rcwill

More On Rising Dollar, Declining Gold

With roughly 7 trillion in deposits and only 4.5 trillion insured by FDIC, people are scrambling to find a quick safe haven for 2.5 trillion. Since most people are not gold savvy the obvious place to try and preserve this amount of wealth is not to find a hundred banks and buy CD's but to simply buy treasuries. This drives the dollar up and gold down. If the FDIC limit is raised to 250k it may curtail the rush into treasuries and the rise of the dollar. This would be gold positive me thinks.

The 'Death of Gold' Revisited

Let us not forget in 1980 Paul Volker had the option to raise interest rates to 2% higher than inflation which was roaring at 15%. And, with a government debt of a mere 1 trillion in a 4 trillion dollar economy he could do that. Subsequently the money came out of gold and into CD's/Treasuries and the dollar went through the roof while gold went into the dump for 20 years.

Now our GDP (app. 13 trillion) to debt (9.4 trillion) ratio is closer to 4-3 rather than 4-1 as it was in 1980 and to do a Paul Volker would cripple the economy, drive up the cost of servicing a growing deficit and put many of our exporters out of business as the dollar would mimic the 1981 climb. Not to mention that the trade deficit would soar.

Inflation may be our only option though not a solution as time will tell.

Calling It Quits on Gold, Platinum - It's Time to Go Financials!

Kinda goes against what Noriel Roubini said in a CNBC interview yesterday that the banks have only written down 200 billion which is the result of the sub-prime mess only. The collateral damage soon to be accounted for will be from the prime, commercial, credit card debt, student loans,auto loans, and defaults in corporate debt which will add up to over 1 trillion in bank write downs. But...what does he know, he only manages a 47 billion investment company. That's gonna take a lot of printing in my estimation.