Monday, June 18, 2012

Conspiracy Theories

There's been a lot of talk amongst the gold and silver communities lately about the manipulation of the silver and gold prices. It's a conspiracy theory that has some merit, but also has a lot of unfortunate dot-joining that appears nefarious at times.

But I also have a conspiracy theory of my own. Only this time it may be based on data that can be verified.

President Obama, and his subordinate Treasury minnions, have been giving dear old friend, Europe, a bit of a 'rark up' (a reprimand for you North of the Equator) lately. In a not so friendly manner.

He is angry at Europe for not getting their affairs and spending under control. (Not withstanding their own lack of spending control of course). Why would the Americans be so harsh? Is it because the US doesn't want the contagion that would come with a rotting or even dead Euro? I mean, US banks are exposed to European debt and massive derivative trades more than anyone. One last drop in the bucket could tip the whole system over.

Or is it, and I tend more towards this theory, more to do with currency wars? Since I read Currency Wars: The Making of the Next Global Crisis (Portfolio), it has given me a wee insight into the machinations of large capital flows around the globe. The trillions of dollars traded yearly flit and dart around seeking refuge and safety and most of all, a return on investment.

Simply put, it works like this. If a country's currrency remains high, then they are less competitive internationally. They struggle to sell stuff at a price that is affordable for buyers, ie export receipts are low. The opposite is also true, if the currency is lower in value than your competitors, then your exports will gain more in income.

Of course this isn't all that happens. The curency also has to be seen as having value. It needs confidence backing it and, most of all, needs assets backing it.

So Obama isn't so much going off at the Europeans because of contagion issues. The big Central Banks still have enough clout to control that through money printing. But he is worried about the low Euro, the next biggest currency of value after the USD, going haywire and losing value.

If this happens then the US cannot be as competitive as they would like. Right now huge money is flowing into US Treasuries and the stock market seeking safe-haven. This because the dollar is the best looking house on a bad street. But these money flows do raise the dollars value and cause US exports receipts to drop, thereby hindering income creation and economic activity. In election year, that is a big no-no for Mr Obama. But if he can get the European leaders to fix their problems, confidence in the Euro will rise, money flows will reverse the dollar will drop (preferably to around 65 on the US dollar index) and the US export machine will be healthy once again. He can get his economy moving just in time before November.

Anyway, that's probably enough for today. I'll get to my other conspiracy theory tomorrow: Mr Ted Butler and his hoards of devoted silver manipulation believers.

Gold in New Zealand dollars: $2065.13 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $36.49 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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