For the most part, the value of the dollar is given cursory attention by the financial media. Typically, its movements are assigned an importance on par with much less determinative metrics such as natural gas futures and construction permits. It’s only when major milestones are reached that anyone really takes notice of the dollar. We are living through one of those times.
The great dollar rally of 2008-2009 has come full circle. When the financial crisis exploded in its full ugliness in mid-2008, the dollar, which had steadily declined over the previous four to five years, put in a rally for the record books. By March 2009, as investors across the world sought safety from the financial storm, the index had surged more than 25%. Since then, the dollar has steadily declined to the point where nearly all those gains have vanished. In short, the panic rally has given way to the long term trend.
So, as the dollar index makes fresh 52-week lows on a nearly daily basis, discussion on the greenback is heating up. And while real insight on the topic is hard to find, the debate centers on the battle between two conventional opinions – both of which are wrong.
The first camp, which is generally supportive of government intervention in the economy, argues that dollar’s decline is a positive for both the economy and the stock market. The second camp, which tends to fall on the more conservative end of the political spectrum, views the dollar’s decline as a problem but feels that tough talk and slightly higher interest rates are all that is needed to restore ‘King Dollar’ to its throne.
First of all, a weak dollar is no better for Americans than a lower paying job is for a worker. And although I would prefer that the dollar remain strong, I know that currency values are a function of supply and demand, not wishful thinking. The past years of reckless monetary and fiscal policy have created conditions that must push the dollar down. Vastly expanded debt levels and monetary expansion have created a greater supply of dollars, while poor investment performance and diminished industrial capacity have lessened the demand for dollars.
Ron Paul was interviewed by Tavis Smiley on his PBS show last night. I remember really enjoying Smiley’s questioning and demeanor throughout his questioning during one of the GOP primary debates during the campaign of 2008. A debate that some of us here at Liberty Maven attended.
In this interview they discuss the U.S. foreign policy in Afghanistan, Ron Paul’s new book “End the Fed“, and how the Fed can be audited and eventually abolished.
“Educate and inform the whole mass of the people. Enable them to see that it is their interest to preserve peace and order, and they will preserve them. And it required no very high degree of education to convince them of this. They are the only sure reliance for the preservation of our liberty.” – Thomas Jefferson, 1787
After the lecture from LBCCS founder Paul Fiske who related how our founding fathers viewed education, Ryan Burgett, chairman of LBCCS and I (as a member of LBCCS) took questions and there was one question I was unable to answer without a projector, which was the breakdown of spending by the federal Department of Education, which is below or can beviewed online here.I also gave a short synopsis of the history and issues I have with this Department.
This morning Ron Paul appeared for an interview on the state of the economy and the Goldman Sachs “bailout” on CNN “American Morning”.
As usual Dr. Paul defends the free market even when asked rather convoluted questions about “how much” the government should support the market. I found the interview a bit odd. In that both the host and Paul were trying to find some kind of middle ground between a government managed economy and a free market position. The common point implied that the government shouldn’t be bailing out these big Wall Street firms like Goldman Sachs yet they continue to use tax payer money to do so.
Check out the video below. NOTE: The audio/video sync appears to be off as is custom on some videos processed by Youtube.
BETHLEHEM, PA – US Congressional Candidate Jake Towne related Thursday to a group of Moravian College students that the government’s stimulus plan simply isn’t working in the Lehigh Valley. He also covered the basic economic reasons behind the failure and a better alternative.
While economic planners predict the end of downturn in Q4 2010 and the creation of 3.675 million jobs, Recovery.gov demonstrates that only 0.030 million jobs have been “created/saved” since the plan began in Q1 2009. Only 495.2 jobs are reported as “created/saved” in all of Pennsylvania. including zero Lehigh Valley jobs and $0 spent. Out of the $2.05 billion allotted to Pennsylvania, only 0.15% has been allotted to the Lehigh Valley, or $3.2 million.
To date, Recovery.gov reports zero Lehigh Valley jobs “created/saved” and $0 spent. The allotted funds for the $3.2 million are:
$154,817 allotted to Advanced Environmental Solutions for soil and groundwater contamination testing
$1,129,049 to the City of Allentown for Homelessness Prevention and Rapid Re-Housing
$737,917 allotted to the City of Allentown for Community Development Block Grant
$687,480 to the City of Bethlehem for Homelessness Prevention and Rapid Re-Housing
$449,326 to the City of Bethlehem for Community Development Block Grant. Funds allocated to provide lighting on 4th Street and a 12-foot pedestrian and bicycle path on a former railroad line.
Ever wonder what happened to that sense of hope and change that most of the voters in the United States were swept up by last fall?
America does need“hope.” America does need “change.”
However, the mainstream Republican and Democratic party machines are both repeating like bad records – “morespending,moretaxes,morewar,more debt.”
If you flip the record, all you hear is “lessliberty,fewerjobs,lessprosperity.”
Whydoesn’tAmerica consider a sound money and slashing federal spending?
Whydoesn’tAmerica consider auditing and cutting back the powers of the ruinous FED?
Whydoesn’tAmerica consider destroying theIMMORALandUNNECESSARY federal income tax?
Whydoesn’tAmerica consider a different foreign policy – where there is third choice besides bombing or economic sanctions? Why not replace the blowback our foreign policy has resulted in with a little love and peaceful trade?
While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy deteriorating before our eyes. These myopic commentators seem to be simply moving past the now almost-universally held conclusion that before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I too would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path.
Last week, the Bureau of Economic Analysis reported that consumer spending as a percentage of U.S. GDP has risen to 71%, a post-World War II record. This level is notably higher than other wealthy industrialized countries, and vastly higher than the levels sustained by China and other emerging economies. At the same time, our industrial output is contracting, our trade deficit is expanding once again (after contracting earlier in the year), and our savings rate is plummeting (after an early year surge).
The data confirms that government stimuli are worsening the structural imbalances underlying our economy. The recent ‘rebound’ in GDP is not resulting from increased economic output, but merely from the fact that we are borrowing more than ever. That is precisely how we got ourselves into this mess. An economy cannot grow indefinitely by borrowing more than it produces. Not only is such a course untenable, but the added debt ensures a deeper recession when the bills come due.
This soon-to-be-called depression will not end until the pendulum of consumer spending habits swings violently in the other direction. This will be a jarring change, but it is the splash of cold water that we need to return our economy to viability. I believe that consumer spending as a share of GDP will need to temporarily contract to roughly 50% of GDP, before eventually moving toward its historic mean of 65%. Such a move would indicate a restoration of our personal savings, a decline in borrowing and trade deficits, and an increased industrial output. That would be a real recovery.
In the meantime, the higher the spending percentage climbs, the more painful the ultimate decline becomes.
It doesn’t matter how many times you’ve sent Congress a letter on a given issue, or even if you sent one yesterday — every new fact we give you is a new opportunity to tell Congress what you want. Seize the opportunity!
by John Browne – Senior Market Strategist, Euro Pacific Capital
Earlier this year, I predicted that the 2009 rally in U.S. stocks could bring the Dow Jones Index as high as 10,000. It looks like that level has been achieved. If, at this point, the index reverses course, I would have made a fairly good prediction.
However, it is important to get beyond the charts and look at the fundamentals. The furious six-month rally in the stock market has certainly not been mirrored by the economy as a whole. Instead, the country remains in recession, with unemployment continuing to rise and corporate earnings continuing to decline. This has pushed up trading multiples to the point that where value is now a distant memory. How could the stock markets have recovered so strongly in the face of economic recession?
First, this rally is mostly about the financial sector. The U.S. government decided that, no matter what the cost to the citizen, the major banks had to be saved. Bank losses were transferred to public books and unprecedented funds were showered on the banks to keep them solvent. Bank borrowing costs were reduced to near zero and, for the first time, interest was paid on reserves held at the Fed. Many of these banks were designated as ‘too big to fail,’ so they became a nearly risk-free bet.
The result: bank profits skyrocketed. Just today, JP Morgan reported that profits surged sevenfold from the second to the third quarter of this year! In fact, over the past six months, stock performance of financial sector firms was 66% better than the S&P 500 as a whole.
Second, the rally is mostly inevitable bounce. In the third quarter of 2008, in the face of collapsing stock and commodity markets, investors piled into cash instruments such as Treasuries. However, once the crisis appeared to pass, the same investors fled these zero-return ‘investments’ back into corporate debt, and then equities. Such massive fund flows have provided the tide upon which the current rally is based.
This morning in London the gold price hit an all-time high in non-inflation-adjusted dollars of $1047.
While some who hold gold might be rejoicing, I do not view this as good news at all. The campaign still has plenty of people to reach in this district, and may run out of time since we certainly do not have the funds to launch a major ad campaign.
The all-time high in the gold price is a warning of dire times to come as it merely indicates that the dollar’s purchasing power is at an all-time low. The next phase of the dollar crisis may be on the doorstep.
For those of you who would shout “au contraire!!” and are excited about the stock markets gains since the spring, please take a look at the following chart. Note that maximums in the P/E (price-to-earnings) ratio often precede market crashes, as the stock is overvalued as compared to its dividends/earnings. This S&P 500 chart is from 1935-present.
Notice anything strange? We are way out of historical means. I do not believe that such absurdly high P/E ratios are possible to maintain over the long-term.
The campaign is extremely busy and continuing to pick up steam, but we need your help to spread the word. The above should not be taken as investment advice, merely facts.
Liberty Maven
by Peter Schiff, president of Euro Pacific Capital and author of Crash Proof 2.0: How to Profit from the Economic Collapse
“, and how the Fed can be audited and eventually abolished.
Last night with the
Ever wonder what happened to that sense of hope and change that most of the voters in the United States were swept up by last fall?
by Peter Schiff, president of Euro Pacific Capital and author of 
For those of you who would shout “au contraire!!” and are excited about the stock markets gains since the spring, please take a look at the following chart. Note that maximums in the P/E (price-to-earnings) ratio often precede market crashes, as the stock is overvalued as compared to its dividends/earnings. This
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