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The Sky is Falling...

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8

July 24, 2007 – Comments (3)

One of the indicators I follow is the US dollar indicator.  You can see it on Kitco's all metals quote page, http://www.kitco.com/market/, on the left under indicators.

It has dropped significantly this past week, today at 80.05. 

Apparently 80 is the magic number the US federal reserve does not want to see it drop below.  From what I understand, when the tech bubble burst it got into that range and that's when the credit bubble was launched, and we are seeing that crumbling.

The economists that I heard speaking about these events at a conference in January spoke very onimously that it would not be a good thing for the US dollar index to go below 80 and the fear of going below 80 is a severe, depression style contraction of liquidity and deflation.

The federal reserve has controlled the economy in a way to prevent deflation so it is something that we have never lived through, but they were common before the depression.

The other major concern is hyperinflation.

I think this is going to get ugly...

3 Comments – Post Your Own

#1) On July 24, 2007 at 12:52 PM, dwot (42.85) wrote:

Hmmm, the US dollar index has broken the 80 barrier, at 79.99 right now.

I see the Canadian/US dollar exchange rate is 1.0353 right now, yet another full percentage loss for the US dollar since yesterday...

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#2) On July 24, 2007 at 4:54 PM, billddrummer (41.53) wrote:

Was that a factor in the selloff in the markets today?  It seems unusual that all the major indices fell.  And if that's the case, do you see upward momentum for precious metals and suppliers?

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#3) On July 24, 2007 at 8:07 PM, dwot (42.85) wrote:

Personally, I see precious metal stocks doing better than they should because of what I see as very poor analysis, but over the longer term they will correct for the fact the grade they are trying to mine is so low and the costs go up faster than any increases in gold prices.

I'm not sure if it was a factor in the sell off.  I am surprised the rally had been as strong as it was as the effect of the USD declining is that anything not made in the USA will go up in price and margins will be squeezed everywhere because of a rapid decline in disposible income.  Interest rates have to go up to support the dollar and that also hurts disposible income.

 If they print money at a faster rate to deal with this problem, well the USD declines more...

I'm working on a post about declining metal grade.

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