BEST OF BILL BUCKLER

November 20, 2007

THE WORLD IS CHOKING ON US DOLLARS

The enervating and everlasting outflow of US Dollars is now driving other central banks around the world into near desperate counter measures. This new feature of the global financial landscape is spreading like a wild fire. The US Dollar outflow was bad enough back when the US Dollar managed to maintain a somewhat useful international value. But now it is beyond endurance in many places to receive US Dollars that are falling in value.

Central banks from Bogota in Columbia to Mumbai in India are imposing foreign exchange trading curbs to take control of their soaring currencies from all the worldwide currency traders who are dumping the US Dollar…..

In 2006, the US trade deficit hit $US 764 Billion. The current account deficit, which includes the trade deficit plus the net outflow of interest, dividends, capital gains and foreign aid, hit $US 857 Billion. That's 6.5 percent of US GDP. This data shows the core of the global problem. These deficits lead to an outflow of US Dollars as well as an increase in total US external debts owing. With the US Dollar down 12 percent so far this year, the US is in fact underpaying its foreign creditors to that extent. True, they do get paid, but in US Dollars which will now buy them 12 percent less. In fact, this is a disguised form of international debt default. How otherwise could US external debts be scaled down without it being BIG news complete with international conferences? Instead, the US is bringing it about by letting its currency fall in international value while doing nothing to support it. This could all change - very quickly - if many global exporters suddenly refuse to accept payment in US Dollars. In that situation, the US would have to acquire the foreign nation's national currency BEFORE it could buy that nation's economic goods. To get these foreign currencies, the US would have to sell US Dollars before it would receive any. The US would have to do so at the prevalent exchange rates.

It follows directly from the above that the more Dollars the US lent into existence and/or printed to buy foreign goods, the more the US Dollar would fall in value on the world's foreign exchange floors. Only when the US stopped creating US Dollars out of thin air by printing or by credit expansion would the value of the US Dollar stop falling. Once that point was reached, the US would discover that if it wanted to buy something outside its own borders, it would first have to sell something outside it own borders in order to earn the money. This is the old iron law of international markets which lays down that exports pay for imports. Money, as such, is only an intermediary - the medium of exchange - in these transactions. Natural exchange rates are between real economic goods – so many tonnes of wheat or thermal coal will buy you a Mercedes. No economic goods to sell - no Mercedes, or anything else.

Most Americans will discover this in the next one or two years as the US Dollar loses its trade status.

"WE HAVE A STRONG DOLLAR POLICY"

That quote is not from Treasury Secretary Paulson, it is from US PRESIDENT George W Bush. There is no other place for the US to go after this. Because Mr Paulson's parroting of the "strong Dollar policy" line is no longer believed outside or inside the US, President Bush had to be rolled forward. He was - in an interview on Tuesday November 13. The highest official authority in the land has now intoned exactly the same litany that Mr Paulson has been pushing for months. But this time, it's the BOSS talking.

In his interview, President Bush predicted that the battered US dollar will get stronger because the US economy is robust. "If people would look at the strength of our economy, they'd realize why, you know, I believe that the dollar will be stronger", President Bush said. "We have a strong dollar policy, and it's important for the world to know that. We also believe it's important for the market to set the value of the dollar relative to other currencies", the President said. The currency markets sent the US Dollar lower in response, not believing a word of the first part of the President's own statement.

This Is Where The REAL Trouble Starts:

President Bush has been pushed forward to defend the US Dollar. From here on, the international value of the US Dollar becomes a matter of not only presidential prestige - but also US national prestige.

Tall Lies From High Places:

The "strong Dollar policy" is a lie, no matter who intones it. With the huge US internal credit expansion running at an annual rate of $US 3.75 TRILLION, the very first thing which would have to be done to support the international value of the US Dollar is to drastically slow down this internal rate of US credit expansion. Obviously, the result would be a sudden and savage US economic downturn, followed by a recession as deep or deeper than the one back in the 1930s. Equally obviously, none of the political or financial powers that be would accept that. That means that the internal US credit expansion will roll right on until the US Dollar breaks fatally under the accumulated strain. We are set for a global crisis.

Print Or Bust:

Economic fact: There has never been a nation which has managed to devalue its currency into prosperity. This is the central fact that all Privateer subscribers should have written in a picture frame to be hanged in a conspicuous place in their homes and/or offices. The purpose in doing this is to have a constant reminder in view as to the real truth of affairs. This goes especially for our American subscribers, but for as long as the US Dollar still functions globally, this statement also has a global reach.

Ó 2007 – The Privateer

http://www.the-privateer.com

capt@the-privateer.com

(reproduced with permission)

SUBSCRIPTIONS:

Delivery via email

Trial: 5 issues (once only)

Six-Month: 12 issues

Annual: 25 issues

Two-Year: 50 issues