Thursday, July 16, 2015
Gold the Euro and the Dollar
As the euro crumbles, and the yen deteriorates, the Dollar becomes stronger and stronger. This pressures gold.
The strong dollar will be touted as proof that the US economy is the world's strongest. This is true.
It will also be touted as proof that the US economy is in recovery and on the way towards a sustained positive economic growth.
This is not true.
Money is fleeing into the dollar. It is not seeking out economic opportunity. It is seeking safety. If you had your money in Greece or Spain or Italy or Portugal, or France, or anywhere in Africa or the Middle East, would you want to keep it there, or move it into Dollars - if you could?
As capital flees into the Dollar, at first - right now - everyone (in the economic press and the corporate flaks) will rejoice.claiming a victory for loose money, for bailouts, for massive central bank interventions.
And gold will languish.
But what happens in a functionally zero growth economy with functionally zero rates when the the currency strengthens irrepressibly, ineluctably, continually? What happens when the Euro breaks down to 80 cents, then to 60 cents, while the Yen jumps to 180, then 200, and all that money flows into the Dollar.
What happens when billionaires all over the world, take their cash to the US and buy up everything in sight?
Some will argue this is great for the US economy. The people arguing this will be very very rich. Because it will be great for them. For everyone else it will be an abject disaster.
It will not cause any growth. It will destroy growth. We will be able to export nothing. It will create tremendous asset bubbles that will benefit the very very wealthy. Everyone else will be priced out of everything even as their salaries plunge.
In other words look at the imbalances in our economy now. Then multiply that by a billion. You get the picture of what is coming.
It will lead to tremendous loss of faith in government.and central banking.
And gold is the measure of faith in government and central banking.