Soros predicts new global currency ... Gold falls as demand wanes

TheDailyBell - Issue 248 • Tuesday, April 07, 2009

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." Soros predicts new global currency


Win McNamee/Getty Images

George Soros (pictured left), whose latest book, "The Crash of 2008 and What it Means," has made prescient calls during the current credit crisis. Soros also said the U.S. dollar is under selling pressure and may eventually be replaced as a world reserve currency, possibly by the IMF's Special Drawing Rights, a synthetic currency basket comprised of dollars, euros, yen and sterling. "I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992. "Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end." China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. "In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge-you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said. - CNBC

Dominant Social Theme: Here comes the new global currency ...

Free-Market Analysis: Enough already! We believe we are one of a very few papers that reported in detail on the IMF drawing rights and the new currency buzz running from country to country in ADVANCE of the G20 Summit. We reported it, but we didn't endorse the idea, nor are we sure the IMF can pull off a new currency, even with the backing of other powerful nation states such as China.

The China thing is a puzzler. Why would China want to come out and blast the dollar when it holds US$2 trillion, or some such amount? Hey, could it be that the Chinese leaders are very unhappy with the idea that the American Federal Reserve will continue along the lines of "quantitative easing " - printing so many dollars that the Chinese holdings will be inflated away? Is that a reason to threaten the Americans with a new currency?

If so, the set up reminds us of what happened to gold in the late 1990s when Western central banks one after the other announced they were going to sell gold, and lots of it. Of course, we don't believe many did, certainly not in the amounts they said they were going to. They were "talking gold down."

Again, we ask, is this situation similar? At some very high level we bet the telephones are ringing off the hook. Russia is talking to China, China is talking to Britain and some people are even talking to France. And then everyone is making calculated pronouncements - for a variety of reasons. (Is Soros shorting the dollar?) Anyway, it's push back ... and pay back. American central bankers just can't just keep merrily printing dollars. Inflation has consequences. The Chinese obviously are taking "human action" (Mises' phrase).

It seems to us that the IMF currency promotion is not simply an idea whose time had suddenly come. And neither is this constant talk of IMF special drawing rights replacing the dollar as the reserve currency. Of course, it could happen; anything could happen in an environment where the market itself is repressed and unable to create honest money. If the monetary elite would simply let the system alone you probably have a gold and silver monetary system within a year.

You know, there are other currents, too, and secrets within riddles. We have not forgotten there are still considerable attempts to build regional currencies. One is up and running in Europe. However, some who consort with the monetary elite are on record as suggesting it would be nice to see two more: one in Asia and one in the Americas. In the case of the Americas, the regional currency that has been proposed (quite seriously, apparently) combines the dollar with the Mexican peso and the Canadian loonie. Is the IMF currency-in-waiting related, somehow? Could it be? ...

Conclusion: We shall be interested to see just how far and fast this notion of an IMF super currency travels. And we shall be even more interested to see - if it continues to be mentioned by such prestigious thinkers as George Soros - whether there will spring up in America a spontaneous movement to "fight back" by combining the currencies of several nations together: say Mexico, Canada and the United States. If we start to hear a renewed buzz about a regional, North American currency to ensure that an international "IMF" currency does not evolve, well, let's just say that it will only reinforce our most cynical impulses. And we're cynical enough already.


Gold falls in New York as demand for haven wanes


AFP/Getty Images

Gold fell to the lowest price in more than two months, erasing this year's gains, on speculation that the U.S. economy will rebound, eroding the precious metal's appeal as a haven. Silver dropped the most in two weeks. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, fell for the first time in two weeks as a month-long rally in equities curbed demand for safety assets. Before today, the Standard & Poor's 500 Index had rallied 23 percent since March 6 while gold dropped 4.8 percent. "People don't think they need that flight-to-quality buying and that's putting gold into the background," said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. - Bloomberg

Dominant Social Theme: Get out while you still can.

Free-Market Analysis: Yes, get out! Better yet, sell your gold to us at a discount. We're always interested. See, we have this idea that gold will go up to US$2,000-$3,000 an ounce before this great fiat-bear market run is over. But you know, maybe we're wrong. Maybe everything is just fine. That still doesn't explain why China, Russia, George Soros and the entire G20 are floating an IMF currency that could replace the US dollar. And we just noted the other day that one of the largest hedge funds on the planet indicated it wasn't going to cooperate with the latest Obama administration plan to scrub toxic assets from bank balance sheets. Doesn't sound very promising. How many times can Timmy Geithner get it wrong? (As many as it takes?)

In fact, as we have already written, the G20 didn't really come up with anything to ameliorate the current economic crisis. How is a tax haven blacklist going to get the job market back on track? And how does forcing hedge funds to report every bit of trading information help expand the animal spirits that are so important in supporting renewed entrepreneurship?

And then there is this, from Bloomberg:

Bernanke ‘Green Shoots' May Signal False Spring Amid Job Losses: It will be months before it's clear whether what Federal Reserve Chairman Ben S. Bernanke calls the U.S. economy's "green shoots" represent the early onset of recovery, or a false spring. The Labor Department's April 3 report that the economy shed an additional 663,000 jobs last month, while the unemployment rate rose to 8.5 percent, will be followed by months more of bad-news headlines, economists say. The recession, now in its 17th month, has already cost 5.1 million Americans their jobs, the worst drop in the postwar era; unemployment may hit 9.4 percent this year, according to the median estimate in a Bloomberg News survey, and may top out above 10 percent in 2010. The risk is that the jobs picture turns even more bleak than forecast or the drumbeat of bad news still to come causes consumers, whose spending has firmed up in recent months, to hunker down again. "If something happens to spook consumers and they crawl back into their tortoise shells, that would be terrible news," says Alan Blinder, former Fed vice chairman and now an economics professor at Princeton University.

Do you think so, Alan? Here's a thought: What about the American insurance companies? We have a feeling they are no more solvent than the American banks. Why should they be? That's what we've read, anyway, that the insurers may be the next shoe to drop. Of course, maybe the US Dow will climb the "proverbial wall of worry." In that case, it may shoot up to 100,000 or something, because even after the insurance companies start explaining what went wrong (in Europe, too) there's still the matter of HUNDREDS OF TRILLIONS of derivatives exposure worldwide. Now banks and financial institutions can carry those bets on the books for a long time. But eventually, we have an inkling, some of them will start to unwind, or will have to be unwound. That's going to be another "kettle of fish" isn't it?

Conclusion: Again, as we concluded in the other article, today, maybe we're just too cynical. But for some reason we don't think what's going is just some sort of common inflationary recession. We think it's a genuine fiat meltdown, of the kind that occurs once every century or so. And we think the bankers will keep attacking it by printing money until we end with a recessionary inflation, or even a depressive hyperinflation. We wouldn't discount anything at this point. See, we ‘re not really looking for a V shaped recovery, a W shaped recovery, or any kind of recovery. Heck, we'll even take what we've got. But, unfortunately, it could get a lot worse before it gets better. And we may not be talking months, but years, especially given the inflationary "solutions" that world leaders keep proposing.


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