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 Collapse of Mr. Wyden's Integrity - (Autoplay audio...scroll down to hit pause.) Our senator, Ron Wyden, has lived within a cocoon of liberal wool so thick that the larvae which is Wyden has...
2 hours ago