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-- Posted Wednesday, 26 November 2008 | Digg This Article | Source: GoldSeek.com
Let me try to explain my thoughts in language that is understandable while not trivializing what is a very serious issue. We all know that the US dollar has been rallying sharply in recent months. Huge sell offs in global capital markets have created huge demand for the dollar and so its value has gone up. At the same time interest rates have been falling on Fed funds, and the interest rates paid on T-bonds have headed to record lows. That in itself ought to be a warning to dollar bulls. For most savers T-bonds are not attractive any more. They pay low interest rates, while banks are paying much higher rates on deposit accounts and in many countries there is now a state guarantee on those deposits. Bond conundrumWhy would you hold a fixed-rate instrument like a bond - which can both fall and rise in value - when you could be earning more on a simple deposit account with a state guarantee, and have your capital at zero risk? Individual savers have made this calculation and dumped bonds. Institutional investors and sovereign wealth funds have so far not done so, perhaps because bank deposits of this size would not be accepted. However, the same investment logic applies to sovereigns as individuals. And this argument moves to being acutely important as soon as the T-bond’s currency starts to devalue. Devaluation comingNow with all these trillions of dollars being thrown into the global economy - and I saw $7.2 trillion as one figure for the total US bailout which I don’t think included yesterday’s $800 billion - devaluation can not be far away. Just as soon as these notional trillions enter the money supply as real trillions the impact will be huge. That $7.2 trillion is half the annual GDP of by far the world’s richest country - how can you possibly inflate that much without impacting the currency’s value? Obviously you can not - and surely that means a strike by the buyers of T-bonds can not be far off. Who wants to buy a share of an asset that is collapsing in value? And once the T-bond buyers go on strike this is self-fulfilling. So enjoy the strong US dollar while you can, it can not last and its fall will compound an already dreadful global economic situation. There I hope that is understandable. I hardly need to add that the only currency of choice is such an environment is precious metals.
-- Posted Wednesday, 26 November 2008 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
 Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
Order my book online from this link
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How long until the US dollar blows up?
