forget deflation .. inflation set to soar .., page-138

Some people don't think yhey have any gold in Fort Knox anymore and as they won't allow an independent audit who would know anymore?
But maybe in the short term Heremes may be correct. This is part of a Martin Weiss blurb:-

"Jack: There is just one thing that always goes up with deflation: The U.S. dollar! By DEFINITION, when the price of investments or goods and services goes down, the value of each dollar goes UP. That's the essence of deflation. And here's the key: When the value of the dollar goes up in the United States, it inevitably goes up abroad as well.

Martin: Please explain that connection more specifically.

Jack: Virtually everything that matters in the global economy — trade, commodities, GDP, debts — is measured in U.S. dollars. The dollar is the world's reserve currency. So just as we see domestically, when your dollar buys more, its value also rises internationally.

Martin: There was a lot of talk about other currencies replacing the dollar as a reserve currency.

Jack: Talk, yes; action, no. It never happened. And now, it's going the other way: Your dollars now buy more than two gallons of gas for every one gallon they bought just a few months ago. The dollar now buys three times more oil and copper than just a few months ago. Not just 20% more or 50% more, but three times more!

We're seeing the same thing happen against currencies. The dollar is in a massive, long-term uptrend against the euro, the British pound and virtually every currency in the world. Yes, we've witnessed a temporary dollar setback in recent days, but it does nothing to change the big trend.

Martin: It certainly does not change the deflation. But please give us specific reasons why the dollar is rising against currencies in particular.

Jack: There are three big reasons. The main one is that, as I said, the dollar is the global measure of virtually everything. So when there's global deflation, the dollar is the prime beneficiary.

Look. We've had decade after decade of inflation and global expansion. During most of that period, the worldwide supply of dollars and dollar-based credit expanded dramatically. And those dollars became the key funding source of bubbles in nearly every major asset class — real estate, stocks, commodities, energy and metals. As the supply of dollars expanded, the dollar lost value.

Now we have deflation and global contraction. So now everything is turning the other way. Despite the Fed's efforts to lower interest rates, credit — dollar credit — is drying up all over the world. The overall supply of dollars is contracting. So U.S. dollars are suddenly scarce and their value is going up.
Jack Crooks

Martin: Still many people in the U.S. don't see that. They think: "If the U.S. economy is in so much trouble, isn't that bad for the dollar?"

Jack: No, that's simply not how it works. A country's currency is never valued based on how well or how poorly that particular economy is doing in isolation. It's always measured against another country's currency. So it is always valued based on how a particular economy is doing relative to another economy.

It's not the U.S. dollar vs. some other measure. It's the U.S. dollar versus the euro, the British pound, the Aussie dollar, etc. So the relevant question is never, "How well is the U.S. economy doing?"

The question is, "How is the U.S. economy doing compared to the European economy, the U.K. or Australia?" In this environment, it's not a beauty contest. It's a contest of which economy is the least ugly ... which leads me to the second reason the dollar is rising: The U.S. is winning the least ugly contest hands down.

Martin: Please elaborate.

Jack: Europe's banks have lent more than $2.7 trillion to the high-risk emerging markets, and those emerging markets are being crushed by deflation. Europe's banks have big exposure to Hungary, and Hungary is collapsing. They have big exposure to the Ukraine and to Russia, which are also collapsing.

Europe's economy is in much worse shape than ours. In Germany, export demand has vanished. So it's just now starting to accelerate downward.

Worst of all, the Eurozone's governing bodies are a mess. You've got each member nation making its own monetary policy and each going off on a different course with its economic stimulus plans. For example, the European Central Bank wants to retain some semblance of moderation in its monetary policy. But the leaders in countries like Italy, Greece, Spain, Portugal and Ireland are scared. So they're going to whatever it takes to try to prop up demand, no matter what the central banks says.

Martin: It's adding political chaos to financial chaos.

Jack: Precisely. These are the reasons the euro has been falling and, despite a sharp rally, will likely continue to fall — probably down to parity with the dollar, or lower.

Martin: That's a huge drop — over 30% from these levels. What about the U.K.?

Jack: Worse. Their housing bust is more extreme than ours. Their reliance on revenues from a sinking financial center — London — is far worse than ours. Their consumers have more debt than almost any other developed country.

Martin: And the Australian dollar?

Jack: Solid as long as commodities were going up ... but a disaster with commodities going down! In just the last five months, the Australian dollar has lost 31% of its peak value. Other currencies tied to commodities are also getting killed: The New Zealand dollar is down 39% from its peak; the Brazilian real, 35%; the Canadian dollar, 23%.

Martin: And going forward?

Jack: Deflation means more declines in commodities. And the more commodities fall, the more these commodity currencies plunge. It's that simple.

Martin: You said you had three reasons for the dollar's surge.
World currency

Jack: The third reason is the flight to the center. Think of the world currency market as a solar system. The dollar is the sun; the other currencies, the planets. As the system expands, investors migrate from the core currency, the U.S. dollar, to the inner planets — currencies like the euro, the Swiss franc or the pound.

And as the system expands even more, they migrate to the next tier of currencies, like the Australian dollar or the Canadian dollar ... and then, still further, to the system's periphery — outer planets like the Brazilian real, the Mexican peso or the South African rand. At each step of the way, they take more risk with less stable economies, use more leverage, go for bigger returns — all fueled by abundant dollar credit.

Martin: OK. What happens when the global economy contracts?

Jack: Precisely the reverse. As the global economy begins to come unglued, they rush back to the center, creating a massive flight back to the U.S. dollar. They have no love affair with the dollar. They just see the peripheral economies going down and they dump those currencies. These are the first risky investments they sell, almost invariably switching back to U.S. dollars.

The U.S. economy, despite all its troubles, is still the dominant world economy. Militarily, it's the only remaining superpower. Financially, it's still the world's capital. So it's natural that when investors are running from risk, they rush back to the dollar, bidding up its value.

Martin: Is this true across the board, regardless of the currency?

Jack: No. There's one notable exception: The Japanese yen. Japan is the world's second largest economy and also one of the world's largest sources of capital. So when the other currencies go down, a lot of that money goes back to Japan, boosting the yen.

But the main point is this: The single most consistent consequence of global deflation is a rising dollar.

Martin: So in the midst of all these bear markets, if you're looking for a big bull market ...

Jack: You've found it! It's the U.S. dollar. I think the U.S. dollar is in the early stages of a powerful bull market that could last for years. It's the single cleanest way to make windfall profits from the deflation.

Martin: A year or two ago, you were betting against the dollar, and you were right. Now you're betting on a rising dollar. That's a big change.

Jack: You're darn right it is! It goes hand-in-hand with the big sea change you've so clearly illustrated today.