Sunday, October 16, 2005

Deflation's Revenge On Illusory Wealth

This one's important! - A speculated strong dollar collapse?

...When the workout teams tote up assets and liabilities, the post-mortem will show that America’s economic engine had been running on fumes for years and that most of our supposed wealth was merely a credit-induced mirage. Hard to believe? Then ponder this: Derivative debt instruments currently in play total $248 trillion, according to the most recent figures from the Bank of International Settlements. This compares with a global economy in real goods and services amounting to a little less than $40 trillion. It’s not a case of the tail wagging the dog, but of the tail wagging an entire financial cosmos...

...Even before these factors emerged, however, Buffett, Soros and a few other Masters of the Universe were shorting the dollar in size. But as the chart makes clear, they have all been on the wrong side of the trade – not because their logic was terribly flawed, but because they failed to understand that it is financial speculation that has been driving the dollar, not the relatively puny dynamics of the world’s goods-and-services economy. Despite being in prodigious oversupply, the dollar is strengthening simply because it’s where all the leveraged action is. Who cares about the perfect storm. Leveraging dollars is still where it’s at -- the hottest game in a global casino that, even with an earthquake rumbling beneath it, remains eager and able to extend hundreds of trillions in credit to the players...

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