Two Quick Notes on the Economy

I've been a "weak dollar" advocate until recently. While China "officially" ended its peg of the Yuan to the Dollar in 2005, China maintained unofficially a pegged currency in the post-2005 period.

What we refer to as market forces in the West are, or have been, different from the forces that dictate supply, prices and demand in economies with greater government control. A free market handles the problem of resource allocation much more efficiently than centrally planned economies. The increase in efficiency means that new and innovative products and technologies come to market more quickly, while inefficient and outmoded products and technologies are more quickly dispatched to the graveyard of stuff that used to make sense.

I have posted here, and elsewhere, about my concerns about further erosion of the value of the dollar in the face of trillions of monetized debt looming over the American fiscal horizon. At a certain point it makes no sense to further devalue the dollar when no one wants a dollar anymore, anyway.

The second note I wanted to pass on is another warning; the future of gold.

I don't have a lot of gold. I do have quite a bit of silver coin. If the money supply were to self-destruct, I know a lot of Gold Bugs (a nice discussion from Seeking Alpha) who feel that they will be left in control of the future destiny of the economy. Not I.

The problem with $4-thousand dollar gold is the problem of divisibility. How do you measure gold for the small purchase? Silver coins have an advantage over gold in terms of their negotiability in a post-apocalyptic economy. Given the practical problems of using gold in a post-apocalyptic economy, silver is going to be embraced as a better currency simply given its characteristics; while it is worth less than gold, a few silver coins may cadge an half elk-carcass easier than would the filings from a gold coin. (An interesting summary of the Silver Bug case can be viewed here.)

But the future of gold isn't going to be determined by a post-apocalyptic economy. Rumours of our imminent demise are greatly over-stated. It may be true that we will have to suffer unemployment increasing to 30 percent or more before we come to our collective senses and indicate to our Leftist friends that all their unicorns are nice, but that we can't afford them.

A year from now we will know the result of the 2010 Congressional election. If you are thinking about getting into gold now, I would strongly caution you to do so sparingly. If you take to the post-apocalyptic view it is important that the whole concept of $4-thousand dollar gold will disappear in a wink if communication systems and national and international markets implode. The gold you have in your hand will only be worth what the feller sitting across the table from you believes the value of that gold to be.

More likely, what you will see is a return to greater centrism in our nation's capital. The extreme Leftism currently on display from our President, the Speaker of the House and the Senate Majority Leader will be muted as seats are lost. Can Republicans pick up 40 House seats next year? Can Republicans pick up eight or nine seats in the Senate? Not that they'd need to do so. One of two additional Republican seats will completely change the complexion of the Senate. But eight or nine seats will signal an end to the current economic devastation predicted by the Gold Bugs.

And if you buy gold today, what is it going to be worth when common sense returns to Washington, D.C.?

A lot less.

The guys that are selling you gold today bought that gold when it was a lot cheaper. And from what I can see going on the television set they are willing to sell you not only gold based upon the spot price, but they lovingly include a huge margin of profit to themselves with extremely beneficial mark-ups. Benefitting themselves.

And what's happening with the Yuan? A lot of confusion. Some reports talk about increased flexibility. And then you have Timmy lauding pegs.

Remember; markets are stronger, more powerful, more robust than governments. Even though the current political leadership in Washington has little or no clue about the effects of the policies they're implementing will have on our economy in the near future, markets will eventually figure out how to avoid the pitfalls of regulatory and fiscal policies and find ways to minimize costs and maximize profits.

It's what markets do.

UPDATE: I don't have an apocalyptic "vision". Having a reasonable hedge for short-term financial difficulties does seem to be a prudent strategy. But, since the comments have descended to the post-apocalyptic, I thought this comment from Instapundit was interesting:

"Funny you mention that about South America and Africa. I’m currently deployed to Afghanistan (Khowst province), and a soldier and I were looking out from the guard tower we go to talking how the Afghans would be best prepared for the end of the world. They’re already living it. You take away the cell phones and the cars (brought to you courtesy of the West), and they’re already living in what we would consider a post-apocalyptic world. I mean hell, even the Romans had sewers and running water. These people don’t even have that. So I’d actually argue we can plan all we want, but its the places like Afghanistan that would probably be best off in the apocalypse… if they even realize its happened."

The Warrior Song

Found this on The Real King of France's website:

If you haven't watched it yet, make sure you've got some decent "speaks" and the volume turned up.

We are different from the Left.

“Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing...”

Staff doesn't know it...but if the Left succeeds in passing the bills that promise to help me, I'm pretty much up against it.

I don't have any idea how the Left has been able to spread the idea that everyone who owns a corporation is rich.

I guess the key is, the Left has never actually had a job.

Take a look at our own Speaker of the House, Oregon's Dave Hunt. Speaker Hunt has never had a job where he has been held accountable to customers. He's never had to warrant a product. He's never made or fixed a thing. As far as I can tell, he has never built a thing. He has never owned inventory nor attempted to profit from owning inventory. He does have a degree from Columbia University which, I am told, is a measure of how smart and important he is.

The Governors "K" have never had to deal with the mundane, pedestrian issues that face a small business owner. The first Governor K did work with patients. He did have a professional role to play in the health care of his patients. Point given. Granted.

The Second K has never done any of the things that tens of thousands of Oregonians have had to attempt; making a living in the private sector. As far as I can tell, the Second K has only worked for the government, or government agencies.

Just like the House Speaker. Just like too many of the House Speaker's colleagues. The union teachers, the union attorneys, the union members.

What David Farr said today is important. That the spokesman for former Washington bureaucrat and current Secretary of Commerce Gary Locke disagrees with Mr. Farr gives you more, not less, information about the background and experience of our political class.

Chiding Mr. Farr will not change his strategic goal; to make a profit. When you cannot make a profit in this country, you will look for opportunities elsewhere.

I'll work until I get upside down. Thankfully, I have a sister who resides in China. Blood is thicker than water.

The Miracle of Cuban Health Care

"Brief medical report".

Why can't we be more like Cuba?

Party Identification

Yesterday, AreWeLumberjacks? asked the question of how we identify that which we see occuring around us?

Worse, the problem of the Left viewing the Rest as idiots.

Zogby has an interesting take on self-identification. One must always read Zogby with a grain of salt. Yet, a pinch is good for the stew.

Zogby on self-identification.