Thursday, October 23, 2008

Rivrdog asks a really good question:.

“Is the dollar going up or are the rest of the currencies going down?”

I’ll give it a shot. To try to answer the question we would have to agree on a universal currency. This is easy for drunken sailors, who are known to identify three currencies: dollars, beers, and spacebucks.

Fifteen or twenty years ago, a drunken sailor could buy twenty-four Old Milwaukee bottles for $4.29. Those same beers have tripled in price among both dollars and spacebucks since, leading one to believe that both dollars and spacebucks have been going down for quite a while now.

If you look at the number, formerly known as ‘M3’, until we stopped tracking it so the Treasury Secretary could print money for his friends without a clear paper trail, we appear to have printed in the neighborhood of $300 billion new dollars each and every year since going off of the gold standard. While this, along with some creative accounting, has allowed the government to publish rosy numbers, it also created inflation. This inflation, along with do-gooder taxes and fees unfairly levied against drunken sailors, are primarily responsible for the rise in the cost of beers.

So the drunken sailor says:

“All this money is losing value, dammit.”

But, I’d argue that the world has changed in the past two months. The prospects of a hanging makes men act differently then they might otherwise. Two months ago, gold was the universal currency. As the money supply, formerly known as ‘M3’, increased faster than the discoveries of new gold deposits, gold prices steadily climbed, peaking around $1050 some months ago.

Now, despite the installation of liquid coolers for the printing presses, gold prices are down, and the dollar is up, relative to both other currencies and gold. This does not make sense, unless there is an injection of gold supply into the system (unlike oil prices, where there is a perceived reduction in demand).

I argue that this injection of supply is from one of two sources:
1) Fancy investment bankers seeking liquidity by selling gold so that the mob connections that their Clientele enjoys do not get new instructions.
2) Central Bankers selling off national gold reserves in an attempt to support their currencies.

So, my theory is that gold remains the universal currency, and is being held at an artificially low level relative to other currencies, by the injection of new supplies of gold reserves by fancy people as they position themselves for whatever they perceive is coming next.

So in conclusion, Brick Oven forwards the theory that:

1) World currencies are down hard because they are worse off then we are.
2) The dollar is held artificially high relative to gold for some nefarious reason, but is still down.
3) Gold is held artificially low relative to the dollar for some nefarious reason.

American fundamentals remain strong going forward because:

1) We have a surplus of farmland
2) North America has hundreds of years of liquid fuel in the form of oil shale coming.
3) We are relatively lightly populated.
4) There are millions of very good people here, that are not apparent when viewing the political classes.

Buy: rural farmland, gold, silver, and yes, beers.

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