Dark Skinny

With all the current global problems, as the financial crisis continues to writhe, bleed and affect the global markets, as the oil price sinks inexplicably lower, with Peak Oil looming so close on the horizon, huge US Fiscal Debt problems, and China and Russia soon to unload their $ trillions - what chance the dollar ?

Perhaps a wide variety of expert views might help - from people who have long experience and know the markets intimately and who are taken seriously, whenever they utter their opinions and truths. Many have been saying it - that the dollar is a flawed currency now, some say possibly doomed.

Warren Buffet says :

“The rest of this the world owns $10 trillion of us, or $3 trillion net.” That is, U.S. claims on foreign assets run to only $7 trillion. “If lots of people try to leave the market, we’ll have chaos because they won’t get through the door.” In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: “If we have the same policies, the dollar will go down.”

Peter Schiff in his articel “The Humpty Dumpty Economy” explains:

“Reminiscent of his Bazooka maneuver, quick draw Paulson reversed course quickly with his decision to not use any TARP funds to buy the assets that the plan was specifically funded to procure. Instead, he will simply dole out the loot to his buddies on Wall Street and use it for whatever seemingly worthy initiative strikes his fancy. Although Congress loves to grandstand about oversight, it has thus far shown no courage to interfere, or even question, the change in strategy. Paulson claims that he is simply rolling with the punches. The truth however, is that the original plan was flawed from inception, as I clearly pointed out in a string of commentaries following his proposal. How could the Treasury Department, with all its funding and PhD’s, not make similar predictions? Paulson is either a liar or completely incompetent. My guess is he is both.”

Marc Faber, a well known European market analyst, writes:

“Simply put, whereas in the past cash could be perceived as ‘reasonably’ safe, today cash may, courtesy of modern central banking under the auspices of the US Fed, actually have become quite a dangerous asset class due to its depreciation not only against asset prices but also against consumer prices, if these were measured properly by government agencies.”

In a recent interview from the Financial Times regarding the dollar and US Economy, Jim Rogers had this to say:

FT: It’s a year since we last interviewed you. You were aggressively bearish about the dollar, but you thought there would probably be a rebound and you would take that as an opportunity to get further out of the dollar. Have you made a further exit from the dollar?

JR: Not yet, no.And the reason I haven’t is because we’re in a period of forced liquidation of everything. We’ve had only eight or nine periods like this in the past 150 years, where everybody has to reverse their positions on everything.There is a gigantic short position in the dollar and they’re all having to cover as they reverse their positions, so this rout is going to go on much further than I would have expected - to my delight, because then I’ll get to sell at higher prices. I don’t know whether I’ll get out this month or this year even - maybe next year, but I do plan to get out of the rest of my US dollars, because this is an artificial rally caused purely by short covering.

FT: How will you tell when that deleveraging is finally over?

JR: I’m sure I won’t get it right, but I do hope that when there’s a lot of euphoria about the dollar and everybody’s saying, well, see, there’s no problem with the dollar . . . I hope I’m smart enough to recognise it and finally get out of the dollar, because it is a flawed and, maybe, even doomed currency.

FT: Do you see the sell-offs we’ve seen in commodities as a drastic correction?

JR: Well, we’re in a period of forced liquidation of all assets . . . we’re getting the business cycle effect on demand right now, certainly, but unless the world’s in perpetual economic decline, commodities are the only thing going to come out of this OK.

FT: Does this mean you’re actually buying back into commodities at the moment, or is this an area you’re standing clear of?

JR: No, no. In October when I started covering my shorts in the US stock market, I started buying Chinese shares, Taiwan shares. I started buying commodities again. No, no, I’ve added to those positions.

FT: What’s your strategy towards emerging market stocks?

JR: My hope is that I’m smart enough and brave enough at some point along the line to buy some of them back. But I’m not even thinking about it right now . . . The world’s financial situation is in a mess, and there are a lot of people who have to liquidate. I mean, we must have had 30,000 MBAs flying around the world looking for emerging markets. All of that money has got to come home.

FT: How do you think the world should go about redesigning the regulatory system, and are you worried that we’re going to end up with a swing towards over-regulation?

JR: Well, we probably will. The problem is that people like Alan Greenspan would never let the market work . . . For 15 years, under Greenspan, and now Bernanke, they would not let the market work. Had they let Long-Term Capital Management fail, back in 1998, we wouldn’t have these problems now, I assure you. Lehman Brothers would have been smashed. Goldman Sachs, Bear Stearns, would have been smashed. We wouldn’t have these problems now. That only happened because every time they turned around they propped these guys up, gave them more money, and that’s why we have the problem. . . . But now, of course, they’re going to blame it on other people and cause more regulations.

FT: You’re arguing we need to allow some more big institutions to fail?

JR: One failed. Why didn’t they let Fannie Mae and Freddie Mac? I mean, I was short Fannie Mae, and they should have let it fail, go zero. AIG - they should have let it fail. They should have let all of these guys fail, and we would clean out the system . . . What they’re doing is, they’re taking the assets away from the competent people, giving them to the incompetent people and saying to the incompetent: ‘OK, now you can compete with the competent people, with their money.’ I mean, this is terrible economics. This is outrageous economics.

In previous blogs - Bush and Plebscitary Democracy, and The Ravages of Ignored US Debt, I expressed a view that this type of democracy has allowed easy dictatorship within the very bastion of World Democracy - America. I have also intimated - sometimes even causing me to weep over my bucket of Chardonnay - that because of this gaping morass within the US Constitution, the “style” of The Bush Administration is no better really than the Communist cabals or indeed any budding Banana Republic dictatorship. Since the US Constitution is based on common freedoms, I suggest that the choice of electing a dictator is also a necessary freedom within American Politics. And since Bush Jnr seems to do nothing else but continually feed and stuff the voracious jaws of the American Way in terms of oil protection, Climate Change and all related wars, he is untouchable. I guess his people are happy and content. Indeed, I overheard one American say…”Well of course, the current economic problems have all been caused by Reaganomics..”. Well - I can tell you - that comment nearly caused me to lose grip on my bucket of Chardonnay…How I laughed !! But, since Presidents and their advisers have no real grounding in Fiscal Economics - they haven’t a clue really, then who do they rely upon to solve national economic problems concerning the dollar and market turmoil ? That’s right - that’s The Treasury and The Fed. Here is what the experts and gurus all say about the current economic State of the Union and The Fed:

Thomas Jefferson on Monetary Matters and Banks:

“The system of banking have…[for]ever reprobated. I contemplate it as a blot left in all our Constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens.” ~Thomas Jefferson to John Taylor, 1816

“[The] Bank of the United States… is one of the most deadly hostility existing, against the principles and form of our Constitution… An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?” –Thomas Jefferson to Albert Gallatin, 1803. ME 10:437

From Congressman Ron Paul:

“Recently I had the opportunity to question Federal Reserve Chairman Ben Bernanke when he appeared before the congressional Joint Economic committee. The topic that morning was the state of the American economy, and many of my colleagues raised questions about how the Fed better “regulate” things to ease fears of an economic downturn. The tenor of my colleagues‘ questions suggested that Mr. Bernanke’s job is nothing less than to run the U.S. economy, like some kind of Soviet central planner. Certainly it’s true that Mr. Bernanke can drastically affect the economy at the drop of a hat, simply by making decisions about the money supply and interest rates. But why do members ofCongress assume this is good? Why do we accept without objection that a small group of people on the Federal Reserve Board wields so much power over our economic well-being?Is centralized, monopoly control over our money even compatible with a supposedly free-market economy?

Few Americans give much thought to the Federal Reserve System or monetary policy in general. But even as they strive to earn a living, and hopefully save or invest for the future, Congress and the Federal Reserve Bank are working insidiously against them. Day by day, every dollar you have is being devalued.

The greatest threat facing America today is not terrorism, or foreign economic competition, or illegal immigration.The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation.It is this one-two punch– Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference– that threatens to impoverish us by further destroying the value of our dollars.

The Fed’s inflationary policies hurt older people the most.Older people generally rely on fixed incomes from pensions and Social Security, along with their savings. Inflation destroys the buying power of their fixed incomes, while low interest rates reduce any income from savings. So while Fed policies encourage younger people to overborrow because interest rates are so low, they also punish thrifty older people who saved for retirement.

The financial press sometimes criticizes Federal Reserve policy, but the validity of the fiat system itself is never challenged. Both political parties want the Fed to print more money, either to support social spending or military adventurism. Politicians want the printing presses to run faster and create more credit, so that the economy will be healed like magic- or so they believe.

Fiat dollars allow us to live beyond our means, but only for so long.History shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. Spendthrift politicians may love a system that generates more and more money for their special interest projects, but the rest of us have good reason to be concerned about our monetary system and the future value of our dollars.”

Jim Rogers, commodities guru, on Ben Bernanke and The Fed :

“Listen, investment banks have been going bankrupt since the beginning of time. If people make mistakes — if you bail out every investment bank that gets in trouble, that’s not capitalism, that’s socialism for the rich.”

“No country in the world has ever succeeded by debasing its currency,…That’s what this man(Bernanke) is trying to do. He’s trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term.”

“America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it’s just bailing out financial institutions.”

Barak Obama - from his website:

“The cost of our debt is one of the fastest growing expenses in the federal budget. This rising debt is a hidden domestic enemy, robbing our cities and states of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on. . . . If Washington were serious about honest tax relief in this country, we’d see an effort to reduce our national debt by returning to responsible fiscal policies.”

John McCain : I dug and dug and found nothing. He has no fiscal rescue policy, he keeps saying that The Fed “…Should do its job”. Keeps passing the buck to the Fed…who just print more greenbacks to be passed around. Therefore I suspect that if he becomes President, the US Fiscal Economy is most likely to Hit the Wall and go broke. Pray otherwise folks.

Woodrow Wilson on the real rulers of Washington:

“Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.”