Clean Float – Why the Dollar Must Collapse

For us, taking a long term view, it's easy to see beyond
the dollar's politically maintained currency value as
represented in exchange rates. Using the above part of
Mr. D's speech, one doesn't have to be very strategic
to dodge the coming US currency collapse.
-FOA

The purpose of this post is to further explain and define the "clean float" I have been implying since last June, and to show why the dollar's collapse is an integral part of it. My view of the future international monetary system is one of a predominantly (but not mandated) "clean float" in currencies, which is the monetary side of what I call "Freegold". Physical gold movements will only settle the voluntary imbalances of individual past and present savers, not aggregated imbalances as those will be corrected gradually, through the clean float. I should add that I see this as an effect of Freegold, not a prerequisite.

Back in January, with the dollar at 93 and rising fast, Bright Aurum asked, "Should the USD strengthen too much… can the FED buy euros without calling it a peg, but say ... active monetary operations... - a strategy to shake off speculators, and so on."

Yes, the Fed could certainly do so at the behest of the US Treasury. But the irony of this transition is that the US itself has been running a clean float since 1971. It's the ROW that has been running a dirty float against the dollar.

The dirty float is any official or unofficial exchange rate fix, peg, floor, ceiling or band defended by the public sector (CB). That's what causes imbalances to grow to system-busting levels, because the public sector steps in whenever the profit-driven private sector panics which is when it would otherwise correct. Occasional FX interventions for the purpose of combating unusual volatility, as long as there is no target exchange rate level, can certainly happen within a clean float. I'm not a purist. ;D

The majority of CB FX interventions are done visibly, for all of the logical reasons, and also empirically as well as admittedly according to a survey by the BIS. (The rare reasons for secrecy, according to the survey, are 1. to not actually affect the exchange rate when the goal is simply to acquire defensive reserves, 2. in cases where the intervention is expected to fail, 3. when the CB doesn't want to intervene but is forced to do so by politicians, 4. where intervention is inconsistent with other policy objectives, hence confusing signals will be given, and 5. where the central bank is not sure what it wants to achieve.)

For the US dollar, FX interventions are executed by the Fed under the direction of the US Treasury. This happens very rarely. In fact, it only happened twice from 1996 through 2006. At the end of each quarter, the Fed reveals if any interventions happened, and there were none in 2014. See here, here, here and here. The US has been philosophically and openly opposed to exchange rate manipulations of all kinds since 1971 (except for that brief time in 1978 when it asked Germany, Switzerland and Japan to print and swap their currencies for dollars to help Carter throw everything but the kitchen sink at the problem).

Today's dollar is essentially in a similar position to a currency that has been supporting its own overvalued exchange rate by running down its foreign reserves and will inevitably collapse when they run out, only it hasn't been doing that. The ROW has been doing it to the dollar, putting it in that position. Not that the US protested much while it was getting addicted to its privilege over a half century, but of course the ultimate irony is the ongoing protestations coming out of Treasury calling for the ROW to Stop Currency Manipulation!

It should be quite entertaining to watch how it all plays out next time the dollar starts plummeting, as long as you have some of those items I mention occasionally which let you sleep well at night. In terms of foreign reserves to deploy, the US has fewer than Korea, Mexico and Thailand, but slightly more than Malaysia and Indonesia. Of course it also has its gold, but that was not earned through running a surplus recently, it was earned through running a surplus 70 years ago and would have been long since gone were it not for the genius of Nixon, so US gold can't really be deployed in any meaningful way (yet). Treasury will ultimately be put in the singularly-unique position of having to both print like Mugabe to keep the bloated government functioning at status quo, AND simultaneously beg the same foreigners it has been telling to stop currency manipulation to start massively printing their own currencies to manipulate the dollar. Ouch!

It's difficult to even imagine the insane contradictions of the situation, but I imagine that's what FOA had in mind when he wrote about the US Treasury "shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates," but only "within official channels"(!), as physical gold returns "to official hands in Europe in exchange for Euros" which will presumably be used as FX reserves to support an ever lower dollar. "American policy has only the wish to manipulate its currency valuations with official currency trading" (in other words, IMO, meaning through the occasional FOREX interventions rather than a return to BW-style CB fixing or the post-BW dirty float of unofficial pegs and channels/bands) which is why "it will be in the US advantage for gold prices to rise and rise strongly" so that Treasury can get enough euros for its gold to at least slow the dollar's collapse. Remember, gold doesn't work well in currency defense at its discount market price, "just ask the Koreans and Indonesians". ;D

FOA (08/24/01; 10:54:30MT - usagold.com msg#101)
Part 2

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I have presented this topic many times and again state that "all gold paper will burn". Most mine values included. Then and only then will gold values soar as physical units traded. Not before. As an adjunct, the illusion of most American paper wealth will also burn with this process that transitions the dollar away from reserve status.

At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: its basket currency function dissolved, gold will have to flow from American based stocks. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.

With the world credit gold markets paralyzed in default and dollar credibility placed in question along with American economic stamina; physical gold will return to official hands in Europe in exchange for Euros. A paradox observed as high gold places more demands upon Euros and sends the dollar ever lower.

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In all of this Alan Greenspan will say goodbye. A gentleman of his ability and stature will find no use for a position he cannot change from; a good general does not only retreat. Any lesser player can buy public and treasury debt for the purpose of constant hyper inflation; there is no policy strategy or gamesmanship in this.

As for gold being a problem to buy in the USA? Once again, I point out that American policy has only the wish to manipulate its currency valuations with official currency trading. It will be in the US advantage for gold prices to rise and rise strongly. An acknowledgment to Euro planning and a defeat for 30 years of American gold misuse. If treasury gold is traded at all, it will be within official channels to help control dollar values.

However, as paper gold values freeze up and their use fails the public, physical bullion brokers will become a popular as "crude oil" is to producers. I wish you "a deep well" in your affairs, my friend, and will respond more for a time.

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Thanks Mr. speaker,,,,

Thanks all
TrailGuide

http://fofoa.blogspot.hk/