Tuesday, May 09, 2006

Very Scary News For The Dollar

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A weak Dollar, still supported by the world, has allowed the USA to export inflation, and import deflation.

Inflation is a hidden tax. Governments create excess money which drives down the value of cash -- pulling money out of everyone's pockets to support politico's pet projects.

Real inflation in the USA has probably exceeded 10% - the amount of money growth. Some of that inflation has been shipped overseas. Governments in the rest of the world have been willing to take USA bonds that are losing value - so they can sell products to the USA - so they can build more factories and improve their infrastructure.

The USA has devalued the dollar so much that the rest of the world is getting scared. If major parts of the world abandon the dollar, it is the USA that will be burned first. A fear that has been shoved aside for years may now happen.

That makes the following quote from a Bloomberg article very timely.

Korea, Japan and China agreed in Hyderabad to ``immediately launch discussions on the road map for a system to coordinate foreign exchange policy.''


This could make for some very unpleasant consequences in all sorts of financial markets.

It may also be one reason gold has been climbing versus the dollar. China recently opened up gold trading in their country, I'm sure you can see many reasons they may have done this.

A diminishing roll of the dollar as the world's major reserve currency could see a large flow of dollars back to the USA. All of that exported inflation may return very quickly.

It may even hasten the greater depression.


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