Sunday, November 20, 2011

What if the super committee is not so super…or committed?

Well, this is an interesting question…right? If the US can not cut the budget then the dollar will be toast - right? Just Slammed? If the world sees the US get another downgrade, the dollar will be even more toastier. Right? (grammatical error intended BTW)

The interesting thing about this, is that Kyle Bass (and apparently his staff), Paulson (and his staff), Sprott and many others like them are waiting breathlessly for this day because its the day that proves that fiat money is dead. Its the day that will set the trend of gold and silver back on the path to the stratosphere. Its the event that will prove the dollar is not worth the paper its not printed on. Right? Those 200,000 pounds of nickles that Bass has been accumulating will increase in value very rapidly as their silver component goes through the roof…Right? …and Sprott the genius charlatan will be gleefully toasting because his physical silver position will be so perfectly positioned, right? Its the day that will send rates through the roof…right?

Wrong. From my perspective, if the rating agencies do downgrade the dollar that’s just fine for the dollar. If the super committee fails to cut or come to a consensus, that’s just cool too. If they do come to a consensus…its fine for the dollar too. If pretty much anything happens here - which includes nothing, the result will be a stronger dollar. I know its totally counter intuitive, should’nt a downgrade of the US be a downgrade of the dollar and spell destruction for the currency? The difference is that a downgrade of the dollar and cuts by the super committee equal less currency and less money amplification via credit creation. There is but one result from that equation: less dollars equals more valuable and scarce dollars. When you add to that equation that a downgrade of the dollar IS ALSO ESSENTIALLY A DOWNGRADE of every corporation (not to mention country) in the world - certainly in the U.S.. Who is worse off, them or the government? So, the result will create an aversion to corporate debt, municipal debt and other sovereign debt and an attraction to US debt. Anyway you cut it, the dollar will fall in supply because the FED and the government are trapped - not to mention that they have millions of people ready to burn down any building where decisions to spend people's future earnings on interest payments and bailouts to banks and other special interests are made. This is why the FDIC will not honor its agreements they way people expect them to…they will be unable to do so. They can do nothing. The FED can essentially only watch relatively helplessly, with their credibility totally shattered and their power dissipating faster than a Perrier water in the Sahara - until they can build some cover with which to dive in and bailout their buddies and play poker with their politician enablers again. This will be no easy task, nor will it happen quickly.

I love it, most everyone who believes that sound currency is equal to an asset backed currency or that precious metals are insulation against political, policy and monetary instability is setup to play the dollar collapse on precisely what is happening here…trouble is - they will be totally wrong. The next question is, if they are totally wrong about this…what might be happening with their other faulty analyses - say perhaps Japanese or other bonds in nations that can actually print money? The results might just NOT be what are expected either.
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