Currency Crisis Has Begun

[Luis337]

It's been my position for a while that Bernanke's monetary policy would eventually create a currency crisis in the world's reserve currency.

I warned that crisis would begin as soon as it became apparent the dollar was caught in the grip of the 3 year cycle decline.

I had three conditions that had to be met before I was willing to call the beginning of the end. The first condition was for the dollar to move below `82. That was the warning shot that problems were developing.

The second and third conditions were a move below long term support (80) and a failed intermediate cycle.

The drop below 80 this morning has now completed the final two conditions.

http://www.gold-eagle.com/editorials_08/images/connor092210a.png

I've marked the last three intermediate cycles with the blue arrows. The move below the last intermediate cycle low this morning initiates a failed intermediate cycle. This is also an extremely left translated cycle. Left translated cycles tend to produce the worst losses as they have a long time to move down. The ongoing cycle shouldn't bottom until it puts in a larger degree yearly cycle low in November or December. I expect that low to retest the 2008 bottom at 71.

http://www.gold-eagle.com/editorials_08/images/connor092210b.png

Finally we should see a full on mini crisis by the time the dollar drops into the major 3 year cycle low next spring or early summer.

http://www.gold-eagle.com/editorials_08/images/connor092210c.png

I've been pointing out for months that deflation just isn't a possibility in a purely fiat monetary system. A determined government can create inflation any time it wants as long as they are willing to sacrifice the currency. I think it's safe to say the United States has no compunction against destroying the dollar.

We are now heading into an inflationary storm that will expose deflation theory as the pure nonsense that it is.

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.

http://www.gold-eagle.com/editorials_08/connor092210.html

[gunDriller]

http://i54.tinypic.com/okq3is.jpg

along the same lines - foreign central bank holdings of US debt have dropped off a cliff the last 2 weeks.

it had already dropped a lot, then WHAM.

[Libertarian_Guard]

Foreign Central Banks Behind Rally in U.S. Treasuries

By Jim Sinclair
www.JSMineSet.com
Thursday, August 28, 2008

If anyone wants to know why bonds have been going nearly straight up since the middle of July, just look at the charts linked here:

http://www.jsmineset.com/cwsimages/Miscfiles/6489_Charts_for_8-28-2008_C...

The first is federal agency debt holdings in the New York Federal Reserve's custodial accounts. The second chart is U.S. Treasuries holdings in those same accounts. The third is total holdings in the custodial accounts.

Foreign central bank holdings of U.S. federal agency debt holdings hit a high of $986 billion reported on July 17 this year. This week's data shows that those same foreign central banks are now down to $968 billion. In five weeks foreign central banks have sold $18 billion of U.S. federal agency debt.

Over that same period they have increased their holdings of U.S. Treasury debt from $1.363 trillion to $1.441 trillion, an increase of $77.33 billion!

For the entire five-week period beginning July 17 to the present week, total custodial holdings have increased $59.71 billion.

Foreign central banks have been busy unloading U.S. federal agency debt and acquiring U.S. Treasuries in its place and then some. One would easily get the idea that they do not feel comfortable with federal agency debt anymore. Even a cursory glance at the agency debt holdings chart shows that the last five weeks have seen the largest drop in this category over the life of the data series I am using. While we have seen reductions in their holdings from week to week on occasion over the data range, this is the first time we have seen a reduction in U.S. federal agency debt holdings that has continued for this length of time.

As a side note.... The huge amount of U.S. Treasury purchases that has sent that chart nearly vertical helps to explain the continued rally in the U.S. dollar. It is a near certainty that something has been transpiring behind the scenes involving various central banks in regard to the U.S. dollar. Should any of this foreign central bank buying abate for any reason, the dollar will lose all support immediately. With yields on U.S. Treasuries headed firmly lower, only a foolish investor would see bonds or notes as a safe haven, given what we all know about the real rate of inflation here in the United States in contrast with the absurd and insulting numbers that the knavish Feds are dishing out.

I repeat my main assertion: Foreign central banks are behind the rally in U.S. Treasuries, and as a consequence the rally in the dollar. How much longer they remain willing to play this gambit is unclear, but one thing is not at all murky: Someone is going to get stuck holding the bag.


http://www.gata.org/node/6538

[G2Rad]

the 3-d world accumulated quite a bit of debt over the century

they must service it in us dollars

the $ will have some life untill that is true