The U.S. dollar must weaken and there is no way to prevent it now. The current account and budget deficits are soaring to record levels. The current account deficit is expected to reach well beyond a half trillion dollars this year and the “official” budget deficit is projected to exceed $475 billion (that’s not even counting the “off budget” debt). America also wants the dollar to remain weak to support its domestic manufacturing industry, as the recent pressure brought to bear on China shows. And of course the trade deficit will only get worse if the dollar strengthens, because American demand for imports over domestic goods will increase. The largest U.S. export is the U.S. dollar. We are exporting over 5% of our GDP every year and it will catch up to wreck havoc on the dollar.
"The U.S. dollar “strengthened” against the Euro and yet gold reared up and surged higher in the New York trading session defying “experts” predictions. So the question that is asked is why is gold holding firm – even rising against a “strong” dollar? The fact of the matter is that the dollar is not “strong” but rather all currencies are “weak” and will continue to weaken much further. This is a result of the global “competitive currency devaluation” efforts."
"It will not be long at the current rate until foreign central banks hold all U.S. government debt. These foreign central bankers know this and have been looking at other ways to hold their reserves. Some observers suggest that they will diversify by adding other Third World currencies such as the Chinese renminbi. When these central bankers find that they are “top heavy” in U.S. dollars, that will be the end of the so-called “dollar standard” and the dollar will ultimately correct.
What does all this mean? Obviously rates will surge higher. Combining rising interest rates, rising inflation, and slow economic growth the stage is set for “stagflation”. This will not be as mild as the 1970’s stagflation that some of us remember but will be much more severe. The writing is on the wall and we are seeing this happen in real time. Others have seen this as well and therefore we are seeing the “disconnect” between gold and global currency exchange rates. In fact Far East central banks have already begun to diversify reserves by accumulating gold. The Chinese central bank has been a big gold buyer in recent years for good reason."
The Afternoon Gold Report...
by Jon Warner
August 22, 2003 (usagold.com)
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