Gold is already too over-valued (personal opinion). Even though US dollar is facing devaluation pressure, but as long as our Fed is smart enough to allow a recession. Dollar values will hold. Yes, Fed has a choice: A recession or devaluation of dollars possibly causing a stagflation.

Personally, I will still keep all my money in a FDIC insured account right now because it is more liquid and I can move depending on Fed’s move. STOP PUMPING MONEY INTO THE MARKET STUPID HELICOPPTER BEN!!!
Inflation control is the top priority for the Fed not economy growth! A recession is not a big deal as long as inflation is under control.

September 8, 2007 @ 1:06 am | Comment

I’m not sure what will happen – not much I can do about it beyond moving things around in my 401K, which I already did – I shrug and say once more, “Clusterf*** accomplished! Thank you, George W. Bush!”

September 8, 2007 @ 1:16 am | Comment

Let’s watch gold. I bought in January and my investment is up 12 percent, and I think it hasn’t even started its rise. Falling dollar tends to result in higher gold prices, and the dollar is going no where except down. I wouldn’t have my money in the bank right now, with rates dropping so fast and more interest rate cuts to come. I would feel much safer investing in foreign currencies (I am soooo glad I’m being paid in RMB right now) and funds that short the dollar. And if I had more cash on hand I’d buy more gold. It should break 1,000 by the end of the year. (And as a disclaimer, I know nothing, I am always wrong, I blog for fun and amusement, and I am shockingly stupid.)

September 8, 2007 @ 1:19 am | Comment

Lisa, we talked about this six months ago – I told you then, gold and foreign currency! Move your money out of the 401K, transfer it into a Roth IRA and choose a few good mutual funds in foreign currencies, precious metals and shorting the dollar. Do it now. This could be a meltdown.

September 8, 2007 @ 1:21 am | Comment

>>Get rid of your dollars fast

My wife takes care of that for me. If the shoe market drops, I’m fucked.

September 8, 2007 @ 1:58 am | Comment

Richard, you’re a fool.

If you have gold what currency will you convert to?

The central banks will unload gold to bring down its price when it’s necessary.

This situation is a controled devaluation of the dollar. It’s happened before. In the end, the dollar will stabilize and then rise.

Before it’s over, the RMB will drop like a rock.

Stop getting all excited like a little ol’ lady that you are and just calm down.

September 8, 2007 @ 2:52 am | Comment

Truthfully Richard, I don’t have enough in the 401K to really worry much about it. And I don’t think I have the Roth option. The Company matches my contribution to the 401K, for one.

Like I said, *shrug* – I’m already pretty screwed with the housing thing, though I think having property in Venice is still a pretty good investment.

September 8, 2007 @ 6:55 am | Comment

401k plan is different than IRA or Roth IRA.

401k plan are connected to your current job through contribution by you and your company. The good thing is that you get free money, but the bad thing is that your company can eat it if something went wrong with the company i.e. Enron.

Roth IRA is my personal favor but the contribution limit is 4000 a year. However, you don’t have to pay a single cent of tax once you cash out. Also, you can take out the principle to buy a house or use for education. So in theory, you can establish a Roth IRA for your new born and use it as an educational fund.

The central banks will unload gold to bring down its price when it’s necessary.

US central bank has very little gold in realtionship to the US currency that it needs to have. US dollars is currently based on central bank T-bond holding (yes, we are borrowing from ourselves). So there won’t be that many gold to unload.

US dollars are still facing huge amount of pressure to devaluate. However, that will be because we have been spending too much. As for shorts, shorting US dollars are extremely hard because the amount of cash it requires is way to big for even largest bank, hedge fund, private equities today. In THOERY, as long as Fed don’t pump too much cash (phatom cash) into the market, there is no way US dollars will go down. However, Fed already did that for about 100 billion dollars. I just hope Fed won’t do it anymore.

September 8, 2007 @ 10:00 am | Comment

Fred, I admit it, I am a fool. And my investment is up 12 percent since January. How do you measure foolishness?

September 8, 2007 @ 10:18 am | Comment

My final prediction: Gold well above $1,000 within 6 months. Closer to $2,000 within a year.

I predicted in January it would be up 10 percent within 6 months. I was wrong – it took 8 months. Now, since I am a fool and a moron, no one should take me seriously. Everyone should instead stock up on dollars and invest in mortgage companies like Countrywide.

Arty, in June I shifted all my 401K money into my Roth IRA and chose funds that would benefit from a decreasing dollar. Smartest thing I ever did. But remember, I don’t know anything.

Also, there are ordinary mutual funds that short the dollar, so you don’t need a huge amount of money to short the dollar.

September 8, 2007 @ 11:12 am | Comment

This is what will finally bring down the empire. The US will be a very unpleasant place to live for a long time if it happens.

But Richard, gold is a commodity subject to all sorts of non-currency-related fluctuations; perhaps you should balance it with other commodities like oil, cotton, etc.
Gold is only good for if things really collapse.

Hell, why not Swiss francs or something.

September 8, 2007 @ 11:44 am | Comment

Also, there are ordinary mutual funds that short the dollar, so you don’t need a huge amount of money to short the dollar.

What I mean is hedge fund kind of short which will really affect the market. Yes, everyone can short but you better hope it doesn’t come back and bite you. Just like I think you are buying gold certificate, bonds, or some sort of gold trading notes not the real gold. To sell these I thnk you need at least 24 hours notice. If you are buying real gold, I don’t know how you can sell it in any decent speed.

I sold my stock 1 week before August, I am up 28.8%. I sold all my Roth IRA mutual fund except one which up about 40% at the same time. So what do I have in my brokage account? Cash (at 4% interest) How about my Roth IRA account? Cash at I think around 3% currently. I did not lose any money from the dive.

Sure, I am worry about dollars (actually I am very very worried!!!!), however, when I see it coming, I can move the cash quicky than anything else. Faster than bond, faster than mutual fund etc. I won’t buy gold because just look at its 20 year chart, it is at freaking peak. I could be wrong! But I never buy any investment goods at the peak. I won’t buy Euro because I have no idea why US dollar could possibly devaluate against Euro i.e. there is no real reason. I can see why US dollars devaluate against Japanese Yen and Chinese Yuan, but since they are pegged to US dollars. Hey, I doubt serious devaluation will occur. Of course, I could be wrong.

September 8, 2007 @ 11:57 am | Comment

boo, gold makes up only about 30 percent of my portfolio. Like I said, foreign currencies is a very smart investment. I like getting my salary paid in RMB – if I chose to have it put in my US bank account I’d be in very sad shape today. Fred up above insists the RMB will plummet. Yeah, we’ll see.

Predicting macroeconomics is always a risky game. But common sense tells me recession is simply unavoidable as some of our hugest industries – real estate and autos come immediately to mind – get battered, and as America leaks money in two unending wars as it offers lavish tax cuts to the wealthy. Will China continue holding onto all those dollars? Maybe it has to, since it’s own destiny is soldered to America’s economy. All we need is for China or Japan or Taiwan and others to start divesting, and then we’re totally SOL.

Meanwhile, if we thought outrage about the Iraq war was high already, wait until we are in recession and Americans read about the ever-increasing billions that Bush demands for a war he said would literally pay for itself with Iraqi oil. It is a truly bizarre time for America. It’s still the most prosperous, most powerful force on earth without any competition, yet at the same time it appears so crippled and helpless, brought to its knees and drowning in political and economic chaos by a lethal mix of Osama Bin Laden, greedy money lenders and a president who remains eerily distant from the havoc going on in front of his face. There’s no apparent way out. A wonderful time to live abroad and to be paid in euros or RMB.

September 8, 2007 @ 12:09 pm | Comment

Arty, I buy the gold stock GLD – I can sell it at the touch of a key on etrade. My broker bought the short-dollar mutual fund and I think you’re right, it would take 24 hours to dump it. But the dollar’s decline is a gradual process, even if it sped up yesterday with the labor announcement. 24 hours shouldn’t make a big difference either way – the erosion has been going on for many months and has many more months to go.

September 8, 2007 @ 12:12 pm | Comment

I did a little reading on Libertarian economic theory, ie. Mises/Austrian school of economics, their idea of the business-cycle, and their critique of central banks and their policies.

Quite convincing, but I am but an interested amateur on that field. So I would appreciate other opinions and arguments.

If they are right, a downturn is inevitable and the longer the Fed pumps money into the market and tries to stop the unavoidable the worse it will get.

Btw I also wouldn’t be too certain with the RMB. Chinese economy also got a little hot in recent time but government and central banks policy to cool it down seems not to work out that good. Inflation is looming.
And that stock market … gee!

Guess that is also one reason why Chinese government is so nervous ahead of the party congress.
Seems it’s not so harmonious in Zhongnanhai at the moment: http://tinyurl.com/3xrk9j

September 8, 2007 @ 1:27 pm | Comment

Richard, begging your indulgence for going off-topic, but in another thread I caught t-co throwing his prior endorsement of Ron Paul down the Orwellian memory hole, and I want to call him out on it before that thread sinks off the main page. Here it is:

http://www.pekingduck.org/archives/004716.php

September 8, 2007 @ 5:16 pm | Comment

Richard,

You should keep your eyes on etrade if it is your trader. I guess you haven’t heard that it is heavily invested in real estate mortage. And rumor has it, it got problem…

The rumor could be found here

http://piggington.com/etrade_stock

Also, its stock is taking a dive recently if you haven’t noticed it.

Shulan,

Predicting currency value is probably even harder than predicting future value of stock because it’s connected to so many things. In theory, increasing money supply of a particular currency will cause devaluation. However, it is not necessarily true. Btw, a recession in thoery should ease the pressure on the dollars. The current pressure all have to do with Fed keeps pumping money into the open market to let some banks stay afloat. Investment rule 101: Don’t throw good money at the bad ones. Now we come back to the question, which banks are Fed keeping afloat? I know Countrywide is one for sure…

September 8, 2007 @ 5:31 pm | Comment

The dollar has no where to go but down over the next decade. Gold and the Euro will go up. The U.S. is running a huge current account deficit. This will weaken the U.S. currency for years.

September 8, 2007 @ 10:40 pm | Comment

A Proposal For the Chinese Central Bank to Use All of Its Foreign Reserves to Buy Gold

We know that China has a lot of foreign reserves in its Central Bank. Most of the reserves are American dollars. My suggestion is: take all the American dollars in the reserve, allot some for annual spending, and then use the rest to buy Gold from America.

This year’s China’s trade deficit with the US is 100 billion US dollars (rough estimate). Next year’s projected will also be around 100 billion. If China plans to buy 200 billion worth of American products this year, and again next year. Then it is equivalent to saying that this year, China sells a total worth of 300 billion dollars of goods to America, and next year, that worth will be at least 200 billion.

Then, if this pattern goes on, then China’s Central Bank will have 100 billion dollars increase in reserve every year. Then the amount of increase makes American dollars a way of “saving”. But of course, there is also a part of that reserve that’s used for exchange.

So we can divide the American dollars reserve in the Central Bank into two parts: used for “Savings” and those used for”Exchange”.

My suggestion is, take the part used for savings, and spend every dollar of that to buy Gold from the US, and transport those Gold back to China. So in principle, China’s Central Bank only keeps enough reserve for exchange, and sells the rest of the reserve for Gold.

So, originally China and US always have trade deficits. But if China buys enough Gold from the US every year, the deficit will be balanced, and this balanced decifit can be continued every year. I suggest this because I believe when you have something like Gold saved in your bank, this is a physical thing. But when you save American dollars in your bank, it is nothing but a pile of papers, or, I can say it is nothing but a digit in the memory of a computer in America. If you think about it, this is very very dangerous.

Also, I suggest that China continues to limit free exchange of its currency: the Yuan (RMB). But at the same time, it should establish a principle of “Yuan-Gold exchange rate”.

That is, the amount of Gold represented 100 Yuan should stay fixed. In other words, China’s “Gold Price” should stay fixed. If the Yuan devalues one day, then Gold will devalue. If the Yuan’s value goes up, then world’s Gold’s value goes up. This way, many rich people of the world will rush to buy the Yuan as a long-term savings method.

Of course, there could still be some scenarios that would change China’s “Gold Price”, such as when China discovers that America gets ahold of a lot of Yuan, tries to harm China by intentionally buying the Gold in China’s bank using the Yuan, thus depleting China’s Bank of its savings Reserve (Gold) and cause a financial crisis. If that’s the case, then China can suddenly announce a large devaluation of the Yuan, so that a Yuan can only buy 0.1 gram of Gold instead of 1 gram. This is like a protective measure. But this measure should not be used lightly, and only in the most extreme cases.

In conclusion, if China uses American Dollars in its savings reserve, then China’s economic lifeline completely depends on the credibility of the American government in the world. But if China replaces Dollars with Gold in its reserve and set up its “Yuan-Gold Price”, then the world’s economic lifeline will shift a lot onto China’s Government’s credibility. Who relies on whose credibility is of upmost strategic importance, like gaining an upper hand in a chess game. If you rely on my credibility, that means I have the power to harm you, at least the potential power to harm you. Also, the Chinese people like to save, while Americans like to spend. This is why credit-card debt has never been a problem amongst the Chinese. If all the clients of Visa or Master Card are all Chinese, then those companies will go bankrupt, or at least be earning much less profit.

Also, given the current giant spending the US needs to maintain in Iraq and the current housing crisis, the US will of course collapse within the next 5 to 10 years. So before it collapses, replacing all the Dollars in the reserve with Gold is a way to minimize China’s loss when the US collapses.

September 8, 2007 @ 11:26 pm | Comment

A Proposal for Math to be melted down and for whatever remains of his body to be exchanged for gold…

…as last I heard the net value of the mineral remains of a Human Body was around 20 US dollars, I invite Math to kill himself and to sell his body, and send the proceeds to me, so that I can buy a bottle of vodka with it.
If Math agrees with this, I will promise to raise one glass of vodka to toast Math, and another one to toast the stupidity of the CCP who are currently committing suicide in a very admirable way.

September 9, 2007 @ 1:42 am | Comment

F–. We need some HEAVY METAL on this thread!
Here is what the cartoon character, “Heavy Metal Guy” (my alter ego) has to say about all this:

http://web.dkm.cz/koplih/hmg/02-Big%20Money.swf

September 9, 2007 @ 2:42 am | Comment

China should buy the Euro. They can spend the next decade driving the Euro to 3.00 up from 1.36 to the dollar. This will force Europe to move their production to China. China can win big over time if they are smart.

September 9, 2007 @ 3:06 am | Comment

I never saw so many international finance experts in one place! This may end the empire any day now! Except, hmmm, the empire has been trying to get the dollar price lower for quite some time, and will probably continue until it starts to shrink the trade deficit.

By the way, you CAN trade currencies freely with very little investment, but you gotta watch them closely as the contracts are heavily margined.

September 9, 2007 @ 5:53 pm | Comment

sam, go back up the thread to where I state emphatically that I have no idea what I am talking about, as usual. Except, somehow I’m almost always right. 🙂

If you honestly think what we’re seeing now is part of a government plan, something Bush actually wants to happen, more power to you. It’s politically disastrous and exactly what the installed government doesn’t want as it heads into an election year.

September 9, 2007 @ 7:54 pm | Comment

Well, Richard, what has the US been hammering on China about for years? A higher yuan (meaning cheaper dollars). There are a lot of benefits to the US economy, especially the manufacturing sector, from a declining dollar. Meaning a gradual and orderly decline, which is what we’re seeing so far. And yes, it’s unofficial policy.

Now, a sudden collapse in dollar value would be another matter entirely, but all those foreign dollar holders emphatically do NOT want the value of their holdings to collapse. So who knows? Doesn’t mean you’re wrong, and gold may go much higher yet, but don’t fall for every oversimplified scare story that comes along. In the late 80’s the dollar fell much faster against the Euro than it is falling now. Do you remember the big panic? Me neither.

September 10, 2007 @ 1:55 am | Comment

But a falling dollar is good for US exports! The Euro isn’t much to bank on, their productivity is wavering with labor shortages and heavy welfare benefits. The rest of the world banks on the US and EU to keep their economies going.

I’d put my money into US, Eurozone and Canadian gov’t bonds (psst, the artic is open for development and all three need infrastructure upgrades!)

September 11, 2007 @ 2:49 pm | Comment

U.S. Exports? What exports?

We exported 4.8 billion to China in July and Imported 28 billion. A falling dollar will NOT get us out of this mess. We are being crushed.

September 14, 2007 @ 12:08 am | Comment

We exported 4.8 billion to China in July and Imported 28 billion. A falling dollar will NOT get us out of this mess. We are being crushed.

The numbers only includ production good trading deficit. The real money flow is measured differently. Although it is still negative last few years, it is not as bad. A lot people move their money (i.e. cash) into US banks for good reason. My family moves at least half of what we made in Asia into US accounts. Because the moment China invades Taiwan, Taiwan dollars will be almost worthless. If you like to talk about conspiracy, do you know what happened to their currencies when Iraq invaded Kuwait and we invaded Iraq :), and the amount of oil associated to their currencies.

September 16, 2007 @ 9:28 am | Comment