And in direct repudiation to yesterday’s independent article:
http://www.reuters.com/article/business ... sinessNews
and
http://www.bloomberg.com/apps/news?pid= ... t5We30uqlA

but the Independent shows no contrition and publishes a couple follow up articles:

http://www.independent.co.uk/news/busin ... 98713.html
and
http://www.independent.co.uk/opinion/co ... 98712.html

but if we’re really talking about a means of undermining the USD, this probably has equal impact:
http://www.telegraph.co.uk/finance/chin ... mony.html#

DiscoStu

Many thanks for your perceptive and ongoing posts. you said earlier, and reiterating the 'new wisdom', "...unsustainable models can exist far longer than anyone expects, it has also shown us that when change occurs it can do so suddenly and with relatively little warning'" .... Ain't that the truth.

So the big question is: Are we into the Moment?

Followed by:.....How will it play out? And how can I position myself to be take advantage/ not suffer loss?

I think any benefit playing it from Aust is being hit by currency (AU to stay strong); capital will flow to new areas (whether is is productive or not is another Q); gold ....hmmm - so stick with Aus based resources?

The dollar is going to be less and less significant to the global economy.... and “...there's a high possibility that the world turns inside out from what we have known since World War II”.

http://www.businessspectator.com.au/bs. ... nt&src=sph

Cheers
JP

Are we at the point of capitulation? A minsky moment in reference to the USD? A headline seeker or fringe newsletter writer would probably be saying yes, indeed many of them are. The truth is, no one knows. When you look at the confluence of forces moving against the dollar and taking place within the global economy we know for certain that the USD's role is definately being underminded. To gain some appreciation of how it may play out, I always take a peek at the past. Where the USD is at the moment is very similar to the GBP following WW1 - talk of raging deficits, govt spending, currency devaluation, lost empires, etc are nothing new. These same discussions were occuring during the 1920s as well.

What happened to the GBP? Well for a starter it is still around today, and so I expect the USD to still be around tomorrow too. What did change though was that the GBP has experienced massive loss of value (as have all currencies) in the intervening 80 years.... but what is more apparent is the loss of stature that the GBP has experienced over that period and what is has meant for the UK.

The GBP did not become irrelevant overnight, its relevance was gradually whittled away as the importance of the USD was built up. The GBP was still a 'reserve currency' as recently as the 1960s and 70s, and today it is still held in reserve by many countries, including ourselves. The difference between now and then is that as a % of overal reserves it is dwarfed many times over by the USD. What this has meant for the UK was that it was forced to become constrained by the normal fiscal bounds that all other countries are bound by, with the exception of the global leader. It is this reality that is facing the US... one might well argue that they are well aware of this, and that the current fiscal prof is their last attempt at one more roll in the hay, before the new reality sets in.

For a starter the most obvious impact of the GBP losing it's reserve status was the loss of it's global navy and ability to project power right around the world. Britannia no longer rules the waves. Like most other countries that run a fiscal and trade deficit, it has difficulty funding its debt in it's own currency. These are the realities that are facing the US in the near term. The problem is whether it will be able to accept its reduced relevance and importance in the world with the good grace that the British were able to, and let go of the dead weight of being the worlds global power, or will it continue to attempt to cling to that weight and like a drowning man flail about with its arms and striking out against all who come within its reach?

I think the risk of a sudden collapse or move away from the USD is probably more likely to occur if the US fails to acknowledge its position and changing circumstance. The more it struggles to remain the undisputed #1 and global power, with the accompanying huge deficits, etc, the more likely it is to actually trigger a diss-orderly collapse, hurting itself and many other countries in the process. The orgy of spending, its continued desire to project power to the otherside of the world and engage in un-necessary wars, does not bode well - the repugnent Govt deficits that they are incurring being a case in point:
http://www.smh.com.au/business/world-bu ... -gnr5.html

The fact that China is able to now issue debt denominated in it's own currency (as per my earlier post) is an increasing sign of its growing strength, indeed the one thing holding it back is that fact that its currency isn't fully convertable or freely floating. When it does take this next step, no doubt politicians in the US will crow that market forces have at last taken hold and credit themselves for influencing this outcome. The reality is that it will be a yet another sign of China's growing strength and their own diminished influence.

When I stand back and look at the US economy, one where 70% of its economy is built around consumption, and the remainder appears to be inflated and pumped up on enormous amounts of debt, I don't see a sustainable or robust system guarranteeing long term stability. The IT industry and knowledge base, and indeed it's substantial residual manufacturing base, not to mention it's enormous and growing population, will ensure that it won't fade to irrelevance. However relevance is a relative concept, the rise of China, India and Brazil is guarranted to diminished the relevance of the US within the global economy, simply because of the increased importance of these rising powers.

The reality is, the US consumer as a whole is bankrupt. Real wages have not risen in any meaningful way for 90% of their population since the 1970s. The growth as come through an explosion in debt at all levels, and again as a whole the country is woefully unprepared for the ensuing retirement of the baby boomer generation and all the costs unrecognised 'offbalance sheet' costs that this generational change represents. They can only maintain the status quo at the moment through extra-ordinarily low interest rates, and the economy distorting effects of Quantatitve Easing - or as it should be correctly termed "Printing Money".

Despite their efforts to maintain the status quo, the reality is they are fighting a lossing battle. The rebalancing of the US economy is well under way, as can be seen through the stories in the link below, which merely echos many other links that I've been reading and have posted under Articles of Interest:
http://www.smh.com.au/business/world-bu ... -gni5.html

The effects are inexonerable and once in motion unstoppable. The US consumer has no choice but to pay down debt, and with consumption making up 70% of the US GDP, the US economy has no choice but to contract. The US govt is trying to rise to the task and fill the demand gap created by the consumption strike, represented by their efforts to run up public debt as fast the consumers attempt to pay down their private debt. But the fact remains at a total level, be it public or private, the US appears to have reached debt saturation levels.

If you follow Austrian economists there is no way that you can avoid the 'come uppance' that follows attempts to short circuit the natural destructive process of an economic cycle, represented by a recession, through the use of credit expansion or messing with a countries natural interest rate - which really represents the cost of capital. Mess with it and all you do is delay the consequences and make them all the worse in the end. Attempt to inflate your way out, as it appears the US is attempting to do while the cost of the destruction of it's currency is still largely born by others, and you risk a hyperinflationary blow off and are still faced with the eventual collapse of the economy.

Just look at the impact of it's attempts to keep interest rates so low. Essentially it is reducing the cost of capital to virtually nothing, and thereby destroying the years of hard work that earlier generations of Americans have saved up. How? By becoming the funding source for new capital for the rest of the world. Those factories in China and India, those new mines and farms in Brazil, they're all being funded through the export of capital from the US. Far from being the medicine to deliver it ultimate salvation, these low interest rates are actually poisioning it's future. It's true medicine, a nasty and prolonged recession, and rebalancing of its economy, downsizing of its military, and the multitude of structural and fiscal reforms that are needed, are being avoided because of they're bitter taste.

Mmm... I suppose all of this is a long way of answering I don't exactly know! But if I had to come down off the fence I'd say it looks increasingly likely that the demise of the USD is increasingly likely to be a sudden occurance.

To muddy the waters a bit further, and this is something that I have long said, the collapse won't be represented by the USD going to 20c Australian or 5 USD to the EUR. Sure there will be some deppreciation and decline in the USD relative to other currencies. But the fact is all currencies will be falling. Its like a group of parachutists falling through the air, when one of them decides to point nose first and pull away from the falling group. The remaining group might well say to themselves, "Wow, that guy's falling fast" when the reality is that all of them will be falling.

I suspect the general public, will be late to realise this, as it usually is. It will only become apparent when inflation takes off. At the moment the huge deflationary forces brought about by the contraction of consumer and other forms of credit are being more or less offset by the splurge in Govt spending. Once the economies of the world start to stabilise and grow again what I suspect the money men will find is that it becomes very hard for the Govts of the world to stop their spending or withdraw from their QE and low interest rate environments. Why? Because the western consumers will still be paying down their debt and waking up to their impending underfunded retirement. Each time they attempt to withdraw these emergency measures, the continued run down in the consumer side of the economy will come to the fore and set off more market ruckus. Look to the US during the 1970s and you can see a similar, yet smaller, example of the problem they now face.

The growing importance of Japan and Western Europe combined with their wanton spending on the Vietnam war caused a micro play of what we are seeing now. Capital was being created in Japan and Western Europe, that had the effect of diminishing the existing capital in the US. It was stuck in a series of recessions, they'd lower interest rates to stimulate growth and each time they did so inflation would creep up a little higher. The moment they'd start raising rates the economy would start to slow down again and they'd begin fretting over rising unemployment. The biggest difference between now and then though, was at the time the US was the largest creditor nation in the world, now it is the worlds biggest debtor nation.

I think it is inevitable that 'real' goods, such as commodities will continue to rise in notional dollar terms. It happens every time a fiat currency commences its inevitable decline, from the US in the 70s all the way back to France in the 18th century with the Missussip Co's mania. As pointed out in JP's link above, it may well be a case of back to the future - gold may resume it's role of the ultimate currency. The biggest markets in the 1960s/70s were the equity and commodity markets, which dwarfed the debt markets. Maybe the structure of the markets will revert to that sort of set up, dominated by real tangibles, as opposed to obligations and promises.

In this respect, as a producer of such goods (commodities) Australia is well placed to benefit within this environment BUT inflationary environments tend to accentuate the economic cycle. It makes it harder to forecast and cater for growth, inventories can build up and need to be purged, etc, etc. People who think they can simply invest in these sort of things under a set and forget sort of approach will be sorely dissapointed. We will not be immune from the normal economic cycle and will face steeper booms and busts, so attention even more attention will be needed to be paid to the market and economy, but we won't be facing the sort of structural decline that appears to be America's future.

DS - is that all your own work?

because it is a MAGNIFICENT summary of the current dilemma

.

LOL, yeah all my own in terms of the ruminations and words, but many ideas and understanding picked up from my readings over the years. Glad you got something out of it.

Cheers

Found this article today which sort of echos some of what I was writting above in the post from a couple days ago....

As the pound slid in the 1950s and '60s and the British Empire crumbled, the corporations that prospered were the ones that borrowed pounds aggressively in order to expand abroad. Though British equities rose in pound terms, they generally underperformed gold and foreign equities. At the end of empire, the giant sucking sound was from British capital and jobs moving offshore as the pound sank.

http://online.wsj.com/article/SB1000142 ... 41870.html

seems like major gold buying from asian countries has begun, low confidence in USD ?

By William Mallard
A Dow Jones CommentaryPlus Column


SINGAPORE (Dow Jones)--The dollar dipped Tuesday in Asia after the International Monetary Fund made a big gold sale to India, but the U.S. currency rebounded as Australia's central bank signaled it may pause its monetary tightening next month.

The moves were mostly modest in thin trade as Japanese markets were closed for a national holiday.

The euro and gold gained at the dollar's expense as news that the IMF sold 200 metric tons of gold to the Reserve Bank of India stoked expectations that central banks, especially in Asia, will continue to shift away from their reliance on the U.S. currency.

But the buck got a lift against the Australian dollar, as well as the euro, when the Reserve Bank of Australia--after raising rates by a quarter percentage point for a second month in a row, as expected--said the tightening "will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."

The euro was at $1.4781 at 0430 GMT, according to EBS via CQG, after rising above $1.4800 on the IMF gold sale. It was quoted at $1.4768 in late North American trading. The euro was at Y133.37 from Y133.44. The dollar was at Y90.24, up from Y90.07. The Australian dollar was at US$0.9011, down from US$0.9090 before the RBA decision.

The IMF's gold sale was at an expected average price of $1,045 an ounce, far higher than the $850 price the institution had projected only a few months ago. It rekindles expectations that central banks will keep diversifying their reserves away from the U.S. currency.

Although this adds to general unease about the dollar's global status, the gold sale itself isn't expected to have major market implications.

"Diversification has been an ongoing story for Asian central banks," said Westpac senior commodity analyst Justin Smirk. "Gold holdings in comparison to dollar holdings are low. But it's not possible for them to change rapidly out of the dollar. This story is one of evolution, not revolution."

Conversely, the dollar likely won't get much lasting benefit from the job-well-done tone of RBA Gov. Glenn Stevens's comments because market participants don't think the central bank is finished raising rates.

There is some chance of a pause in December, but it is all about watching the economic data, said Annette Beacher at TD Securities.

"It does seem to suggest now that they moved in October and November, there is some possibility of a pause," she said. "However, should we get another string of decent labor market data, house prices, inflation--that still leaves December fairly on the agenda."

Have sold about 75% of my gold holdings as of yesterday, expect a pull back, but then again who knows.

The fundermantals for gold is bullish. However, in the short-term gold is very overbought and a correction could occur soon.

Based on the charts, in the short term (a few days to a few weeks) gold could correct to the US$1050 level. However, the intermediate- to long-term view of gold is bullish. My intermediate-term target for gold is US$1300 and my long-term target (3-5 years) is at US$2000.

Good investing,

Beng

Muhaha ...what gold holdings ...ie shares did u hold .....if u dont mind

I have sold completely out of SGX ( Sino gold), and about 60% of LGL ( Lihir) - Still have Dioro not because they are any good but because not sure what is going on with Ramelius takeover. Also have a little bit of Resolute gold RSG. But my major holdings were SGX and LGL.

I must add however that I am going to be buying back into these positions once this "brief USD rally" will be over, If you notice there is a bit of a reversal happening and i would not be suprised come next 2-3 months we have some what of a rally in USD and a sell off in gold. 850 - 900 USD gold will be ideal buying if it gets back to those levels.