Page 2 of 2 Gold's true standard bearers
By Julian Delasantellis
Is the Obama administration deliberately trying to sink the dollar? Probably.
That's what almost all US administrations have been trying to do since the
advent of free floating exchange rates in the early 1970s. According to Richard
Bernstein, head of Richard Bernstein Capital Management and formerly chief
investment strategist at Merrill Lynch:
Republicans have been
vigorously criticizing the Obama administration regarding the weak US dollar.
It appears as though Washington's remarkable penchant for short memories
remains intact. It also seems odd that the Republicans, the party that has
overseen nearly three decades of a depreciating US dollar, suddenly feel that a
strong dollar is so important ... a review of history shows why the
Republicans' current criticisms are so astounding. The dollar experienced only
two periods of meaningful appreciation during the last 30 years. The first was
during the early years of the [Ronald] Reagan administration. However, that
dollar rally was relatively short-lived and the dollar subsequently crashed.
The second was during the second half of the 1990s under [Bill] Clinton. Other
than during those periods, the value of the US dollar fell.
For
me, my favorite chart analysis singlet is the observation I saw
that the US dollar reached its historical high against the euro (from its
commencement of trading on January 1, 1999) in late October, 2000, just days
before the election of George W Bush that sent the dollar careening into an
eight-year bear market that sheared away 45% of its value against the European
combined currency.
Recently, the mechanism was on display from start to finish. On October 6, the
highly respected Middle East correspondent for The Independent newspaper,
Robert Fisk, wrote an article that said:
Gulf Arabs are planning -
along with China, Russia, Japan and France - to end dollar dealings for oil,
moving instead to a basket of currencies including the Japanese yen and Chinese
yuan, the euro, gold and a new, unified currency planned for nations in the
Gulf Cooperation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank
governors in Russia, China, Japan and Brazil to work on the scheme.
Fisk attributed the sharp, late-September rallies in gold to these events
becoming known in the markets, postulating that "the transitional currency in
the move away from dollars, according to Chinese banking sources, may well be
gold". In America, right-wing media discovered this
story and ran it down the field like a rookie football player suddenly given a
chance to carry the ball. The Drudge Report picked up the story from The
Independent early morning Washington time, then handed it off to Fox and the
right-wing radio talk hosts for the rest of that day's news cycle. The meme the
ideologues were pushing was that this was just another example of Obama being
such a poor steward of the value of the nation's currency. But after every
screed broke for a commercial, there it was, like a corsair stalking a treasure
ship - the gold commercial, ready and waiting to close the deal on the pitch
the ideologues had started.
I've read and enjoyed Fisk's reporting for many years, but in this, there just
seems to be far more sizzle than steak (very unlike the recent reportage of
Sami Moubayed and Syed Saleem Shahzad of Asia Times Online).
I'm sure that in the finance ministries of the Gulf Arab states there are
plenty of well-educated Massachusetts Institute of Technology and London School
of Economics PhDs who can read a chart and so would love to be out of the US
dollar. What's infinitely more important for this issue is the fact that above
the technocrats are the actual rulers of these states, the ultra-conservative
family autocracies who are deterring others from any attempts to try to sit on
their thrones. They have to help them the threat of American military power
steaming in from over the horizon to crush any rebellions. In an age of a
developing alliance between Tehran-based Shi'ism and the Sunni Arab street, not
irritating the praetorians is far more important than losing a few percent each
year on dollar portfolios.
Once again, it's not like I don't believe that the dollar has more to fall,
because I do. As I noted above, the dollar has been falling since at least the
introduction of floating exchange rates in the early 1970s, and that was even
before the United States adopted the zero short-term interest rate policy that
practically begs speculators to use dollar shorts as the funding mechanism for
currency carry trades.
But the decline in the dollar so far has been anything but the tooth-spraying,
bar floor fracas that the gold interests claim will lead to huge, rapid gains
when translated into that market.
During summer last year, at the height of the banking and financial crisis, the
financial markets saw a surprise 25% rally in the dollar that, even with all
the outrageous calumnies of Obamanism, has still not been reversed. The gold
interests' argument that Obama policies will soon result in inflation and/or
the US being shut out of the world debt markets is also still far from being
reflected in reality; deflation is still currently far more a problem than
inflation, and, with the US government able to borrow to fund its gargantuan,
$1.4 billion fiscal deficit for three months at 0.006%, and for 10 years at
3.30%, near or at record lows for both, not a whole lot of people with real
money seem to be saying "no" to the new president when he asks to borrow money.
Yet still the gold pitch continues, day after day, with each day the pitch
increasing in tone. It must be working; otherwise they wouldn't have the money
to keep doing it.
It has now been almost 40 years since American retail establishments introduced
the automatic change dispensing cash register, after realizing that the
secondary school students who worked as clerks in these businesses no longer
had math skills sufficient to tell how much the customer should get back after
paying for an 80 cent purchase with a dollar bill. These people have now grown
to adulthood, so I doubt that they really care, or even understand, just what
it means when the news announces that the dollar has fallen from 98 to 90 yen.
Perhaps what is really going on here is not concern for the dollar as a
currency at a specific level, but as a lifestyle symbol.
Consider your poor, average, misguided Fox right-wing viewer; for the moment,
we'll ignore the fact that Fox's viewership demographics consistently skew
towards the old so that the average viewer is probably watching from the tub
room at the convalescent center.
All about there is change - change in social mores, in the people and faces
seen, in the languages spoken, on the street; change in the rules that govern
interactions between men and women, and, especially, change in the US White
House.
It sure was different years ago. Then, white males were in charge, and society
was peaceful, prosperous and beneficent, as long as you were a white, straight
Christian male. Now, "They've" taken over, and things will obviously never be
the same again. "We" ran the economy with caution and probity, but "they", with
their inferior genes producing weaker morals, will undoubtedly just muck
everything up.
It was the same outside the country's borders. The 1950s and 1960s eras of
dollar supremacy were also the time of Pax Americana, when America and
Americans crisscrossed the world, overthrowing governments, buying natural
resources and national treasures, all on the cheap.
It was said that, even in the shadow of the Champs Elysees, it was amazing how
all the waiters spoke perfect English, just as long as you spoke it really loud
and with dollars in your fist. Around the Thanksgiving dinner table, the family
would wait all year for the uproarious laughs that would ensue when Uncle
Harold told the story of a bellboy named Jean they met in France, and how they
asked him why his parents had named him after the bathroom.
Now, as American society and the dollar hurtle away from those Elysian days of
power and privilege, only the gold merchants hawking the metal at way-above
market prices seem to understand the desire to return. If I thought that in
buying gold I could once again bum around Benelux for a whole summer for $200,
I probably would too.
Indian brides, Chinese industrialists and late middle-aged, middle-class white
male Americans - such is the three-legged stool on which the gold rally is
sitting. A fawning interviewer once asked former US Federal Reserve Board
chairman Alan Greenspan in which country's currency he would place a windfall -
almost as if getting a windfall was supposed to be something strange for him.
Greenspan said it didn't matter, as long as the currencies were freely
convertible.
It doesn't matter? Not even symbolically? Now, there's some prime malarkey from
the maestro.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
