Tuesday, October 6, 2009

Is the Dollar in Trouble? Does it matter?

Of course I am late home again tonight. Hard to say, but perhaps the pressures of the economy are starting to wear on people. Work has been crazy busy and now that grilling season is over, it takes longer for me to cook dinner! Bear with me as I adjust.

Tip of the Iceberg
It has always long been the position of this blog that in a future time when we finally get some details about the panic of our government during the credit collapse last year we will be as shocked as to the outright lying and fraud that was perpetrated in the name of "systemic risk".

In what is the first (of many we can hope) detailed looks at just what in the world was going on last fall, Andrew Ross Sorkin excerpts his book "Too Big to Fail" in Vanity Fair. There is simply too much content to cover here, but you would be wise to read the whole thing, and then buy the book.

Add to this the clear case of lying done by the Treasury last year about TARP, the health of banks, and the Stress Tests and things get ugly in a hurry.

Remember, it was the great results of the rigged Stress Tests that really ignited the rally. So what if all this confidence was built on a sham? It sounded good at the time, so why bother going back?

Is the Dollar in Trouble? Does it matter?
Today was the first "fireworks" kind of day since the lows set last March. The culprit? Dollar discussion that was all over the place and heated to a boiling point. In one day I read that the dollar is dead, it will be stronger than ever, reserve status is vital, reserve status is no big deal, pricing things in dollars is not needed, and pricing things in dollars makes a big difference. All over the place. Short on time, I really cannot handle all this tonight, so I will do one of those posts I hate where I provide links and maybe a line of thought. I will use this post as a reference to back track all of today's action.

Will a Basket of Currencies Replace the Dollar?
Argues it can be done, and will be over time (variable time frames)

When Reality Meets Fiction
Argues there is NO WAY to replace the dollar, ever.

SDRs and the Endgame for the US Dollar Reserve
Speaks to loss of reserve status and that it is a bad thing.

Ridiculous Hype Over Secret Oil Meetings
Mish say dollar pricing is a non issue. Mish covers plenty today in this area as well.

What about the wild ride in gold (silver too to some extent)? I am not sure. I am getting a bad feeling that gold may be a new target for momentum type players, mainly due to it's chart looking great and, well, momentum!

When I think about gold, yes I am considering a dollar in trouble. To me though, golds main argument is that in an era where many countries have really gone off the deep end in regards to monetary policy and the collapse of debt (denominated in whatever currency you like) a realization may be upon many that perhaps as much as 20% (30%, 40% who knows) of assets are pure fiction when thinking about true "worth". What is a Southern California home worth? A few years ago it could be 1 Million dollars. Today it is about half that. If mortgage rates go up, half that again. If the government gets out of the mortgage business (by choice or by force out) what's that home worth again? Who knows. Who knows what the dollar is really worth. Banks are in real trouble (Goldman upgrade aside) and there is simply plenty of "wealth" that is no such thing out there.

Case in point, from Naked Capitalism today:
Sweden Prepares for Financial Collapse in Latvia and Major Bank Losses at Home
The following is my translation of a much-discussed article that appeared in Swedish daily Svenska Dagbladet at the weekend. This information was being withheld from the public and leaked at an inopportune moment.

Note that the Swedish government has secretly been preparing the banks for financial Armageddon, encouraging Swedbank into a rights issue which arguably was conducted under fraudulent pretenses – very reminiscent of Bank of America’s shareholder vote for the merger with Merrill Lynch. In August, I asked “Why is Swedbank doing a second rights issue?.” Now we know.

This is the kind of thing that topples governments.
More vaporized money.

Consider the action in Treasuries where buyers are accepting all time low rates of return no matter what the condition of the US system:
3-Year Treasury Buyers Shrug Off Dollar Fears
Despite all the dollar-bashing, people were willing to loan the US government money for three years at just 1.445%, which is pretty astounding.
Astounding is a good term to use here.

The rise in gold could be a momentum play. The rise in gold could be an inflation play. The rise in gold could be an anti-financial engineering play. Obviously not all can be correct.

Something has to give. Consider this amazing play by Japan to stop debt default on any and all levels (via Mish who is on fire!):
Japanese Moratorium will Postpone Collection of Principle and Interest on Consumer and Business Loans
The Japanese Minister of Finance has proven that in spades by proposing a debt moratorium to individuals as well as firms. The moratorium would postpone repayment of principal and interest on loans, in an effort to spur more bank lending.
“We’re going to get financial institutions to provide these firms with more loans,” said Kamei. “Banks won’t have to treat debt on which they provide a moratorium as bad.”
There you have it. Its all there in black and white, clear as crystal (thanks Willy Wonka!):

So we need to make more loans while one cannot collect on old loans because the underlying collateral is impaired beyond repair to keep the system going? Sounds like a winning plan indeed!

Have a good night.


getyourselfconnected said...

Oh man, that Wonka Video perfectly sums up what is going on!

watchtower said...

I think what this economy needs is..."more cow bell!"

Dave in Denver said...

Yes, it is relevant, at least to the people living in the U.S. as to whether or not the dollar functions as the global reserve currency.

First, watch this:


Then read this:


By the way, the Broncos have been doomed this weekend by the Sports Illustrated cover curse...