Tuesday, October 9, 2007

Dollar Disease



Finance Ministers Discuss Dollar Woes
Finance Ministers to Talk Over Worries That Slowing U.S. Economy Will Drag Down European Union

BRUSSELS, Belgium (AP) -- European Union finance ministers open two days of talks Monday to discuss the United States' slowing economy, feeble dollar and massive current account deficit as major problems for the EU and the rest of the world.

Europe is starting to feel the bite as the U.S. dollar plummets, making French wine, Italian fashion and German cars expensive purchases for the EU's main export market in the U.S.

Last week, the employers federation BusinessEurope said that, by crossing 1.40 against the U.S. dollar, the euro exchange rate had reached a "pain threshold" for European companies. It also complained the euro was appreciating too fast against the Chinese yuan and Japanese yen.

While echoing their concern, the finance ministers of the 13 euro-zone nations will reiterate Europe is an innocent victim of others and that the euro-dollar exchange rate issue is part of a broader set of problems triggered by China's trade surplus and America's huge debts that require concerted steps to undo.

Luxembourg's prime minister, Jean-Claude Juncker, set the tone last week when he said the Europeans should not have to bear the consequences of other countries' inaction.

The Dollar's woes are discussed around the globe. Strangely they are ignored here at home where they will have the most devastating effect. We are told repeatedly that the falling Dollar will be good for business because it will make American "goods" cheaper" for the rest of the world to buy. We are never told that it will make everything over here in mighty America more expensive to buy. Rising costs of goods and services here in America are continually spun into stories of "signs of continued economic growth".

"Retail sales remain strong" is a common headline or soundbite these days. No one ever stops to consider that retail sales numbers tracks the "number of dollars spent" and not a representation of volume of goods and services actually purchased. If the cost at retail continues to rise then, of course "retail sales numbers" would reflect growth, but they don't. They really reflect rising costs...inflation. And the Dollar's woes are directly related to inflation.

The stock markets are not hitting new highs because of any "value" associated with stocks...or rising earnings for that matter. Are businesses really selling more stuff, or the same amount or even less stuff, but at higher prices and thus "profits" merely reflect higher costs and not higher volumes? Stocks are higher because of inflation...period. As inflation escalates, the prices of everything will rise; stocks, homes, Gold, Silver, cars, art, Big Macs...you name it. And you will no doubt be lead to believe by the lying and conniving US Government that "everything is great", "the numbers should positive growth". Why do you think the Fed continually pumps money into the economy? To foster the inflation rate, induce rising prices, and give the ILLUSION of economic growth, that's why. Despite their never ending claims about "keeping inflation under control", they are at the root of it. It is part of their mandate to "keep the economy strong"...and they've inflated the money supply since their inception in 1913.

The Dollar remains strong overnight as we head into a new day on the COMEX. Gold and Silver are testing recent support again this morning. Gold at 725 and Silver at 13.12. Closes below these lines should embolden the shorts to take both metals lower. Continued strength in the Dollar here, and weaker energy prices, would continue to pressure Gold and Silver Prices. The 50 day moving average of both remain our targets.

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