|
[All hell broke loose in the Rick’s
Picks forum yesterday after
Mario Cavolo, an unapologetic optimist who tends to see the glass as
three-quarters full, let fly with the rosiest pronouncements we’ve
heard so far on a U.S. dollar that has been sinking in value for nearly ten
years. “So okay then,” wrote Mario.
“We’ll devalue the dollar and a few years later, when U.S. assets
are more and more attractively cheap, the money and investment and growth
will start to flow back in.” This was just too much for Robert
Moore, an intrepid
blogger
and occasional guest essayist on this page. Mario’s entire post can be
found by clicking here. Below is Robert’s response. RA]
And how exactly
does a weakening currency result in more attractive domestic prices? Or, are
you suggesting that as the currency weakens that it will mean stronger U.S.
exports, and therefore greater domestic growth? if so, then how, exactly,
will these miraculous exports be manufactured? The cynic in me says that
the U.S. will have to hit a very deep and rocky bottom before manufacturing
and the ability to export the surplus ever returns to these shores. Our
manufacturing infrastructure is decomposing, our labor rate to productivity
ratios are the most God-awful on the entire planet (they are now even worse
than the UK’s, and that is really
saying something), and, as Wisconsin demonstrates, the people in this country
still seem to feel that they are entitled
to a six-figure gross income in exchange for doing manual labor that requires
no more than 200 hours of vocational school training to qualify for.
We are a long
way from Mario’s utopian renaissance. However, I do agree that at some
point, the “genius” target of Mario’s man-crush will
succeed in devaluing the dollar past a heretofore unknown/unseen inflection
point where foreign dollar holders, no longer able to trade dollars for oil
or local currencies, will instead repatriate these dollars back onto U.S.
shores. The result will not be real growth in the U.S. economy or increasing
real incomes for American citizens. The result will be unreal nominal growth
in American prices.
I firmly contend
that the global repudiation of the dollar which is just now getting under way
will end up yielding a domestic repudiation of the dollar within the next
5-10 years. There are simply too many dollars in global supply for this not
to come to pass. And I know you are all thinking, But what about the Fed
soaking the excess supply back up by raising interest rates? Really?
Look what a measly 125 basis-point increase in the prime lending rate did to
our housing market in 2007. What do you think a real increase of 500-800
basis points will do to our economy? Now consider what a Paul Vockerian
1000-2000 basis point increase would do. I don’t think I even have to
mention what a five percent increase would do the ability of the Government
to service our existing
debt, not to mention all the new debt that emerges from year-over-year budget
deficits.
Dollar Is Finished
Here’s a
hint: It wouldn’t stimulate our manufacturing and exporting
machine, that’s for damn sure. Simply put, the dollar is finished
as a valid measure of qualified economic capital. Finished. The game is over, even thought there
still seem to be a lot of players on the field thinking that if they pick up
the ball and run for the goal that they will make a difference on the
scoreboard.
Basic, untenable
economic facts: 1) The dollar is a measurement of debt; therefore the supply of dollars
indicates the supply of unpaid debt; 2) all debts must either be paid in
full, or defaulted on. The U.S. money masters can only have one real goal in
mind, and that is to keep the dollar on life support long enough for the
Chinese real estate market to implode, and for Chinese price inflation to
hammer the underprivileged hard enough for the “Egyptian effect”
to hit Shanghai.
I am convinced
that there is a metric. I don’t know if it is a pre-conceived dollar
level on the DXY, or if it is some level of backwardation in the Gold market,
but I do know that when that metric (whatever it is) is reached, there will
be a statement by Bernanke (that is probably already prepared) to Congress
where he makes the soft “observation” that Gold
“seems” to be acting more like a global currency than simply as
an input commodity to the jewelry industry. And that will be
quite a day.
Rick Ackerman
Subscribe to Rick’s Pick
Access to
Rick’s Picks is available via a free seven day trial subscription
by clicking here.
|
