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To: 4figureau who wrote (3784)	3/25/2003 8:59:28 AM
From: 4figureau	Respond to of 5423

Russell & Faye on Monopoly Money Richard Russell Dow Theory Letters March 25, 2003 An article by Jim Grant in today's New York Times (op-ed page) caught my attention. James writes: The United States at the millennium is an historical oddity, not only a great power but a great debtor. It consumes much more than it produces. It imports much more than it exports. And it owns much less of foreign assets than foreigners do of American assets ($2.3 trillion less as of the end of 2001). In 2002 Americans imported about $500 billion more than they exported -- that being the size of the current account deficit -- a comprehensive measure of the net flow of goods and services between the US and the rest of the world. It is useful to think about this deficit in terms of the current defense budget: it is 35% bigger. Most countries would jump at the chance to get into this kind of fix. But they can't. And if they did get into the habit of consuming more than they produce, they would quickly have to earn their way out -- by consuming less and producing more. No such imperative is yet felt in the country, however, We conveniently finance our deficit with dollars. So I had a little argument with my corporate lawyer wife this morning. Me -- Is it logical that a nation can pay off its debts by printing its way out? Faye -- Logical is the wrong word. You mean, is it sustainable? Me -- No I mean logical. Is it logical that a foreign nation will sell us its products and services for a currency that cost us nothing to manufacture. In effect, we're getting something for nothing. Isn't the US actually living off the proverbial "free lunch?" Faye -- I still say you're not talking about logic. This situation will probably end at some point, so the real question is -- is it sustainable? And we don't know the answer to that. Me -- Well, to me, if I can get something for nothing I'm defying logic. Faye -- You say "for nothing," but a dollar is something. Me -- It is? Then what's your definition of a dollar? You can't give me a definition, because there is none. As far as today's fiat dollar, you can only talk about it in terms of another currency. It takes so many dollars to buy a euro. There are so many yen to a dollar. Sure, at one time a dollar was defined in terms of a specific amount silver or gold. But without being able to define a dollar in terms of something tangible, you're just dealing with "printing press" or "monopoly money." We're buying foreign products with "monopoly money." I maintain that it defies logic, and if it defies logic it can't last. With that we halted our debate. But I maintain that the Achilles Heel of the US economy at this time is the dollar. I believe that the value of the dollar in terms of other currencies can't be maintained. And that's the reason why we have to hold insurance. The best insurance against "fantasy money" is real money, and real money is gold. There are endless arguments regarding whether gold is being manipulated by various interests. Obviously, if gold begins to rise relentless, then questions about the dollar will arise. The Fed and the central banks of the world (who hold huge reserves of dollars) cannot allow the dollar's "value" to be questioned. Thus, we can expect pressure on gold to continues. It's a battle of the "inflation masters" against the reality of real money. I can tell you that real money will ultimately win the battle. But unfortunately, I can't tell you when. This brings up the question -- Should we time our buying or selling of gold? You can try, and many do, and some reap profits from their timing. But for the vast majority, I say, "Take your position in gold and gold shares and forget it." You don't buy and sell your life insurance, and I feel the same way about gold. Furthermore, the odds are that when the dollar starts to unravel and gold starts to climb against the dollar you'll have traded yourself out of the metal and out of the gold stocks. Take a position you can "sleep with" and forget it. That's my advice. 321gold.com