What If the Dollar Just Keeps Rising?

Business couldn't be better, consumers are as confident as they've been inyears, the dollar is king and interest rates are bouncing near multi- year lows.

Not much for U.S. investors to worry about, right?

Think again. That strong dollar, of all things, is threatening to

blight the rosy picture by destabilizing financial markets and

constricting global trade. Moreover, there is no apparent way to

stop it. WHAT ARE THE DIRE RAMIFICATIONS

To read the report, copy & paste the URL ABOVE to your Internet call- up window ( Location ) , then hit ENTER.

Business couldn't be better, consumers are as confident as they've been inyears, the dollar is king and interest rates are bouncing near multi- year lows.

Not much for U.S. investors to worry about, right?

Think again. That strong dollar, of all things, is threatening to

blight the rosy picture by destabilizing financial markets and

constricting global trade. Moreover, there is no apparent way to

stop it. WHAT ARE THE DIRE RAMIFICATIONS

To read the report, copy & paste the URL ABOVE to your Internet call- up window ( Location ) , then hit ENTER.

http://www.intersurf.com/~vor/gold.html

P.S. ANOTHER and fellow Kitcoites now doing PRIME TIME at Colin Seymour's financial pages.

POORBOYS: You didn't know me in '96 when the Astrological Investor was telling the peasants gold was going down ( Uranus Square NYSE Venus ) down, down, into Fall/Winter of '97. If this is the bottom, baby, I called it a year and a half away. As for your paranoia, I understand perfectly. My real name is obproj, but I took the handle Mike Sheller so no one could hassle me.

STRADMASTER: I have been sniped at by the best. The VC came within inches. My vote is to Bernatz. God, how I mees heem.

for Oris

You have a top sense of humour, good night

ROB: Gold Standard ( the stock, not the dream ) hasn't gotten started yet. Pluto is right on top of its Neptune /Sun conjunction as we speak, and as it pulls by into February/March, the main liftoff should emerge. If there is any credence to a gold bottom here and an imminent rally in bullion of decent proportions, GSTD is at least a triple before the year is out. If the gold price continues to flounder, there is still the potential for a GSTD double from these levels. This in my humble technical opinion. BTW: As filed 3/28/97, Loews ( CNA Financial ) acquired 13% of GSTD - ( ( SEC 13G ) ) I usually don't like to look too long at the funnymentals, but it's nice to know there are some strong hands in this little bugger. The company has mucho property claims in Uruguay & Brazil, and you know ME and gold and silver properties!!!

It's like the planet is your safe deposit box. Ainama! Viva Oro!

I oviously did something wrong because of multiple copies. Can someone advise me?

I think Friedberg's analysis is extremely important. He has an incredible record & is one of the most highly regarded currency analysts extant.

If he's right our payoff in au may be delayed for quite some time.

I am appalled when I think of all the misery Cammedus & his minions are causing for all the hard working innocent people in Asia. The SOB should be tried as a war criminal. They may not be dropping bombs, but the devastion over there will cause millions of people to be reduced to a subsistence level of survival.

Saturday, January 10, 1998

By Terence Corcoran

INTERNATIONAL Monetary Fund chief Michel Camdessus flies to Indonesia early next week, where presumably he will explain to the panicky people of that country - - indeed, the people of all Asia - - why they are being forced by the IMF to bear the burden of a financial collapse that is not their doing. The major cause of public unease in Indonesia is the IMF- orchestrated devaluation of the rupiah, now 60 per cent since November. The devaluation, in turn, is the product of a collapsed credit bubble that fed a vast network of corporate interests associated with the Suharto dictatorship.

It is these networks, and the banks that supported them, that were major beneficiaries of the decade- long boom in Indonesia. But it is the people of Indonesia who are being forced by the IMF to pay the cost, a process Canadian currency specialist Albert Friedberg calls socializing the losses. The same distribution of losses among all taxpayers is taking place in South Korea and the other Asian countries where the IMF, backed by the United States, is moving in with programs that can only exacerbate the Asian economic crisis.

Mr. Friedberg heads Friedberg Mercantile Group of Toronto and writes unconventional commentaries on currencies that appear in the company's monthly newsletter. From Mr. Friedberg's free- market perspective, grounded in Austrian School economic theory, the Asian crisis has its origins in overexpansion of credit by the U.S. Federal Reserve that will, in time, come back to haunt the U.S. economy.

How are losses being socialized?

In the end, the IMF is pushing these countries to socialize the losses, where the losses to be taken are really the losses of 30 corporations, Mr. Friedberg said in an interview yesterday. Suddenly, now the whole country is going to be shouldering those losses. Aside from a few things that the IMF did that are good - - things like opening up markets, supporting deregulation and transparency - - the rest of what they're doing is incorrect. They're pushing the countries into a tremendous contraction. In Korea, the government was not running a big deficit. It was the private sector that had all the debt. Now the IMF is coming in and saying the government is going to have to guarantee the debt of the private companies in order to obtain more financing. In effect, the taxpayers of Korea will be paying now for losses on bad investments made by Citibank and Chase. The intelligent thing to have done would be to say to the banks: 'You lent the money to these Korean private companies. If they can't pay, they can't pay. They declare bankruptcy, you lose money.'

Would Asian currencies be stronger without the IMF plan?

If the IMF had let the companies declare bankruptcy and let Chase and Citibank worry about that, then the currencies would not have gone down as much as they have - - by far. The reason you have a sense of panic is because there's a feeling that you have to cover the value of that foreign debt, even if you're broke. These companies are broke. Why are they buying dollars to pay back debt? You would have had much less pressure on the foreign exchange market than you have at the moment. The pressure is to buy back the dollars, and so everybody's panicking. So the Indonesia rupiah yesterday went below 11,000 rupiah to the U.S. dollar, which is a decline of 50 per cent in three days.

How did the Federal Reserve cause this?

The U.S. central bank restarted the credit expansion process ( in early 1990s ) all too successfully. They got a huge increase in consumer credit, they aided an enormous increase in speculation in credit markets and securities markets. And they exported credit abroad, with U.S. banks becoming big lenders of money to all kinds of emerging countries, and investors became convinced the growth rate in these countries was much better than it was in the United States. Unfortunately, this credit expansion did not create inflation - - I say unfortunately, because price inflation might have stopped the credit expansion in its tracks.

But if there's no price inflation, why worry?

Here's where we have to separate the definitions of inflation. Inflation is not just a rise in prices. It's a state of affairs that says credit is too easy. Easy credit will inevitably lead to rising prices, but over a longer period of time. But easy credit surely leads to a process of excess credit creation where people borrow money to go into all kinds of speculative ventures. These credit cycles are really the causes of trade depressions. So you're right - - there's no price inflation, and some people are even worried about price deflation. We don't believe that's possible with the rate of monetary expansion we have now. But what we could get - - and this is the real danger - - is debt deflation.

What's the effect of debt deflation?

If the central bank stopped injecting credit, you get a situation where creditors start to demand repayment from debtors who can't pay. Debt deflation can cause a depression.

So what's next?

The crisis will widen. It will travel from Asia to Russia, Greece, Brazil. Eventually it will come back to the United States. It will not be a repeat of the 1970s, because the monetary expansion isn't as great. But the liquidity is in the system and we believe the United States is going to go into a very large trade deficit in the next few years. Then the U.S. dollar will come under pressure and you will start getting price inflation. The whole world is resting on the United States' shoulders right now, because the U.S. economy is still strong, and everybody needs the United States to be strong because everybody else is going to try to export their way out of their problems.

[ News ] [ Sports ] [ The Arts ] [ Commentary ] [ Report on Business ]

Back to the top of the page

We welcome your comments.

Copyright © 1998, The Globe and Mail Company

Saturday, January 10, 1998

By Terence Corcoran

INTERNATIONAL Monetary Fund chief Michel Camdessus flies to Indonesia early next week, where presumably he will explain to the panicky people of that country - - indeed, the people of all Asia - - why they are being forced by the IMF to bear the burden of a financial collapse that is not their doing. The major cause of public unease in Indonesia is the IMF- orchestrated devaluation of the rupiah, now 60 per cent since November. The devaluation, in turn, is the product of a collapsed credit bubble that fed a vast network of corporate interests associated with the Suharto dictatorship.

It is these networks, and the banks that supported them, that were major beneficiaries of the decade- long boom in Indonesia. But it is the people of Indonesia who are being forced by the IMF to pay the cost, a process Canadian currency specialist Albert Friedberg calls socializing the losses. The same distribution of losses among all taxpayers is taking place in South Korea and the other Asian countries where the IMF, backed by the United States, is moving in with programs that can only exacerbate the Asian economic crisis.

Mr. Friedberg heads Friedberg Mercantile Group of Toronto and writes unconventional commentaries on currencies that appear in the company's monthly newsletter. From Mr. Friedberg's free- market perspective, grounded in Austrian School economic theory, the Asian crisis has its origins in overexpansion of credit by the U.S. Federal Reserve that will, in time, come back to haunt the U.S. economy.

How are losses being socialized?

In the end, the IMF is pushing these countries to socialize the losses, where the losses to be taken are really the losses of 30 corporations, Mr. Friedberg said in an interview yesterday. Suddenly, now the whole country is going to be shouldering those losses. Aside from a few things that the IMF did that are good - - things like opening up markets, supporting deregulation and transparency - - the rest of what they're doing is incorrect. They're pushing the countries into a tremendous contraction. In Korea, the government was not running a big deficit. It was the private sector that had all the debt. Now the IMF is coming in and saying the government is going to have to guarantee the debt of the private companies in order to obtain more financing. In effect, the taxpayers of Korea will be paying now for losses on bad investments made by Citibank and Chase. The intelligent thing to have done would be to say to the banks: 'You lent the money to these Korean private companies. If they can't pay, they can't pay. They declare bankruptcy, you lose money.'

Would Asian currencies be stronger without the IMF plan?

If the IMF had let the companies declare bankruptcy and let Chase and Citibank worry about that, then the currencies would not have gone down as much as they have - - by far. The reason you have a sense of panic is because there's a feeling that you have to cover the value of that foreign debt, even if you're broke. These companies are broke. Why are they buying dollars to pay back debt? You would have had much less pressure on the foreign exchange market than you have at the moment. The pressure is to buy back the dollars, and so everybody's panicking. So the Indonesia rupiah yesterday went below 11,000 rupiah to the U.S. dollar, which is a decline of 50 per cent in three days.

How did the Federal Reserve cause this?

The U.S. central bank restarted the credit expansion process ( in early 1990s ) all too successfully. They got a huge increase in consumer credit, they aided an enormous increase in speculation in credit markets and securities markets. And they exported credit abroad, with U.S. banks becoming big lenders of money to all kinds of emerging countries, and investors became convinced the growth rate in these countries was much better than it was in the United States. Unfortunately, this credit expansion did not create inflation - - I say unfortunately, because price inflation might have stopped the credit expansion in its tracks.

But if there's no price inflation, why worry?

Here's where we have to separate the definitions of inflation. Inflation is not just a rise in prices. It's a state of affairs that says credit is too easy. Easy credit will inevitably lead to rising prices, but over a longer period of time. But easy credit surely leads to a process of excess credit creation where people borrow money to go into all kinds of speculative ventures. These credit cycles are really the causes of trade depressions. So you're right - - there's no price inflation, and some people are even worried about price deflation. We don't believe that's possible with the rate of monetary expansion we have now. But what we could get - - and this is the real danger - - is debt deflation.

What's the effect of debt deflation?

If the central bank stopped injecting credit, you get a situation where creditors start to demand repayment from debtors who can't pay. Debt deflation can cause a depression.

So what's next?

The crisis will widen. It will travel from Asia to Russia, Greece, Brazil. Eventually it will come back to the United States. It will not be a repeat of the 1970s, because the monetary expansion isn't as great. But the liquidity is in the system and we believe the United States is going to go into a very large trade deficit in the next few years. Then the U.S. dollar will come under pressure and you will start getting price inflation. The whole world is resting on the United States' shoulders right now, because the U.S. economy is still strong, and everybody needs the United States to be strong because everybody else is going to try to export their way out of their problems.

[ News ] [ Sports ] [ The Arts ] [ Commentary ] [ Report on Business ]

Back to the top of the page

We welcome your comments.

Copyright © 1998, The Globe and Mail Company

Saturday, January 10, 1998

By Terence Corcoran

INTERNATIONAL Monetary Fund chief Michel Camdessus flies to Indonesia early next week, where presumably he will explain to the panicky people of that country - - indeed, the people of all Asia - - why they are being forced by the IMF to bear the burden of a financial collapse that is not their doing. The major cause of public unease in Indonesia is the IMF- orchestrated devaluation of the rupiah, now 60 per cent since November. The devaluation, in turn, is the product of a collapsed credit bubble that fed a vast network of corporate interests associated with the Suharto dictatorship.

It is these networks, and the banks that supported them, that were major beneficiaries of the decade- long boom in Indonesia. But it is the people of Indonesia who are being forced by the IMF to pay the cost, a process Canadian currency specialist Albert Friedberg calls socializing the losses. The same distribution of losses among all taxpayers is taking place in South Korea and the other Asian countries where the IMF, backed by the United States, is moving in with programs that can only exacerbate the Asian economic crisis.

Mr. Friedberg heads Friedberg Mercantile Group of Toronto and writes unconventional commentaries on currencies that appear in the company's monthly newsletter. From Mr. Friedberg's free- market perspective, grounded in Austrian School economic theory, the Asian crisis has its origins in overexpansion of credit by the U.S. Federal Reserve that will, in time, come back to haunt the U.S. economy.

How are losses being socialized?

In the end, the IMF is pushing these countries to socialize the losses, where the losses to be taken are really the losses of 30 corporations, Mr. Friedberg said in an interview yesterday. Suddenly, now the whole country is going to be shouldering those losses. Aside from a few things that the IMF did that are good - - things like opening up markets, supporting deregulation and transparency - - the rest of what they're doing is incorrect. They're pushing the countries into a tremendous contraction. In Korea, the government was not running a big deficit. It was the private sector that had all the debt. Now the IMF is coming in and saying the government is going to have to guarantee the debt of the private companies in order to obtain more financing. In effect, the taxpayers of Korea will be paying now for losses on bad investments made by Citibank and Chase. The intelligent thing to have done would be to say to the banks: 'You lent the money to these Korean private companies. If they can't pay, they can't pay. They declare bankruptcy, you lose money.'

Would Asian currencies be stronger without the IMF plan?

If the IMF had let the companies declare bankruptcy and let Chase and Citibank worry about that, then the currencies would not have gone down as much as they have - - by far. The reason you have a sense of panic is because there's a feeling that you have to cover the value of that foreign debt, even if you're broke. These companies are broke. Why are they buying dollars to pay back debt? You would have had much less pressure on the foreign exchange market than you have at the moment. The pressure is to buy back the dollars, and so everybody's panicking. So the Indonesia rupiah yesterday went below 11,000 rupiah to the U.S. dollar, which is a decline of 50 per cent in three days.

How did the Federal Reserve cause this?

The U.S. central bank restarted the credit expansion process ( in early 1990s ) all too successfully. They got a huge increase in consumer credit, they aided an enormous increase in speculation in credit markets and securities markets. And they exported credit abroad, with U.S. banks becoming big lenders of money to all kinds of emerging countries, and investors became convinced the growth rate in these countries was much better than it was in the United States. Unfortunately, this credit expansion did not create inflation - - I say unfortunately, because price inflation might have stopped the credit expansion in its tracks.

But if there's no price inflation, why worry?

Here's where we have to separate the definitions of inflation. Inflation is not just a rise in prices. It's a state of affairs that says credit is too easy. Easy credit will inevitably lead to rising prices, but over a longer period of time. But easy credit surely leads to a process of excess credit creation where people borrow money to go into all kinds of speculative ventures. These credit cycles are really the causes of trade depressions. So you're right - - there's no price inflation, and some people are even worried about price deflation. We don't believe that's possible with the rate of monetary expansion we have now. But what we could get - - and this is the real danger - - is debt deflation.

What's the effect of debt deflation?

If the central bank stopped injecting credit, you get a situation where creditors start to demand repayment from debtors who can't pay. Debt deflation can cause a depression.

So what's next?

The crisis will widen. It will travel from Asia to Russia, Greece, Brazil. Eventually it will come back to the United States. It will not be a repeat of the 1970s, because the monetary expansion isn't as great. But the liquidity is in the system and we believe the United States is going to go into a very large trade deficit in the next few years. Then the U.S. dollar will come under pressure and you will start getting price inflation. The whole world is resting on the United States' shoulders right now, because the U.S. economy is still strong, and everybody needs the United States to be strong because everybody else is going to try to export their way out of their problems.

[ News ] [ Sports ] [ The Arts ] [ Commentary ] [ Report on Business ]

Back to the top of the page

We welcome your comments.

Copyright © 1998, The Globe and Mail Company

Saturday, January 10, 1998

By Terence Corcoran

INTERNATIONAL Monetary Fund chief Michel Camdessus flies to Indonesia early next week, where presumably he will explain to the panicky people of that country - - indeed, the people of all Asia - - why they are being forced by the IMF to bear the burden of a financial collapse that is not their doing. The major cause of public unease in Indonesia is the IMF- orchestrated devaluation of the rupiah, now 60 per cent since November. The devaluation, in turn, is the product of a collapsed credit bubble that fed a vast network of corporate interests associated with the Suharto dictatorship.

It is these networks, and the banks that supported them, that were major beneficiaries of the decade- long boom in Indonesia. But it is the people of Indonesia who are being forced by the IMF to pay the cost, a process Canadian currency specialist Albert Friedberg calls socializing the losses. The same distribution of losses among all taxpayers is taking place in South Korea and the other Asian countries where the IMF, backed by the United States, is moving in with programs that can only exacerbate the Asian economic crisis.

Mr. Friedberg heads Friedberg Mercantile Group of Toronto and writes unconventional commentaries on currencies that appear in the company's monthly newsletter. From Mr. Friedberg's free- market perspective, grounded in Austrian School economic theory, the Asian crisis has its origins in overexpansion of credit by the U.S. Federal Reserve that will, in time, come back to haunt the U.S. economy.

How are losses being socialized?

In the end, the IMF is pushing these countries to socialize the losses, where the losses to be taken are really the losses of 30 corporations, Mr. Friedberg said in an interview yesterday. Suddenly, now the whole country is going to be shouldering those losses. Aside from a few things that the IMF did that are good - - things like opening up markets, supporting deregulation and transparency - - the rest of what they're doing is incorrect. They're pushing the countries into a tremendous contraction. In Korea, the government was not running a big deficit. It was the private sector that had all the debt. Now the IMF is coming in and saying the government is going to have to guarantee the debt of the private companies in order to obtain more financing. In effect, the taxpayers of Korea will be paying now for losses on bad investments made by Citibank and Chase. The intelligent thing to have done would be to say to the banks: 'You lent the money to these Korean private companies. If they can't pay, they can't pay. They declare bankruptcy, you lose money.'

Would Asian currencies be stronger without the IMF plan?

If the IMF had let the companies declare bankruptcy and let Chase and Citibank worry about that, then the currencies would not have gone down as much as they have - - by far. The reason you have a sense of panic is because there's a feeling that you have to cover the value of that foreign debt, even if you're broke. These companies are broke. Why are they buying dollars to pay back debt? You would have had much less pressure on the foreign exchange market than you have at the moment. The pressure is to buy back the dollars, and so everybody's panicking. So the Indonesia rupiah yesterday went below 11,000 rupiah to the U.S. dollar, which is a decline of 50 per cent in three days.

How did the Federal Reserve cause this?

The U.S. central bank restarted the credit expansion process ( in early 1990s ) all too successfully. They got a huge increase in consumer credit, they aided an enormous increase in speculation in credit markets and securities markets. And they exported credit abroad, with U.S. banks becoming big lenders of money to all kinds of emerging countries, and investors became convinced the growth rate in these countries was much better than it was in the United States. Unfortunately, this credit expansion did not create inflation - - I say unfortunately, because price inflation might have stopped the credit expansion in its tracks.

But if there's no price inflation, why worry?

Here's where we have to separate the definitions of inflation. Inflation is not just a rise in prices. It's a state of affairs that says credit is too easy. Easy credit will inevitably lead to rising prices, but over a longer period of time. But easy credit surely leads to a process of excess credit creation where people borrow money to go into all kinds of speculative ventures. These credit cycles are really the causes of trade depressions. So you're right - - there's no price inflation, and some people are even worried about price deflation. We don't believe that's possible with the rate of monetary expansion we have now. But what we could get - - and this is the real danger - - is debt deflation.

What's the effect of debt deflation?

If the central bank stopped injecting credit, you get a situation where creditors start to demand repayment from debtors who can't pay. Debt deflation can cause a depression.

So what's next?

The crisis will widen. It will travel from Asia to Russia, Greece, Brazil. Eventually it will come back to the United States. It will not be a repeat of the 1970s, because the monetary expansion isn't as great. But the liquidity is in the system and we believe the United States is going to go into a very large trade deficit in the next few years. Then the U.S. dollar will come under pressure and you will start getting price inflation. The whole world is resting on the United States' shoulders right now, because the U.S. economy is still strong, and everybody needs the United States to be strong because everybody else is going to try to export their way out of their problems.

[ News ] [ Sports ] [ The Arts ] [ Commentary ] [ Report on Business ]

Back to the top of the page

We welcome your comments.

Copyright © 1998, The Globe and Mail Company

Saturday, January 10, 1998

By Terence Corcoran

INTERNATIONAL Monetary Fund chief Michel Camdessus flies to Indonesia early next week, where presumably he will explain to the panicky people of that country - - indeed, the people of all Asia - - why they are being forced by the IMF to bear the burden of a financial collapse that is not their doing. The major cause of public unease in Indonesia is the IMF- orchestrated devaluation of the rupiah, now 60 per cent since November. The devaluation, in turn, is the product of a collapsed credit bubble that fed a vast network of corporate interests associated with the Suharto dictatorship.

It is these networks, and the banks that supported them, that were major beneficiaries of the decade- long boom in Indonesia. But it is the people of Indonesia who are being forced by the IMF to pay the cost, a process Canadian currency specialist Albert Friedberg calls socializing the losses. The same distribution of losses among all taxpayers is taking place in South Korea and the other Asian countries where the IMF, backed by the United States, is moving in with programs that can only exacerbate the Asian economic crisis.

Mr. Friedberg heads Friedberg Mercantile Group of Toronto and writes unconventional commentaries on currencies that appear in the company's monthly newsletter. From Mr. Friedberg's free- market perspective, grounded in Austrian School economic theory, the Asian crisis has its origins in overexpansion of credit by the U.S. Federal Reserve that will, in time, come back to haunt the U.S. economy.

How are losses being socialized?

In the end, the IMF is pushing these countries to socialize the losses, where the losses to be taken are really the losses of 30 corporations, Mr. Friedberg said in an interview yesterday. Suddenly, now the whole country is going to be shouldering those losses. Aside from a few things that the IMF did that are good - - things like opening up markets, supporting deregulation and transparency - - the rest of what they're doing is incorrect. They're pushing the countries into a tremendous contraction. In Korea, the government was not running a big deficit. It was the private sector that had all the debt. Now the IMF is coming in and saying the government is going to have to guarantee the debt of the private companies in order to obtain more financing. In effect, the taxpayers of Korea will be paying now for losses on bad investments made by Citibank and Chase. The intelligent thing to have done would be to say to the banks: 'You lent the money to these Korean private companies. If they can't pay, they can't pay. They declare bankruptcy, you lose money.'

Would Asian currencies be stronger without the IMF plan?

If the IMF had let the companies declare bankruptcy and let Chase and Citibank worry about that, then the currencies would not have gone down as much as they have - - by far. The reason you have a sense of panic is because there's a feeling that you have to cover the value of that foreign debt, even if you're broke. These companies are broke. Why are they buying dollars to pay back debt? You would have had much less pressure on the foreign exchange market than you have at the moment. The pressure is to buy back the dollars, and so everybody's panicking. So the Indonesia rupiah yesterday went below 11,000 rupiah to the U.S. dollar, which is a decline of 50 per cent in three days.

How did the Federal Reserve cause this?

The U.S. central bank restarted the credit expansion process ( in early 1990s ) all too successfully. They got a huge increase in consumer credit, they aided an enormous increase in speculation in credit markets and securities markets. And they exported credit abroad, with U.S. banks becoming big lenders of money to all kinds of emerging countries, and investors became convinced the growth rate in these countries was much better than it was in the United States. Unfortunately, this credit expansion did not create inflation - - I say unfortunately, because price inflation might have stopped the credit expansion in its tracks.

But if there's no price inflation, why worry?

Here's where we have to separate the definitions of inflation. Inflation is not just a rise in prices. It's a state of affairs that says credit is too easy. Easy credit will inevitably lead to rising prices, but over a longer period of time. But easy credit surely leads to a process of excess credit creation where people borrow money to go into all kinds of speculative ventures. These credit cycles are really the causes of trade depressions. So you're right - - there's no price inflation, and some people are even worried about price deflation. We don't believe that's possible with the rate of monetary expansion we have now. But what we could get - - and this is the real danger - - is debt deflation.

What's the effect of debt deflation?

If the central bank stopped injecting credit, you get a situation where creditors start to demand repayment from debtors who can't pay. Debt deflation can cause a depression.

So what's next?

The crisis will widen. It will travel from Asia to Russia, Greece, Brazil. Eventually it will come back to the United States. It will not be a repeat of the 1970s, because the monetary expansion isn't as great. But the liquidity is in the system and we believe the United States is going to go into a very large trade deficit in the next few years. Then the U.S. dollar will come under pressure and you will start getting price inflation. The whole world is resting on the United States' shoulders right now, because the U.S. economy is still strong, and everybody needs the United States to be strong because everybody else is going to try to export their way out of their problems.

[ News ] [ Sports ] [ The Arts ] [ Commentary ] [ Report on Business ]

Back to the top of the page

We welcome your comments.

Copyright © 1998, The Globe and Mail Co

Couldn't resist the Mike Sheller Kitco Poster of the Year Award ( KPY ) .

I would like to nominate our irrepressible EB ( don't know how to do those fancy accents he uses, he won't tell me how ) It was fun this year watching his confidence grow as these markets seemed to bend to his will - for the most part anyway.

EB's posts can best be described as the literary equivalent of a champagne burp, usually quite unexpected but not at all unpleasant and always leaving you with that bubbly tingle in the back of the nose that no beer belch can quite duplicate. I know our friend is more the pop the can- o- suds type, but I predict champagne corks for his tomorrows should he continue to view these markets for what they are rather than what he wishes them to be. And while I appreciate Tort's jokes, EB's spontaneous exuberance is always a pleasure to read. So goes my vote for KPY, but the category seems a bit too restrictive, either in scope or quantity. Naming one as KPY seems a job unfinished.

Been reading a lot of late about Mt. Everest and high altitude climbing. One can not understand how the top of the world can be attained without some understanding of the culture of the Sherpas of the Khumbu. These are hardy souls, acclimated to lofty heights by a lifetime of breathing the thin air above 10,000 feet. It is the Sherpa's who carry the bulk of equipment and supplies to the upper reaches of the mountain. More times than not, it is a Sherpa who will break trail and fix ropes to virgin ice and snow, often without the aid of supplementary oxygen.

Sherpa's are a very spiritual people who see portends in the stars and believe strongly in the mountain gods, chief of which is Chomolungma ( as Everest is known in Tibet ) literally translated as Mother Goddess of the World. These are hardy souls whose loyalty and courage remain the great untold story of man's conquest of the last earthly frontier.

I read of these people and their determination to climb these holy places with reverence and respect, and I am reminded of Mike Sheller who has been the heart and soul of this forum from the beginning. He has taken an enormous amount of heat for some of his beliefs and responded with wit and courage and understanding. There are some individuals here who deserve to be called a gentleman, but it is Mike Sheller who has broken the trail and showed us all what Lincoln called the better angles of our nature. Sheller for Kitco Lhama.

With regard to Opium, England and China, I don't have facts. But I expect that English businessmen saw an opportunity when they learned about those chinese opium dens. So - - there were Chinese addicts first - - I'm pretty sure about this part of history. I don't think you can blame a whole country for being actively involved in encouraging Opium trade in China, but England might have been partially to blame for looking the other way.

I have wondered about a controversial concept in blame - - was the rest of the world to blame allowing Hitler come to power - - not Hitler himself?

Interesting idea, isn't it? We are all to blame for letting bad things happen - - so is England any more to blame than any of the other western countries that carved up China while she was weak, and essentially without leadership?

With regard to predictions of the future with reference to cycles, there is much. Unfortunately this information is scattered, and only a few on this earth are astute enough to know the importance of this. This is due in part to human nature - - that we quickly forget the mistakes of our ancestors, and we quickly ( a generation or two ) lose touch with reality, and expect to get whatever it is we want without really having to work for it. Also humans tend to act like slow- cooked frogs. We can have all sorts of bad things done to us as long as the heat is turned up slowly.

I don't think there is a mind control conspiracy out there to push us through cycles. We do very well getting into messes just by ourselves. However, using the cycle theory of AV ( AK? ) Sarkar, we are now in the acquisitor phase all over the world, where a few are conspiring to get as much of the world's assets as possible. This is not an organized conspiracy, just a natural cycle. The next part of the cycle will be the laborer cycle as he puts it I think, where the average person says enough and demonstrates in Indonesia, etc. If this happens without much support from the untouched part of the world, there will be war, and we will pass into the warrior part of the cycle, where the laborers will actively relinquish power to a new warrior type leader.

I hope this time we will not give the next Hitler ( warrior ) the opportunity to come to the support of all the angry people. I believe we have free will despite the fact that modern Quantum Mechanics fairly convincingly says that past/present/future are connected. It is our duty as members of the human race to help others in any way we can to prevent the Antichrist from rising to power - - the worst kind of warrior of SR Sarkar's cycle. We must avoid the mistakes the world made with Germany after WWI. And - - each of us keeping at least a little of our assets will cushion the blow of what ever may be coming our way.

Now I'm off the soap box - - I hope these ideas help, even if I am not capable of answering each of your questions individually.

commentary needed- best way to trade gold bullion- if one could imagine the 340 u.s. price between may - dec 1998

BUSINESS

January 09, 1998

HOW EXOTIC DERIVATIVES

TOOK DOWN KOREA'S

ECONOMY

BY JOHN CRUDELE

THIS column is about gambling.

More specifically, it's about how Korean banks and

brokerages may have gotten themselves into the deep

mess they are now in by placing nervy bets on their

currency's performance against the U.S. dollar. The

column is also about how American taxpayers may

right this very minute be paying off these Korean

gambling debts.

Paying off gambling debts, of course, wouldn't sit well

with Congress. So the official line from the Federal

Reserve and the White House is that Koreans took

out loans that they now can't repay because their

currency and economy suddenly took a turn for the

worse.

Hey, we can all sympathize. Sometimes things happen

that are beyond our control. The Koreans are no

different.

But before another penny is earmarked for the Korean

bailout, Americans should demand an accounting of a

derivative security called the undeliverable forward.

There are lots of esoteric made- up securities, also

known as derivatives, floating around out there. And

Korean investors were probably involved in all of

them. But these undeliverable forwards are tricky, so

pay attention.

These undeliverable forward contracts are a bet,

nothing more, on how two currencies will move in

relationship to one another by some time in the future.

Six months. A year. The bettors can let the contract

run for as long as they want, but the expiration date is

set on each contract.

And it really is nothing more than a bet, a wager,

something that should be done at the tables in Vegas

rather than on Wall Street.

It works like this. Lets say, Bank XYZ of San Diego

believes the U.S. dollar will rise in value and Bank

ABC in Seoul really, really believes that the Korean

won - that country's currency - is about to take off.

The two sides enter into a derivative contract making

their respective wagers. Typically the bet is many

millions of dollars.

But here's the key to it all. Under normal

circumstances, if the Korean bank comes out the loser

it would just ship the difference in value to the

American bank in the Korean currency, the won.

But that doesn't happen in these undeliverable

forward contracts.

Because the American bank doesn't want the thinly

traded, weak- in- the- knees Korean currency, the

terms of the undeliverable future contract specifically

state that the trade will be settled for cash and in

dollars.

So here's what some experts on Wall Street suspect

happened.

The Korean currency got hammered a few months

ago when the Korean government refused to fight

speculators who were taking it lower. That, of course,

made the Korean banks betting on the won in these

undeliverable future contracts big losers. But the

Korean banks, already down on their luck, couldn't

come up with the dollars to pay off their bets to the

Americans.

Too bad, you say? They should pay anyway?

Well, if this is what was happening, it's really too bad

for the American banks and companies that used this

device to hedge against currency risk. If the Koreans

can't pay, they can't pay. The Americans will get

stiffed. And if they've already booked these trading

gains as profits - well, they'll have to unbook them.

Nobody - except perhaps the Fed - knows how much

exposure the Koreans have to these undeliverable

forward contracts. But the best guess is that $48

billion is the total amount Koreans have invested in all

derivatives - just short of the current size of the whole

Korean bailout.

Experts tell me there is one way out of the dilemma.

The American banks could roll these undeliverable

contracts over for another period of time. But, of

course, every solution in the Asian crisis causes a new

dilemma.

CLICK YOUR BROWSER'S BACK BUTTON TO RETURN TO SEARCH RESULTS

Copyright ( c ) 1997, N.Y.P. Holdings, Inc. All rights reserved. Reproduction in whole or in part in any form or

medium without express written permission of the New York Post is prohibited.

For Miro

Good luck with K's motives - Ive tried that several times.

I predict you will get zip from him on that question. He is a

management consultant - I am King Carol of Romania.

Currency in Chaos: The Human Toll

By Judy Shelton

Sunday, December 21, 1997; Page C07

In times of crisis, immediate action is necessary. A financial

crisis in particular requires government officials and institutional

authorities to move quickly to assure investors that a potential

runaway situation is under control and that adequate measures

are being taken to contain its impact.

That explains why representatives from the International

Monetary Fund are making appearances in various trouble spots

around the world, from Seoul to Moscow, offering emergency

funding and bailout packages. The goal is to prevent a panic

mentality from taking hold and sparking the mass hysteria that

leads to devastating financial meltdown. Money and markets rely

on investor confidence; psychology is important.

But beyond soothing rhetoric aimed at preventing the exodus of

private capital from emerging markets, what is being done with

regard to the fundamental problem of international monetary

disorder? What is the IMF, or the Group of Seven industrialized

nations - - or for that matter anyone of political standing in

Washington - - doing to address the underlying threat of global

currency chaos, with its frightening implications for integrated

financial markets and world economic performance?

So far the scapegoat for turmoil in Asia and elsewhere has

been the banking sector: loose lending policies, cronyism, insider

dealing, political corruption. These practices are cited as bearing

primary responsibility for the sudden impoverishment of citizens in

a growing list of nations. Certainly, providing commercial bank credits

to marginal business ventures is no recipe for long- turn economic

prosperity. But something far more dramatic is occurring. Currencies

are plummeting; money itself has succumbed to the meltdown syndrome.

Since early October, South Koreans have watched helplessly

as the value of the won - - and with it their lifetime savings and

personal wealth - - has dropped more than 41 percent against the

dollar. For Indonesians, the monetary shock from currency free

fall is the result of a 53 percent decline in the rupiah since

July 1. The Thai baht has lost 44 percent of its value, the

Philippine peso 35 percent and the Malaysian ringgit 33 percent

over the same period.

Numbers, though, don't begin to tell the story. When money loses

its meaning, the human toll goes beyond jaggedly plunging lines on

charts and dry analytical discussion. Money is supposed to provide

the measure, to serve as the unit of account for the most personal

economic decisions faced by individuals: Should I spend or save,

consume today or invest for the future?

To save money is to believe there will be a future - - it is the

stuff of dreams. Money buys houses, pays for education, starts new

businesses. Money meltdown is disorienting, not just in terms of what

academics describe as economic dislocations but for the dislocations

in human hearts that feel betrayed for having believed that money earned

through their own hard work and diligence would stand up as a valid

store of value.

Retrospective analysis of financial factors can never fully

capture the sickening sensation of a currency crash. In the end,

the miscalculations of economists and mistakes of bankers fade

away as mere technical details. It is the political leaders who

are held responsible.

The integrity of a nation's money represents an implicit promise

between the government and the governed, even when its value seems up

for grabs in global currency markets. To demean the money is to derail

the hopes of an entire population. Leaders cannot recover from such a

breach of duty.

That is why even the most gifted bureaucrats at the IMF are

incapable of preventing the current monetary crisis from escalating

should its momentum begin to reach global proportions. As fear of the

future starts to encroach on the human psyche, bold political leadership

takes on far greater importance than technical expertise.

Now is the time to lay out a plan for restoring order to the global

currency system. Ever since the United States walked away from the Bretton

Woods international monetary agreement in August 1971, there has been a

leadership vacuum with regard to this critical aspect of the global economy.

President Clinton has expressed his desire to leave a lasting imprint in

support of free trade for the next century. With developing countries

beginning to believe that the promise of democratic capitalism has all

been a cruel joke to rob them of their wealth and dignity, the challenge

is there. He has an opportunity now to initiate the process for establishing

new currency arrangements aimed at achieving a stable international

monetary order consistent with open global markets.

The defeat of the president's attempt to gain fast track trade

authority dealt a blow to free trade advocates on both sides of the

aisle. But while efforts to reduce tariffs should still be pursued,

the impact of tariffs on trade flows pales in comparison with the

effects of currency downturns. When every nation struck by monetary

turmoil seeks to utilize competitive depreciation to salvage its

economic future - - flooding wealthier nations with cheap exports

- - something has to give.

At some point, domestic suppliers in the United States and

Europe will clamor for protection from what they rightly perceive

as unfair price competition. The real threat to the global trade

system is thus the prevailing free- for- all approach to currency

relations that engenders monetary nationalism and ultimately

fosters a protectionist backlash.

The solution is to set up an orderly international monetary system

that would permit all nations to compete in the global marketplace based

on a common unit of account. Should the dollar be the anchor for such a

system? Would it be a burden or a privilege to serve as the key currency

nation once again? Hopefully, the knowledge gained from the Bretton Woods

experience would furnish a guide for avoiding past mistakes; any new set

of monetary arrangements would have to expand responsibility to other

nations to ensure global monetary stability. But there can be no question

that the United States would play a central role. Indeed, it is the only

nation with the requisite economic strength and political power to credibly

issue the call for an international conference to focus on the need for

global monetary reform based on shared values and objectives.

In the absence of presidential leadership, as the currency carnage

rages on, our trade partners have little more to cling to than speculation

that Treasury Secretary Robert E. Rubin is secretly drafting a plan to deal

with the spreading financial turmoil. This week, German Finance Minister

Theo Waigel met with both Rubin and Federal Reserve Chairman Alan Greenspan

in Washington; the crisis in Asia undoubtedly dominated their discussion.

Clearly, these men represent stature and competence in the highest

international financial circles. Nevertheless, if the global situation

continues to unravel, it remains an open question whether those

qualifications and credentials will prove sufficient to prevent worldwide

monetary breakdown and its disastrous economic consequences.

Judy Shelton is an economist and author.

Copyright 1997 The Washington Post Company

It is a paper war out there - - a propaganda war that has been going on for decades. And now the proponents are believing the deceptions that they have created. What is unfortunate is that to this day most humans on this planet still do not realize what we are inexorably heading for. However, the SEAsians - - much better savers than we - - now know somthing is wrong with their financial systems. And they are regretting buying more gold when they would have been able to. They will be buying more gold as soon as they can afford to.

Jin - - where are you? Are you alive and lurking? I hope so!

Still bearish, or a bottom coming in soon? I think after it settles, there's a buck in this market the long side in '98. What you say?

Cast your ballot now. Was it ANOTHER and his thought- provoking, apocalyptic scenario that had Kitcoites wringing their grey matter trying to decide how much gold equalled how much oil? Was it RJ with his fabulous blend of short fiction and short trading? Was it Hepcat, who was so irritating that he was run out of Kitcotown on a rail?. Was it Tortfeasor, who kept us laughing as gold continued its ugly decline? Was it Ted, whose studied indifference, always mellow mindset ( except for a few controversial sports comments ) , and nation- hopping, held us spellbound day after day? Was it Cherokee, with his cryptic, but subliminally enlightening spirit- speak from beyond the hills? Was it Nick ( Sharefin ) with his Dad's poetry, some of the sublimest, earthiest, evocative, occult verses one can come across these days? Or perhaps Steve Puetz for his bold and fearless prediction ( s ) of immininent market meltdown, and his warnings about DEflation ahead when many goldbugs were looking for the big bubble instead? And there are many more. Vote for YOUR favorite KITCO POSTER BOY ( or GIRL ) OF THE YEAR. All entries become the property of Kitco Online Promotions. First prize is a trip to Washington DC for a week. Second prize is a trip to Washington DC for 2 weeks. You must be over 18 to enter. No purchase neccessary.

No reason they can't profit from two sources at once!

We just need to hope that none of these hidden agencies gets enough wealth to upset the world's applecart.

I say Mr. Peutz, looks to me like it's finally time for you to

drive this bus. Seems the road is as you predicted, steep and icy.

My guess is that the price of gold will rise slowly enough for the financial system to remain intact, and the gold stocks will do very nicely.

One thing to remember is that ANOTHER talks in simple, graphic terms. The market is not that simple. Also - - the Central Banks are not going to stop trading gold altogether - - they can use that same derivative leverage to do damage control. I just hope they remember to push when they should push, and pull when they should pull. If they get out of sync with those powerful derivative trades, heaven help us all!

I think the real threat to the world's financial systm is not an explosive gold corner, but the loss of a few key word banks, a convulsion in the dollar, followed by the demise of the markets - - that is where the danger is to our precious metal equity investments. ( Yes - - I do have some money still long on gold - about 1% of my assets, but the vast majority is parked in short term treasuries ) .

You can expect gold to go down on monday if the market tanks. Can't let anyone escape to gold, can we?

I'm not saying Indonesia - - or other SEAsian countries asking for help are blameless - - - I'm just saying that it is ludicrous for the IMF to behave as if they can actually accomplish something. One thing one should never do is promise to help, and then fail to accomplish anything. That's sort of like the poor policeman that steps in to stop the feud between husband and wife - - and they turn on him. There is one difference - - you cannot blame that policeman for trying - - but the IMF should have known what was coming! I wonder, could one compare the IMF's actions to FEMA refusing to give aid after a hurricane until everyone agrees to putting hurricane clips on their ( virtually demolished ) houses? The commotion from the victims would be deafening! Is the Indonesia situation really that different?

In 1981 Alan Greenspan “spilled his guts,” “poured his heart out,” “gave us the straight- skinny,” “let it all hang out” ABOUT WHAT HE REALLY THINKS ABOUT THE GOLD STANDARD. UNCHARACTERISTICALLY, he spoke in everyday common, clear language... he obviously wanted EVERYONE TO GRASP HIS THOUGHT, to comprehend, indeed to understand the essence of the GOLD STANDARD... its benefit and its control of THE IRRATIONAL EXUBERANCE OF POLITICIANS. Is this the “echo” of the future?

To read Greenspan's essay on the GOLD STANDARD, copy & paste following URL to your Internet call- up window. Then CLOSE the space just before the word eagle - then ENTER. Apparently, the new Kitco format corrupts

the URL by adding a space.

http://www.gold- eagle.com/greenspan011098.html

I am interested in your strategy as I have been a reckless short for two years now. I'm still of the philosophy that its coming. Actually I had a crash celebratory bonfire last nite. I'm not really of an astrological bent, but some of those types are concerned about this week, month and year. Would you be interested in sharing any of your current strategy.

Right now I'm short a couple of positions on the S& P and I have a Cisco short expiring 1/17. I don't get any help from brokers or any one else. They are stock salemen and that's it. I'm getting lonely out here as I get continually frustrated with shorting.

I'm interested in your strategy re Mexico. My only position there is long Industrias Penoles.

gmont@mercury.net

Back to the old drawing board old buddy - gold didnt

hit 250 in 1982 - please check your numbers.

I am looking at a long- term monthly chart of gold ( CTS ) , and it identifies the '82 low for gold @ $295/oz., 6/82.

Where do you get $250/oz.

Acutually, I 'sense', intuitively, that gold could spike down to $250/oz. in the weeks just ahead - - good ole deflation - - but I don't recall that price level in '82. ....- in '78 & '79 yes, but not in '82.

Regards,

David Blair Macrory

IMF...................

Home page...........

http://www.imf.org/

Gold policy............

http://www.imf.org/external/np/exr/facts/gold.htm

Current International financial situation.............

http://www.imf.org/external/pubs/FT/Weo/weo1297/index.htm

a brain the size of a pea and the attitude of a hyena. Are

you seriously trying to educate this man Talk about lost

causes.

You know you are right but so what. This guy was born wrong!

Save your strength -

Re consistency of ratio - dunno really - spot checks-

around 1970 - arab light say $1.90 * 16.88 = 32$

gold was actually around 50 I think. At golds peak

say 800/16.88 = 47$/bbl - I think AL crude was in the

high 30s and rising - cant remember if it broke 40 or

not.

With gold at 10,000$ - oil would be pushing 600 a bbl.

Assume Kiwis would finally go nuclear and riding horses

big time.

On the surface, hard to see Asian tiger discomforts

doing anything good for oil demand. Their own

consumption of oil for anything but export demand MUST

decrease.

For Mister Bugg

No self respecting conspiracy would have you for a member.

Go back to Night School - Learn to spell !

Another's recent post on crude oil and gold is

interesting - Small points - crude oil REALLY went

from anout 1.5$/bbl in say 1970 to over 35 by 1981.

Then back to 10 ish then to where is now via ups

and downs.

My problem is that the most recent monthly high for

crude was Dec 31, 1996 at $24.15. The most recent monthly

high for gold was jan 31, 1996 at 405.6. Crude oil is

now 16.63 - a ratio of .688 to its high. If that same

ratio is applied to gold - we get 279 - ( oddly enough

- almost precisely where it is.

Two things worry me now - ( 1 ) oil demand as a result of

far East events - ( falling demand and price should

impact gold )

- ( 2 ) The ratio of 0.688 which is close to the fibonacci.

If we apply 0.618 to the last gold high of 405.6 we

get $250/oz with crude at 14.90 ( say 15 ) .

These numbers dont look NICE but they look reasonable.

Please tell me I'm wrong

I agree with the essence of your post about ANOTHER. I read those posts partially because it makes me think about the mystery of gold pricing, and partially for the entertainment value. I don't think we are expected ever to decipher the riddles - - and yes - - I do think he/she is well connected. Us mere mortals must eke out a living trying to amass the savings that he/she already has!

What is your opinion about the LBMA and comex? Do you agree with D.A. that it would be impossible to grossly distort or corner the gold market, even with derivatives? It just occured to me that there is still one possibility - - the derivatives offer tremendous leverage - - new since the period of 1961- 1967, and 1975- 1977 when the CB's tried to suppress gold the way they are trying to do now. But now there is the amplification effect of gold derivatives. I wonder - - what do you think - - could a massive derivatives blitz of the gold market work? It would have to be highly coordinated. I shudder at the thought. Just how much money would a speculator need if the CB'S refuse to sell gold, and that speculator could generate huge amounts of derivatives? Comments? I hope it never happens, because that would totally disrupt the world's financial system.

I ask you, if the USA could not remove the Iraq leader when they were in full battle dress, then? No, the US tanks are not a factor in this. The risk is to each person and how they hold their wealth. The concept of what wealth is, is going to change. Concept is but a thought and a thought of what value is, changes thru life. Time will prove all things.

Good One Haggis - Those Dorks got the weekend OFF.

They'll be back. They're paid to be. I hope not much

in LBG's case. Your point on the Debt seems to have

K struggling. LBG's still trying to find out what debt

means.

For 223 -

Somebody else likes AGEE. Hooray - Try Two settings

of his texts by Sam Barber - Sure on this Shining Night

and Knoxville..... Agee also wrote 2 film scripts -

African Queen and Night of the Hunter. An Outstanding

talent. Evans wasn't bad either.