Soylent Greenback, home of the falling dollar-Daily Dirt Part 3

Jan 25: Another record for gold and some bullish reasoning.

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Gold faces a very bullish scenario as the US credit bubble unwinds... (so buy some)

...Either way, the US debt binge is now over.

Foreign investors will increasingly shun US debt assets backed by mortgages, credit cards, car loans, and third party guarantees such as Ambac's. And this will create downward pressure for the Dollar.

Both the US economy and money supply growth will also slow. Dollars are created and supplied through borrowing, but if banks can't sell/flip those loans and mortgages they originated by selling them as asset-backed or securitized debt, they are likely to create a lot fewer loans and mortgages.

US consumers are tapped out, regardless of interest rate cuts. Frivolous lending on credits cards and home loans has come to an end through tightened lending practices. This will slow down consumer spending.

Interest rates will of course remain tame. The Fed can't raise them or it will trash trillions in already distressed debts. But it can't lower them much more with oil already near $100 per barrel.

To avoid an outright deflationary collapse, the Fed and US government have to keep money supply growing, albeit via creative monetary and fiscal policies:

Increase deficit spending and tax cuts;
Forgive credit card and mortgage loans;
Indiscriminately lend to banks at any rate to keep them from failing.

This is an extremely bullish scenario for Gold, not because the pace of money supply growth is increasing (in fact, quite the opposite is occurring), but because of the irreparable damage to integrity of, and confidence in the financial system that each bail-out creates. Technically, the Gold Price has just overcome the all-time high of $850 set in 1980. We foresee a brief pause here before challenging $1,000 this year.

Rest of the (excellent) article...

Who is short on the falling dollar?

Jan 23: What happened?

Bill Bonner, The Daily Reckoning.

Well, first colleague Dan Denning sends this old classic from the ‘70s…Dan Akroyd pretending to be President Jimmy Carter on Saturday Night Live. He was 30 years ahead of his time:

“President Jimmy Carter : Good evening. On Tuesday, we Americans will have the opportunity to exercise our role as citizens in a free democracy. Yet, only a third of the eligible voters will actually cast ballots. The other two-thirds are, in a sense, very lucky. Because they do not know what's going on. “

“Last week, I delivered a message on inflation. Since then, the dollar has dropped in value, the stock market has sustained record losses, and the whole Dow price index increased 0.9%. In other words, our economic system is screwed, blued and tattooed! We just have to face the fact that there is simply no way to fight inflation in a capitally-intensive, highly-technological, conflict-riddled, anything-for-a-thrill world of today. That's why, tonight, I want you to try to look at inflation in an entirely new way: Inflation is our friend. “

“For example, consider this: in the year 2000, if current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean - most Americans will be millionaires. Everyone will feel like a bigshot. Wouldn't you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would! But what about people on fixed incomes? They have always been the true victims of inflation. That's why I will present to Congress the "Inflation Maintenance Program", whereby the U.S. Treasury will make up any inflation-caused losses to direct tax rebates to the public in cash. Then you may say, "Won't that cost a lot of money? Won't that increase the deficit?" Sure it will! But so what? We'll just print more money! We have the papers, we have the mints. I can just call up the Bureau of Engraving and say, "Hi! This is Jimmy. Roll out some of them twenties! Print up a couple thousand sheets of those Century Notes!" Sure, all these dollars will cause even more inflation, but who cares? Everyone will be a millionaire! ”

“In my speech last week, I said that America would have to undergo an austerity program, but since this revolutionary new approach welcomes inflation, our economy will be free to grow, and we can spend, spend, spend! I believe the watchwords for the 80's should be "Let's Party!" And in that spirit, I'd like to say, "Live, from New York, it's Saturday Night!"“