Guido gave his usual analogy with some dialogue from the 1940 civil war film Gone With the Wind -
"Cannon?! What do cannon matter to gentlemen."
"I'm afraid it's going to matter a great deal to a great many gentlemen."
For gentlemen, read investors. For cannon, the dollar. The Yankees may soon besiege Atlanta. Lets hope most investors' exit will be less dramatic than Rhett and Scarlets.
In the financial press today several articles about a falling dollar have appeared. Many parade the usual suspects. For example, world economies are improving and the carry trade reviving < the carry trade being selling low yielding currencies, the dollar, short, and buying high yielding currencies from Australia and Canada >. One economist, from a large money center bank amazingly, thinks that with financial Armageddon deferred, there is more willingness to invest outside the US into other global markets, like the emerging countries. Ergo less dollar demand
This makes sense to Guido.
Bear in mind, though, that there was still a demand for US T bonds today. Actually US Treasuries are the real international currency these days. Not the dollar, which can be less liquid.
Also when talking the dollar down, it is important to ask against what. All major countries today are trashing their currencies, even the Swiss to save USB.. Why should the dollar be the trash of choice? Because there's so many of them relative to other money? Or is it because Bernanke acts so stupid?
The markets seem to be saying the alternative is gold and commodities. Many commodities are already overvalued relative to their actual productive demand uses because of speculation, courtesy of excessive liquidity from Central Bankers. < Think about that as your food and petrol bill go up > Gold is considered by its aficionados the only "real money". And in crazy times it sometimes is. This is one of those crazy times and gold is pushing to new highs. < For disclosure Guido does own gold, but is not giving any investment advice or other recommendations. >
Be aware that like Mark Twain's death, the dollars' imminent demise has been predicted for many years. Independently of each other, both Warren Buffett, Guido, and others bet on this in 2002. Well the dollar didn't die, but we nevertheless made nice profits for several years.
At this time it is in the vested interests of power establishments everywhere in the world to keep the dollar propped up, with a slow glacial decline. This in spite of the fact that reckless US leadership over the years has probably driven them bonkers.
Bear also in mind that an easy escape from a crushing debt burden is to completely nuck a currency with rampant inflation, which usually causes said currency to collapse. According to Emil Ludwig, this is exactly what occurred in Wiemar Germany in the early 1920s, with the Junkers and industrialists having the heavy debt, and the middle class being destroyed < read his 1934 biography titled Hindenburg >. In the 1700s Adam Smith thought this policy often occurred throughout history.
Perhaps this is Mr. John Paulson's investment strategy. Gold for the hyperinflation, and the banks benefiting from having all their debt burdens dissipate with a confetti currency. < For more on Mr. Paulson read the articles on this website titled A Basel on Banks and The Great Divide >.
"All money is a matter of belief." - Adam Smith
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