The poor and lower middle class pay
through:
Inflation, that destroys simple savings,
discourages thrift, encourages gambling.
Economic Insecurity. The tax and
inflation
burden make the overall economy less
robust and stable. Boom and busts caused
by baloooning debt osads undermine
economic stability, especailly for the
poor.
Many employees and beneficiariaries of
the federal government never get develope
skills and abilities that could fullfill
them
as productive human beings in a freeer
society.
and not so unrelated here is a great
little
ditty on the market action this week by
the
brillaint Peter Schiff of Euro Pacific
Capital...
The U.S. Dollar is the Week's Biggest
Turkey
By Peter Schiff
November 24, 2006
www.europac.net
While Americans were busy digesting
their Thanksgiving feasts, the rest of
the
world was barfing up dollars. As a result
of our massive trade deficits, foreigners
certainly have their bellies full of
them.
This week's action in the Forex markets
indicates that they may have finally
eaten
their fill. Unfortunately, the bad taste
will
likely linger as the dollar's rout has
only
just begun.
As American consumers hit the stores this
black Friday, few will have noticed that
the most significant mark-down occurred
in the value of their currency. If
anything
can be said to have been blackened this
Friday it's the U.S. dollar. While the
media remains focused on the dollars
Americans are irresponsibly spending, the
real story lies in the loss in value of
those
dollars that foreigners are foolishly
saving. The losses are particularly more
pronounced among foreign central banks,
most notably China, whose foreign
exchange reserves, the vast majority
being
U.S dollars, recently eclipsed 1
trillion.
When foreigners finally decide that they
have had enough, their reluctance to
accumulate additional dollars will mean
that America's perpetual shopping spree
will finally come to a screeching halt.
This week the U.S. dollar was carved up
like a Thanksgiving turkey. Against the
Swiss franc, euro, British pound, and
Japanese yen, the dollar lost 3%, 2.2%,
2% and 1.8% of its value respectively. To
put those declines into perspective, in
terms of the euro the Dow Jones's 60
point plus decline this week translates
into
the equivalent of a 320 point decline
when
measured in euros. In fact, year to date
the
Dow is only up by about 3.5% when
priced in euro's, compared to its 14.5 %
advance when measured in depreciating
U.S. dollars. From its high in 2000, the
euro price of the Dow is down by over
27%. In terms of gold, the world's only
legitimate money, the picture is even
worse. Priced in gold the Dow is off
better
than 50% from its 2000 peak, and
actually down over 7% thus far this year.
So much for Wall Street's phony rally!
At the risk of over using the term, one
conundrum is the relative strength in the
bond market given the dollar's recent
weakness. From our creditors'
perspectives, the only thing worse than
holding dollars is holding future claims
to
dollars, which is what bonds in fact
represent. When foreigners begin
factoring ten percent plus annual dollar
declines into U.S. bond yields, bond
prices
will head south fast.
It also never ceases to amaze me how
U.S. investors can be so fixated on stock
prices yet remain oblivious to what those
prices actually denote. Stock prices of
course represent quantities of dollars.
Therefore, true stock market values
actually depend on the purchasing power
of the dollar. Concentrating on the
former
while ignoring the latter is one of the
biggest mistakes most investors make.
Unfortunately the technical outlook for
the
dollar, and by extension that of the
entire
U.S. economy and the financial markets it
supports, is rapidly deteriorating. The
dollar Index, now trading near 83.5, has
broken though some key support levels and
the next test will likely be its all time
record lows of just under 80. If that
test
fails, as it most likely will, look out
below. Once the dollar moves into
uncharted territory, the selling could
intensify, with the dollar index trading
below 70 in short order. My ultimate
target for that index is 40, which would
literally cut the dollar's value in half.
I
think the entire move could occur in just
two years. Again, putting that decline
into
perspective, it is the equivalent of over
a
6,600 point decline in the Dow. Of course
this assumes the Fed finally gets
religion
and Congress and the President heed its
sermon. If not, and hyperinflation
ensues,
the dollar index could fall far lower,
perhaps even breaking into the single
digits before bottoming out.
Don't make the mistake of thinking that
this is somehow a problem for foreigners.
It is Americans who will feel the losses
the greatest, as it will result in
substantial
increases in both consumer prices and
interest rates, and in declining assets
prices, particularly for residential real
estate. In the other words, what we own
will be worth a lot less and what we need
to buy will cost a lot more.
email schiff@...
web www.europac.net