 Centennial Precious Metals Gold coins & bullion since 1973 Denver, Colorado 80246-0009 We educate first-time investors! |
for quotes and purchase information.
|
ARCHIVED DISCUSSION FROM 1/3/2005
All times are U.S. Mountain Time
(Yesterday's Discussion.)
Druid
(1/3/05; 21:47:07MT - usagold.com msg#: 127897)
@Mikal
http://bonds.yahoo.com/rates.html
U.S. Treasury Bonds
Maturity Yield Yesterday Last Week Last Month
3 Month 2.12 2.09 2.09 2.07
6 Month 2.47 2.45 2.43 2.27
2 Year 3.07 3.06 3.03 2.90
3 Year 3.23 3.21 3.18 3.08
5 Year 3.61 3.60 3.64 3.59
10 Year 4.21 4.21 4.29 4.25
30 Year 4.80 4.82 4.91 4.92
Druid: Mikal, look at these spreads along the various maturities to gleam the direction. I keep reading a lot of analysis by those in the gold camp which suggest that interest rates are going to rise from here to who knows where if the dollar keeps within its descent to Dante's place. These analysts still don't understand the power of the printing press and how the credit market can still be used to eke out just a little more time. We're still 4%+ away from zero.
If the current administration is hell bent on implementing their proposed social security scheme by floating a couple of trillion dollars in bonds, then yields will continue to converge thus collapsing the carry trade in bonds, but then, I'm sure another carry trade will emerge somewhere within this network.
Black Blade
(1/3/05; 21:00:03MT - usagold.com msg#: 127896)
Down But Not Out
http://cbs.marketwatch.com/news/story.asp?guid=%7B8E8B90BA%2D91F7%2D4D88%2DABB8%2DB78FE04AEEC9%7D&;siteid=mktw
Snippit:
Peter Grandich, editor of the Grandich Letter, an investment advisory publication, expects gold prices to "bottom" within the first few weeks of January, then make new highs by the end of the first quarter. "[The] correction we envisioned back in early December has been playing itself out and is nearing its end," he said.
"Currency values are going to remain the issue in 2005, as the dollar's demise has only just started," said Ned Schmidt, editor of the Value View Gold Report. "Currencies' values are the question, and gold is the answer," he added, referring to gold as "money" and therefore an "alternative to losing wealth in U.S. dollar-denominated assets." But "gold stocks are not money -- they are paper equities," so gold stocks will continue to disappoint investors in 2005, with the exception being the occasional takeover or merger," Schmidt said.
Black Blade: Gold slipped lower on razor thin margin as it was essentially hedge funds that "cut and run". It is simply taking profits now instead of last week, thus avoiding the taxman for now. Fundamentally gold and silver remain strong due to strong physical demand amid declining mine supply (CB supply is immaterial). The lack of any new mining projects and declining production should support prices over the next year.
YGM
(1/3/05; 20:02:41MT - usagold.com msg#: 127895)
Rich...Great Simple thoughts......Simplicity is a Golden Key!
The Bard of The Yukon...."Service"
Robert Service.....For us "Simple Men"
I'm just a mediocre man
Of no high-brow pretence;
A comfortable life I plan
With care and commonsense.
I do the things most people do,
I echo what they say;
And through my morning paper view
The problems of the day.
No doubt you think I'm colourless,
Profoundly commonplace;
And yet I fancy, more or less,
I represent the race.
My name may stand for everyone,
At least for nine in ten,
For all in all the world is run
By mediocre men.
Of course you'll maybe not agree
That you are average,
And unlike ordinary me
You strut your little stage,
Well, you may even own a Bank,
And mighty mergers plan,
But Brother, doff your tile and thank
The Mediocre Man.
R Powell
(1/3/05; 19:48:26MT - usagold.com msg#: 127894)
Simple thoughts
It occurs to me that my words are often those of a pragmatic working stiff. Before I'm again so accused, I choose to answer the charge. Most probably, guilty. If I offend anyone, let me answer this is not my intent.
I have also been accused of offering basic simple "economics 101" thoughts are possible answers to complicated questions...ie the concept of "free gold". Again, I do not do so to offend but to perhaps simplify what many seem to want to complicate or mystify. Perhaps there are issues that are beyond my comprehension. Most assuredly there are such but I look to understand things as they do exist, not as they should, might or could exist. Does not Ockham's Razor yet hold merit?
If a simple answer is not disproved, then why look for one more complicated and complex? Perhaps the greatest complexity in economic matters is not the complexity of any one concept but (the butterfly effect): the uncountable number of factors involved, constantly exerting forces, with varying, pulsating amounts of strength, always varying and never constant, even in their effects, sometimes positive, other times negative, never fully understood by anyone or understandable in its entirety but, ......even if this is so...should we not seek simplicity (or at least comprehensibly reject such) in our answers before embrasing the more difficult obscure response??
I don't know. I only seek to learn and understand (and profit) (G)
rich
R Powell
(1/3/05; 19:11:03MT - usagold.com msg#: 127893)
Belgian
Hello and happy new year.
You asked, in reference to Persaud's article..
"What happens to the present unfree (fixed)dollar goldmarket, when the dollar loses its reserve function, when gold is still publicly stated as an important monetary reserve !? What will be the effect of "floating" gold !?
How will the projected renmimbi reserve be considered next to the gold(wealth)reserve ? Why does the professor leaves this out of his equations !?"
May I venture a guess? As the dollar loses it's reserve function it will probably depreciate in exchange value against other fiats so the POG should increase (in US dollar numbers) as will the exchange value of other currencies. Aren't we seeing this already? Gold is trading as a currency, not as a commodity.
Eventually, when/if another currency achieves that coveted reserve function...at the exact time that occurs...there will already be an exchange rate (or price) for gold in that new reserve currency, no? So what happens to the cost, price or "value" expressed in any numerical currency number?...nothing. The POG already exists in every currency via the exchange rates of one currency to another. What difference which one of those is the world's reserve currency, if indeed, there has to be a new reserve currency when the dollar's time is through..?? Money is money. Gold is gold. The only connection is that gold, like everything exchanged among men, is priced in a numercial currency number for the exchange of ownership, no? Gold is unique, has been and is a store of value, etc. but gold is exchanged daily on a monetary basis.
Just one man's opinion. Fire away!
rich
R Powell
(1/3/05; 18:46:28MT - usagold.com msg#: 127892)
CoBra(too)
Thanks for the Professor Persaud article. I found it not only interesting but familar in that his opinions or those closely akin, are not uncommon in recent economic publications. Much is being made of the US dollar's coming fate. Most are seeking to somehow profit from whatever they believe that is. I found the following of note...
"A necessary condition of a currency becoming a reserve currency appears to be its breadth of use and cost and ease of transaction, not, as some might think, the ability to hold its value. Clearly, hyperinflation would not serve a reserve currency, and the end of reserve currency status is often associated with a cycle of inflation. But within the normal bands of inflation, it is size as a trader that matters. In the long term, the Swiss franc and the yen have been better stores of value than the dollar. Since 1980, they have appreciated by more than 21% and 54% versus the dollar, respectively. Yet for much of this time, combined, they have represented no more than 10% of central bank reserves."
The first sentence, especially, fits in nicely with the idea that money is a medium, in numerical form, for the exchange of "credits" (for lack of a better word or concept). I can pour and finish a concrete floor and get paid so many credits which I (almost) immediately pass on to my creditors to pay for food, mortgage, gasoline, etc. The amount I received and the amount I pay for that which I buy are the "fixed" values at the time of the transactions. None of this involves or implies any concept of savings or wealth. Money is merely a convenience of business transactions, no? Now, if this is so, why is the so-called "value" of any money so important? That is, if a cup of coffee cost the equivalent of X number of minutes of work for a certain profession, what difference does it make what the monetary number representing that amount is, as long as the time needed to purchase remains constant, then so does the effort needed to purchase. Obviously "wealth" stored in a depreciating currency is reduced and many on "fixed incomes", not properly inflation adjusted suffer, but, these are adjustable (intentional?) political issues.... so overall, in any monetary system where money is designed as a convenience for immediate business exchange, what number is on the bill (FRN) may not really matter?? My kids working minimum wage paying jobs make more than I used to and needed to, to support them as infants but...the lower numerical amount I used to make bought much more back in those good old days of yore. All this is nothing new, of course. Maybe my point is, as a bank president once answered me, after I suggested the monetary system might be unstable, "So what? If it fails again, we'll just bail it out or otherwise adjust and then start all over again." Some things (money) are perhaps NOT designed to last. I do not store my earned "credits" in monetary form.
I noted also that those trying to hold the reserve statis of sterling were those outside of Britian. When the dollar does depreciate more, those who hold them will suffer. Those who owe them will gain, no? Sometimes I remember those in the past (many here over the years!) who have proposed the notion of incuring debt to buy gold...? It does stir the musings of those who are not mostly concerned with preserving wealth but acquiring it...? Thanks again..
rich
CoBra(too)
(1/3/05; 18:05:39MT - usagold.com msg#: 127891)
Re: Persaud Essay -
- And probably my own thoughts in advance of the article...
- @ Belgian - your latest post directed to me ended with: "Where do I have it wrong? Tell us:" -
...I recognise, I should have remitted them by the end. Still, it's kind of awkward for me answering your query. As it seems you and your buddies already have made up your minds to regard me as a defector to the pure gold cause.
Fair enough, as that in itself bears a bit of truth. A truth, though which is hardly defection, more deflexion. And as you ask in a follow up post what function gold reserves in CB's really have - "symbolic", or not? - I'd like to tackle this before trying to answer your prior questions. In all probability, I won't succeed in either.
Anyway, CB's gold reserves in particular in the Western Hemisphere may not be even symbolic anymore. The big question is starting to emerge as to what portion of said gold reserves are still intact, or better un-encumbered. As more of the machinations of the PTB surface it becomes clear that not much of the (European and other)CB gold sales
happened voluntarily, nor under the auspices stated.
Only today Italy's CB "confessed" to gold swaps. Half of BuBa's gold seems to be in deep storage in West point and other EU CB's have been almost wiped or black mailed out of their holdings.
If we assume that about half of the gold reserves are either gone or encumbered as quite a few pertinent and probably smarter than I analysts believe, I would guess that this would answer question sufficently.
I've stated my recurring questions to the Austrian CB gov. here before and have nothing to add!
As to your your "free gold" advocacy - just to abbreviate my response to the rest of your critique on the good profeesor Persaud - as I'm on the same time zone with you -I'd say thgat gold is an eminently POLITICAL metal, that can't be set free at all cost.
A truly dubious statement, as I also see; Though, be prepared to live with your, alas great beliefs forever and you will be proven right.
In the meantime I will use physical Gold as a portfolio insurance par excellence and will also try to stick to my belief to use any other gain and/or income to shore up my bullion.
... And finally I agree it is gold which never will be corrupted by politics ...
Amen Bro - cb2
slingshot
(1/3/05; 17:13:46MT - usagold.com msg#: 127890)
Bargain Hunting
"However with many players retaining a bearish outlook for the U.S currency in 2005'some good levels of speculative bargain hunting in dollar alteratives such as gold are expected at some point, they said."
O.K. What are they waiting for? Gold at $254.00.
They missed the train.
Slingshot------------<>
USAGOLD Daily Market Report
(1/3/05; 16:36:17MT - usagold.com msg#: 127889)
Page Update!
http://www.usagold.com/DailyQuotes.html
The Daily Gold Market Report has been
updated.
If you are considering investments in gold we invite you to
request our free
introductory information packet detailing the products and services offered
by USAGOLD ~ Centennial Precious Metals. We welcome your inquiry and look
forward to working with you.
Monday market excerpts
Comex gold and silver prices buckled Monday as a turn higher in the U.S. dollar and weakness in the crude oil market sparked a wave of speculative liquidation amid a scarce buyer environment. The most active February gold contract settled $8.70 lower at $429.70 while March silver settled 33 cents down at $6.507 an ounce.
The upward move of the U.S. dollar versus other currencies was deemed the main driver behind gold and silver's weakness, rendering dollar-denominated precious metals less appealing outside the U.S. Bearish technical pictures also fueled the decline, with the weakening prices automatically generating sell signals for chart-following funds in both markets.
These factors, combined with thinner-than-usual trading conditions because of New Year holidays in Asia and Europe and batches of pre-placed sell orders that added to sell-side volumes as prices declined, made for a turbulent start to the trading year for Comex gold and silver.
"The quiet conditions really accentuated the prices moves, and the buyers were happy to watch prices come off," noted George Gero, a senior vice president at Legg Mason Wood Walker. "I think we could see some follow-through selling on Tuesday, but then we might find some good support."
Dealers agreed that further choppy trading could be seen over the near term, especially if the dollar makes further forays higher and the crude oil price comes under additional pressure as warm weather forecasts scare off buyers. Potential downside goals for February gold include $427 and the 100-day moving average just above $426.
However, with many players retaining a bearish outlook for the U.S. currency in 2005, some good levels of speculative bargain hunting in dollar alternatives such as gold are expected at some point, they said.
Some short covering by local dealers is also deemed in the cards, especially once trading population levels return to normal later in the week, they added.
----(see url for 24-hr international newswire)----
slingshot
(1/3/05; 16:25:42MT - usagold.com msg#: 127888)
Attention GAB $429
Will we see your call of $424 tomorrow? Breaking out some Dry Powder just in case.
I hate it when I get home late. ;0)
Slingshot-------------<>
Ned
(1/3/05; 16:20:31MT - usagold.com msg#: 127887)
Is it any wonder why Blair is Bush's puppet?
http://216.187.75.220/newsletter48.pdf
462. Britain's Energy Time Bomb
The following article reveals a new position by the British Government, which is now forced to admit to Peak Oil. The most telling line refers to a foreign policy of "Country Action Plans on Energy". The price can be high with more than 100 000 innocents killed in Iraq so far.
30-10-04. Foreign Secretary Jack Straw warned that Britain's growing need for energy over the next decades has to be seen in a "changing context" due to declining production from the North Sea. "By 2020, we will probably be importing three-quarters of our primary energy needs -- and we will need to adapt to that," he warned when launching his government's first-ever International Energy Strategy.
Straw's warning comes after the British Foreign Office identified energy security as being one of eight international priorities last December. The concern is that the country is no longer self-sufficient with oil and gas supplies from the UK's sector of the North Sea running out fast. The situation was underlined in July, when Britain recorded its first deficit in oil trade since 1991. The worry over gas was exemplified by the closure of the North Sea's Frigg field on October 26 after one time supplying up to a third of the UK's domestic gas needs.
The UK's oil production has been in decline since production peaked at 2.8 mm bpd in 1999. Although the current output of 2.1 mm bpd is in line with the average of the past 20 years, it is predicted it could run dry within the next decade. According to the UK Offshore Operators` Association, the country will cease to be self-sufficient in 2007, production will drop to 1 mm bpd by 2010 and virtually end altogether five years later. Of even greater concern is the situation of natural gas, where the UK is rapidly moving from a position from being a net exporter to a net importer. By 2010, it is expected to be importing around 50 % of its gas. Like the rest of the EU, the dependency is expected to rise to 70 % by 2020.
-snip-
From ASPO December newsletter.........
Belgian
(1/3/05; 15:56:51MT - usagold.com msg#: 127886)
Question to all
Does the CB(treasury)-gold only have a "symbolic" function...or not ?
If not,...what "function" do the states' goldreserves have ?
Belgian
(1/3/05; 15:34:30MT - usagold.com msg#: 127885)
@COBRA
The professor A. Persaud is theoretizising about a probable future whilst constantly looking back in his London mirror.
A currency specialist (myopic fanatic), ignoring the existance and evolving function of gold (+ history), within the global monetary complex ! His reflections and projections, come from decades of classic AA-dollar experience.
London keeps dreaming about the old splitting divergences between France and Germany. Note that DB is raising its bid for LSE !
In the professor's article, there is no indication that China is possibly preparing for having (wanting) the renmimbi as the world's reserve currency.
What happens to the present unfree (fixed)dollar goldmarket, when the dollar loses its reserve function, when gold is still publicly stated as an important monetary reserve !? What will be the effect of "floating" gold !?
How will the projected renmimbi reserve be considered next to the gold(wealth)reserve ? Why does the professor leaves this out of his equations !?
When are we going to hear a professor's theory about gold ?
Isn't it very bizar, that we always hear about dollar-reserves and never about gold-reserves !?
Any serious question on the gold subject, meets a wall of silence and a fast ridicule intermetzo as to rush to another subject. Or else we get those same stereotype yadayada standard answers as if all questions on gold must be answered with the same old copy. Old habits don't die easely and the imbedded myth of gold being a barbaric relic must be kept alive through ignoring it.
And above all, never dare to make any kind of association between euro and gold !
Where do I have it wrong, cobra ? Tell us.
TownCrier
(1/3/05; 14:28:21MT - usagold.com msg#: 127884)
Shifting reserves
http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh23658_2005-01-03_17-46-24_n03395483_newsml
NEW YORK, Jan 3 (Reuters) - Central banks are expected to continue building up their euro-denominated reserves this year, but if they rise at a slower pace than in 2004, the dollar's broad rate of depreciation may slow, analysts said.
The long process of central banks diversifying their currency reserves away from the dollar and into the euro, which was launched in January 1999, is cited as one of the major factors behind the decline in the dollar in the past few years, though the dollar still remains the world's reserve currency.
The sheer scale of global reserve holdings - around $3.36 trillion and rising, of which nearly two-thirds are held by Asian central banks - means even small percentage shifts involve the trade of huge nominal sums.
As the euro has established itself as the world's second most traded currency since its launch six years ago, central banks, particularly in Asia and the Middle East, have been adjusting their reserves accordingly.
...the Bank for International Settlements notes that the dollar is on one side of the trade in 89 percent of every foreign exchange transaction. An average $1.9 trillion changes hands daily in the global currency market.
[Now for the especially important part:]
Strengthening demand for an asset that's falling in value may seem counterintuitive to investors. But central banks are not typical investors, and making a profit comes behind achieving broader economic goals.
The biggest buyers in recent years have been the Asian central banks. Collectively, they sit on a pile of dollars worth more than $2 trillion.
Their aggressive dollar purchases via currency market intervention and subsequent investment in U.S. sovereign debt have been vital in preventing the greenback from losing even more ground over the last two years.
-----(from url)----
With all of that as subtext I would have you also bear in mind the first point of each of the central bank agreements on gold:
1. Gold will remain an important element of global monetary reserves.
Choose gold. And do so opportunistically as you may.
R.
TownCrier
(1/3/05; 12:38:34MT - usagold.com msg#: 127883)
Views on gold at two-month lows
http://www.usagold.com/gold-price.html
Jan. 3, 2005, SAN FRANCISCO (CBS.MW) -- Gold futures fell under $430 an ounce Monday for the first time in two months, pressured by fresh strength in the U.S. dollar as well as the potential for further increases in U.S. interest rates.
Peter Grandich, editor of The Grandich Letter, an investment advisory publication, expects gold prices to "bottom" within the first few weeks of January, then make new highs by the end of the first quarter. "[The] correction we envisioned back in early December has been playing itself out and is nearing its end," he said.
"Currency values are going to remain the issue in 2005, as the dollar's demise has only just started," said Ned Schmidt, editor of The Value View Gold Report.
"Currencies' values are the question, and gold is the answer," he said, referring to gold as "money" and therefore an "alternative to losing wealth in U.S. dollar-denominated assets."
But "gold stocks are not money -- they are paper equities," so gold stocks will continue to disappoint investors in 2005, with the exception being the occasional takeover or merger," he said.
---------
Three years ago gold prices sat near $275 for nearly two years and has subsequently climbed reliably over the next 1,000 days to to the mid $400's, all the while moving up and down within a $25-$50 channel of short term price swings.
Those who have bought the dips have maximized their holdings and benefits from the prevailing upward trend in gold.
Bottom line: don't miss out on the dips as they present themselves for opportunistic buying.
See url especially for a clearer understanding of the 5-year chart; the third chart down on the right.
R.
CoBra(too)
(1/3/05; 11:33:37MT - usagold.com msg#: 127882)
Self-Perpetuating Ubiquity: For Today, the Dollar is Microsoft!
The above is a quote from below's Strategic Investments and may have read Macro-Soft if Bill Gates would have have started "Another" company.
Sorry, that seemed a mute point as the article is tackling some very valid points - as a matter of fact the points mentioned are now coming to a head as further debt or credit expansion for the Dollar seem implausible.
That again, may be "wishful" thinking by the real creditors. Though, lastly even the most gullible creditors may come to the conclusion that the constant bleeding has to be stopped before they themselves are sucked dry by the Dracula type of Dollar zombies.
To prolong the "bloody" charade it is adament, last resort type of defense to lean on the POG. At least this concept has worked to keep the appreciating currencies (vis a vis the US Fiat confetti) in a tight trading range.
No gold enthusias'm in Euroland, nor the strong commodity based currency countries.
That's probably, what we ole' gold bugs should be watching for. The appreciation of Gold vs our relative strong "confetti", though still confetti.
The time will come, when our confetti will succumb to the leadership of the outgoing reserve currency and will manifest in competitive valuations. The time seems to be near, as some currencies have already aprreciated 40%+ vis a vis the mostly pegged DXO basket.
Well, maybe the US Dollar regime is more scared of the € - as it should be scared of the Yuan and/or the Indian Rupee!
Be that as it may be - I'm more scared by the factual and present bankrupt Dollar economy and its aftermath than by any further upholding of the status quo. A status which can't be held much longer in any case...
Even, if there will be all sorts of agreements between the G7 + whomever - we still deal with a country which is totally and finally bankrupt and will renege on its obligations to to fulfill its dues - id est pay back its financial promises.
That is impossible - and any discounted payback via inflation/depreciation will be outright devastating and countered by sky high interest rates.
It must be nice to be between a rock and a hard place if there's still a scintilla of hope and escape. In terms of the US and its Dollar I can see none.
Well, there is a scintilla of hope by reading the following article, though I doubt even "scintilla"!
"Whiskey & Gunpowder
January 3, 2005
_______
You are receiving this issue of Whiskey & Gunpowder as a gratis benefit to your Strategic Investment subscription. Today, we present you an analysis of the birth and death of globally dominant reserve currencies…
_______
WHEN CURRENCY EMPIRES FALL
by Professor Avinash Persaud
I SPENT THE first part of my career as a currency strategist in the City of London. One of the nice things about being a currency forecaster is that expectations of you are very low. Moderate success is a great surprise. But there are a few things that are more certain than others.
For example, at any one time, there tends to be a single dominant currency in the financial world -- not two or more, just one. Some people believe that while the euro may not topple the dollar, it will at least share the spoils of financial hegemony. History suggests not. In the currency markets, the spoils go to the victor, alone -- they are not shared.
Either the euro succeeds internationally, or it does not. (Which, lest I anger my Europhile friends, does not make it a failure, just not an international currency widely accepted outside the euro area. Many countries have credible, stable currencies that are not international currencies, such as Canada, the United Kingdom, Switzerland, Japan, and Sweden.)
In the past, it was worth asking what the spoils are to being an international or reserve currency.
Some countries deliberately tried to avoid their currency becoming internationalized, such as postwar Germany. The Bundesbank felt that the more deutsche marks that were held outside of Germany, the less control they would have over money supply and monetary conditions. European aspirations for the euro to become the world's reserve currency are more French than German, more dirigiste than dirigisme.
Today, the spoils of reserve currency status are more clearly visible than ever before. If your currency is a reserve currency, you can pay for things by writing checks, which nobody cashes. You can spend more than you earn to a far greater extent than anyone else. This is exactly what the United States has done in recent years. National expenditure has exceeded national income by more than 20% over the last five years.
Going Broke on Tanks and Pills
When that excess spending was due to investment in technology in the late 1990s, it was not clear whether the United States was benefiting from being a reserve currency, or whether it was simply enjoying an investment boom.
But today, that excess spending is on unproductive consumption: tanks, bullets, and pills. Few countries in the past have ever been able to sustain a deficit on external accounts as large as that in the United States today. And when other countries have run large deficits, they have had to pay significant premiums to borrow the money, not as in the case of the United States today, receiving a discount. These are some of the immediate advantages of being a reserve currency.
International and reserve currency status also lends the host country even greater influence than otherwise. One of the interesting passages of dollar diplomacy in recent years was in early 1998, when Japan and Singapore were both generously putting up the cash to support the East Asian economies amid the Asian financial crisis, but the U.S. Treasury was dictating the terms.
There are good reasons why there is seldom more than one dominant currency. Reserve currencies have the attributes of a natural monopoly, or, in more modern parlance, a network. If it costs extra to trade with someone who uses a different currency than you, it makes sense for you to use the currency that most other people use. This makes that currency yet bigger and cheaper to use. There is a good analogy with a computer operating system. In that world, Windows is the dollar.
This networking power is why central banks store dollars in their reserves in a far greater proportion than the proportion of trade with the United States. While 30% of international trade is with the United States, 70% of central bank reserves are in dollars. It is why most commodities, like oil, copper, and coffee, are priced in dollars, wherever they are found and whomever they are sold to.
Something else we can be more certain of is that reserve currencies come and go. They don't last forever. International currencies in the past have included the Chinese liang and the Greek drachma, coined in the fifth century B.C.; the silver punch-marked coins of fourth-century India; the Roman denari; the Byzantine solidus and Islamic dinar of the Middle Ages; the Venetian ducato of the Renaissance; the 17th-century Dutch guilder; and, of course, sterling -- and now the dollar.
A necessary condition of a currency becoming a reserve currency appears to be its breadth of use and cost and ease of transaction, not, as some might think, the ability to hold its value. Clearly, hyperinflation would not serve a reserve currency, and the end of reserve currency status is often associated with a cycle of inflation. But within the normal bands of inflation, it is size as a trader that matters. In the long term, the Swiss franc and the yen have been better stores of value than the dollar. Since 1980, they have appreciated by more than 21% and 54% versus the dollar, respectively. Yet for much of this time, combined, they have represented no more than 10% of central bank reserves.
In the 18th century, Britain was the largest economy of the Western world, London was the center of international trade and finance, the currency was convertible, and so sterling became the world's reserve currency. By the late 19th century, the United States had become the world's largest economy, a position solidified by Europe's repeated attempt at self-annihilation from the 1880s to the 1940s. By the 1960s, the dollar had usurped sterling and was the world's new reserve currency, with 60% of total central bank reserves being held in dollars, twice the level of sterling reserves.
Tomorrow, the Renminbi Will Crush the Dollar
But time doesn't stop. By the mid-21st century, the United States will no longer be the world's largest economy. By then, China and India will have overtaken the United States, Western Europe and Japan, on purchasing power parity terms at least, which should represent where exchange rates are likely to be in the long run. Indeed, optimistic measures of sustainable growth in China and India suggest this will be the case in 20 years time. Ladies and gentlemen, within my lifetime, the dollar will start to lose its reserve currency status, not to the euro, but to the renminbi.
The process is likely to be long and drawn out, rather like sterling's slip and slide. Although the United Kingdom had lost its position of the world's largest economy in the late 19th century, by 1928, it was still the world's major reserve currency, with twice as many central bank reserves being held in sterling than in dollars. In part, this slow process was a result of the authorities’ attempts to delay it.
Gaining reserve currency status is heaven, as you write checks and no one cashes them. Losing reserve currency status is hell, as everyone starts to cash all the checks you ever wrote back in time. Britain's economic history and politics for the first three quarters of the last century were dominated by the overhang of sterling balances and the pressure on sterling as these were liquidated.
The principal way in which Britain tried to slow the process was through the use of imperial power and influence. By the 1930s, sterling's reserve currency status was largely a result of sterling balances held by the British colonies. The majority of sterling reserves were held by Ireland, India, Pakistan, and Australia, not the major economies of the time, the United States, France, Germany, or Japan. In the postwar period, the British authorities formalized the sterling area, within which there were few restrictions to trade but strict rules controlling the movement of goods and capital into and out of the bloc. One could argue that sterling had already lost its reserve currency status in the sense of a currency that third parties voluntarily choose to use as a vehicle currency. However, there is no reason to suppose that the United States would not follow a new imperialism by exerting pressure on countries to stick to the dollar bloc.
There are three further implications of this analysis.
First, those Europeans who want the euro to become the major international currency must consider either substantial immigration or an aggressive enlargement eastward. A European Union that by 2025 included the former Soviet bloc, Turkey, and North Africa could rival the dollar and renminbi, especially if the process brought greater political stability to the new member states.
Second, the loss of reserve currency status for the United States will bring economic and political crisis. If it was economically and politically painful for the United Kingdom, even though its international financial position was not in heavy deficit, what will it be for the United States, which has become the world's largest debtor? There will be an avalanche of checks coming home to be paid when the dollar begins to lose its status. Of course, excessive debt in your ow ncurrencyisalsospelled"inflation."Thatisthemostlikelyoutcome,anditishowothergovernmentshavetriedtocopewiththelossofreservestatusinthepast.Thesolidusanddinariwereultimatelyconsumedbyacycleofinflationanddebasement.opopfontfontliul
Third, if the renminbi is to become a major reserve currency, it first has to leave the dollar bloc. This will happen later rather than sooner. One of the other certainties in foreign exchange, what I call the Second Rule of Foreign Exchange, is that the smaller, more open an economy is, the more the authorities manage the exchange rate, and similarly, the larger, more closed an economy is, the less the authorities care about the exchange rate.
Policymakers perceive a trade-off, at least over the course of the political cycle, between the economic flexibility afforded by a floating exchange rate that can respond to new and varying circumstances and the economic disruption that a volatile exchange rate, sensitive to external factors, factors often beyond the control of the country, can cause.
This potential disruption is greatest the more open an economy is to international trade. Small open economies opt for inflexible exchange rates. Large closed economies prefer to keep the flexibility of a floating rate. The European Monetary Union (EMU) makes political economy sense for Belgium, but not for the United States.
From Pegged to Floating; China Emergeth
We think of China as a vast country with a growing economy, but in many ways, it has the characteristics of a small open economy today, with the market sectors of the economy being led, driven, and dependent on international trade. Although I am not altogether comfortable about the meaning of some of the national statistics in a command economy, for what they are worth, they suggest that in terms of trade as a percent of GDP, China is far more open than the United States or euroland, countries that pursue exchange rate flexibility, and is more akin to France, Spain, and Korea, countries that choose exchange rate management. The current arrangement, therefore, is likely to persist for a while longer.
That does not mean that there will not be a revaluation of the renminbi shortly -- it could even happen around the end of this year -- but that the Chinese will revalue the renminbi and stick to a pegged system, though the limits may widen a little from the current 1%.
But a dollar peg is not China's destiny. It may have an open economy today, but longer term, China will be a large economy, driven by its domestic, rather than external, sector. Then, it will prefer a more flexible exchange rate. The decision by China to move from a peg to a float will mark the beginning of the end of the dollar's reserve cu rrencystatus.YoucanseewhytheChinesewereinvitedfordinnerbytheG-7inSeptember.opopfontfontp
In summary, there are few, if any, instances of a single financial system having more than one key currency. Today, that currency is unquestionably the dollar. But reserve currencies come and go. Perhaps the immediate economic advantages that they bestow seduce governments to overextend themselves until the financial empire collapses upon itself. The collapse, as a couple generations of unpaid checks are presented to be paid, will push the United States into a series of economic and political crises in the middle of the 21st century.
The most likely candidate to replace the dollar is not the euro, unless Europe embraces rapid eastward expansion; it is China. Through rapid economic growth and a massive population, China will become the largest economy within 20 years time, and economic size is the key to the rise of new financial empires.
The principal risks to this forecast are whether China can continue growing rapidly and, more uncertain, whether it can maintain a degree of political stability. If Chinese leadership fails on both fronts, the dollar's reign will probably last a little longer. There is a possibility that it finds itself under threat from another quarter, the rupee. India's democracy is remarkably stable for a poor country. Moreover, courtesy of the one child policy, it is India, not China that will end up with the largest population in the world by 2050. The fate of the average Chinese today is to grow old before they grow rich; the fate of the average American is more uncertain than most imagine.
Sincerely,
Avinash Persaud
Greg's note: Professor Avinash Persaud holds The Mercers' School Memorial Chair in Commerce at Gresham College in London. He is investment director for GAM London Ltd. Before joining GAM, Professor Persaud was managing director and global head of research at State Street Bank. He is a special consultant to the Independent Evaluation Office of the International Monetary Fund. Professor Persaud holds a visiting scholarship at the International Monetary Fund and is visiting fellow at the Cambridge Endowment for Research in Finance at the Judge Institute of Management, Cambridge University."
Believe me, I still wish all of us a happy and reasonable prosperous 2005 - though I doubt we'll be reasonably exempt from the financial "Tsunami", which will hit all shores worldwide. Gold may still be the best and only bet, though Black Blade said it better - Cheers cb2
TownCrier
(1/3/05; 11:31:12MT - usagold.com msg#: 127881)
Federal_Reserves, Fed addition
Thanks for the related comments. Beyond the net effect of the Fed continually working to smooth out maturities of its own previous open market injection of reserves, please note that the point I was making (perhaps too subtly) was regarding the wider picture of the monetary dynamic with respect to seasonal commercial, retail and private flow of funds, and also especially with regard to the Fed's low (sub-FOMC) interest rate for this operation. ALL things considered, ensuring ample liquidity definitely remains Job Priority #1 for the Federal Reserve.
R.
TownCrier
(1/3/05; 11:08:36MT - usagold.com msg#: 127880)
MK's 'Gold Forecast 2005'
http://www.usagold.com/business/cpm/amk/clientlettermk1305DD.html
Michael Kosares, author of the hot-selling book, "The ABCs of Gold Investing - How to Protect and Build Your Wealth with Gold", has made immediately available to all USAGOLD visitors his important first Client Letter of the new year in which he puts forth his forecast for gold in 2005. See URL above, and then follow the internal link.
To enjoy access to MK's weekly Client Letters, request a free info packet from USAGOLD-Centennial and you will be provided with several additional Letters for an interim period. Of couse, all clients of USAGOLD-Centennial Precious Metals will receive all updates on a continuing basis as one of the several added benefits of doing business with this firm.
Choose gold, and choose the company you can rely on -- not just through the moment of order fulfillment, but for ongoing insight and support through the life of your investment. Choose USAGOLD.
R.
Federal_Reserves
(1/3/05; 10:49:37MT - usagold.com msg#: 127879)
TOWN>FED pumping
http://research.stlouisfed.org/publications/usfd/page5.pdf
actually 4.5 expired and they replaced it. So, no net add to liquidity today. Tommorrow could be more telling regarding the post holiday extraction of liquidity, with 12 billion expiring.
Current Repo Expiration Schedule
1/4 $4.75
1/4 $7.25
1/6 $14.00
1/13 $7.0
$33
Also note the attached MZM money growth. Flatish, telling us that economic activity which would require liquid money is not all that great.
ISM - Employment at 13 month low.
http://www.breifing.com/Silver/Calendars/EconomicReleases/napm.htm
No jobs in manufacturing. The tax and spend FED stimulus was exported to Asia, US workers have no coin. Only rich folk with appreciating assets (homes/stocks) and no debt are getting ahead in the USA today. The USA is becoming a country run by the digital elites, global oligarchists, aided by both democrat and republican, these folks favor cheap labor practices such as illegal immigration, and trading with communist countries who have fair labor practices or environmental controls. Manufacturing in the USA is in the full state of collapse. Once communist China takes over the US auto industry as it has so many others, nothing will be left. Then the the communists can float their yuan against the US dollar, the yuan will rise value the dollar will drop to 30, our prices will be jacked up, and the US will be impoverished, and become the world's largest banana republic, a country whose only export is debt.
Belgian
(1/3/05; 10:42:38MT - usagold.com msg#: 127878)
Trichet
Will speak next monday. The dollar will certainly be on the agenda. Maybe there will be a message ...a hint ?
OPEC's 1 million/bpd cut, will become effective in januari.
Don't be surprised to see NYMEX dip under $40. Watch the spread of $4 between Brent and WTI.
The €-POG hasn't made it through the €350/Oz ceiling and is coming back to the bottom of its long horizontal price zone. Expect the dollar fundamentals to be increasingly put into question, whilst the goldprice in non dollar currencies remains flat, despite the creeping up, price inflation. Remember that as long as the goldprice stays hibernated, the dollar management will continue to be questionned. The day will come that no dollar questions, about its possible hardness, will be asked anymore.
Tough times for gold-holders that don't see any light out of the tunnel.
TownCrier
(1/3/05; 10:25:43MT - usagold.com msg#: 127877)
Fed pumps against (post-)seasonal expectations
With the holiday season now past, experience says that much cash which customers had removed from the banking system ought now to be migrating out of purses, wallets and out of store tills right back into the nation's banking system. There it will re-swell the reserves of the commercial banks, and in theory should reduce the Fed's motive to pump money into reserves via open market repurchase operations -- even to the point where draining operations could be expected as appropriate countermeasures in the name of monetary stability.
But judging from today's action by the Fed, the drive for ample liquidity is still the name of the game. The Fed accepted Treasury collateral in overnight repo open market operations today, thus adding $4.75 billion in fresh temporary cash, and doing so significantly below the FOMC target of 2.25%. The Fed's injection today was provided at the low average rate of 2.146 percent.
When the traditional brakes on the money supply have been politically greased beyond reliable function, beware the vehicle. Choose the tangible sensibility and scarcity of physical gold as your foundation for meaningful savings.
R.
Belgian
(1/3/05; 07:58:09MT - usagold.com msg#: 127876)
Volatility....
Volatility you want (X-thousands of hedge funds),....volatility you get ! And then the "stabilizers" (interventionists) come in and calm things down.
Financial life as it is ! Yahoogle...
No wonder that the financial experts strongly advise not to hold reserves ! Why should one hold reserves, anyway ? The markets are moved,... "for you"...don't they (sic)!?
Now CNBC is even calling the rise in yahoo and google...increasing your *wealth* (not money anymore) ! Oh dear...
Caradoc
(1/3/05; 00:11:04MT - usagold.com msg#: 127875)
news flash: 11:07 Pacific
Local radio was just interrupted for announcement that there has been an explosion at LAX. No details other than "apparently an improvised device." -Caradoc
ViewYesterday's Discussion.
Permission to reprint is hereby granted where the USAGOLD name is cited along with our web address, mailing address and phone number. For electronic reproductions, citing the post heading and the http://www.usagold.com/cpmforum/ website address as the source is sufficient.
|
Centennial Precious Metals Gold coins & bullion since 1973 Denver, Colorado 80246-0009 We educate first-time investors! |
for quotes and purchase information.
|
