Comrade, take my kopecks … PLEASE
Bloomberg has a great story today about the slow-motion Russian
devaluation. The story carries strong echoes of Russia’s 1998
devaluation and Argentina’s 2001-2 devaluation. But it’s happening
again in real time.
Here is the key quote from Paul McNamara in London —
‘ The [coming] devaluation has to be big enough to inject “two-way
risk back into the ruble-dollar rate,” he said. “If they
devalue 15 percent and still have $400 billion of reserves
they’ll be in a much better position than if the do this
gradually and end up with $200 billion.” ‘
article goes on to describe how Russians are dumping rubles in favor of
the [relative] safe harbors of dollars, euros, jewelry and property.
Gold is not mentioned — it wouldn’t be polite — but I strongly
suspect our Russian comrades are doing some two-fisted buying of the
yellow dog. ‘Buy now, before prices go up’ — heh heh. When a
step-function devaluation is expected, foreign currencies, gold and
property are rocks of stability in comparison to government Bubble
Watch and learn, Hank and Ben. Russia’s slow-motion leap off
the cliff is a preview of coming attractions for our own United Snakes
DEATH TO THE DOLLAH
Art Cashin on CNBC, five minutes ago —
‘If the dollar starts
to weaken, it will call into question our ability to finance the
bailout package. We’re dependent on the kindness of strangers.
Foreigners won’t want to hold all that debt if the currency is going to
depreciate. So the dollar is key.’
— YEP —
Art went on to say,
looks like huge quantities of debt are being issued with no
readily-identifiable way of paying it back. We can’t raise taxes in a
recession. So how is it going to be paid back.’
Joe Kernan caught
his drift — ‘is the dollar’s drop due to all the money-printing,
or to economic weakness,’ he inquired. ‘More of the former,’ replied
‘Well, if it’s due to money printing, I’d LIKE to have some inflation now,’ says Joe.
‘You sound like Bernanke,’ Art shoots back [as I fall helplessly to the floor, rolling side to side and laughing my ass off].
unstated punch line of this illuminating conversation is that USGOV
DOES NOT ACTUALLY HAVE ANY MONEY. It is going to recklessly borrow
money which it lacks the resources to pay back. Then it is going to
PRINT the currency to pay the interest on it. So … wave goodbye to
Uncle Buck. He’s headed south, to the third world.
And by the way
— with ‘free money’ being handed out [the term actaully appears in a
Bloomberg headline this morning] — what is the value of a marginal new
dollar. That’s right, class — ZERO.
DEATH TO THE FREAKING DOLLAR
Well, despite the dollar falling through critical support and making a giant move, somehow gold managed to be sold the entire day on the NYMEX, as it is virtually every day.
This is an u.g.l.y. move for Uncle Buck:
Despite this move in the dollar, the prior correlation with Treasuries did not hold as they did not budge today.
All in all, these are some very difficult signals to read and I certainly hope that the Fed is up to the task.
As you point out, the Russians have made a bold move.
"Mr. Bernanke? It’s your move…"
yep an ugly move for uncle buck but a beautiful move for oil producers.
opec and russia are hoping ugliness is contagious.
does this mean support from foriegners for uncle buck might be slipping a wee bit?