Reply #114: 008: Licence to Rant (Mogambo)

[54anickel]

http://www.321gold.com/editorials/daughty/daughty042705.html

- The world is slowly coming apart, and the big news, for me, is that some yahoo high up in the Chinese banking world, Zhou Xiaochuan, who is the governor of the People's Bank of China, admits that they may be prodded along by international pressure to more quickly allow their currency to appreciate against ours. How much? Well, I have no idea, but the Financial Times newspaper noted that the futures market was "betting on an exchange rate of Rmb7.818 to the dollar in 12 months' time," down from the current peg of about currency 8.3 to the dollar. So, in answer to your question, the dollar will suffer a 6% devaluation, give or take, in twelve months. Since there is nothing that says that the devaluation will stop there, perhaps you had better count on a 12% devaluation in twenty-four month's time, too.

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The reality is that to move the peg to Rmb7.8 to the dollar from 8.3 means that they are raising prices to the world's best customer! And not only that, but the gigantic hoard of American debt and assets, that the Chinese government and the Chinese citizens now own, will be worth 6% less yuan in one year! I know what you are thinking. You are laughing and going "hahahaha" at the Chinese idiots who thought that buying all that American debt and equities was such a smart move! And if you REALLY want a big laugh, then if interest rates also rise in the year, they will lose an additional big chunk of change on top of that, as their American bonds will go down in price! Hahahaha! They could easily be looking at a 50% loss on their investments that totals to a huge, whopping huge, gigantically huge loss of wealth! Hahahaha! Chinese chumps!

Bill Bonner of the Daily Reckoning says he already knows that 1) we have inflation in the USA and almost everywhere in the world, and that 2) the Chinese are going to suffer losses due to a devaluation of the dollar, and 3) he certainly doesn't need a nitwit like me to call him up to tell him either of those things. Then I innocently ask "Then what DO you need a nitwit to call you up about?" But instead of answering me, he sums up the inflation and dollar-devaluation thing with the pithy "U.S. standards of living must fall; foreign lenders must get stiffed."

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- E.R. Maybury, in the Mar-Apr 2005 issue of his Early Warning Report, notes that "Every major war Washington has ever gotten into has produced inflationary trends. This means, for speculators, wartime is as close as it gets to a no-brainer." So the way to make a few bucks on this is to invest in those areas that benefit from inflation? A nice piece of investment advice! And the good news is that you don't even have to be in a hurry, because you have all the time in the world to get your money invested in things that will benefit from inflation, as he concludes that "The 1990s were the decade of high tech. Next, I am afraid, will be the decade of war." And thus, I assume, the decade of inflation. And profits from owning the stocks of companies that make war materiel, too.

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