How does the ongoing deflation of commodity prices (in relation to USA$) fit in with all of this?
My best guess is a combination of the following:
1. Extraction of basic commodities has become more efficient to the point in specific examples, that former "abandoned mines/oil wells" are being considered to be put to use again. This includes the use of modern technology to locate resources easier. Resulting in lower costs, and increased supply.
2. Better application of production methods, and better technology making the use of resources more wisely/efficient. (i.e. less waste). Reducing demand.
3. Demand in the industrialized countries, for such commodities have waned.
4. Supply (in the case of oil), has swamped the market, in many instances, out of the need of the exporting countries to get revenues/hard currencies.
5. The same would apply to countries where are dependant on other commodities in order to pay for debt, or for their hard currency reserves
6. In the case of Gold, I have never been a strong believer in the story that gold should be the "support or backer" of currencies.
Such was the case when information was not readily available and technology to transfer large funds from place to place was not available.
7. Governments are being forced to become more efficient and WASTE LESS RESOURCES.
Today, financial assets have become a better vehicle to "store" value. Gold actually, costs to keep it and produces exactly nothing, (other than its industrial application). Central Banks have either sold, or announce their intention to sell large quantities of the metal, demonstrating their defiance to the idea that Gold should be a "store of value".
The above has certainly not helped the sentiment in favor of gold.
From the financial assets available, the US Dollar or US denominated assets have won the battle, I do not see any country been even close in terms of efficiency, stability, and safety.
In addition, lately, fiscal responsibility has improved quite a bit. We are not as we should, since there is still a large overall debt, and large unfunded liabilities. But at least we are better than before. And again, comparatively speaking the US is in far better shape than any other country.
8. Lower interest rates... which one is first the chicken or the egg, I do not pretend to know... but the fact is, that currently, the entire world seems to be sending their money to the US and hence making a lot of funds available (combined with the new found fiscal responsibility), is allowing the scenario for lower interest rates.
This in turns lowers costs to US corporations, and possibly, eventual profitability, (and to a point), in spite of reduced sales abroad.
Back in 1980, it would have been difficult to imagine gold, oil, chips, ... falling to where they are today. How long can this trend last?
Yes, true, we were coming from a highly inflationary era, where indeed gold (and hard assets), where seen as the refuge from the government printing presses.
IMO a lot has changed, real estate (residential and industrial warehouses excepted), no longer is as important as in the past, since many jobs can be accomplished from either home or from far away, with no need to commute.
How far and how low can it go ? I do not know.... the market will establish that.
By the looks of things, I assume, there will be more of the same.
Labor for example, (except highly skilled jobs), is becoming far more abundant and cheap.
So long technology continues to advance, efficiency will continue to improve and therefore lower costs.
Governments as indicated, are now under the scrutinizing gun of the media, who can immediately put them under the microscope, so their actions are less "tyranical" example: see the crisis in Chiapas (Mexico), a self described "poet" and writer, (Comandante Marcos), has put the government to shame.... and froze their retaliation, in a way, thanks to the ability to communicate instantaneously with other forums.
This results, (thanks to the world wide financial markets), to "punish" or reward entire governments. They are not dead, but they are largely more limited and in relation to your question, they are not wasting resources as in the past.
Many questions come out of all the above.... how will the people survive the current crisis, as a result of the markets forces imposing their judgement, as we have witnessed.
Will terrorism develop and create further havoc in specific areas... etc. etc.
Will the US Dollar continue going higher and higher based on the above scenario ? I do not know, my assumption is yes, how far I do not know. The market never ceases to surprise me, in spite of my best guesses <g>.
Is it possible that "This time it is REALLY different.... may be, at least the standards of measure are changing dramatically.
For one never in history we have had the convergence of many positive elements (at least for the United States), that are behind the US which is making its currency and its economy so strong.
In my eyes, my biggest concern is the relentless growth of population in the third world countries, primarily of the uneducated masses.
My second concern is the increase in religious fundamentalism, both in the third world countries and in the US.
Those two elements can be lethal combinations.
In my opinion .... |
