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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (55175)	6/26/2000 3:56:00 PM
From: Hawkmoon	Read Replies (4) \| Respond to of 116753

Heinz, Everytime I read one of Tice's articles, one is led to believe that the end of the world lurks around the next corner. He has been preaching the same tune for years now, before and after LTCM blew up. However, a semi-gold standard does nothing to resolve the level of credit creation which still resides within the hands of the Fed governors and thus is based upon human decisions and financial risk analysis. You should also factor into your analysis of money supply that the US dollar acts as the default currency for many nations, who either use greenbacks outright, or peg their currency to the dollar. Money supply must take into account the demand for dollars in those markets. Finally, money supply is dictated primarily by the demand for US currency. If you stifle supply by restricting money supply, we will increase the strength of that currency beyond the level that is economically healthy. Thus, to maintain price stability within the currency, supply must increase to meet demand. And now the tricky thing is to maintain that demand, or to decrease it gradually as other economies and currencies become attractive relative to the dollar. Thus, we see interest rate hikes not only slow the economy, but also to shore up the dollar and prevent the belief that inflation will destroy the value of those dollar holdings. Now fortunately the US economy has been strong enough to thus far manage those rate hikes and not go into recession (yet the effect of those hikes takes months to be fully noticed). So hopefully the Fed didn't overshoot their rate targets and create economic damage that might turn US growth to the negative. Unfortunately for competing currencies, the high rates of return on US dollars makes it necessary for them to raise their own rates in order to compete, despite the fact that their economies are far less vibrant and they run the risk of going into recession themselves. And then there is Japan, which is stuck in a liquidity trap of classic proportions. They can't hike interest rates as that would make their already strong yen even stronger, which chokes off the export based economy. Yet, the relatively low interest rates they currently have make it possible for inefficient business models to continue to pervade their economy, stifling reform. Add on top of that the fact that their governmental debt market is about to exceed that of the US (if they haven't exceeded it already), you have a major economic quandary to resolve. That quandary will likely continue to maintain the US dollar as a safe haven, while the Japanese find themselves having to monetize a national debt that their tax base can't afford to repay. (Hutch... would you care to comment on my Japan views?) In sum, when I read David Tice, I have to compare and contrast the US economy to its competition. Were they stronger or about to really see some drastic structural change and a drive to become competitive, then I would give Mr. Tice more credence. But he seems to analyze the US system as if it exists in a vacuum by itself. Regards, Ron