Tuesday, December 30, 2008

The US Dollar and Gold - II

Below are some scary US Dollar charts. It looks like the panicky selling of US Dollar assets to meet cash demands has subsided for now, not that it can not happen again.

But first back to basics:

Money (gold, silver, packs of cigarettes), Currencies (silver and gold certificates), and tokens (government fiat paper and digital bits) have 3 things in common:
1.) Medium of exchange
2.) Store of value
3.) Unit of measure/account

A. Money does not have any liability attached to it.
B. Currencies have liabilities attached to them. They are redeemable in something specific. Prior to 1971, there used to be redeemable currencies, usually in gold, that people could flee to if a government or governments were devaluing, ruining their currency or token. For all practical purposes, no more.
C. Government fiat paper and fiat digital bits while not redeemable in anything can not be created without debt/credit being created at the same time.

Inflation (increase in supply, not increase in price), depending on the degree of:
1. Causes people to shy away more and more from using it (US dollar loosing its reserve status amongst central banks).
2. Steals/robs stored value.
3. Shortens the yard stick (unit of measure) while people still use it as a full measure, screwing up their financial and economic calculations for the future (mal/bad investments).

So, what is the no-brainer protection from what is going on at central banks and their treasuries? Or is it treasuries and their central banks?

Gold and silver.

The more they create government fiat paper and fiat digital bits (most US dollars are just digital bits on a hard drive, and that hard drive sure as heck is not yours), the higher in price gold and silver go.

Here is something to think about. If you deposit dollars in a bank, where exactly are those dollars once you have deposited them in the bank?

Now for the charts:

Reserve bank credit.

Currency in circulation.

Excess reserves of depository institutions.

Borrowings from the Fed.

Base money supply.

The US Dollar rally looks to be over:

This is all probably just for starters. Since most of the financial system is corrupt, what can safely store value for you? Not much. Gold and silver are 2 of the obvious.

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