For the ancient Greeks it was the three fates that spun the destiny of life, measuring and finally cutting it short. Now, highlighted by events of the past few days, the unmistakable hands of reserve currency, monetary, and fiscal fates can be seen in the dollar’s latest unraveling.
The dollar’s deepening woes and gold’s ascent coincide with President Obama’s visit to China. I can find no reports of Obama having made smooth promises to the Chinese that the dollar’s value will be maintained. This allowed his hosts to maintain a courteous decorum. It would have been unseemly for the president to provoke the outright laughter that greeted Treasury secretary Tim Geithner last summer in Beijing when he made assurances about the safety of Chinese dollar investments. Not to be ignored is the significance of gold striking new highs with Obama in China, a reflection of the market judgment that long-term Chinese funding of U.S. debt remains at increasing risk.
Federal Reserve chairman Ben Bernanke played his part Monday in foreshadowing the dollar’s grim future. He offered the hollow assurance that the fed was “attentive to the implications of changes in the value of the dollar.” Such benign neglect whispers the truth: impotence in the face of impending misfortune.
On the fiscal front were the first deficit numbers for the new accounting year. To say the Obama administration is merely off to a bad start is to tempt fate. The October deficit of $176.4 billion annualizes to well over $2 trillion for the year. It is unsustainable. The dollar meltdown is underway....