Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Time To Eliminate Your Wall Street Tax? - 20th Mar 18
The Beast from the East Snow, UK Roads Driving Car Accidents - 20th Mar 18
Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - 19th Mar 18
2018 Reversal Dates for Gold, Silver and Gold Stocks - 19th Mar 18
This Tech Breakthrough Could Save The Electric Car Market - 19th Mar 18
Stocks Set to Open Lower, Should You Buy? - 19th Mar 18
The Wealth Machine That Rising Interest Rates Create Conflict With The National Debt - 19th Mar 18
Affiliate Marketing Tips and Network Recommendations - 19th Mar 18
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18
Bitcoin BTCUSD Elliott Wave View Calling for Rally toward $15,000 - 13th Mar 18
Hungary’s Gold Repatriation Adds To Growing Protest Against US Dollar Hegemony - 13th Mar 18
Record Low Volatility in Precious Metals and What it Means - 13th Mar 18
Tips for Writing and Assembling the Classification Essay - 13th Mar 18
Gerald Celente "If Rates go up too High, the Economy goes Down, End of Story" - 13th Mar 18
Stock Market Selloff Showed Gold Can Reduce Portfolio Risk  - 13th Mar 18
Silver Does it Again! Severe Consequences - 12th Mar 18
Has the Stock Market Rally Run Out of Steam? - 12th Mar 18
S&P 500 at 2,800 Again, Stock Market Breakout or Fakeout? - 12th Mar 18
The No.1 Energy Stock To Buy Right Now - 12th Mar 18
What Happens Next When Stock Market Investor Sentiment is Neutral - 12th Mar 18
Economic Pressures To Driving Gold and Silver Prices Higher Long-Term - 12th Mar 18
Labour Sheffield City Councils Secret Plan to Fell 50% of Street Trees Exposed! - 12th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Loss of Confidence in the US Dollar As it Crashes Towards USD 40!

Currencies / US Dollar Oct 03, 2007 - 07:36 PM GMT

By: Jim_Willie_CB

Currencies Best Financial Markets Analysis ArticleDollar Faith & Failed Trinity: Faith and confidence in the USDollar, in management of the US banking system, in the viability of the USEconomic structure, in the image of Wall Street honesty, and in the integrity of USGovt federal finances are all at historic lows. Repair seems close to impossible. The US Congress, the current presidential Administration, the USFederal Reserve, and the US Dept of Treasury together appear to be in the center of a grotesque policy failure morass.

On the financial economic aggregate front, bring attention to the “Impossible Trinity” as it is called for a brief dissection exercise in diagnostics. Without a gold standard to enforce discipline and balanced accounting across national finances and trade, the simultaneous balance of three factors is rendered an impossibility. The failure of attempts is hidden by means of pure propaganda in its face, falsified economic statistics as a front, which is a specialty well developed by the US managers.

Economic and financial stewardship requires the simultaneous balance act, well analyzed by economic theory experts. Three challenges exist for the intractable mission, doomed from the start without a gold anchor . A) maintain a stable currency exchange rate for the USDollar on the FOREX market, B) maintain an independent monetary policy for setting interest rates and guiding the USDollar money supply, C) maintain a stable open current capital account comprised of the trade gap and that of financial assets. So the US $ exchange rate, the USTreasury credit market yield, and the total balance of trade cannot be tightly managed at the same time.

Something must give. Economists unanimously agree that at most, a nation can succeed in two of the three objectives, but never three. The US maestro custodians manage to fail on all three. Like financial laws of physics, offsetting forces are powerfully at work. However, when all three fronts are marred badly by failure, one must conclude vast perverse chronic ineptitude (if not corruption) is involved. The task is impossible from the start without a gold tether on the buck. Add incompetence and perhaps an initiative to fleece the middle class, and performance can fail miserably, as we see.

The fascist merger of state, the penultimate banking sector out of New York City , and certain corporate groups (see oil industry, military defense) stands as the most glaring threat to free market capitalism in the modern history of the nation. Yet it receives no challenge. The retrenchment from globalization forces, manifested ironically as active participation (corporate outsourcing of operations and jobs), has made public opposition muted. The recoil from the security firestorm, regardless of origin for actual threats, has confused the public perhaps as much as frightened it. As we learned seventy years ago in Central Europe , fear is a powerful tool when used in a controlled fashion. The current custodians seem to brandish aggression and arrogance, while dragged down by dishonesty and ineptitude at the same time. The world notices, and makes votes against the USDollar, which serves as a ballot. The more hidden vote is with the embrace of gold.


By the way, keep in mind the latest nonsensical and utterly false mantras circulating in the markets these days. “The USDollar is declining in an orderly fashion” and “Price inflation is under control” have hit the lighted billboards with such regularity as to cause laughter to the well informed. A 15% decline in the DX dollar index in 24 months is not orderly. A 4% decline since the USFed rate cut two weeks ago in veiled desperation is not orderly. As for price inflation, it is running at 10% on an annual basis, if one bothers to count the price increases on the cross section of items within the broad economy.

Remember that every economic mythology requires mantras as glue to hold their chapters together, as a practiced fallacious ideology. Last autumn they were “The subprime mortgage problems will be contained” and “The housing market will stabilize in the spring” and “No spillover from the banking problems to the real economy ” all spouted about broadly and prominently. Two years ago it was “Global trade surplus recycle provides a stable reliable source of capital for the United States when now that USTBond support relies upon a printing press increasingly. All heretical economist foundations urgently require mythology of beliefs, mantras for incantations, all profoundly untrue, to serve as false pillars upon which temporary support is gained.


Manage the USDollar : The USDollar has not maintained a stable value in its exchange rate in the FOREX markets versus the major and secondary currrencys, not at all. Since early 2001, when the DX dollar index hit a 121 high, the US $ has fallen over 35%. The major offset has been the euro currency, which has risen from 84 to 141, an amazing 67% leap upward. The primary defense against the ongoing plummet in the last seven years has been the USFed tightening cycle off the long-held 1.0% rate in 2005, which engineered a US$ bounce. The effect to dampen the gold price in 2005 was fully forecasted here in the Hat Trick Letter. Another serious decline in the USDollar will cause another painful round of cost inflation, the increase in prices of almost everything resident to the USEconomy.

Few technical chart patterns are extremely reliable. My reliable favorites are the simple momentum swing pattern, the flat triangles, and the head & shoulders pattern. The DX dollar chart displayed the most horribly dire bearish, a huge head & shoulders bearish pattern. If full potential is realized on the breakdown, the DX could face a further 50% loss from the critical long-term support level of 80. If that occurs, the entire face of the United States will be transformed into a very ugly place. In 1995, the DX index bounced off the 80 level. In very early 2005, the DX bounced off the 80 level again, rising all the way to 92 by the end of that year. With the end of all prospects for a higher short-term USTreasury yield to attract foreign money into USTreasurys, the stage is set for a spectacular decline in the USDollar.

The amusing part of the story is the nonsense about how the decline will be good for the USEconomy. How will uniformly higher prices be good? How will discouragement of foreign investors be good? How will erosion of foreign central bank assets be good? Favorable conditions for US exporters is indeed actual and good, provided one can identify big export industries. Multi-national operations to be translated on favorable translations is actual and good, provided investing abroad is the priority, not at home. A new wave of job outsourcing is possible.

The USDollar is clearly being permitted to fall, first because it must in order to resolve imbalances, but also because many key powerful global institutions are losing faith in it. The Asians are investing less in USTreasurys, and have shown a flat account since summer 2005, over two years. In fact, China is using their vast sovereign investment funds as a weapon to fight against the USGovt, in response to trade sanction legislation marching down the pike. The Arab nations must deal with powerful consequences from pegging their currencys to the USDollar. Price inflation, vastly growing money supply, construction booms gone slightly out of control, these are the consequences.

The Arab oil producers will soon deliver a fracture blow to the PetroDollar in the coming months, or else permit forces to rip apart their economies and banking systems. A removal of a tight US$ peg by Persian Gulf oil producers means the end of the vastly important PetroDollar itself, the commercial foundation of the world reserve currency enforcement!!! The world over, revolt against the USDollar is underway, in bloom, even accelerating. A monetary crisis is underway which fails to receive proper publicity. Regardless of monetary policy or the trade imbalance, the USDollar is heading for a crisis decline.

Manage monetary policy : The US Federal Reserve has a “Sophie's Choice” to contend with. Do they attempt to rescue the USEconomy, dragging horribly down by the housing market? Or do they attempt to rescue the USDollar, under siege globally, indefensible on numerous fronts? Sadly, the USTreasury Bond has been transformed into a War Bond, since the USGovt current leaders are engaged on an unproductive war, whose only certain outcome is the strain toward national bankruptcy.

The USFed cast its vote two weeks ago, to defend the USEconomy and to permit the USDollar exchange rate to fall. Ben let go on the rope on his left hand (right side to viewers). The custodians will in all likelihood attempt to manage the decline in an orderly fashion. However, another official rate cut, or a string of them in a fresh new easing cycle, will remove the favorable bond yield differential, which has supported the USDollar for two years.

The amazing overtone to the rate cut on September 18th, is that the USFed has actually reduced interest rates amidst unchecked money supply growth. That is opposite to normal conditions. The international vote of little confidence, possibly to turn ugly into no confidence, has been the rise in long-term USTBond yields since that fateful day of the rate cut. Another rate cut of 50 basis points in late October could result in a push upward with more force in long-term bond yields, like to the 5.0% level. The housing market would not fare well on fixed mortgage rates in reaction. An argument can be made that long-term bond yields have reversed and are now in an uptrend. The steeper USTreasury Yield Curve is evidence of that reversal. We are in a dangerous transition at a time when confidence in both the USDollar and USTreasury Bond is fast vanishing.

My longstanding accusation is that the USFed has acted as a quasi cabinet ministry, who together with the Dept of Treasury deserve the tagteam title of Dept of Inflation. The USFed chairman deserves the shameful title of Secretary of Inflation. They talk about fighting price inflation, but they manage the growth of money and credit. Actually they mismanage it, since they turn a blind eye to grotesque money growth and credit growth. See the exploding credit derivatives and subprime mortgage bonds, for instance. The US $ money supply is growing at around 14% on an annual basis, which is actually regarded as a positive development.

This unbridled growth is not solely a treatment to subprime bonds wrecking havoc in the banking system. The below chart is compliments of the Shadow Government Statistics folks, who do outstanding work to remove gimmicks and lies. The USGovt can hide the official M3 Money Supply statistic, but it can be reconstructed. Notice how the M1 Money Supply series is running negative. That can be interpreted to mean that the real tangible economy is in recession, as money shrinks, in the technical sense. By that is meant the monetary aggregate, the total amount of money sloshing about in the actual economy apart from the financial games, is in decline, thus monetary deflation. In the arenas where people lose jobs, mortgages are foreclosed, businesses fail, and bankruptcies find resolution, money is being destroyed. Tell that to the S&P500 and Dow stock indexes!!!

Maintain an open capital account : The current account deficit remains a veritable hemorrhage. In 2Q2007 the C/A deficit registered at $190.79 billion. The foreign capital inflow at $150.9 billion was insufficient in the quarter to fund the deficit. Where and how was the gap filled? The printing press!!! The USFed and Dept of Treasury were forced to authorize money off the electronic printing press to cover the gap! The story received no press coverage. What was covered was the lifting of the USGovt permitted debt limit, from $8.965 trillion to $9.82 trillion.

All is well, they can borrow more money now on the national credit card, largely squandered on a war, but handled off the official balance sheet. One can make the argument that a large pocket of key financial institutions engages in grandiose false double book accounting methods. See Wall Street firms and their ACA Capital, a garbage can of under-water credit derivatives, and their hedge books themselves, which are rarely marked to market. ACA is shared in ownership by several WS firms.

In some of my initial public articles written four years ago, a strong economic forecast was made. My claim was that the USDollar would be devalued in a big way, but the trade gap would actually worsen. That came to pass in spades, despite some hate email accusing me of gross incompetence! The trade gap remains in the $57 to $63 billion monthly range, having almost doubled. Anyone who claims that a $6 billion improvement accomplishes much of anything should tell his gambling addicted son that a $6300 per week gambling problem has made progress, now that it is only $5700 per week. Only in the last several months, has the US export trade grown at a faster pace than the US import trade.

Since January 2002, exports have grown by 71.5% versus growth at 78.3% for imports. During those 5-1/2 years though, import volume grew by $85.6 billion versus growth of $56.1 billion for exports. Thus the trade gap worsened markedly. More recently, however, exports have grown since January 2007 by 6.15% versus growth at 3.71% for imports, but export volume caught up by only $1 billion. Exports are catching up, but had a much lower starting point.

The nasty curve ball in the last several months has been the decline in foreign central bank willingness to hold USTreasury Bonds. Consecutive monthly declines are being registered. This puts added pressure on the USFed/DeptTrez to print more money and buy more USTBonds, in a process called monetization. The whole world is watching in horror! They are losing confidence in the world reserve currency, the mismanaged USDollar. Its legal tender in the financial markets is the mismanaged USTreasury Bond, whose legitimacy is undermined by the printing press. In private circles any such practice is called counterfeit.


We are witnessing a failure of economic and banking stewardship, management, and performance. The entire world is held hostage. Their banking systems are reinforced by gargantuan sums of US$-based securities. To call them ‘secure' at all is a bad joke and a misnomer in every sense. The backlash from the subprime bond export, complete with fraud, mispricing, mislabeling, and premeditation, has in no way been fully played out.

With the European, British, and Japanese central banks frozen on policy, urged to hold on interest rates at the point of a gun, the gold price will serve as a relief valve. These major central banks are expanding the money supply in magnificent fashion, over 14% together. With the US Federal Reserve certain to cut rates further, and with far less likelihood of foreign major central banks to follow suit, the USDollar is in great jeopardy. With the Arab states which form the Gulf Coop Council contemplating a removal of the US $ peg, a fracture in the PetroDollar defacto standard is near. Implications to the USDollar negatively, and to gold positively, are profound.

The Asians and Arabs are hedging against US$-based bond losses by purchasing increasing amounts of gold. The transactions are not being hidden. Gold is heading for $1000 in the coming several months. The USDollar is heading for DX=70 in the coming several months. The euro is heading for 150 in the next several months. The Canadian Dollar is heading for 110 in the next several months. The precious metal mining stocks are poised for a substantial runup in the next several months. The season will work favorably until the spring.


From subscribers and readers:

“My subscription is worth double what I pay. Once for the economic analysis, and once for the education in wordsmithing! I am coming to value the second one the most, as your alliteration and parable-esque style keeps me smiling even as you write about the walls crashing down!” (MichaelH in Georgia )

“I want to congratulate you and thank you for your quick and frankly stated revision on bonds [the 4.0% forecast]. That was my thinking all along, but I must say that your writing was and continues to be a most valuable input to my thinking in the first place. That type of integrity makes me value your opinion all the more and is likely to keep me as a loyal subscriber for years to come.” (ScottD in Pennsylvania )

“I am staggered by the depth and breadth of the information I now have access to in your newsletter. Just one problem, I cannot put my computer down. Reading your current reports and catching up on earlier editions you make available in your ‘library' is dominating my mornings, afternoons and evenings!” (DavidR in England )

“I believe your wit and disgust at the state of affairs stand untouched.” - (Charlie P in Virginia )

“I am currently subscribed to over 60 paid newsletters. Your analysis is by far the most accurate every time. The most impressive characteristic of your thought processes is your ability to think in multi-factorial terms. You are one of the few remaining intellectuals with such capacity intact.” -(Gabriel R in Mexico )

By Jim Willie CB
Editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at . For personal questions about subscriptions, contact him at

Jim Willie CB Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules