When considering the dollar’s status as the world’s reserve currency, I cannot help but recall the words of Jim Grant (of Grant’s Interest Rate Observer):

 

The dollar is the world’s currency but the Federal Reserve is America’s central bank! Period!

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Ain’t it funny?

Aug 3, 2011

In the monetary systems of the past, checking deposits were claims upon notes, and notes were claims upon gold (typically). If one questioned the good-standing of one’s checking deposit, one could redeem it for notes. Moreover, if one questioned the good-standing of one’s notes, one could redeem them for gold coin or bullion. But, how has this ‘questioning of good-standing’ been transposed to the current irredeemable fiat currency systems of the world?

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A few weeks back, we mentioned that ’we would embrace [a short-term higher high in the dollar index] as an opportunity to take part on the long-side‘. The dollar index has come under some pressure over the past week, so just in case any of our readers were wondering if we’ve changed our minds completely, I thought I’d highlight why we’re sticking to our long dollar position for now (even though the immediate price action hasn’t corroborated this view yet). In the process of outlining our view, I’ll go over our philosophy on currency speculation and consider the breaking correlation between the dollar price of the Euro and the dollar price of gold.

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The great worry that hastened the establishment of the world’s central banks was that monies tended to fluctuate in value. Here, I explain how such ‘fluctuating money values’ came about and — importantly — how this attribute has since mutated. Hopefully, by the end of this article it should be clear that it is changing money, and not fluctuating money values, that one should be focussed on!

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We usually reserve this kind of piece for our newsletter service, but as we’ve been waiting for two to three years for this particular intellectual insight to be confirmed by the market, I thought I’d mention it here. In this article, I take a look at the insurance sector and its recent deterioration relative to the broader stock market.

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As our readers may know, we’re suckers for the theory that markets move in generational cycles. The basic idea is that the knee-jerk reaction is often the strongest one and that investors have a tendency to ‘stick to what they know’. The length of the prime of one generation’s career seems to be a suitable period of time for such ‘things that people know’ to become firmly lodged. Ironically, such lodging is a dire circumstance in a business that amounts to pseudo-futurology. More specifically we might say that investors often become convinced that strong and persistent price trends of the past are a matter of permanence (particularly if the entirety of their career confirms that intellectual conviction). Extrapolation is the name of the consensual speculator’s game, and so, anti-extrapolation must be the name of ours! Timing, as we all know, is incredibly difficult when it comes to the speculative financial markets. However, here I’ll endeavor to speculate as to when the gold bull market might go into ‘mania mode’.

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Ron Paul and Ben Bernanke had an amusing exchange of words yesterday about whether or not gold is money. Needless to say, Ben answered in the negative and appealed to tradition during the conversation. Now, although I hesitantly agree with his conclusion (as in, strictly speaking, gold isn’t a widely used medium of exchange right now), I can scarcely agree with his modes of reasoning. Here, I consider the Federal Reserve’s intellectual legacy and outline a few possible reasons as to why central bankers generally fail to think and act prudently.

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