Monday, March 24, 2008

U.S. dollar crash

As the U.S. dollar crashes there is more and more reason to turn to silver and gold as a protection from fiat disaster. See this short piece from Netherlands television.

3 comments:

Glenn Hubbers said...

Thanks GAB. The writing is on the wall.

As the saying goes, it's very difficult to get a man to see something when his livelihood depends on not seeing it.

The question back to you, since you've given this so much thought and research, is what happens to the Canadian economy and the value of the Canadian dollar when the American dollar collapses?

Lord of Wealth said...

There's the rub, we can't know this unless we know exactly how our Government and Central bank will react to the crisis.

We will however be subject to a massive recession unless we quickly diverse our markets, even then the world demand for everything will shrink meaning we will be fighting for a smaller piece of the smaller total pie. Our manufacturing will be shot as most of the world doesn’t want our cars, and an article on the weekend shows no N.A. cars even passes China's fuel economy standards, those auto jobs are gone.

The value of the Canadian dollar will weaken due to less world demand for our commodities but how we will fare against the U.S. dollar totally depends on whether we go for a strong or weak dollar policy.

Considering we are already ignoring inflationary signals in food and energy and cutting interest rates shows our current policy is to follow the U.S. dollar down as it devaluates. This will continue to make our products desirable to the U.S. who will be paying for things in ever devaluing money. The drawback however (which is never discussed) is devaluation of our currency which will spur more inflation is a hidden tax on the savings of individuals. Those in debt often get off light as their wages and investments go up faster than the rate on their mortgages. The Poor with no investments, the retired with a fixed or partially indexed pension become poorer, those with savings loose as interest will be below inflation.

A strong dollar policy protects the rational who have saved but kills industry as our exports dry up, either way drastic changes in our dollar value hurts someone. We are caught between the U.S. dollar and the world market. Of course the failure of the dollar is a possible trigger for a move towards a N.A. currency that would tie us forever to a dying giant.

Personally since many industries like N.A. auto are unsustainable because they suck, are nearly bankrupt and are not adjusting for GW or Peak oil makes a weak currency policy to save them irrational because they will fail anyway, leaving us buying foreign cars at twice the currency price because we let our dollar slip.

We are in the worse possible position after the U.S. itself in that we rely on their gluttony to feed our own. Our standard of living will drop, normal economic activity will become chaotic, throw in the effects of peak oil and we will see a massive dislocation of workers.

My belief is we will go weak dollar, high inflation and follow the U.S. down, which is why I believe metals are a good hedge against either high inflation or total currency collapse. Land and the skills to use it are still the ultimate investment, and one I can’t afford.

While this will be a great period for retooling, innovation and breaking the ever growing consumer driven economy it’s going to hurt like hell which ever way it falls.


Another issue is a full 44% of Bank of Canada reserves are in U.S. dollars(19.149 Billion) which is financial suicide with only a mere 3 tones of gold reserves. (Under 100,000 oz, 101 million) as a hedge against dollar destruction which is totaly insuficient.

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