decling shareprice gold and all that stuff, page-2

The Aussie is only strong until:
i) money managers remember that the AUD is just like all the other fiat currencies and has performed along similar lines in the long term, and
ii) the Australian banking system experiences deleveraging and the cascading cycle that it entails.

In my opinion, it will could be strong for 12 months to 24 months, but not long term.


With regards to global currencies and trade surpluses of China, OPEC countries etc (from FOFOA):

The problem is with the perpetual US trade deficit. In order to stay pegged to the dollar, there are only two things these countries can do. And most economists are only aware of one of them. The way everyone thinks it is done is by recycling those dollars into US assets, primarily Treasuries. The Chinese (or Saudi) exporter receives dollars and exchanges them for local currency at the bank. That bank then sells them to the central bank for freshly printed currency, and the CB then buys US assets with the dollars.

And since the US is not in the business of selling off the farm, we sell government debt paper. This has the effect of funding the US government through the trade deficit and exporting the currency inflation to those trading partners that must print their own currency to stay pegged. If they were to buy US-made products with those dollars rather than Treasury paper, then there would be no trade deficit. But then the American economy would have less goods, more cash (inflation) and the government would have to find another stream of funding.

But there is another thing they can do (and are starting to do) with those dollars we are sending them for their goods. They can buy gold on the open market. It really doesn?t matter if the exporter that receives the dollars buys the gold himself, even inside the country, or if the CB buys it from London. If it is purchased in country by citizens, that will raise the internal price of gold and create an arbitrage opportunity that will cause gold to flow into the country until the price differential (inside and out) is equalized.

So this is a way to use your excess dollars on the world market, rather than inside the US, which also helps keep your currency pegged without running into a foreign exchange crisis. I have my own theory that the actual physical flow of gold into China corresponds to money that Ben Bernanke must now print that was previously being funded by the PBOC. This takes a long chain of thoughts to get there which I?m not going to write here, but I think you can get the concept intuitively.

Buy gold (instead of Treasuries) with your excess dollars received from selling to products or oil to the US. As long as you buy on the open market (as opposed to dark pools as the Saudis used to do or from mines inside your own country) this drives up the price of gold and causes a physical inflow into your country. You no longer have to print equal amounts of your own currency so you have stopped your internal monetary inflation and, instead, channeled it into the price of gold (inflation only against gold, not life?s necessities). The Fed, in turn, is forced into ?QE? which is essentially printing those dollars you would have given to Treasury since Congress can?t cut the budget. Also, those dollars you used to buy gold in London or Zurich will eventually find their way back into the US through private channels and add inflation on top of the printing the Fed is doing.

So now, you?ve sent all that monetary inflation back into the US, and still kept your currency pegged. And if you follow this train of thought far enough, I think you?ll find that it leads to stresses that will ultimately break both the US dollar and the paper gold market without ever officially ?de-linking?.

The physical gold must continue flowing into the physical boundaries of trade surplus zones while the price of gold rises. Weight-based flow and price level offset each other somewhat. But ultimately this will break the paper gold market because we?re talking about physical flows from the debtor zones into the saver zones. And now the US finds itself between a rock and a hard place. The hard place being that dollar interest rates in the US must skyrocket which would destroy the dollar banking system, Wall Street, the US government welfare state and the US economy, or else the Fed must print to oblivion to keep rates down and suffer the ravages of hyperinflation. That?s the rock, because it will win out over the hard place seven days a week.