George, <<"The world is literally flooded with dollars >> ain't that true. <<to the point where there really is no viable alternative store of value.">>
i don't see how that conclusion was reached...the world is flooded with dollars, and that's why there's no alternative 'store of value'? something the world is flooded with doesn't strike me as particularly attractive in this respect.
a more honest appraisal would be that the other fiat confetti is in some respects even worse, and as John has remarked on another occasion, the issuer of the dollar is also the owner of the mightiest military machinery.
i personally believe that the old dollar/gold inverse relationship may break down at some point. as it were, the current strength of the dollar is a) indicative of big trouble elsewhere, and b) due in part to special circumstances (the already discussed problem of black market money currently parked in Euro-zone national currencies). and c) i also like Doug Noland's hunch...i quote:
<<I will end by admitting I had a bit of an epiphany this week. For some time I have looked at the ridiculousness of the Great Credit Bubble, with reckless money and credit growth, the gross and unrelenting excesses perpetrated by the GSEs, the unfathomable derivative positions, endemic leveraged speculation, an increasingly distorted U.S. economy, and the Federal Reserve, incredibly, committed to sustaining these excesses. How could this situation not incite a stampede of investors fleeing dollar assets? Then it hit me – "doug, you’re looking at his all wrong. You gotta ‘think like a gopher.’" This has absolutely nothing to do with investing; gotta think like a speculator.
It is precisely because the Fed and the GSEs are committed at all costs to sustain the bubble, and that the contemporary US credit system has the means and willingness to perpetuate the inflationary monetary expansion necessary to keep asset prices levitated, that has placed the U.S. credit system firmly as the last great refuge for the monstrous global leveraged speculating community. The speculators have learned that liquidity is absolutely a necessity for playing, while loving monetary inflation as long as they can profit from it. No reason to play in Europe, with the sometimes-feisty ECB much less amenable than the Greenspan Fed (besides, they don’t have GSEs!). No safe place to play in emerging markets, especially with the demise of pegged currency regimes and global currency markets so unsettled. Certainly there is no reason to play in Japan, or anywhere in Asia for that matter, with their historic bubbles already having burst. The speculators know what they like, a central banker that will surprise them with timely "treats," while giving them plenty of advance warning in the unlikely event of needing to administer a bit of a "trick". And with Greenspan and the GSEs providing assurances of marketplace liquidity that no other country can come even close to matching, there simply is little reason to place bets anywhere else – there’s only one hot casino left in town. The good news is that all this "hot money," does wonders for what should be an acutely vulnerable dollar. The bad news is that there sure is a lot riding on what appears to be one massive and increasingly vulnerable speculation and derivative bubble that fuel the perpetuation of the historic U.S. Credit Bubble. I have said before that I see the current bets placed in the U.S. interest rate market as probably "history’s most crowded trade." Furthermore, I see the dollar acutely vulnerable when this speculation falters and the "hot money" runs for cover.
Greenspan may believe that holding the "may require additional rate cuts" carrot in front of the speculators may keep them excited about a game that hasn’t been such a good money maker of late. He sure does seem a bit too anxious to please…>>
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