Thoughts on Markets

Monday, June 16, 2008

Talk is a cheap way to lower the dollar, but will it work?

The, above, graph is from, which offers a good way to own without personally holding precious metals. James Turk writes some interesting commentaries on the web site. It is a good source of information. You might profit by reading the articles. The graph clearly reveals the plight of the dollar over a longer period of time. I anticipate the purchasing power of the dollar to go a good bit lower. However, there is a feeble attempt to talk the dollar up now.

All the "money" manipulators know that raising interest rates is the method of raising the "value" of paper currencies. This is also seen as the way to curtail price inflation. In the economic theory of the day, lower interest rates and increased supply of paper currency are the methods of fighting slow downs, recessions, and depressions. Then to curtail inflation, the method is to raise interest rates, decrease the supply of paper currency, and raise taxes. This comes from Keynesian Economics, the theory used by all who would intervene in the paper currencies of today's world.

In spite of this well known theory, spokesmen for the government and the central bank are attempting to use rhetoric to talk the dollar up. One does wonder at this! It is not difficult to understand. Both the government and the Federal Reserve are uncomfortably nestled on the horns of a dilemma. Were the supply of dollars to decrease or the interest rates to increase to slow the price inflation, the stagflation economy would slow down further. On the other hand, were the supply of dollars or interest rates to decrease to end stagflation and further bolster the the economy, we would be facing more stagflation or recession than already exists. Thus, there is an effort to talk the dollar up some.

All of the above is, of course, opposed to Biblical Economics which always uses true money: gold and silver. Many Biblical precepts are reflected in what is know as the Austrian School of Economics. This supports markets and currencies which are freed of governmental and bank intervention. We are beginning to lose the great benefits that our nation has enjoyed under a pseudo free market economy which was abundantly blessed by God for over 200 years.

Last week was another horrendous time in the precious metals markets. The "War on Gold" grew in intensity over the period. However, both gold and silver picked up a bit on Friday. Today, we are being treated to a significant increase in the spot price of both. The stronger dollar, without a doubt, had an impact upon these prices.

The mining stocks were hit hard last week, as well. However, almost all are substantially up today. Last week DRD Gold (DROOY) was well down below 7.00. I would have added to my holding, but was out of pocket for the week. It is now at 7.03 which, for me, is still a good opportunity to buy.

The Select Sector SPDR Financial Trust XLF is trading in the 23.43 area which is down from about 25-26 of just a few weeks ago. The financial industry is still suffering from great losses from bad mortgages and other financial instruments. However, the Federal Reserve has thrown out all the stops in an effort to "save" the banking and other components of this industry. We could see a temporary postponement of the inevitable. One great detractor is the extremely large over hanging batch of derivatives. A collapse of this would kill many in the financial sector.

Looking at the over all economy, we are seeing a decrease in retail sales, similar pressure on the domestic automobile industry, more lay off workers, and cuts in salaries or work hours for many workers. The inventory of both resale and new houses is increasing in most areas of the country. This does not bode well for the economy. The University of Michigan Consumer Confidence averaged 85.6 for 2007, and for the first two weeks in June it was down to 56.7. This is certainly in concert with the condition of our economy.

Folks, it is time to batten down the hatches as rapidly as possible. That is, we should be reducing our debt, building emergency reserves of cash on hand for emergencies, and greatly reduce discretionary spending. Buy that which is necessary and stock up we find bargains on needed items. Retailers are hurting and will be cutting prices and presenting us we special opportunities. Search them out!

The section on Christian Economics and Personal Finance will continue at the next posting.

Until then, best to each of you and yours, Doug


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