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August 07, 2004

The Dollar-Titanic
by Alex Wallenwein

The fiat-dollar is a disaster waiting to happen.

It's just like the Titanic in a way, except that this currency-cruiser is not really about to hit an iceberg. Instead, it has been set on a wrong course from the very beginning (meaning 1971) with the rudder structurally tethered so that the course cannot be changed. Unfortunately, the inevitable consequence of this is that, the longer this ship sails, the greater is the likelihood that it will hit dry land - eventually. (And that eventuality isn't too far away anymore, as July's non-farm payrolls fiasco has shown us today!)

The only question is: will it hit a nice, sandy beach - or a steep, jagged cliff?

A mighty ship she surely is, this fiat-pleasure cruiser of ours. The entire world's monetary and international trading system has learned to ride on it. But most of the world (except for the top monetary thinkers of every nation, maybe) has no clue that it is about to hit rock- bottom.

Unfortunately, too many of us peasants, and especially our families, friends, co-workers, and happy-hour drinking buddies, have no idea what's about to hit us, either. That's because this monetary juggernaut is currently sailing through a huge, artificially created bank of extremely dense fog - the fog of a massive, coordinated, deliberate, and pervasive public disinformation campaign.

This 'fog' is to make sure that everybody has their eyes (and all of their desires and hopes for the future) firmly fixed on the ship itself - and not on what may lie ahead.

How awesome, how splendid a ship she is, isn't she? She has sailed on an inflexibly straight course for over thirty years now, and she's still plowing full steam ahead in all her glory. That's longer than some of us "investors" have been alive. A whole generation has grown up that cannot remember the days of the gold standard, or even the gold exchange standard, in action - and that generation has now come of age and is "investing" left and right as if this fiat-ship could never sink.

"Just look around you, friend" they say. "Not a single sign of danger anywhere in sight!" (thus quoth the blind man who can't see his own hand before his eyes.)

This officially sanctioned disinformation-fog is surely doing its job.

According to this ship's congressionally appointed 'captain' (whose hands are just as tethered as the rudder is) this fog-diversion is absolutely 'necessary'. It's even in the interest of 'public policy.' Can't allow a "panic" to occur, right?

"What??" they scream when you tell them there is danger waiting ahead: "you say we should invest in golden life boats? You say we should prepare to abandon this stunning palace of floating pleasure that has thus far satisfied our every whim? Are you insane? Who would want to leave this gorgeous ship? Lifeboats? Lifeboats??? We don't need no stinkin' lifeboats!!"

"You say there is danger ahead? You say our dashing captain might as well be a blow-up doll like the emergency pilot in the Mel Brooks movie "airplane"? You dare call him incompetent?? You misanthrope! You party pooper! Don't you see we are having a great time here? Why don't you just get yourself a drink and relax, buddy? Maybe you should see a shrink about that. Ha! Ha! Ha!"

(Meanwhile, under deck, a group of slightly better informed people has been busily sawing, hacking, and hammering away at whatever wooden furniture they could find on board in order to construct at least the semblance of a lifeboat. It's a fledgling currency that is to be launched alongside the Dollar-Titanic so that, just in case we should hit something untoward on our journey into nothingness, at least some of the Titanic's passengers can and will be saved.)

Eventually the work is completed. A good number of passengers have been persuaded to contribute to this new vessel (most of those on "Deck E", aka "Europe"), and they have jumped on it and launched it successfully. Thus, the euro came into being.

At first this new vessel was steaming right alongside the giant dollar-cruiser, but it soon fell behind, left in its mighty wake. (Watch the remaining Titanic passengers jeering and hollering from the back of their main deck, shouting "Ha! So you thought you could pass us up, huh?" So you thought your measly little contraption can compete with the mighty Titanic, hmm?)

And so they sailed, on and on. But soon their pleasure cruiser started showing the effects of decades of taking on "water" (speak: tens of trillions of dollars in total indebtedness, a mammoth current account/trade deficit, and an equally large budget deficit, etc., etc.) To their utter disbelief, those pleasure-prone cruiser-captives were forced to watch 'that dinky little lifeboat' catch up with them. (Apparently there is less fog to the rear of the ship than to its front!)

But as the euro-lifeboat began to pass and pull ahead of the Titanic in December 2003/January 2004, its captain (named something like "Trichet"), figured that there were too many headwinds that made its little engine work too hard. He figured that, for the time being, it was wiser to sail downwind from the Titanic - so he "spoke the word" and the little lifeboat slowed somewhat.

Not too much, though.

Just a bit. Just enough to make the Titanic actually work in favor of the euro - without even realizing it. (In economic terms, Trichet intimated in January that the ECB "might" lower ECB interest rates, and that slowed down the euro's relentless advance enough to let the dollar catch up a bit - just enough to make sure a too-strong euro wouldn't undercut the EU countries' struggling export markets any further. By all appearances, it turns out that was a most successful move.)

Now the dollar-captives are jeering again - but a great number of them, those who are not from the tribe that built this cruiser, are really just sitting by the railing, waiting, until the Titanic runs aground. They are just making sure they can 'jump ship' at the first opportunity and wade over to the (in terms of total indebtedness) much lighter - and therefore far more maneuverable - euro boat. Once there, they intend to complete their journey, leaving the dollar-tribe to rot on their stranded carcass of a ship.

In the process of all this, physical gold (another form of 'lifeboat', made of a substance that naturally "floats" on top of the ocean of human value judgments - especially when times get rough) will suddenly be 'remembered' even by many of the dollar-tribe. It will see a tremendous rise in popularity.

One can only hope that the dollar-tribe's memory gets jogged before this fiat-whale finally beaches itself.

And that's how things look from here - through the periscope of the Euro vs Dollar Currency War Monitor.

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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