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“There is an apostolic injunction to suffer fools gladly. We always lay the stress on the word ‘suffer,’ and interpret the passage as one urging resignation. It might be better, perhaps, to lay the stress upon the word ‘gladly,’ and make our familiarity with fools a delight, and almost a dissipation. Nor is it necessary that our pleasure in fools (or at least in great and godlike fools) should be merely satiric or cruel. The great fool is he in whom we cannot tell which is the conscious and which the unconscious humour; we laugh with him and laugh at him at the same time.”

G.K. Chesterton

Commentary & Analysis

Fed up with the Gold & Dollar nonsense… “The pervasive clutter of vacuous triumphalism…”

Caution: If you are gold bug this ramble will not make you happy. But then again, I am not in the business to make you happy. I am in the business to challenge what I see as total nonsense in markets, especially as it relates currencies, in order to just maybe help you think about things in a different way—a skeptical worldview I am genetically burdened with.

I noticed, at least up until yesterday, the one-trick pony gold-loving-dollar-hating sound-bite morons were still doing interviews on the financial TV channels (I don’t watch TV but see it second-hand via the internet). They of course were singing the same tune: QE till infinity, dollar destroyed, blah…blah…blah…

Of course the answer for these guys is gold. Moneys is fiat…blah, blah, blah…[it always has been and always will be]. What nonsense they spew.

Now that gold is getting crushed, are you sick of it yet, or do you cling to gold with religious zeal? I am sick of it and the ponderous prose for the yellow metal and the constant refrain: Have faith my son; it is being manipulated down. But of course, this manipulation nonsense never seems to be the reason why gold goes up. Oh no, then it is all gold’s inherent virtues driving the price higher as if gold is different from any other traded asset class….it is mind numbing in its illogic.

Here are a few reality bites for the gold bugs and dollar doomers from a recent research piece sent to me by a wise friend:

“Today’s rising chorus demanding replacement of the dollar as a reserve currency with some other arrangement, or even a return to gold, suffers from a profound misunderstanding of how the world economy works.

“A return to gold is theoretically imaginable, but catastrophic in practice. In order to replace the existing, nearly $12 trillion stock of international currency reserves, the price of officially held gold would have to be raised to $12,789 per troy ounce. Because most of the world’s official gold stocks are held by the export dependent countries, their exchange rates (determined by their gold content) would appreciate to uncompetitive levels and cause the collapse of their exports. They would face domestic social chaos and, unless they were to impose capital controls, capital flight to safety would ensue.

“But replacing the dollar as a reserve currency with some other currency or combination of currencies is no less impractical. For a currency to play the role of international reserve, other countries must have the opportunity to accumulate it. This means that the country issuing the reserve currency must be willing to undergo large trade deficits. But none of the export-dependent economies is capable of surviving trade deficits.”

But…but…the US dollar is doomed, everybody knows that! This uttered by morons who know virtually nothing about which they speak. From my wise friend commenting on the dominance of the US dollar; a man who knows much about what he speaks:

“A quantitative snapshot of the US dollar’s centrality today leaves no doubt that its dominance over the global financial landscape is at least equal to and perhaps greater than it was at the end of the Second World War, even though in 1946 the US accounted for 32% of world GDP and now accounts for only 22%.

To wit:

  • 60% of global cross-border bank lending in foreign currencies is in US dollars.
  • 62% of international currency reserves are US dollars, and the growth of dollar reserves by foreign central banks has been faster than the growth of world trade (50% faster) from 1971 to date.
  • 40% of international bonds outstanding are in US dollars.
  • Foreigners owe dollar-denominated debts larger than the US GDP, namely $21 trillion – $8.1 trillion on bonds, $12.5 trillion in bank loans and $0.4 trillion in money market funds.
  • Foreigners have bought US financial assets equal to 40% of world GDP.

“The pervasive clutter of vacuous triumphalism of this and that ‘emerging’ challenger (from the German Wirtschaftswunder of the ’60s, to Japan Inc. of the ’80s, to “resurgent” China and the BRICS), alongside the perennial ankle-biting of habitual anti-Americanism, make it difficult to absorb the enormous implications of the summary figures cited above. But the truth is that the export-dependent 74% of the world economy is ‘owned’ by the US dollar.”

Yup, you read that right: “…owned by the US dollar.” I love that! Game, set, match, assuming the match includes participants who previously passed a basic IQ test.

But make no mistake, the next fool from our financial media is waiting in the wings to extol the virtues of gold and explain why the dollar is doomed. Drivel prattles on…