Financial markets rarely act in a rational manner in the short term, but in the long term
the fundamentals carry the day. Well the long term has arrived. Right now.
Last week, for the first time ever, the chairman of the Federal reserve talked about
maintaining a strong dollar. The MSM (main stream media) heralded this as the beginning
of the long awaited bottom in the value of the dollar (and the end of resultant rise in oil
Prices). CNBC released a special on the strengthening dollar and how to profit from it.
Smart Austrian school commentators, like Peter Schiff, doug Casey, and Jim Rodgers,
came to the opposite conclusion. Until last week all statements about dollar strength were
left to the treasury secretary. The statements are just disinformation as the treasury is
powerless to effect a strong or weak dollar, the matter being in the control of congress
through spending, and the fed through dollar creation. The fact that the Fed chairman
was talking up the dollar was seen by the austrians as a sign of desperation by the fed.
the only way the fed can really defend the dollar here is to raise interst rates by
contracting the money supply. this they can't do without collapsing the multi hundred
trillion dollar unregulated over the counter derivitives market, not to mention the
mortgage market, and nearly every commercial and investment bank. the derivitive
market estimates come from the bankof international settlements. By comparison, the US
economy is in the order of 15 trillion dollars annually.
Unfortunately for anyone who has income and wealth denominated in USD, including this
writer, the dollar rally was short lived. The chairman of the European central Bank
mortally wounded the dollar with just one sentence, where he stated that the ECB will not
be lowering rates, but in fact is consideringraising them so that inflation does not get out
of Pandoras' pretty little box in Europe.
the perma pollyannas on CNBC and Wallstreet , not to mention the hordes of sheeperati
who follow them were just simply run over after Trichet's remarks.
In the meantime, the desperate situation at Lehman Brothers and many other investment
banks is seeping out from the cover of sugar coated PR. To keep Lehman and it's buddy
boyz afloat, the Fed has run through nearly a third of it's own assets of treasuries, The
only assets it has, and traded them for Lehman's and bud's worthless mortgage paper.
the pumps of the financial Ttitantic have been running full tilt since it hit an iceberg last
summer, and the ship is only taking water faster. Having pumped out treasuries, and
taken on subprime paper onto it's balance sheet, the fed and it's Federal Reserve Note,
a.k.a. the Dollar, is no longer backed by the full faith and credit of the United States of
America, but the full faith and credit of Subprime Joe, who sold his singlewide for the
down payment ona spanking new Mc Mansion in outer Fresno. foreign holders of FRNs
aka dollars aregetting nervus watching this. When will they panic and make a run for the
The prevailing "wisdom" on wall street was that europe would play ballwith the fed and
cut rates, thus giving the fed room to inflate out of the mortgage and derivitive melt
down without crashing the dollar.
Well the prevailing wisdom was wrong. The Europeans, unlike the idiots who run
Washington and New York actually seem capable of learning from their own history. they
know that the road to hyperinflation is the road to holocaust. Been there, done that.
So, IMHO, and in the words of Jim Sinclair, This is IT.
Frankly I am scared to write this, as the messenger will be blamed . Anyone seeking
investments to protect themselves will be punished as anti american speculators. I will
not be silent, norwillI run. But I do not have kids.