Final Red Alert On The Dollar
By Matthias Chang
Saturday, 23 April 2011
http://futurefastforward.com/feature-articles/5374-by-matthias-chang
Get out of all dollar assets NOW!
Dump any dollar holdings NOW!
I cannot say for sure that the DIVE will happen tomorrow, or the next few days or
in the next week, but the dollar is going to create a big hole in your pocket if
you are still hanging to dollar.
In my email Red Alert way, way back in November of 2010, I had warned that the
final phase of the Global Financial Tsunami would rear its ugly head at the
earliest, at the end of the first quarter of 2011.
I did not say at the latest – repeat at the “earliest”.
While the tsunami has not hit the “financial shores” as yet, the force swirling deep
beneath the waves is gathering momentum.
When it finally hits us, the pictures you saw of the recent Japanese tsunami will
be tame in comparison. This is because the financial tsunami will be more
destructive, more severe than the first financial tsunami in 2008.
For the reasons in support of this Red Alert, please read all my previous postings
in 2010, as I have no wish to repeat myself or to justify my findings.
Do your own research, if you doubt this Red Alert.
========================
Why Is Anyone Still Waiting To Sell The Dollar? -
By Chris Martenson (25/4/11)
http://futurefastforward.com/images/stories/featurearticles/AxelMerkWhyIsAnyoneWaitingToSellTheDollar.pdf
By Chris Martenson - Financialsense
The Fed faces destroying the dollar or ushering in a new Depression
The Fed faces destroying the dollar or ushering in a new Depression
By the time the Fed realizes the damage it has created, it will be quite late to undo this it and it is going to be very, very expensive and painful to address
Below is the transcript for Axel Merk: Why Is Anyone Still Waiting to Sell the Dollar? [1]
Chris Martenson: Today we are speaking to Axel Merk, president, chief investment officer and founder of Merk Investments. Axel is a noted expert on world currencies and manages several mutual funds that manage currency risks for investors. For years he has been an outspoken critic of US monetary policy, warning investors that the current course risks seriously devaluating the dollar. The past few years have proven his warnings to be accurate. He is also the author of Sustainable Wealth, a very readable guide to understanding our macro economic environment, the risks today.s investors face, and how they can mange their finances to achieve financial stability - very important in today.s world. Axel, thanks so much for making the time to join us today.
Axel Merk: Hi, good to be with you Chris.
Chris Martenson: Let us jump right into, it, the US dollar is trading at its lowest level since the carnage in 2008 and there are many voices, yours and mine included warning it could go a lot lower. So if you could recap for our listener.s right here and now how we got here and what is your outlook for the dollar?
Axel Merk: Well the dollar has really been on a very, very long term decline for decades and sometimes it puzzles me when people say ¡°Oh, I will sell the dollar and get out of it if and when it does come down¡±. I do not know what they are waiting for. And that trend has obviously had some ups and downs and has been accelerating in recent years. In recent times, we have had this major challenge that we are trying to grow at just about any cost, whereas our consumers they would like to really have a break. And it is not just now after the financial crisis, after the tech bubble burst after 9/11, we decided to keep America rolling and what happened was that we were just going out on an all-out spending spree in an effort to get this economy rolling. But when consumers in particular do not really like to spend, what happens is you are throwing a lot of good money after bad and that money really does not stick where it is supposed to be. Consumers like to downsize in the current environment, if they were left up to their own they
would downsize in their homes, of course that means foreclosures and bankruptcies which our policymakers do not like so they throw a lot of money at the problem. Consumers do not want it and so the money goes where you have the greatest monetary sensitivity - that is gold, that is outside of the dollar into Australian dollar and other regions in the world, and we are just better at spending money than the rest of the world is and it is a trend that has been intensifying in recent years.
Chris Martenson: Well part of that trend is supported by being the world.s reserve currency that is an exorbitant privilege, perhaps one that has been abused lately. So in my perspective every single recession we have had to this point, de-leveraging has been part of that process. This time it seems like the fiscal authorities in Washington DC and the monetary authorities at the Fed, they seem bent on making sure that we do not de-leverage this time, what is driving that?
Axel Merk: Well if we allowed market forces to play out, we would have the adjustment that from a purist point of view would be the appropriate thing: that the folks that made wrong decisions would need to declare bankruptcy. The problem is many, many people made wrong decisions. Millions of homeowners are underwater in their mortgage, we would have a depression and that is something that our policymakers do not want. And now we have Ben Bernanke who says he is a student of the great depression and he thinks he has all the recipes on how to not redo all the mistakes that we have. Think about the types of things Bernanke has said including testifying in congress: he has said going off the gold standard during the great depression helped the US recover faster from the great depression than other countries. Meaning if you debase your currency, you can get faster growth.
If I take away half your money as far a purchasing power is concerned, you have a greater incentive to work. He has said a weakened dollar is historically not inflationary, we disagree but that is his viewpoint. On top of that, he is buying government bonds. So when you buy government bonds, those securities are intentionally over-priced signaling to investors they should rather go overseas where there are less manipulated returns. So both in word and in action he wants to debase the dollar as one method to spur economic growth and he needs that because we want to have consumers that spend, and consumers that are underwater in their mortgage are not going to spend. Now businesses have been much healthier, they have gotten on their feet doing the right things much faster. But consumers want to de-leverage and we do not want them to de-leverage because we have seen in any other country in the world that has had a hosing bust, we have economic stagnation for many many years. Now we have the same thing but we are trying not to have it and are throwing a lot of money at the problem except that all these theories that Bernanke has unfortunately do not work quite as well in practice.
That is why we have inflation coming in, that is why we have the dollar weakening and the only response we get is .we.ll throw more money at the
problem. because it just cannot be the way that the market wants it to be. It has to be the way the federal government wants it to be.
Chris Martenson: I have been concerned that yes you are exactly right that Bernanke had a theory, a thesis developed at Princeton. A lot of intellectual thought went into it; I am not sure how much real world applicable practice went into it given his career track. But let.s assume he was right in his thesis, he had a good one. I am concerned that he is engaged in what I would call thesis drift where he came in and said ¡°Listen, if we just throw a whole bunch of money at this, it will pick itself up and carry on¡± and that has not worked. So the response was ¡°Well, let.s do QE2¡± and even there we can say this is questionable in terms of its actual response to the overall economy and it seems like he is ready, wiling, and able to do anything necessary to prove his thesis right where it might not be correct. It might be that the conditions in the 30.s were very different from the conditions today and all sorts of measures: being a net export nation, being a net creditor, being energy independent, etc and so forth. There are so many differences that it is almost impossible to catalog them all. Where do you think we are in terms of the Feds position right now? I know that you happen to have access to a former Fed official - if you can talk about that - and I am wondering if you have any insights for us as to what the Fed is up to and where they are going from here?
Axel Merk: The one thing I have learned over the years that our policymakers are quite predictable be that on the fiscal or on the monetary side and I do think that Bernanke is pretty much following his playbook. One of the things he has said is that one of the great mistakes during the great depression was to tighten too early, and as a result we deepened then the great depression or had the second leg downward and so he does not want to do that and he wants to err on the side of inflation. Right now, I have been arguing that the Fed can get away with murder. And what I mean by that is that because this money does not really stick anywhere. All this money printing . yes, it shows up in the excess reserves in the banking system but not all of it causes significant inflation. We see it in food and in energy but it takes a while for it to trickle through. The big concern I have is: let these policies work and we get substantial economic growth but what are we going to do then? If the Fed were indeed to mop all this liquidity, Bernanke has argued, he can raise interest rates in 15 minutes, where are we going to be then? The challenge is we have too much leverage in the economy, consumers are far more interest rate sensitive than they have been in the past and as a result we will plunge right back down. So in the best of cases we have a very volatile policy, and by the way before I talk about our own former Fed President who is our Senior Economic Advisor - contrast that with Europe where consumers stopped spending a decade ago. They were told a decade ago that there was not money for your pension; in the US they were told the same thing - except in the US they took out the credit card; in Europe, they stopped spending. And now the Europeans can raise rates and they do not derail their economic recovery just because rates are a little bit higher. We simply cannot raise rates like Volcker did in the early 80.s to contain inflation. If it needed to be, we would have a revolution if we were to raise rates to 20%, it simply does not work. Now you mentioned in house we do have Bill Poole as our Senior Economic Advisor. He is the former President of the St. Louis Federal Reserve. He is the one who voted against the emergency rate cut in January of 2008. He also was the one federal official who argued about bailing out Long Term Capital Management. He is now a senior fellow of the Cato Institute; he is very much a free market thinker. He is also a very pure monetary economist, he has obviously been around for some of the Greenspan policies but he has a very straightforward way of thinking and he makes for amazing discussions and in particular, what he is very valuable for us for, he helps us understand how the Federal Reserve is thinking, how the dynamics may play out. While he has an opinion on the dollar, he does not tell us what the dollar will do, but he helps us understand how central bankers are thinking. I think that is one way that we are a little different from other folks is while we criticize policies just as much as the others might do, we actually try to slip into their shoes sometimes and understand how they are thinking. Because ultimately it does not really matter what I think, it matters what the Fed thinks and what the Fed may do, and so as a result, I think it is very helpful to try to understand their thinking and how these dynamics may play out.
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