Thursday, March 10, 2005

More countries diversifing funds out of dollar.

Steve Clemmons provides a new report on nations diversifying out of the US dollar. They say they are not selling dollars, but they don't mention that they will be buying fewer US government bonds. I wrote on this issue earlier in An Economic canary in the Mine?

From Steve Clemons: "Korea, Russia, and now Japan have discussed diversifying their foreign reserves portfolios and essentially offsetting their heavy dollar dependency with other currencies."

That means that the dollar will continue to drop and that interest rates the US government it paying on its rapidly climbing federal debt will have to climb if the debt is to be sold to anyone, even US customers.

Bloomberg yesterday reported: March 9 -- Gold prices in New York rose for a fourth straight session as a decline in the value of the dollar boosted the precious metal's appeal as an alternative investment to U.S. stocks.

Gold sold in dollars reached a 16-year high of $458.70 an ounce on Dec. 2 as the dollar fell to a record against the euro. The dollar fell today against the euro and the yen after a government report showed Japan's index of leading economic indicators rose and stocks in Tokyo reached a 10-month high.


The day of reckoning is coming, and the indicators are getting stronger. Is the Bush administration doing anythiing to head off the problems? Well, when the President's proposal for private accounts for Social Security taxpayers is expected to require borrowing at least $2 trillion at the most favorable estimate (and more likely as high as $15 trillion) this amounts to throwing gasoline on a fire and not expecting it to burn.

Gold is also increaseing in value as the dollar drops, but when the Federal Rserve starts payiing higher interest on its bonds, gold will drop again. Since gold doesn't pay any return as long as you own it, use it for an indicator of the trouble the dollar is in, but don't buy it.

It is time to convert your ARM mortgage to a fixed interest rate mortgage, put money into accounts in Euros or Yen and don't loan money to anyone because they will pay it back with inflated dollars.

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