and yet another story from foreign sources…

‘The Dollar Will Be Devalued By A Large Margin’ The Economic Times Of India

‘Even worse is the scenario of the future of the US dollar. The US is pumping more and more dollars into the world economy, seriously aggravating the burden of its external debt, which is already over $20 trillion. If the confidence in the US dollar is shaken and the dollar goes into a free fall, we may well have what has been called ‘mother of all monetary crises.’

Faced with appreciation of their currencies in relation to dollar and fall in exports, major economies may well embark on competitive devaluations and protectionism, leading to a downward cobweb of production and employment in the world. The Great Depression of the 1930s may well repeat. We must not let that happen. We must make dispassionate analysis of the causes of the crisis and devise corrective measures however bitter they may seem.’…snip…

http://jessescrossroadscafe.blogspot.com/2008/11/proposal-to-g20-from-economic-times-of.html

and…

The Standard – Hong Kong
Gold rush
By Benjamin Scent
Friday, November 14, 2008

‘The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves “in a big way,” the source said.

China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields. (Is it odd that almost everyone in the world EXCEPT Americans can see this coming? – Jesse)’…snip…

Those scoffing at gold should check this one out. China is talking the purchase of 3,000-4,000 tons purchase. How will China pay for it? Dollars or equivalent of course.

US media is not carrying all the important stories…as usual. A dislocation of the bond market is possible and we should be paying attention. A recent auction of long bonds is an example of what happens when foreign buyers become nervous about long term prospects for the dollar and ‘full faith and…’

Central Banks Shun the US Long Bond Auction – “Too Many Unknowns”

“Indirect bidders, a class of investors that includes foreign central banks, bought 18 percent of the securities offered, down from 43 percent at the last sale”

U.S. Treasuries Fall After Investors Shun 30-Year Bond Auction
By Cordell Eddings and Sandra Hernandez

Nov. 13 (Bloomberg) — Treasuries fell, led by 30-year bonds, after investors shunned the government’s $10 billion sale of the securities amid concern that U.S. debt sales will grow…

“The 30-year is not a central bank product, and there’s no real interest from pension funds” at a yield below 4.5 percent, said Andrew Brenner, co-head of structured products in New York at MF Global Ltd., the world’s largest broker of exchange-traded futures and options contracts. “There’s just no interest in it…”…snip…

[Deflation] also redistributes wealth – the wrong way. Savings appreciate, which is nice for the “rentiers” with capital. The effect is a large transfer of income from working people with mortgages to bondholders.

Reading this just makes your hair stand on end. People who responsibly saved for the future instead of partying in a debt bubble fantasy… they’re now the designated “rentier” enemies of the people, stealing bread from the mouths of the working class?

This sentiment is precisely the reason why inflation will roar, perhaps after a very brief bout of deflation. Sometimes democracy is two wolves and one sheep voting on what’s for dinner, and inflation is what they’ll vote for. The exact mechanisms of how it will be brought about are perhaps not yet clear, but also more or less irrelevant — it’s a question of politics, not economics. If helicopters don’t do the trick they will find some other creative ways to make it happen.

Bailout Watch
A regular update on all the ways the government is meddling in the market.

Link

I am always struck by the similarities of rhetoric of the goldbugs and the real estate shills. The value always goes up! It’s always a good time to buy! They’re not making any more of it! The main difference being that it’s hard to get buy without a place to live (though you don’t have to own that place), and it’s easy to live without gold. Personally, if financial armageddon really did happen, I’d rather have a good supply of rice and beans stashed away than gold.