“The nightmare scenario that is staring us in the face, right here, right now isn’t hyperinflation. It is in fact a collapse of monetary systems driving demand for dollars through the roof in a crescendo of attempted redemptions into collapsed (“no bid”) asset prices – a demand that Ben will not be able to meet, as the collateral backing those dollars will have all been exchanged for toilet paper. Whether Bernanke holds all this trash on his balance sheet or manages to scam Treasury into exchanging it for T-bills, the result is the same – there is no collateral behind Bucky and as employment collapses no production to replace it with either.

The mad scramble will be on, and as it happens trade will be choked off by not a collapsing dollar but other currencies collapsing around the world.

Paradoxically, the DX, or dollar index, will skyrocket – not go through the floor – as this plays out….”

–  Karl Denninger

Comment:

Glad to know there’s one person who worries on the same lines as I do…but on different grounds.

Mine is from purely technical instinct. I still feel GLD is not performing the way it should given the economic  scenario. I still think if hyperinflation is bad here, it will be worse in countries  that will also be compelled by central bank policies to suffer inflation. I still think the Euro is a mighty strange animal. I still think gold prices are manipulated  and economics statistics are massaged. I think the stock market indices are sometimes manipulated to create panic reactions. We’ve proof from l’affaire Madoff that paper can be printed up that is meaningless as far as revealing actual trades, or buy or sell orders.

And if everyone is telling you to sell dollars, hey, someone out there is buying, right? So, diversify by all means, and ditch the dollar if its prospects don’t look sound – and they don’t. But remember we’re living in a world of managed perceptions, rigged markets, phony alerts,  white ops and black ops.  Ours not to figure out each of the details – that’s a pure waste of time.

Ours is to defend ourselves, observe,  keep our money in our shoes, our heads down and our powder dry. And wait.

And on that note, I observe that gold is trading right where it began before the whole AIG bail- out stuff started cluttering up the papers (just above 950) and the dollar index is above 84 (which means it got knocked down 3-4 points)

above 83 (which means it got knocked down 4-5 points).

I’ll leave you to figure out whether that is good, bad, or ugly, in the circumstances.

Supporting my view also here’s another of my favorite analysts, Puru Saxena, recommending that you don’t add to gold right now, at least not quite. And he’s also recommending oil/energy/pm stocks in emerging markets. Well, I’ve just nibbled at a few of those last week. [I don’t give out too many details on this because I’m not a professional financial adviser and don’t want my errors to become yours. My beat here is different. This is a commentary on the media and the markets].

“At no point did Asian savers force Fannie Mae to reduce down payments on houses or reduce mortgage rates. At no point did Asian savers force American banks to allow consumers to use their home equity as ATM machines. At no point did Asian savers force the Bush administration to run deficits to pay for foreign wars and domestic welfare. At no point did Asian savers force government-sanctioned ratings agencies to rubber stamp risk assessments. And at no point did Asian savers force Alan Greenspan to lower interest rates.

Neither the US government nor its federally controlled housing agencies had to spend the money it received from Asia. In fact, they could have refused the money altogether. No means no, right?

In addition, the government could have paid off its obligations and maintained a balanced budget. Instead it spent it all and continued borrowing. As a consequence, it is pure balderdash to insinuate that the uptick in Asian savings somehow coerced the House Committee on Ways and Means to appropriate billions in extra liabilities. No one in Asia pointed chopsticks, bamboo, or a gun at Larry Summers, Paul O’Neall, Dennis Hastert, Bill Thomas or American consumers and told them to spend the money.

True enough, Asian countries produced relatively cheap goods that Americans wanted to buy, but it was the Federal Reserve alone that created the “cheap” money that was then lent to Americans who in turn bought products from China.

In fact, the only “hot” money in the global system was that created by the Federal Reserve. Every dollar that the Chinese and Japanese used to buy US Treasury bonds originated from the Federal Reserve. And as much as they would have liked to do it, no evidence has surfaced to suggest that China, Japan, South Korea, or any other Asian country was involved with counterfeiting money. That responsibility is left solely with the Federal Reserve’s own printing press…..”

More at Mises.org by Tim Swanson

Comment:

Well, there you go. The Mises bloggers have it right. The fault, dear Brutus, lies not in our trading partners but in our Federal Reserve policies that we are underproducing….

Trust the MSM to shift blame away from the banksters and from their man in DC and instead blame the Chinese. Here’s Paul Krugman  of the New York Times whinging about the Asian glut. And here’s the Economist doing its own version of deep thinking…i.e. obfuscating the issue.

Look, there was a huge flood of savings from Asia, true. But, Asian savings is held in US dollars and bonds for a reason.

*The mortgage industry doesn’t exist in the same way there. So, while Americans can hold their savings in the form of home payments (mortgage equity), Asians usually have to hold them as deposits in a bank.

*Asian central banks have to adjust their policies to the Fed’s policies  and keep their currencies cheap internationally. That helps strengthen their exports.  They need to do that in part in order to build up reserves in foreign currencies that are hard (convertible), since their own currencies are not.

*If they don’t have hard currency reserves, Asian banks become vulnerable to capital flight when a financial crisis makes people withdraw money not only from the banks, but from the national currency and save it in a Western currency (pound or dollar or Euro, for example).

The “glut of savings” which Krugman and Greenspan  are complaining about looks a bit different if you understand that

1. It’s not comparable to our savings (it should rightly be compared to how much  savings we have in our houses)

2. It’s induced by central banks policies that are in turn instigated by Federal Reserve policy here

3. It protects against currency crises of the kind that we saw in the 1990s, where countries with high reserves saw their currencies actually appreciate, while currencies elsewhere were destroyed.

Solution:  “All you need is to grant visas to two million Indians, Chinese and Koreans,” says the editor of The Indian Express. 

“We will buy up all the subprime homes; we will work 18 hours a day to pay for them.  We will immediately improve your savings rate — no Indian bank today has more than 2% nonperforming loans because not paying your mortgage is considered shameful here.  And we will start new companies to create our own jobs and jobs for more Americans.” 

Problem:  February 6, 2009, the US Senate unfortunately voted to restrict financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits (H-1B visas).