Thursday, April 14, 2011

Is it Seasonal or is the US Dollar Losing Reserve Status more quickly than we think?

4/14/2011 Portland, Oregon – Pop in your mints…
This week we have witnessed a relentless increase across the board in the price of most commodities.  Some of this action is attributable to seasonal factors.  Spring is the time to plant in the Northern Hemisphere and the time to Harvest in the Southern.  These events create a flurry of activity in commodities because at this point there are many unknowns. 
In the North, they are trying to decide what to plant which creates a sort of statistical vacuum for speculators to fill with the assumption that there will be scarcity.  In the South, they are beginning to tally what the combination of the earth along with their toil has afforded them as sustenance for the winter.  Naturally, as when the votes of a big election are being tallied, there is a lot of speculation.  Speculators jump on this informational vacuum and the feeling of scarcity causes them to, you guessed it, bid up commodities.
The whole flurry of activity itself involves lots of John Deere tractors and combines, fertilizer, water and manpower and, you guessed it, oil.  All of which involves increased demand for various commodities and helps to create a general anxiety which sweeps the planet.
It should come as no surprise that God chose to ordain the two great feasts during these times.  The Passover in the spring of the North and the Feast of Trumpets in the autumn.
Some of this seasonality in commodity prices is new phenomena, some of this has been around since man first was called into being on the sixth day.  Whatever the underlying reason, the confluence of these events tends to cause prices to rise in money terms in the autumn and spring in both hemispheres.  Modern transport methods and global trade have helped to smooth this out but natural forces have always trump man's efforts.  Even the advent of the internet has not changed this fact.
But what to make of the recent run up in the prices of just about everything except paper money?  There is something more to these increases than the regular seasonal trends.  Yes, fellow taxpayer, it appears that the inflation that the FEDS of every nation on the planet have been baking in over the past three years is beginning to set up.   
George Soros, a famous investor who made a great deal of his fortune and reputation by shorting the British Pound in the early 1990's held an April 8th conference that some are hailing as "Bretton Woods III", an homage to the past two conferences which reformed currencies and in turn created the present world order that we now live in, appears to have called for an end to the dollar as the world's reserve currency.  This is from an interview with Mr. Soros by the Financial Times in November of 2009:

You can read more about the speculation on Mr. Soros' intentions here.

Please follow this link for a long and interesting Q & A at the conference with Mr. Soros and Paul Volcker fielding questions.
The fact that this conference is being held, taken along with the fact that China has been amassing large amounts of gold and silver, is giving credence to the speculation that the Chinese currency may be in a position to take the baton of reserve currency status from the dollar.  If this is true, we cannot overstate what this means for currency and bond markets and more importantly the cost of everyday items for those attempting to pay for them in dollars.
To state what may be obvious, the US dollar will be worth much less in trade than it is today.
While the European and Chinese Central Banks have recently raised rates, the US FED still has the printing press on full throttle.  If our speculation here at The Mint is correct, the FED, like the driver of a semi-truck that is careening down a steep mountain road, may not be able to apply the brakes and save the remaining value of the US dollar.
Then again, maybe they don't want to.
Stay Fresh!
P.S.  Please check out our latest 72 Hour Call at www.davidmint.com
Key Indicators for Thursday, April 14th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.