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Posts Tagged ‘U.S. dollar’

According to Gary North of LewRockwell.com, it is.  That is, when you have to justify gold’s embarrassing performance from 1980-2001, from a closing high of $850 USD an ounce in January 1980, to a low of $255 an ounce in 2001.

He writes:

The case for gold as an investment is different. First, it is an inflation hedge over long periods of time, though not necessarily in the medium term, e.g., 1980–2001. Second, it is a crisis hedge when the international capital markets are in turmoil. (So, for that matter, is the U.S. dollar.)

Official inflation from 1980-2001 was 115%, according to the BLS, while gold declined by 70% over that period. Gary North has to rely on making the arbitrary claim that 21 years is the medium-term in order for his claim about gold being an inflation hedge over the long-term, to not be utterly embarrassing.

BusinessDictionary.com defines a long-term investment as one “that matures in more than 10 years,” and to me, 21 years falls well within the scope of a long-term investment, and outside that of a “medium-term investment”.

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Previously, I wrote how the United States Postal Service has been undercutting the U.S. dollar since 2003, with IMF Special Drawing Rights (SDRs) accounting for the majority of their international accounts.

SDRs are a synthetic currency introduced by the International Monetary Fund in 1969, which are weighted based on the U.S. dollar, the Euro, the British pound and the Japanese yen.

As of 2010, there are only two currencies pegged to IMF SDRs, both since 1995. They are the Czech Koruna and the Jordanian Dinar. However, by 2012, the Czech Koruna is scheduled to be replaced by the Euro.

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History shows that when the CAD was in the low 60-cent USD range in 2002, it was a great time for those holding USDs to convert some of them into CADs, as in just five years, the CAD reached parity with the USD, for an annualized gain of over 12%.

Then there was the 20% drop in the CAD in less than a full month from September to October 2008, which made it another great buying opportunity.

However, given a CAD in the mid 90-cent USD range, I don’t see many gains coming from the CAD in the medium or long-term, and the reason is the historical policy of the Bank of Canada in intentionally keeping it below parity with the USD.

Here is an article from January about the Bank’s current governor, Mark Carney, chiding a reporter expressing comfort with a 96 cent CAD. The Bank governors, prime ministers, and unfortunately, most Canadians, have this unfortunate notion that the CAD should stay below the USD in value, since it “hurts exports,” despite the fact that exports account for less than half of Canada’s total GDP.

For short-term hedging, it’s possible for the CAD to go on a tear, up to $1.10 USD, as it reached in November 2007, but personally, I wouldn’t count on getting many gains from that versus other investments, until the CAD is down into the 80-cent and low 90-cent USD range.

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Dr. Ravi Batra, progressive economist and professor of economics at SMU, stated his support for a partial gold-backed currency as a replacement for the U.S. dollar.

On April 30, 2010, on the Thom Hartmann show, he stated at 57:30:

I don’t know if we will ever have one world currency in my lifetime, but currency should be backed up, partially at least, by gold, so that nobody can just inflate currency to fix the problem and leave workers dry. Wages have been stagnant at the same time, so we need to have some backing for the currency as well, and that should be gold.

The U.S. dollar was on a full gold standard until 1933, when most domestic gold was confiscated and transferred not to the U.S. Treasury, but the illegal Federal Reserve. After the confiscation, the price was raised from $20.67 USD to $35 an ounce. From then until August 15, 1971, the U.S. was on a partial gold standard, with foreign currency directly convertible into gold at the rate of $35 an ounce. Since then, gold has been able to freely float, and has hit all time highs since the economic turbulence of 2008, now over $1200 an ounce.

The call for a return to a gold-backed currency truly crosses the political divide, with a progressive economist singing the praises of a gold standard along with proponents of the libertarian Austrian School of Economics.

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According to xe.com, out of 75 currencies listed, only 6 of them are worth more than the USD at the start of 2010. They are (valued in USDs):

BHD Bahrain Dinars 2.6525198654
EUR Euro 1.4321999550
JOD Jordan Dinars 1.4124293700
KWD Kuwait Dinars 3.4861425177
OMR Oman Rials 2.5975375809
GBP United Kingdom Pounds 1.6170499325

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According to CharlieRose.com, the global financial crisis ended on March 10, 2009.

Prior to the week of November 22-28, 2009, the site had the “Financial Crisis” collection on its front page, with the last episode in the series on March 10, 2009.

Quite an interesting coincidence that the last episode from that collection was on the exact day that the Dow Jones Industrial Average reached its lowest level since the full crisis hit in September, 2008, at 6547.01.

What’s happened since then?

THEN: The official unemployment rate stood at 8.1%.
NOW: 10.2%.

THEN: The U.S. dollar was worth 84 on the USDX.
NOW: 75, a 10.7% decline.

THEN: Gold traded at a New York Mercantile Exchange closing price of $896.10 USD.
NOW: Gold traded at an all-time high of $1195.80 USD on Friday, November 27, an increase of 33%.

THEN: The federal budget deficit for 2008 was $438 billion.
NOW: $1.4 trillion.

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This October 9, 2009 article shows a U.S. Customs form with an SDR (Special Drawing Right) value.

This isn’t a recent phenomenon. The use of SDRs by U.S.  federal government institutions goes further back than 2009. According to the United States Postal Service 2003 Annual Report, “The majority of our international accounts are denominated in Special Drawing Rights (SDRs).

According to the IMF Factsheet on SDRs, “The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies (U.S. dollar, Euro, Japanese yen and pound sterling), and SDRs can be exchanged for freely usable currencies.

How much have SDRs benefited the U.S. Postal Service at the expense of the U.S. dollar?

On December 31, 2002, 1 USD = 0.7382 SDR
On October 18, 2009, 1 USD = 0.6280 SDR

There was a 15% decline in the USD from December 31, 2002 to October 18, 2009.

It’s not just the illegal Federal Reserve that’s been undercutting the U.S. dollar. The constitutional U.S. Postal Service and U.S. Customs are also in on the act.

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