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jesusfreakinco (31.54)

USD: The tolling of the bell by China / Sinclair missive

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October 07, 2009 – Comments (3) | RELATED TICKERS: TRE , GLD , SLV

China calls time on dollar hegemony

"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened." 

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts.

What matters is where OPEC oil producers and rising export powers choose to invest their surpluses. If they cease to rotate this wealth into US Treasuries, mortgage bonds, and other US assets, the dollar must weaken over time. 

It is like sterling after World War One. Everybody can see it's happening."

The new order may look like the 1920s, with four or five global currencies as regional anchors – the yuan, rupee, euro, real – and the dollar first among equals but not hegemon. The US will be better for it. 

JFC - I wonder if most fools recognize the fundamental shift in international politics and economics we are witnessing.  If you are tied to the US, all you can hope for is an orderly descent of the USD.  However, if confidence is loss in the USD, it could go quickly.

I am not sure I agree with the statement 'the US will be better for it."  Our purchasing power will be eroded significantly and, therefore, our standard of living will drop.  The greater risk is a currency crisis that leads to hyperinflation and a collapse of our currency.

Sinclair's missive today:

 Gold’s Breakout Not A Cause For Celebration
Posted: Oct 06 2009 By: Jim Sinclair

Dear Extended Family,

The gold price has done all of what Erik brings to our attention, but this is NOT a cause for celebration.

The action of gold in the face of the massive commercial dealers short position means that they have finally taken on a force much stronger than the ordinary trader.

The other side of gold is sovereign buying on all reactions, not seeking one price, but rather taking supply away from the cash market on a step ladder basis.

This occurred twice in the 70s, first when the commercial dealers took on France, and finally in 1979 when they met the Saudis in the market place.

The Fed has no stomach nor should they have to carry on an economic war over gold.

The dollar has changed significantly over the last year, becoming the currency of selection for the carry trade. We know that the propaganda that the dollar was a place of safe refuge is silly in light of the weakness in the recovery. Last Friday that message was delivered to the market loud and clear.

It may even be possible that general equities are being buoyed by the soft dollar in light of Quantitative Easing as there is historical precedent for that.

Clearly the recovery now being predicted by equities is a total fantasy. What we do know is the UN, IMF, BIS, G20, Russia, China, India and Brazil amongst most other major countries have publicly called for an alternative to the US dollar.

Wall Street is clearly out of control if bonuses are a measure of saneness.

The reason why I suggest that today’s market should scare you, and not be a cause for high five because of the implication of the event.

Hyper-inflation has always been a currency event, not an economic event. The currency event has always been, for whatever reason it occurred, a loss of confidence phenomenon. Clearly confidence in the US dollar and its management is slipping. Historically when this currency event comes about the transition is extremely fast.

We have been doing a countdown to the beginning of the end, or that process acceleration. The are 33 days to go.

Gold is then off to $1224, $1650 and then on to Alf’s numbers.

Have you prepared yourself for the implication of such a gold price?

Respectfully yours,
Jim

3 Comments – Post Your Own

#1) On October 07, 2009 at 10:32 AM, russiangambit (99.02) wrote:

People now started saying that weak US dollar is good for the US and it needs to be weak for US to become competitive again.

It is true, weak dollar will make US exports competitive. But you have to also take into account increased input costs for commodities. Where it will make US more comptetitive is that the cost of labor will be cheaper. But if the cost of labor is cheaper, it means you and me get lower salary in real terms. If dollar falls 20%, it means our purchasing power falls by 20-30%. Many people still don't understand what it means to have 20-30% less purchasing power. It will definitely put brakes on any recoivery because we will simply not be able to purchase the half of things we do now. And we will fall into stagflation.

Significantly lower dollar is almost inevitability now. But when you argue  that it is good, don't forget that for anybody leaving in the US it means much much lower standard of living unless you are so rich that 30% pay cut doesn't hurt you. But the expectatios of the popultion are not adjusted accordingly. The adjustment will be very painful. All the mind-numbing propaganda going on right now about recovery in no way prepares people for what is to come. 

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#2) On October 07, 2009 at 10:50 AM, jesusfreakinco (31.54) wrote:

Russian,

Good points.  

All the mind-numbing propaganda going on right now about recovery in no way prepares people for what is to come. 

Amen - the MSM, Obama admin, and the Fed is just setting up the American people for a harder fall.

Someone asked yesterday what Obama admin should be doing.  I said appt Volcker to the top and start telling people it is going to be a long hard road.  Start negotiating with our largest creditors to avoid a collapse of our currency.  A little humble pie is what is needed, not flipping off our largest creditors by QE and Fed bond purchases, etc.

I am fearful of the future because so many people in this country will wake up one day with much less or perhaps having lost everything.  They will have realized they've been living in the matrix and be PISSED OFF.

JFC

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#3) On October 07, 2009 at 12:55 PM, jesusfreakinco (31.54) wrote:

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