Doug Casey: Expect your standard of living to drop.

If you've never read a Doug Casey interview, you've been missing something really intersting.  This one from The Daily Bell is a bit long, but includes some real gems.

In this first quote, Doug reminds us of something I very much fear may be true.  If it is, I don't imagine it really matters much whether you buy your gold at $800 or $1,400, you'll still be glad to have it when the dollar goes to zero.  OK, sure it matters, but you won't regret the $1,400 purchase.

Absolutely every currency in the world is going to reach its intrinsic value in the next few years, and basically every currency is nothing but toilet paper. Basically all the governments are going to wind up destroying their national currencies. That won't be just an academic thing; it will have the consequence of destroying a lot of the middle classes around the world. That will likely create ugly political and sociological fallout.

As if that isn't scary enough, consider the following from Doug, which is certain to cause concern to a great many of us in Europe and North America.  My only consolation is that I've been saying the same thing (although much less eloquently) for years--and living on much less than I earn.

Look at it this way, you have the average Chinese making $1 per hour for what the average American is making maybe $10 or $20 per hour. The fact is that the Chinese guy has better work habits, he's just as smart or smarter, and the company he works for doesn't have any legacy costs in the form of medical benefits and pensions, and there are a lot less regulations and taxes. So eventually Chinese wages and western wages are going to meet in the middle. Chinese incomes are going much higher, and western incomes are going to be much lower. This is tough luck for the average person in the west, whose standard of living is going to drop.

Finally, before those of you holding gold get too smug, check out one more quote from Doug.

I guess gold is the least bad thing to be in. I say that because gold is no longer where it was even 10 years ago, $250-$300 an ounce, it's up 4 or 5 times in price. Not withstanding that, it's still probably the best place to be because it's the only financial asset that's not simultaneously somebody else's liability.

I don't see anything here to make me happy, but that's one of the great strengths of Mr. Casey.  He's not out to make us happy, or convince us to start spending again.  He's simply calling things as he sees them.  If it's a grim situation he describes, we each then must decide how close to the truth we think he is.  I'd say, he's much closer to the truth than our friends in government or the mainstream media.


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China: Gold is not a Major Investment for Us

Speaking at a news conference recently, Yi Gang, the head of China's State Administration of Foreign Exchange (SAFE), stated again that China plans no major move into gold. Of course "major" is a relative thing.

"It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves. I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion," Yi said.

So if I understand Yi, (sorry, I had to do that), he's not saying that they don't want gold or won't buy gold, only that it's impractical to make a "major" move on the scale at which they are operating.  Hmmm.  2.4 trillion?  I can see the problem.

Not exactly a denunciation of gold, is it? On they other hand, why are they encouraging their citizens to buy gold? Is it possible that the Chinese government doesn't want to risk causing (or overpaying due to) spikes in price, but still wants more gold held in China?

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China says no to IMF gold?

Well, maybe.

China may not buy gold from the International Monetary Fund to avoid causing market volatility, the China Daily reported, citing an indentified official from the country’s gold association.

It is unfeasible for China to buy the bullion as any purchase would “trigger market speculation and volatility,” the paper reported, citing the China Gold Association official.

Of course, if it's true, the interesting part would be the reason why.  China has already indicated it's desire to diversify its reserves out of the dollar, but let's be open minded and consider a range of reasons China might say no to the IMF gold.

1. They feel gold is simply too pricy at the moment.
2. They foresee prices dropping based on some combination of supply/demand (perhaps another worldwide meltdown?)
3. They don't want to spook others into bailing out of the dollar while they still hold huges reserves.
4. They've had a change of heart and plan to stand by the dollar.

Of these four, I can get my head around 1, 2, and 3, but 4 seems laughable.  Am I being too hard on the dollar?



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China cuts holdings of U.S. Treasuries

This headline says it all for me.  Still, I did enjoy the following: 

WASHINGTON - The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

 ". . .could force the government to make higher interest payments at a time that it is running record federal deficits."

Really?  Do you think so?  And hey, what will the Chinese be doing with their money now?  I don't see the Euro is offering much appeal.  Other than gold, where do you put big money now?



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