What we have, doesn't work, so lets try something else...
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