Month: October 2012

Fear a normal US dollar correction

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The US dollar is correcting against gold this morning

Stockhouse has a great piece this morning, Don’t fear a normal gold correction, except that is exactly wrong. Gold doesn’t “correct”. Gold is real money with intrinsic value that has been of great worth for thousands of years. The dollar is a fiat currency with only symbolic value and it is constantly going down in value against real goods like precious metals, oil and food. So if anything, the United States dollar, like all fiat currencies, to the degree that anyone accepts them in exchange for real goods and services, is technically in bubble territory. Here, we see in the inverse Kitco chart, that this morning, the dollar is correcting against gold. This correction will continue with a high degree of volatility (meaning that it won’t be a straight line down), until the US dollar is worth nothing and people will stop attempting to determine the value of gold and other real things in dollar terms.

Randall Hoven’s offensive free-loader piece at the American Thinker

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I like Randall Hoven, normally.  But this article at the American Thinker really pissed me off (Why doesn’t the world imitate the US):

We all know that the U.S. has been defending Europe and the “free world” since World War II.  But the U.S. spends just 4.06% of its GDP on defense, according to the CIA World Factbook.  France spends 2.6%, and the U.K. spends 2.7%.  That 1.5%-of-GDP gap is not significant in explaining the differences in wealth.

Take Canada, which spends only 1.1% of its GDP on defense and is one of the wealthier large countries.  It is 83.9% as wealthy as the U.S.  If you net out what we both spend on defense, it is still only 86.5% as wealthy as the U.S.  Defense spending does not explain the large differences in wealth between the U.S. and most of the world.

So, yes, the free world freeloads off us for defense.  But that’s a minor part of its total freeloading portfolio.

Now I don’t take issue with Hoven’s view that the US is innovative.  But the number of “patents” argument is lame in some respects, since US companies own patents, like Apple owns how your IPad reacts when you touch it with your finger, and they have even sued one of their Asian suppliers (Samsung) if they make knock-offs that resemble in any respect their products.  The Americans have likely patented the wheel so that they can sue Toyota, Mercedes and BMW for making better cars than GM, Ford and Chrysler.  Give me a break.
I wrote the following in the comment stream:

Mr. Hoven, have you considered the impact of the United States ability to export its currency into this question of foreigners “free-loading”? Consider this is an extremely offensive manner to describe the post-WWII alliances that the US has with the world, where some countries were literally forced to cede their right to provide their own security and to accept US military bases in their countries–so yes, the US provides security for the world. But the rest of the world agrees to accept worthless US dollars (worthless since Nixon took the US dollar off the gold standard). Who’s freeloading off of whom? We foreigners, because you provide security for us, or you yanks, because you can buy our goods in exchange for essentially worthless currency that your Fed Chair conjures out of the thin air of Federal debt-balance sheet?

Americans are free-loading off the rest of the world too. Just remember that when you drive your foreign-made car and you put Canadian gas in it, and you go to Walmart to buy goods made in China that you can buy these things because you are able to export worthless currency that required you next to nothing to create, while the exporters offer you real things made out of real raw materials. This trade of free goods for security may not last much longer. Enjoy it while you can.

Where is Ron Paul when you need him?  It seems that he is the only politician in the United States who has told the Americans how they have been free-loading off the rest of the world by exporting their worthless fiat currency.

Diane Swonk’s broken window fallacy

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Marketwatch picked up Diane Swonk’s twitter fee.  An “economist”, Swonk says that Hurricane Sandy will lead to “perverse stimulus”, ironically even mentioning the replacement of broken windows.  Evidently, Bastiat and Hazlett are not on her reading list.  Here is why economist like Swonk, who follows in line with the even greater idiot-economist, Dr. Paul Krugman, are perpetuating a fallacy:


The ironic thing is that Zerohedge pointed to this video yesterday for those who would talk about all the jobs that Sandy will create.

In the case of the aftermath of Hurricane Sandy, we can be sure that the Federal government will “stimulate” by borrowing money.  But since the government is already over-leveraged, the Federal Reserve’s Bernanke (also an PhD economist) will provide quantitative easing and create these repair dollars out of nothing, which will in turn result in devaluation of the currency. Is Hurricane Sandy the straw which will break the hyperinflation back, sending the US into uncontrollable currency debasement?  This remains to be seen.  It does not bode well in my view.