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  A lot can happen in two weeks. Normally the foreign exchange market for developed nations move like glaciers. But in these days of global warming even glaciers are breaking speed limits.
  Less than two weeks ago the World Bank President had some interesting things to say regarding the dollar.

 "The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," Mr. Zoellick told the School of Advanced International Studies of Johns Hopkins University.
   In his strongest comments yet in the debate over the dollar's reserve-currency status, Mr. Zoellick said that, "looking forward, there will increasingly be other options to the dollar."

 For 65 years the American dollar has been the world's reserve currency. Practically as good as gold. So Mr. Zoellick's words might be considered controversial.
  However, this was merely the start of several startling revelations.

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 Just a week later the U.N. joined the dollar bashing theme.

 In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises.
  It added that the present system, under which the dollar acts as the world's reserve currency , should be subject to a wholesale reconsideration.
  Although a number of countries, including China  and Russia, have suggested replacing the dollar as the world's reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.

 China and Russia have been calling for a new world currency regime since March. While their opinions matter, they couldn't knock the dollar off its pedestal alone. They needed cooperation for other nations and international groups.

  The U.N. calls for a new world currency system comes just three months after the IMF proposed its own solution - Special Drawing Rights.
  SDR's aren't an actual currency. They are more like a basket of currencies that act as a claim on real currencies. SDR's were originally created in 1969 when the Bretton-Woods system was breaking down, to replace gold and silver on international transactions. SDR's were called "paper gold" at the time.

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  The advantage of using SDR's for creditor nations like China is that it diversifies their currency reserves and functions as a "transitional reserve currency" until a new currency can take the dollar's place. Disadvantages are that only a few currencies make up an SDR and the total amount of SDR's is limited.
  So the danger that SDR's pose to the dollar are limited without further efforts by the world's creditor nations. Which makes this news report disturbing.

  In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
  Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

  It was no secret that China and Russia are unhappy with the dollar hegemony. Same goes for OPEC nations such as Iran (which no longer sells oil for dollars) and Venezuela. But when Japan and Dubai jump on board this becomes very serious.
   Fisk's article was met with thunderous official denials from all over the world. However, there was a certain lack of credibility in those denials if only because a meeting like this is the next logical step in doing what these countries have been talking about for months.

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  A skeptic might point out that all this talk about countries moving away from the dollar is just talk without any concrete action. That brings us to today's revelation.

 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.
  World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
   "Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it," said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. "It looks like they are really backing away from the dollar."
   The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend "accelerated" in the third quarter. He said in an interview that "for the next couple of months, the forces are still in place" for continued diversification.

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That counts as "concrete steps".
  The dollar bulls have several responses to these bearish forecasts.
The first, and most obvious one would be that this only involves official movements. It doesn't include private foreign investors. However, a deeper reading of Barclay's article effectively ends that discussion.

 Since the global recovery got underway at the beginning of Q2, the USD has been among the weakest of the major currencies. By definition this means that the US current account funding needs, while lower, were not reduced enough to stabilize the dollar. Other data, in particular the US Treasury TIC data, show unambiguously that there has been an outflow of capital from the US. The US private sector has been buying USD30-40bn of foreign portfolio assets, effectively doubling the financing need implied by the US trade deficit. The foreign private sector has been selling US Treasury obligations.

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 The second point the dollar bulls will point out, and it is a good point, is that if foreign selling of dollar assets are so significant, then why are stocks and bonds doing so well? Shouldn't the selling show up there first? After all, if stocks and bonds don't care then how much effect does it really have?
  It's a good point, but there is a huge caveat - no one is buying Agency debt except for the Federal Reserve. Not even private domestic investors want anything to do with Fannie Mae and Freddie Mac debt. Mortgage rates are so low right now because the Federal Reserve is printing money out of thin air and buying mortgages on the secondary market, sometimes in as short as just 90 minutes.
  It isn't just Agency debt. The Fed has been active buyers of Treasury debt as well.

 While this pushes down interest rates, it also acts to push down the dollar. The Federal Reserve is not only dramatically expanding its debt obligations, but its balance sheet is getting filled up with mortgage-backed securities of questionable quality.

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 Of course massive federal deficits for years to come also directly contribute to the decline in the dollar.

 So what does this all mean? Is the dollar doomed? Should we all rush out and exchange our dollars for euros and yen?
  No. The trade sentiment against the dollar is getting very crowded, and anti-dollar articles are easy to find these days. This is usually a sign of a coming dollar rally.

  The dollar will not be allowed to collapse. Instead its decline will be managed. This will include violent corrections that will savage any dollar bear who is trying to make a quick buck.
  However, if your investment timeline is measured in years rather than months, then betting against the dollar is a good trade. The dollar's fundamentals are terrible and it is only being supported because of the lack of a clear alternative. That won't last forever.

The Golden Rule

 Imagine for a moment that there is an asset that has gone up in dollar value every single year for eight straight years, is about to have one of its best years in 2009, and is the best performing asset class of the decade.
  Imagine that this asset has been going up in value in every currency in the world over the last five years.
  Imagine that worldwide demand for it is hitting all-time records while outstripping supply.  At the same time worldwide production of it has fallen 10% over the same period.
 Imagine that as recently as 2002 private ownership of this asset was outlawed in China, and now China is about to become the largest consumer of this asset in the world. In just the last month China's government started encouraging private consumption of this asset.
  Imagine that worldwide government selling of this asset has turned into worldwide government buying of this asset for the first time in over 40 years.
  Imagine that all the major commercial producers of this asset are positioning themselves for years of rising prices.
  Imagine that this asset has absolutely no danger of becoming worthless, and that its value only increases when the dollar declines.

  Now imagine that professional investment advisers on Wall Street, who wouldn't hesitate to sell you black-market kidneys and weapons of mass destruction, if it were legal and they could make a profit on it, have universal disdain for this asset.
  Imagine that if you mentioned buying this asset at a neighborhood party someone would be sure to think you are a kook.
 
  Wouldn't it make you wonder what is wrong with this picture? Why is nearly everyone so dead-set against buying an asset that goes up in value every year, and who's fundamentals keep improving?

 Yet that is the world that gold exists in today. The price of gold is hitting all-time highs, but unlike dot-com stocks in 1999, or house flipping in 2005, few people care.

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  The central banks of the world increasingly view the future with gold as a currency. On the other side, you can always tell gold's detractors because they still think we are in the 1980's.

Originally posted to gjohnsit on Tue Oct 13, 2009 at 10:44 AM PDT.

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Comment Preferences

    •  you can't eat gold. (0+ / 0-)

      why hold it

      George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

      by nathguy on Tue Oct 13, 2009 at 10:58:34 AM PDT

      [ Parent ]

      •  because gold (4+ / 0-)
        Recommended by:
        gjohnsit, Mz Kleen, buckinfuzzard, forgore

        will buy bread when the dollar won't.

        "Rules must be binding. Violations must be punished. Words must mean something." President Obama in Prague on April 5

        by jlynne on Tue Oct 13, 2009 at 11:00:53 AM PDT

        [ Parent ]

        •  dollars will always buy bread (0+ / 0-)

          it's solely a matter of price

          George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

          by nathguy on Tue Oct 13, 2009 at 11:33:48 AM PDT

          [ Parent ]

          •  Yeah, Ask A Zimbabwean How That Works (5+ / 0-)
            Recommended by:
            gjohnsit, jlynne, Mz Kleen, Unbozo, forgore

            Got a wheelbarrow???

          •  Have you ever looked at the currency in (4+ / 0-)

            some of these countries that have financial problems?  They have million whatever currency and hyper-inflation. It might take a couple million whatevers to buy that loaf of bread. At that point their money is worthless.

            Shhhhh!  Don't tell anybody that our money is worthless right now. It's a secret.

            If the people lead, the leaders will follow.

            by Mz Kleen on Tue Oct 13, 2009 at 11:55:10 AM PDT

            [ Parent ]

            •  Gold doesn't know how to keep a secret (5+ / 0-)

              Shhhhh!  Don't tell anybody that our money is worthless right now. It's a secret.

              That's why gold is the ultimate party-pooper for central bankers.

              "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

              by gjohnsit on Tue Oct 13, 2009 at 12:02:13 PM PDT

              [ Parent ]

              •  and what if interest rates rise? (1+ / 0-)
                Recommended by:
                dancewater

                the last time Gold started spiraling,  Bill Miller jacked Interest
                rates to the sky,  damned near killed us all, but , that was the drill.

                if inflation takes off, Bernanke will jam the interest lever overnight.

                George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

                by nathguy on Tue Oct 13, 2009 at 07:40:55 PM PDT

                [ Parent ]

                •  Interest rates were over 10% in 1979 (0+ / 0-)

                  That didn't stop gold from exploding upwards.

                    It's real interest rates that matter. Not nominal interest rates.

                  "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

                  by gjohnsit on Tue Oct 13, 2009 at 08:34:16 PM PDT

                  [ Parent ]

                  •  and when interest rates went to 21% (0+ / 0-)

                    yep....

                    What happened to gold then?

                    George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

                    by nathguy on Wed Oct 14, 2009 at 06:48:07 AM PDT

                    [ Parent ]

                    •  If interest rates went to 21% (1+ / 0-)
                      Recommended by:
                      nathguy

                      then I would probably sell my gold. Of course it depends on what real interest rates were at the time.
                        I might sell my gold at 10% interest rates if the inflation rate was 1%.

                       However, is that your point? That gold is a bad investment when interest rates are extremely high? It begs the question: what do you think are the chances of that happening any time soon?

                      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

                      by gjohnsit on Wed Oct 14, 2009 at 11:23:13 AM PDT

                      [ Parent ]

        •  And who gives a rat's ass... (0+ / 0-)

          ... that its production leaves a ravaged landscape and poisoned waters behind?  (We all should.)

          And, just like paper money, it's only valuable because everyone has arbitrarily agreed that it is.  There's no real inherent value to it, aside from decoration, dental work and certain electronics.

          Grab all the joy you can. (exmearden, 8/30/09)

          by Land of Enchantment on Tue Oct 13, 2009 at 06:29:00 PM PDT

          [ Parent ]

          •  Not exactly right (1+ / 0-)
            Recommended by:
            dancewater

             And, just like paper money, it's only valuable because everyone has arbitrarily agreed that it is.  There's no real inherent value to it, aside from decoration, dental work and certain electronics.

             Paper money only has value because government decree mandates it. Gold has value because people decide it does. Thousands of years of history proves that people will chose gold and silver over paper every single time.

             As for "no inherent value", anything that requires enormous capital for exploration, mining, production, smelting, and coining has inherent value.
              Anything that only requires a couple keystrokes to create infinit amounts of it has no inherent value.

            "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

            by gjohnsit on Tue Oct 13, 2009 at 09:08:29 PM PDT

            [ Parent ]

      •  If eating something (4+ / 0-)
        Recommended by:
        conchita, Redbug, glaser, ArtSchmart

        was the sole determining factor for whether to hold something, then why hold stocks, bonds, or even paper dollars?

        "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

        by gjohnsit on Tue Oct 13, 2009 at 11:03:59 AM PDT

        [ Parent ]

  •  Considering that we may be headed... (2+ / 0-)
    Recommended by:
    jlynne, nathguy

    for a dollar bull period, isn't it likely that gold will be going down short term?  Why buy at a high?  

    The game is deemed more above the law than the players. -8.25, -6.25

    by smellybeast on Tue Oct 13, 2009 at 10:57:23 AM PDT

  •  seen this before (1+ / 0-)
    Recommended by:
    Larry Madill

    http://www.24hgold.com/...

    look at gold in 79,  

    Gold is a  shitty investment, it has zero dividends.

    If you want to hold anything, get Tuna cans

    George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

    by nathguy on Tue Oct 13, 2009 at 10:57:49 AM PDT

    •  How's disco doing? (3+ / 0-)
      Recommended by:
      conchita, Mz Kleen, Cassiodorus

      look at gold in 79

      Gold was fine in 79 A.D. People loved it back then. Why do you ask?

       Gold is a shitty investment, it has zero dividends.

       Ah, yes. Dividends. Have you noticed how much dividends stocks are paying these days?
        The average dividend yield for S&P 500 stocks is 1.81%. That's not exactly something to get excited about. It's about the inflation rate, which means you tread water.

       Or maybe you mean yields on bonds? Have you looked at what a Treasury yields these days? A 3-year Treasury bond yields 1.50%
        Do you know what gold has done in the last 3 years? It's gone up 22.8%, 31.4%, and 5.8% in dollar terms.
        This year it is up over $150 an ounce from when the year started.

        So what exactly is your criteria for determining what is a good investment?

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Oct 13, 2009 at 11:19:49 AM PDT

      [ Parent ]

      •  and gold may be up $300/oz this year (0+ / 0-)

        that said

        it may also fall 600/oz.

        What point is gold exactly?

        if you are holding a 30 year bond ladder the last 15 years you are doing okay.

        gold is a highly volatile, non dividend bearing item.

        Why not hold rare art, or ferrari's or anything else obscure.

        George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

        by nathguy on Tue Oct 13, 2009 at 11:37:27 AM PDT

        [ Parent ]

        •  Where's the dividend then in rare art? (2+ / 0-)
          Recommended by:
          gjohnsit, conchita

          You can't just look at dividends when investing. With precious metals and even rare art, you have to take the long view on your investment.

          Ever since Corporate America lost their way in abandoning long term plans, investments, etc. we have been in trouble. Wall Street now looks only at the short term for everything. Their view on corporations is....what have you done for me lately? They go quarter by quarter and have many companies trying to bust their butts to try to produce results that Wall Street expects. If the companies don't produce, down goes your stock.

          See how this view has given us this downward spiral over the last 25 - 30 years?  Companies and this country must get back to making long term goals for results that will make a difference for all of us in the future. If not, we're still fucked like we are now.

          If the people lead, the leaders will follow.

          by Mz Kleen on Tue Oct 13, 2009 at 11:50:18 AM PDT

          [ Parent ]

        •  What is gold? (2+ / 0-)
          Recommended by:
          jlynne, drewfromct

          What point is gold exactly?

           You should ask the central bankers of the world, like China and Russia, that question. They are buying gold to fill their vaults.

             Gold is money. It has always been money.
          What do you think central banks hold in their vaults? They hold money. Does that mean they hold huge piles of paper dollars? No. They hold treasury bonds, foreign currencies, and gold. None of these things you can take down to the grocery store, but that doesn't mean they aren't money.

          if you are holding a 30 year bond ladder the last 15 years you are doing okay.

          Unless, of course, the debtor defaults. Then you are screwed. Or even if the debtor doesn't default, if the currency it is valued in drops, then you are still screwed.

          gold is a highly volatile, non dividend bearing item.

           Gold is actually very stable throughout history. The amount of gold it took to buy a loaf of bread in ancient Babylonia is approximately the amount of gold it takes to buy a loaf of bread today.
            No, it doesn't pay dividends, but then neither does a savings account these days. And as I pointed out, stocks and bonds don't pay much dividends either.

          Why not hold rare art, or ferrari's or anything else obscure.

          Because they aren't money. They don't have any of the qualities of money.

          "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

          by gjohnsit on Tue Oct 13, 2009 at 11:54:30 AM PDT

          [ Parent ]

          •  Today? Or in 2002? (1+ / 0-)
            Recommended by:
            nathguy

            Was gold 3-4 times undervalued in 2002 as compared to ancient Babylonia, or is it 3-4 times overvalued today?

            Gold has a history of peaks and valleys, and the incredibly rapid growth in price over the last year or two looks an awful lot like 'tulip mania'.  Everyone is currency-shy as a result of the global recession started by bankers, and figuring they have to buy into something else asap, and gold tends to be the 'something else'.  The question, as with anything, is in the timing.  Sure, if you'd bought big into gold 5 years ago, you'd be a genius.  But if you buy it now, are you buying into the height of the tulip craze?

            Those who labour in the earth are the chosen people of God. - Thomas Jefferson

            by Ezekial 23 20 on Tue Oct 13, 2009 at 12:50:22 PM PDT

            [ Parent ]

            •  What is a bubble? (0+ / 0-)

               Sure, if you'd bought big into gold 5 years ago, you'd be a genius.  But if you buy it now, are you buying into the height of the tulip craze?

               I have to wonder what people are looking at when they say that gold is in some sort of mania. Did these people already forget the Dot-Com Bubble and the Housing Bubble? Do you know anyone who is flipping gold bullion? Do people at cocktail parties tell you how much money they are making on their gold mining stocks?
                I seriously doubt it.

              If you want to know what a bubble looks like, check out these charts.
                 On a technical scale, an asset that goes up 16% a year for 8 years is called a bull market. When I can post something about gold here and have a majority of people tell me how great gold is, then it might be time to sell.
                Until then there is no mania.

               BTW, I posted on DKos a diary about gold back in late 2005, when gold was still at $515 an ounce. The responses I got was that investing in gold was stupid (because you couldn't eat it), and that it was overvalued and resembled a bubble.
                I could dig up the link if you don't believe me.

              "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

              by gjohnsit on Tue Oct 13, 2009 at 01:02:43 PM PDT

              [ Parent ]

              •  When a majority of folks tell you gold (1+ / 0-)
                Recommended by:
                nathguy

                it's time to sell, eh?

                Every 6th commercial or so I see on tv seems to be about gold these days.  Either the 'send us your gold for cash' folks, or the 'now's the time to buy' commercials.

                I suppose the time to sell (if I had any) would be when I start to see the two with equal frequency, when the send us your gold commercials start to fade away.

                (And, btw, from everything I've heard, those are total scams, and typically pay you something like 20 cents on the dollar, if that, for the gold you send them.)

                Even back when I did have money in silver, the main problem was that in the quantities I could afford to deal in, you typically got shafted by 10% either way, buying/selling vs the spot price.  Stock liquidity at least reduced the percentage lost to fees.

                Those who labour in the earth are the chosen people of God. - Thomas Jefferson

                by Ezekial 23 20 on Tue Oct 13, 2009 at 01:45:58 PM PDT

                [ Parent ]

                •  cash4gold (0+ / 0-)

                  Every 6th commercial or so I see on tv seems to be about gold these days.  Either the 'send us your gold for cash' folks, or the 'now's the time to buy' commercials.

                   Commercials asking you to sell your gold for cash is the opposite of a mania.
                    It'll be a mania when the commercials want you to buy gold from them.

                   I haven't seen any commercials about wanting to sell consumers gold. I certainly haven't seen anything about investing on gold miners.

                   But then I must admit that I don't watch much TV these days, except for football on Sundays. And even then I mute it because the announcers annoy me.

                  "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

                  by gjohnsit on Tue Oct 13, 2009 at 02:03:43 PM PDT

                  [ Parent ]

            •  One other thing (0+ / 0-)

              Sure, if you'd bought big into gold 5 years ago, you'd be a genius.

               I bought almost all of my gold 6-7 years ago. It doesn't make me a genius. It just means I was paying attention to the fundamentals.
                 All you have to do is to be able to know bullsh*t when you see it.
                Bush said we could cut taxes for the rich, go to war, and balance the budget all at the same time. So I bought gold and Euros.

                Just like when I invested heavily in oil in the summer of 2003 after the fall of Baghdad. Oil was $30 at the time, and Fox News told me that the "liberation of Iraq" was going to cause oil prices to plummet.

               Unfortunately people in Washington are still trying to bullsh*t us.

              "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

              by gjohnsit on Tue Oct 13, 2009 at 01:15:23 PM PDT

              [ Parent ]

              •  I went with other currencies myself (0+ / 0-)

                But didn't have the depth to sustain myself when my work got cut drastically, and ended up having to sell off just about everything just to stay afloat so far.

                Right now, the pitiful remains of my IRA's are in global and pacific mutual funds that aren't valued in dollars until they translate them for my monthly reports.

                If I had any money now, I would buy some gold, but probably no more than 20-25% of my portfolio.  If I were to keep any domestic stocks, it would only be things like campbell's soup, although I'm curious about rare earth mining companies.  Don't think there are any domestic ones out there at the moment, though.  But rare earths are behind vast swathes of high tech, and there are rumblings that the major source, China, is thinking of cutting exports, as they (rightly) view them as strategic reserves...

                Those who labour in the earth are the chosen people of God. - Thomas Jefferson

                by Ezekial 23 20 on Tue Oct 13, 2009 at 01:38:14 PM PDT

                [ Parent ]

          •  The Cross of Gold (0+ / 0-)

            Gold is money. It has always been money.

            How about Silver?  The greatest debate of the 19th century
            was wether silver could be money?

            How about Iridium, Indium, or rare earths?

            Diamonds.

            The spanish wrecked their economy when they found Gold
            in the new world.

            Gold is merely a arbiter of exchange for labor

            George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

            by nathguy on Tue Oct 13, 2009 at 03:02:25 PM PDT

            [ Parent ]

            •  Silver should be money too (0+ / 0-)

              How about Silver?  The greatest debate of the 19th century was wether silver could be money?

              Look at the Constitution. It says what money is.

               Section 10 - Powers prohibited of States

              No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;

               Unfortunately when the Constitution was written the federal government didn't coin money. Only the states did. Therefore it never occurred to the the Founding Fathers to prohibit the federal government from making paper money.

              The spanish wrecked their economy when they found Gold
              in the new world.

              No, they wrecked their economy when they decided to force the Dutch (with Britain standing behind them) to become catholic at the point of a sword, and defeat France and Austria on the battlefield at the same time. Spain wrecked their economy with war spending, just like every empire before them.

              "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

              by gjohnsit on Tue Oct 13, 2009 at 03:32:59 PM PDT

              [ Parent ]

              •  this just says (0+ / 0-)

                the states will only issue metal coinage.

                The continental congress had printed paper money during the
                revlution and that currency collapsed.

                In fact one of the strongest arguments of Hamilton was that
                the new Federal Government was that it should
                honor the debts of the Confederation  

                No the founding fathers knew what a failed currency looked like
                and if they didn't want the federal government printing money
                they would have said something.

                George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

                by nathguy on Tue Oct 13, 2009 at 07:38:13 PM PDT

                [ Parent ]

                •  You should read that again (0+ / 0-)

                  make any Thing but gold and silver Coin a Tender in Payment of Debts;

                   This isn't a matter of collector coins. This is official specie they are talking about. The coin of the realm.

                   Like I said, the federal government didn't coin money when the Constitution was passed. Only the states did.

                  "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

                  by gjohnsit on Tue Oct 13, 2009 at 09:22:08 PM PDT

                  [ Parent ]

                  •  so what were these (0+ / 0-)

                    http://en.wikipedia.org/...

                    New issues were made at various times until the close of 1779, when the aggregate amount was $242,000,000. Then the bills had so much depreciated that $100 in specie would purchase $2,600 in paper currency. By the end of 1781, $100 in specie would purchase $16,800 in paper. Laws, penalties, entreaties, could not sustain its credit. It had performed a great work in enabling the colonists, with no tax revenue during the first three years of the war, to fight and battle one of the most powerful nations in Europe. The total loss to the people, by depreciation and failure of redemption, of $200,000,000, operated as a tax, for that depreciation was gradual.

                    or
                    http://en.wikipedia.org/...

                    As Secretary of the Treasury, he established—against the intense opposition of Secretary of State Thomas Jefferson—the country's first national bank. Hamilton justified the creation of this bank, and other increased federal powers, with Congress's constitutional powers to issue currency, to regulate interstate commerce, and anything else that would be "necessary and proper". Jefferson, on the other hand, took a stricter view of the Constitution: parsing the text carefully, he found no specific authorization for a national bank. This controversy was eventually settled by the Supreme Court of the United States in McCulloch v. Maryland, which in essence adopted Hamilton's view, granting the federal government broad freedom to select the best means to execute its constitutionally enumerated powers, specifically the doctrine of implied powers.

                    or
                    http://www.megaessays.com/...

                    . paper money. Alexander Hamilton wanted to reserve to the federal government the right to issue paper money.

                    The States were printing money at that time but so was the federal government

                    http://www.ronscurrency.com/...

                    George Bush is Living proof of the axiom "Never send a boy to do a man's job" E -2.25 S -4.10

                    by nathguy on Wed Oct 14, 2009 at 07:07:23 AM PDT

                    [ Parent ]

    •  Try to look at it this way....... (3+ / 0-)
      Recommended by:
      gjohnsit, conchita, forgore

      gold is the default currency of the world. When the times get really tough, the only thing that has a lot of value is gold.  

      I had always felt that going off the gold standard was a bad thing. Still do. What is backing up our dollars? Nothing except the full faith and credit of the United States.

      For the last couple of years we have been and still are, the largest debtor nation in the world. So what is backing up our dollars? Technically, we as a nation are insolvent and so is our banking system.

      Gold is an excellent investment.  Stocks and bonds are the shitty ones. Face it, the investment game on Wall Street is rigged. It's going to be very hard for Joe Schmoe to get rich in investing these days unless you have a lot of money to start out with.

      If the people lead, the leaders will follow.

      by Mz Kleen on Tue Oct 13, 2009 at 11:42:42 AM PDT

      [ Parent ]

      •  What's behind our dollars? (1+ / 0-)
        Recommended by:
        forgore

         So what is backing up our dollars?

        Debt. Just debt.

        Technically, we as a nation are insolvent and so is our banking system.

         Which means the debt that is behind our dollars is bad.
          It's really a simple concept. It's just so large and horrible that no one wants to look at it.

        Gold is an excellent investment.  Stocks and bonds are the shitty ones.

        Stocks have gone nowhere for 10 years now, and that's before adjusting for inflation.
          High quality bonds are up a good deal, but no more than the dollar behind them has fallen.

        Face it, the investment game on Wall Street is rigged.

         And that's really the point. If you play with stocks and bonds you have to accept that you are playing a rigged game that you cannot win.
          Gold (and silver) are not part of that game (except for "paper gold" like derivatives that Wall Street uses).

        "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

        by gjohnsit on Tue Oct 13, 2009 at 12:00:29 PM PDT

        [ Parent ]

      •  Gold isn't generally an 'investment'. (4+ / 0-)

        It's a value holder.  The idea behind gold is to maintain the value when things are turning to sludge all around you, not to 'grow value'.  As gjohnsit says in another comment, the same amount of gold that would buy you a loaf of bread in ancient babylonia would buy you a loaf of bread today.

        Thousands of years with no value growth at all.  But no value loss, either, which is what most people are currently afraid of.

        Those who labour in the earth are the chosen people of God. - Thomas Jefferson

        by Ezekial 23 20 on Tue Oct 13, 2009 at 12:53:48 PM PDT

        [ Parent ]

        •  This is true (1+ / 0-)
          Recommended by:
          jlynne

           Thousands of years with no value growth at all.  But no value loss, either, which is what most people are currently afraid of.

           In the long run you are 100% correct.
           In the short run we are looking at immense currency destruction. 0% interest rates in major countries around the world is not normal. Everyone is trying to devalue their currencies, and it is destabilizing the system.

          "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

          by gjohnsit on Tue Oct 13, 2009 at 01:05:55 PM PDT

          [ Parent ]

  •  The UK Example (6+ / 0-)

    David Malpass penned an exceptional op-ed in last week's WSJ.

    The Weak-Dollar Threat to Prosperity

    Measured in euros, U.S. per capita GDP is down 25% since 2000.

    http://online.wsj.com/...

    On the surface, the weak dollar may not look so bad, especially for Wall Street. Gold, oil, the euro and equities are all rising as much as the dollar declines. They stay even in value terms and create lots of trading volume. And high unemployment keeps the Fed on hold, so anyone with extra dollars or the connections to borrow dollars wins by buying nondollar assets.

    Investors have been playing this weak-dollar trade for years, diverting more and more dollars into commodities, foreign currencies and foreign stock markets. This is the Third-World way of asset allocation.

    Corporations play this game for bigger stakes, borrowing billions in dollars to expand their foreign businesses. As the pound slid in the 1950s and '60s and the British Empire crumbled, the corporations that prospered were the ones that borrowed pounds aggressively in order to expand abroad. Though British equities rose in pound terms, they generally underperformed gold and foreign equities. At the end of empire, the giant sucking sound was from British capital and jobs moving offshore as the pound sank.

    Learn about Centrist Economics, learn about Robert Rubin's Hamilton Project. http://www1.hamiltonproject.org/es/hamilton/hamilton_hp.htm

    by PatriciaVa on Tue Oct 13, 2009 at 11:16:16 AM PDT

    •  Good catch (7+ / 0-)

      A weak dollar makes everyone who lives in dollars poorer.
        They try to disguise this fact by talking about how it helps exports. Except that the collapse in world trade has shrunk our exports as well.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Oct 13, 2009 at 11:22:36 AM PDT

      [ Parent ]

      •  Exports (1+ / 0-)
        Recommended by:
        gjohnsit

        The only thing we seem to export in this country is jobs.

        I'm no economist, and I don't claim to know anything about gold or currency. But it seems to me to be just common sense that as long as we continue to play on the uneven field of competing with nations that have no labor or environmental standards, we are bound to lose. Shouldn't we curtail imports from China and other nations that refuse to protect workers and nature? We've let the globalists enter us into a race to the bottom. Instead of exporting jobs, what we should be exporting is our standards, before it's too late.

        Al Qeada is a faith-based initiative.

        by drewfromct on Tue Oct 13, 2009 at 11:40:03 AM PDT

        [ Parent ]

        •  We Keep OUTFORCING Jobs (2+ / 0-)
          Recommended by:
          buddabelly, PatriciaVa

          The CFL lightbulb legislation from late 2007, ALONE, has cost 35,000, mostly unionized manufacturing jobs in America.

          (I KNOW! Who knew so many people made lightbulbs!)

          No one wants the potential long-term liability from manufacturing CFL's in america, so all that production has moved to China and Mexico.

          20 people in a small factory that made cardboard boxes for Lithonia in my small town, lost thier jobs, thier insurance, and thier livelyhoods because of this legislation, ALONE.

          And this is but one example of so many.

          •  We need (3+ / 0-)
            Recommended by:
            gjohnsit, jlynne, glaser

            a return to protectionism.

            What's wrong with protecting our kids from poisonous Chinese toothpaste?

            What's wrong with protecting homeowners from contaminated drywall?

            And these are but two examples of oh so many.

            There's no point in enforcing labor and environmental standards here if we simply allow the global capitalists to pick up and move their factories to third world slave labor and pollution sanctuaries. And, please don't suggest that we "compete" with the third world by simply dropping our standards down to their levels. That benefits no one but the Robber Barons. And even they need to breath clean air, too.

            Al Qeada is a faith-based initiative.

            by drewfromct on Tue Oct 13, 2009 at 12:01:57 PM PDT

            [ Parent ]

            •  You are a heretic! (2+ / 0-)
              Recommended by:
              jlynne, drewfromct

              You will anger the Volcano God if you keep speaking of protectionism.

              "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

              by gjohnsit on Tue Oct 13, 2009 at 12:05:19 PM PDT

              [ Parent ]

              •  If only (0+ / 0-)

                there really was a volcano we could throw the banksters and their dupes into. Or at least tap into for geothermal heating.

                Sigh....

                Al Qeada is a faith-based initiative.

                by drewfromct on Tue Oct 13, 2009 at 12:17:27 PM PDT

                [ Parent ]

                •  Uhhh... Most Of Those Bankers Finance DEMOCRATS (0+ / 0-)

                  take a trip through OpenSecrets.Org if you don't believe it.

                  In Hollywood Movies, those Big Bankers are always Republicans. But in Real-life, they are DEMOCRATS who heavily support Demcratic Party causes. Bernie MAdoff was a Democrat, too.

                  And if you look at the list of the 400 Richest People in America, you'll find almost all of THEM support Democrats over Republicans, too.

                  Perception isn't always reality.

                  •  what's your point, other than to score (0+ / 0-)

                    a negative point against democrats?

                    To put the torture behind us is, inevitably, to put it in front of us.

                    by UntimelyRippd on Tue Oct 13, 2009 at 01:32:59 PM PDT

                    [ Parent ]

                    •  The point (0+ / 0-)

                      was probably for people like you to open their eyes. A noble goal, but destined to fail in this case.

                      Not a Democrat, nor a Republican. This libertarian is a free-thinker.

                      by emn316 on Tue Oct 13, 2009 at 03:32:59 PM PDT

                      [ Parent ]

                      •  Either you don't know this guy's history, in (0+ / 0-)

                        which case I invite you to peruse some of his comments history, or you are in the same camp as he is, in which case your opinion is of little worth. There is nothing remotely noble about his endless efforts to diminish the Democrats; his usual complaint is not that they are insufficiently progressive, but that they are insufficiently "centrist" -- i.e., corporatist -- but he isn't above slashing disingenuously away at a little low-hanging fruit from the other direction.

                        To put the torture behind us is, inevitably, to put it in front of us.

                        by UntimelyRippd on Tue Oct 13, 2009 at 08:26:43 PM PDT

                        [ Parent ]

                        •  OH NOES! (0+ / 0-)

                          Someone who believes what he says, and hoping the Democrats realize the error of their incompetent economics ways, is ripped by someone with a comment of no substance! Guess what, UntimelyRippd, the course the Democrats have this country on is going to make things worse, not better, and saying that isn't some sort of endorsement of your mortal enemies, the GOP. It means there are people here who understand the situation and hope the Dems figure it out, instead of pursuing a course that will lead to even more hardship for the country.

                          Not a Democrat, nor a Republican. This libertarian is a free-thinker.

                          by emn316 on Thu Oct 15, 2009 at 02:05:57 PM PDT

                          [ Parent ]

                  •  All the more reason (1+ / 0-)
                    Recommended by:
                    gjohnsit

                    to chuck the banksters into a volcano. What's that blood money doing for our agenda? Any good?

                    The fact, if true, that the Forbes 400 is now financing Dems over Rethugs does nothing to redeem the banksters. On the contrary, it casts a very ill shadow over our so-called "Democrat" so-called "leaders".

                    Are you really trying to convince me that the banksters are somehow on our side because they're bribing our politicians? If so, you need to put that cack pipe down!

                    Al Qeada is a faith-based initiative.

                    by drewfromct on Tue Oct 13, 2009 at 01:37:51 PM PDT

                    [ Parent ]

  •  Speaking of SDRs (4+ / 0-)
    Recommended by:
    gjohnsit, jlynne, Mz Kleen, smellybeast

    What is the meaning of this?

    Why Did U.S. SDR Holdings Increase Five Fold In The Last Week Of August?

    With everyone lately focused on China's foreign reserve position, analysts have forgotten that America also has an International Reserve account consisting of foreign currency positions, as well as gold reserves and equivalents. And while the total combined holdings as of the most recently reported period are a joke compared to China's $2+ trillion, the most recent number of $133.6 billion does raise red flags, particularly when one traces this number's level throughout the year.

    The big question mark at the end of August is when the U.S. International Reserve Position increased by almost 50%. The reason for this: a near quintupling of S.D.R. holdings on the U.S. balance sheet in the span of one week - from August 21 to August 28.

    http://www.zerohedge.com/...

    "Where they burn books, they will ultimately also burn people." - Heinrich Heine, Almansor, 1821

    by Jeffersonian Democrat on Tue Oct 13, 2009 at 11:44:21 AM PDT

    •  You make an excellent point on this. (1+ / 0-)
      Recommended by:
      Jeffersonian Democrat

      I wonder what was going on that week?

      If the people lead, the leaders will follow.

      by Mz Kleen on Tue Oct 13, 2009 at 11:51:43 AM PDT

      [ Parent ]

    •  I saw that (3+ / 0-)

      I didn't include it in my diary because I didn't agree with ZeroHedge's conclusions but wasn't sure what it all meant.
        It means something. I'm just not sure what.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Oct 13, 2009 at 12:06:48 PM PDT

      [ Parent ]

      •  That's why I was asking for a second opinion (0+ / 0-)

        because they can get a little tinfoily-birther over there.  I find it is a great source for obscure information but some of the commentators have to be taken with a grain of salt - they are traders in the business after all.

        But thanks

        "Where they burn books, they will ultimately also burn people." - Heinrich Heine, Almansor, 1821

        by Jeffersonian Democrat on Tue Oct 13, 2009 at 12:10:38 PM PDT

        [ Parent ]

      •  When you looked, (0+ / 0-)

        had they posted the update?  Because this rings true to me:

        In essence: the monetary community increased its global liquidity position, by assuming that the U.S. is still the defacto reserve currency, and forcing it to take the majority of the devaluation hit relative to all other IMF constituents.

        Link

        Disclaimer:  I flunked econ in college.

        "Rules must be binding. Violations must be punished. Words must mean something." President Obama in Prague on April 5

        by jlynne on Tue Oct 13, 2009 at 12:25:08 PM PDT

        [ Parent ]

  •  Excellent diary gjohnsit. (4+ / 0-)
    Recommended by:
    conchita, jlynne, drewfromct, forgore

    If the people lead, the leaders will follow.

    by Mz Kleen on Tue Oct 13, 2009 at 11:52:29 AM PDT

  •  Krugman: falling dollar is GOOD. (0+ / 0-)

    The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

    http://www.nytimes.com/...

    "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

    by HeyMikey on Tue Oct 13, 2009 at 02:35:26 PM PDT

    •  If a cheap currency was good (2+ / 0-)
      Recommended by:
      emn316, Cassiodorus

      then Zimbabwe would be wealthy today.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Oct 13, 2009 at 02:51:56 PM PDT

      [ Parent ]

      •  Come on, you know better than that. (0+ / 0-)

        If expensive currency was good then deflation would cure all our ills and the Great Depression would have been paradise.

        It's obviously not a question of always "good" or always "bad," but of context. Krugman is saying the dollar isn't cheap enough NOW. He's not saying it should get cheaper forever.

        "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

        by HeyMikey on Tue Oct 13, 2009 at 07:09:54 PM PDT

        [ Parent ]

        •  Fair 'nuff (0+ / 0-)

          I agree that the dollar is overvalued in comparison to our Asian trading partners.
           However, I submit that a falling dollar is going to cause more damage than good for a very long time. The reason is because our industrial base has been gutted. That isn't going to come back in a couple years, or a couple decades. It'll be at least a generation. Without an industrial base we will have no goods to export.
             And during the time the dollar is falling, so will be out standard of living.

           Krugman has a point, but he leaves out the biggest part of the story.

          "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

          by gjohnsit on Tue Oct 13, 2009 at 09:12:41 PM PDT

          [ Parent ]

    •  Krugman is a hypocritical idiot (1+ / 0-)
      Recommended by:
      Cassiodorus

      But hey, I know a lot of people around here take his word as gospel just because he was right once when it came to the Iraq war. As an economist, he is as overrated as they come, and I want to puke when people bring him up as some sort of expert on the economy. Nobel prize be damned.

      Not a Democrat, nor a Republican. This libertarian is a free-thinker.

      by emn316 on Tue Oct 13, 2009 at 03:36:00 PM PDT

      [ Parent ]

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