John,
Very interesting analysis.
And very frightening for the Japanese people.
I also read this commentary at at the Metropole site. It is the cogent argument I have yet seen for gold prices going up:
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The James Joyce table.
lemetropolecafe.com
"Then, there is the minor problem of Brazil's US demoninated debt which I understand was $275 billion last week. That has to be paid in dollars. The debt service went up 30% in a week. Two Brazil states are not paying their own government. Russia defaulted. What if Brazil HAS to?
We, the US, are a debtor nation already and our debt is growing by leaps and bounds. Debt has to be serviced. According to Goldman, the servicing of our own debt is going to be a problem unless something is done about reducing it. Our trade deficit has to be reduced. It is already too high - $20 billion per month is unacceptable. The dollar must be depreciated to reduce this deficit.
Goldman Sachs is Secretary Treasury Rubin's former firm. You can be sure that if Goldman Sachs is putting out this commentary, it has Mr. Rubin's blessing, and most likely, his encouragement. The best way to start the selling of the dollar is to let the hedge funds and Wall Street insiders know what the next deal is. If I know this now, you can be sure the Wall Street big guns do too. The wink is on.
This also makes sense because you have the Japanese and Euro crowd calling for more stability in the exchange rates among the dollar, yen and euro. Maybe our Treasury officials and Fed are considering just that. If so, the dollar must be trashed first, according to Goldman. It must be trashed enough to erase our monthly trade deficit. Then, perhaps some acceptable range for the dollar, yen and euro can be structured.
This should be a very bullish development for the gold market. First, our assessment that Goldman and JP Morgan did whatever they could to break gold down so that they could buy gold in size at favorable prices, may be correct. Second, there should be some substantial gold buying coming from Goldman very soon. That should attract other "informed" buying. Maybe that is why the XAU is so steady. Third, it may encourage the Asian official sector to step up to the plate and buy many hundreds of tonnes of gold."
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I would like to gameplay what some of the responses would be from the ECB and Japan in order to counter-attack against an intentional devaluation of the US dollar. The US is indeed a debtor nation, but so are many nations in Europe.
Furthermore, European nations also have a highly inefficient and burdensome welfare system and high unemployment. I can't see a devaluation of the US dollar occuring in a vacuum without the ECB being placed under heavy pressure to devalue the Euro as well.
As for the yen, a US devaluation could prove the final nail in their economic coffin as they face the prospects of export profits being severely curtailed.
Any scenarios out there about what a US devaluation and rise in gold prices would mean for US and Foreign markets?? I'm forming a few general thoughts but wanted to get some input from all of you.
Regards,
Ron |
