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January 30, 2005

US Congressional Budget Office: Gold to Keep Rising!
by Alex Wallenwein

Well, the CBO didn't say that exactly - but it might as well have.

On January 25, 2005, the CBO released a short, less than 200 word, news item designed to calm a worrying public. In essence, it said that the decline of the dollar over the next two years will be an orderly one - a view that has since been reiterated by other US officials speaking from the World Economic Forum in Davos, Switzerland.

Phew, am I relieved!

I surely thought that there is a danger of a catastrophic fall in the dollar, which would eventually lead to a skyrocketing gold price. But now that the CBO itself has said this won't happen, I guess I can just go back to throwing whatever cash and savings I have available at the stock market, and forget about buying gold to protect myself.

But wait a minute. What did the CBO really tell me there when it made that market-calming announcement?

It told me, from on high in the US government, that gold will continue to rise for at least another two years! Why? Because a falling dollar inevitably brings with it a rising dollar-POG, as we have seen over the past three or more years.

The statement was obviously designed to remove any trepidations anyone might have nurtured in the darkness of his or her untrusting soul that a falling dollar might bring bad tidings of future economic collapses, etc. Ironically, in issuing its report, the CBO has inadvertently but officially given the green light to all who would consider dumping dollars and buying gold in their narrow-minded, selfish desire to protect themselves from the dollar-fallout.

Or was it really that inadvertent?

It is no longer a secret that the US administration and Fed both like the idea of a falling dollar, at least for now. Even mainstream financial news outlets are on to John Snow with his repeated claims that the administration supports a "strong dollar" policy. Everyone is quietly laughing at these remarks as obvious, Bush-ite double-talk. But is it really?

Maybe Bush took a few pages out of Clinton's play book? Not such a far-fetched idea, now that we have all been treated to the questionable pleasure of seeing the grand-master of double talk and forked-tongue word-parsing ("tell me what the definition of "is" is) himself making joint appearances with two generations of Bushes on TV, appealing to the American public to donate money to Tsunami victims. (Why is Bush, the "moral president", giving such elevated recognition to a known scumbag?)

So, where's the double-talk here? What is Snow really saying when he repeats these statements over, and over, and over, in the face of an "earth-rocketing" US dollar? After all. He never said that the administration prefers a high dollar, only a "strong" one.

"Strong" doesn't necessarily mean "high." If the Bush administration rightly sees a high dollar as vulnerable to outside attack and as conducive to in-country stock market woes (foreigners now refuse to buy US equities unless they represent a super-bargain due to a lower dollar) and therefore as weak, then a "strong" dollar can without any doubt mean a far lower dollar than we have today. It's just like a low, ground-hugging building is more stable (stronger) in the face of a hurricane than a tall one. But I digress.

We all know that the falling dollar means rising gold. Apparently, that's okay with the Washington crowd these days, because it's just one price to be paid for a continuing rise in US equities - or so they hope. Gold control? Who cares! That's only an issue when a higher dollar is needed, and that is now a policy of the (Clinton-era) past.

If anyone ever wants more solid proof that Bush wants - no, needs - a lower dollar, all he needs to do is watch how adroitly the Bushites have been falling onto their knees and gone begging to China to please, please, pretty-please, let their yuan rise against the dollar to remove that "unfair" trade advantage. All that is couched in terms of "tough talk" of course, lest one lose face with the electorate, but what it amounts to is nonetheless nothing more than begging.

Bush is in no position to be ordering the Chinese around.

China, of course, is in no hurry to comply. The communist regime first needs to make sure that the EU can swallow a sufficiently large chunk of its future exports before it can afford to do so. But whenever China does revalue (and eventually it will, gradually or not), the dollar will undoubtedly fall further than it already has.

For how long will they let it rise? For however long it takes the Chinese to let their currency slowly adjust to world-markets so it can "float" like a piece of you-know-what in muddy water right along the other floating pieces of the same matter down the sewer line of monetary history. Uh-hum. Sorry. I seem to be digressing a lot, lately.

So, how far will the dollar fall then?

According to the calming voice of the CBO, not too far.

What does that mean?

Who is to know? When your government speaks to you, caution is in order, as government always says what is in its own interest - and that interest is unfortunately diametrically opposed to that of hard working, freedom loving, private citizens like you.

What's interesting about this announcement is that the head of Bank of America's global strategy department said "he was 'extremely surprised' by the CBO's comments, especially since the group has not been known to speak directly on the currency" according to another Reuters article.

Why did they see a need to "speak directly on the currency" this time?

Anything extraordinary going on? Noo. That can't be - because it would make them sound like liars when they say such things only to calm us regular folks with our ignorant fears.

What is the CBO's function anyway? According to its own web site, it's primarily to function as a watchdog over presidential attempts to circumvent the power of the purse that was given by the We the People to the Congress - in other words: domestic budgetary matters, as the name indeed implies.

There is not a single mention of external matters concerning international finance or monetary policy. The only remotely relevant provision is the very last phrase on the CBO's "mission" page on the site. Under the heading of "Budgetary and Economic Policy Issues" there is the following paragraph:

"CBO's responsibilities also entail analyzing specific program and policy issues that affect the federal budget and the economy. [Ed.: Is that broad enough for a weasel clause?] For the most part, requests for those analyses come from the Chairman or Ranking Member of a committee or subcommittee or from the leadership of either party in the House or Senate."

"For the most part" these requests come from other members of Congress, yes. But what about the other parts? Has Congress' watchdog-office turned into a presidential lapdog of late? Are they now spouting the party line at the CBO?

If their main mission is to watch over presidential/executive spending, of what concern of theirs is the dollar? Did the administration need help in calming Americans' fears from a more neutral source than its regular mouthpiece, John Snow, whose job description is to say exactly what the administration wants him to say?

Questions, questions - and we don't know the answers. But we know this: either the reason for CBO's statement was that a perception reigns in government circles that Americans' fears about the dollar are in need of a calming tonic (Case A), or the statement is eminently believable, coming from a completely independent, highly non-partisan government office that has only the best interest of Americans in mind (Case B).

In "Case A", we know that there is reason to "be afraid, very afraid" of the falling dollar, and we know that, if it falls uncontrollably, gold will shoot to the moon and beyond. In "Case B", we know for certain that gold will continue to rise for at least two more years!

We can now now introduce another aspect into the equation. It is very possible that during this best-case scenario ("controlled" dollar-drop) the Dow suddenly takes a plunge because the dollar isn't falling fast enough to sustain continued foreign interest in bottom-feeding on US equities. We have seen that even during times of dollar-stabilization the Dow tends to drift lower of late, and that it rises only during precipitous dollar-slides. in that case, we may end up with a situation where more and more domestic and foreign investors could quite possibly remember that saving money instead of throwing it into the bottomless stock-pit might be a good idea after all.

And where would that saved money go? Into bank savings accounts or CDs that pay out zip above inflation for one year deposits? Or maybe into the top-runner CD that guarantees you a paltry, locked-in 5.75% over twenty years - in a rising inflation environment? Or would you think that most of that money would go into real assets, like uhhm, say ... maybe ... gold?

Who knows?

I only know this:

If the CBO is correct and its report can be relied upon without reservation, we have at least another two years of falling dollar/rising gold. If it can't be trusted and the dollar-slide gets (or already is) out of US control ...

... then I can ask you only one more question:

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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