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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Chispas who wrote (106027)	10/26/2009 11:57:51 PM
From: Chispas	2 Recommendations Respond to of 110194

Ackerman - "What Kind of World Sees Dollar as ‘Safe’?" 09/27/09 ............................................................................................................................................................ With gold getting whacked hard yesterday, it was a time for sober reflection in the gold-obsessed Rick’s Picks chat room. A trader who goes by the handle “Padre” saw “the Jungian collective unconscious” at work. We would take a less kindly view, more Freudian, that saw only id and ego in a state of presumably gratuitous, conflict. But we’d be the first to admit that it can be far worse when these forces are aligned; for only then can they produce something as fiendishly destructive as…“money”. How so? Well, if you saw the classic sci-fi film Forbidden Planet, you may recall that the Krell civilization, using an infinitely powerful fusion reactor, built a machine that could conjure up all of their needs merely by thinking about them. Unfortunately, while they slept, the reactor conjured up monsters from their primitive subconscious (see photo below), and that was what ultimately destroyed them. We’ve figured out how to do more or less the same thing with money, creating as much of it as we need by simply changing certain digital information that has been magnetically stored on a computer. The Krell might have remarked, How very quaint! So what to make of gold’s dive yesterday? Conventional thinking had it as a flight from a diverse basket of assets into the supposed safety of the dollar. We are not persuaded, however. It is one thing for the newspapers to keep blathering about an economic recovery that is nowhere in evidence for most Americans, but quite another to have us infer that the currency of our bankrupt nation is correctly viewed as a safe haven for investors. We won’t argue the point about being bankrupt, either, because anyone who doesn’t understand this by now is living on Altair-4, the Forbidden Planet of titular fame. A Deflationary Lurch So if the dollar was not strong because of a flight to safety, what caused it to rise, and gold to fall? Our guess is that short-squeeze pressure on debtors may have been a factor. As die-hard deflationists, we have been expecting this catastrophe to lurch into motion for quite a while. Coincidentally, in the “This Just In…” section of Rick’s Picks, we had linked a fascinating blog on the topic. Here’s that link, prefaced by Rick’s intro: “A dollar short-squeeze has always seemed more than merely plausible to us, notwithstanding the dollar’s steady decline toward intrinsic worthlessness. Drowning in dollar-denominated debt, the world is effectively short the U.S. dollar in cosmic size. The last thing debtors need is to have the dollar become scarce when they come under pressure to settle short-term loans that cannot be rolled. What will happen when that day arrives, and short-term borrowers cannot beg, borrow or steal dollars? We asked a half-dozen international-finance professors that question a dozen years ago, and they reacted as though we were crazy. A short-squeeze on the dollar!? What on earth were we talking about? Since then, a few others have joined us in recognizing such an event is not merely possible, but likely. Click here to access the latest, fascinating article on the topic.” Our USA Today Indicator Meanwhile, we have a great idea for detecting a real uptick in the economy, if one ever comes. We need only look for a commensurate uptick in the circulation of USA Today. The paper’s circulation dropped to number two, behind the Wall Street Journal, according to a story yesterday about the ongoing plunge in newspaper sales at many of the largest papers. “The slump in business travel meant fewer copies of USA Today were sold to hotels, one of the paper’s historic strengths,” according to the article. “USA Today has said it expects the paper’s circulation to rebound as the economy does.” ...................................................................................................................................................... rickackerman.com