Hey Hutch, hope you mind my piping in here as you and a certain person (who doesn't want to post to him) debate.
What this other person fails to take note of in his comments about a weakening dollar is the fact that there is a certain inevitability about seeing both China and Japan being forced to weaken their currencies either through outright devaluation, or through printing more so that they can check the prevailing deflation in their economies.
That translates (and I realize you know this), into a stronger dollar, or certainly a dollar that maintains these levels. This bodes very poorly for gold.
Btw, you are right on the mark about the bullion being coined and sold at a premium. This is another dirty secret of the gold industry where the metal is being inflated by a collectibility premium which will fade once the Y2K crisis passes and people suddenly find that they rare gold coins are really not so rare, and that they are suddenly flooding the market as folks start converting gold back into more liquid paper currency.
What this person doesn't seem to want to acknowledge is that the dollar's weakness has been primarily due to growing confidence in the Japanese and other Asian markets, sparking a flow of funds out of the US and into those markets.
I may be wrong, but all of the aspects for which he contends bode ill for the US (Y2K, national debt, etc.. etc..) are all issues that face Japan, and other nations to an EVEN GREATER DEGREE. And that means that disruptions on those economies will reverse the flow of money back toward the center (ie: the US).
It's one thing to have national debt when your economy is strong, but quite another to possess similar or greater percentages of debt when your economy is tragically weak.
Japan has to monetize its debt (which is greater per capita than the US) and clear trillion's in bad loans off of their books. They can merge their way to megabank status, but it doesn't erase the liquidity issues that they have to face with monetization or major devaluation of their currency.
That bodes well for the US dollar if done in a controlled manner. If it gets out of hand, the stock market may suffer but bonds will prosper. It certainly means imported inflation will decline while the trade deficit increases. But I wonder if by shocking their economies with currency monetizatio/devaluation, that it may entice Japan and China to buy needed US technology earlier rather than later.
And btw, I tend to agree with Lawrence Kudlow with regard to his views on the internet. And the rest of the world has a long way to go to match our economic capabilities in technology.
The only scenario I see as negative would be that sometime next year, China senses that it is falling so far behind that the only recourse they have is to become militarily aggressive.
Your comments are, as always, welcome..
Regards,
Ron |
