Sunday, May 07, 2006

Million Dollar Bash

I hear my friends talking incessantly about how prices are going up. And of course, they are. Despite the “Fed” talking about low “core” inflation at 2% - 3%, anyone who goes shopping on a regular basis knows that prices are up, up, up. Anything that had to travel to get to the store where you are buying it (everything) is being impacted by the double-whammy of increased fuel costs and “reality-based” inflation, which does include food and energy. Some estimates I’ve seen are as high as 12%. Is hyper-inflation next in our growing list of things you can’t stop worrying about? ‘Fraid so.

Because, you see, the dollar is going down. I don’t think people get it. Our dollar is not worth a “dollar” – some fixed amount of something somewhere – anywhere! Not gold, not silver, not anything. Its value is determined by 1. How many of them there are, and 2. How much everyone believes in their value, i.e., believes in the worth of the US of A. #1 is going way up and #2 way down.

BTW – this is something that is being done to us by predetermined policy – not by accident or force of nature.

An Indian friend told me a story his people have been telling for many years: a white man comes to the village and offers to pay $100 for a loaf of bread. No one is willing to sell.

Asia Is Getting Ready to Dump the Dollar Peg
By Andy Mukherjee, Columnist
Bloomberg News Service
Monday, May 8, 2006

Li Yong, China's vice minister for finance, said he had heard
a "rumor" that the U.S. dollar was headed for a 25 percent drop. If
the gossip was true, the consequences would be "shocking," he said.

Li's comment, which he made at a discussion on global financial
imbalances last week at the annual meeting of the Asian Development
Bank in the Indian city of Hyderabad, was aimed directly at fellow
panelist Tim Adams, the U.S. Treasury undersecretary of
international affairs.

The unspoken message was: "Don't try to talk the dollar down." And
Adams knew better than to ask, "Well, what are you going to do about
it?" The answer to that question has already begun taking shape:
Asia may be getting ready to fix its currencies to a local anchor,
dumping the region's unofficial dollar peg.

Even as they continue to pile up U.S. debt in their foreign-exchange
reserves to keep their currencies stable against the dollar, Asian
nations, China among them, are preparing for a scenario where the
dollar does indeed collapse under the weight of a record U.S.
current account deficit. (click title to read on ...)

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