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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Michael Pento
November 3, 2010
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Investors the world over have traditionally flocked to the US dollar for safety. Many well remember the fall of non-dollar currencies in 2008, when the Dollar Index surged 27% and crushed most commodity prices, including gold. How do we know that the next international crisis won't cause the same global flight into the "safety" of US dollars and out of secondary currencies like the euro? The answer can be found in comparing the Fed's current approach with the strategy it employed two years ago.

Ben Bernanke's initial response to the credit crisis of 2008 was fairly muted. Given today's era of accommodation, it may surprise investors to be reminded that the Fed left interest rates unchanged throughout the entire panic period from April 30ththru October 8th, 2008, despite the fact that the S&P 500 dropped 37% during that time. And Bernanke only slightly increased the monetary base by $160 billion during that drubbing in equities. So, given the uncertainty and confusion that reigned and the Fed's promises of stability, global investors flocked to the dollar, as they have done in Pavlovian fashion ever since the Bretton Woods Agreement was signed more than 65 years ago.

However, since the initial crash, the Fed has abused the dollar so disastrously that the remaining well of confidence has dried up. Ben sent out a fleet of helicopters to demonstrate to the world that he would not tolerate the appreciation of the USD or allow price levels to contract. While other central banks are beginning to tighten policy, the Fed has only promised more "quantitative easing."

On the fiscal side, lawmakers in Washington have diverged from their counterparts in Berlin and London by refusing to consider any measures that would address growing debts. While austerity takes hold around the world, profligacy still runs rampant in the US. 

In short, we are sending a loud and clear message to global investors: "You will be severely punished for seeking shelter in our currency and bond market!" The monetary base has doubled since the crisis, to $2 trillion, and the announcement of another dramatic increase is expected at the conclusion of the next FOMC meeting on November 3rd. The Fed has engineered robust "growth" rates in all the monetary aggregates, but yet has gone on record for the first time in its history saying that the rate of inflation is too low. All this has resulted in the US dollar losing nearly 13% of its value since June.

I went on record last summer saying that selling euros (or most any other currency) to buy US dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. The only safe forms of money are those that act as a store of wealth, preferably because their value will not be recklessly diluted by fiat. The Fed has put the world on notice that the dollar can no longer be viewed as a safe-haven currency. No such notice has been posted by the European Central Bank. And although no fiat currency is really safe, it is clear some are abused much less than others. 

During the next phase of the crisis, it is likely that investors will be more cognizant of these facts than they were in 2008. As a result, I would expect them to seek shelter outside the dollar, perhaps in other currencies but also in commodities and precious metals. The days of panic dollar spikes may finally be over.