My Disappointment in the Australian Reserve Bank

I’m a follower of the AUD/USD pair. Recently it has made a frightening reversal back to an area it hasn’t been for quite some time, much like the stock market. A large portion of this is the absolute terror that has gripped investors in the US and throughout the world across all asset classes causing them to liquidate.
This is also the reason for the bump in the US dollar strength. When Americans dump their assets they dump them back into dollars causing the dollar demand and value to rise. It’s really a self destructive move because the fundamental unsoundness of the dollar is what precipitated this mess to begin with. 

The Australian Reserve Bank has caused me a bit of disappointment recently because in September and October they decided to give in to the demands of central banks across the globe and participate in a world wide slackening of interest rates. Australia was one of the few countries that was refusing to participate in the global phenomenon of central bank interest manipulation and runaway credit by maintaining higher rates, albeit still not as high as the true market rate would be. Over the last two months the ARB has lowered the cash rate 1.25% taking them down to 6%. This is a clear signal of sabotage for the AUD and destroys the confidence I had in the ARB’s dedication to sound monetary policy.

The AUD still has a lot going for it because the AUD represents a commodity based country. When all else fails it’s commodities that have value because commodities are what we eat, wear and need for every facet of our lives. We could live without a dollar bill, we can’t live without milk, eggs and bread. It’s these latter that hold the value, not the former.

The problem for most people is that when things go bad the dollar becomes worthless, generally after and as a result of a panic induced liquidation of assets which causes a double hit to the average Joe. First he loses his shirt in the markets and liquidates to cash in fear. Next his now excessive cash pile becomes worthless as banks fall like dominoes as the treasury and federal reserve dump newly printed dollars on the market to fulfill the FDIC’s promises.

My advice, if you find yourself needing to liquidate your investments in the market move that worth into something people are always going to need. Cash dollars are not one of them. It’s a fool’s maneuver to divest the value of your life savings into cash. 

Ben Bernanke, the fed chairman, wrote a book on the great depression. It is his take that the reason the great depression was so great was because the government didn’t intervene enough. History tells a different story. History shows that the great depression was the source and precedent for the majority of our choking social problems including but not limited to government interference in legal contracts (something which is unconstitutional), social welfare programs, make work programs, government bailouts, and lethal force against citizens who disagree with government policy in crisis. 

Paulson and Bernanke are likely to take us down a dark road and have already started down the turnoff, make sure that when we get there you still have enough worth to acquire a flashlight.

The Fed has spoken, inflation will continue

The fed met yesterday and today in their regular meeting to determine the future of interest rates and monetary policy. Not surprisingly they have decided to leave interest rates alone.

What does this mean? Inflation and major profits if you’ve been listening to my AUD recommendation.
At this moment the AUD/USD pair is bidding .95899 which is a gain of 9.2% since January.

For the less risk adverse among you I’d recommend trading the pair on Forex, the currency market, for greater gain. MB Trading, my platform of choice, offers 100 to 1 leverage which means that for every penny the AUD/USD pair increases you realize a 100% gain. That translates into a gain of about 800% since January. Of course 100 to 1 leverage can be quite dangerous as well since you lose just as fast as you gain if you end up on the wrong side of the market.

I am confident that until the US ends it’s foreign intervention policy and changes it’s monetary policy there is a 100% certainty that the AUD/USD pair will continue to move skyward. I will continue to invest in this pair in the foreseeable future.

A buying opportunity…?

I would like to have mentioned this a few days ago but for obvious reasons I was too busy.

If you haven’t been following the economy closely for the last week or two you may not have noticed that the federal reserve has been very active in throwing fluff at the market. This has manifested itself in a misplaced belief that the market may be recovering.

It’s time for a reality check. Nothing has changed fundamentally in the monetary policy of the fed and in fact they have furthered coming inflation through an additional rate cut and attempts at increasing liquidity by dumping money on the market.

This is where the good news comes in. When the fed takes these steps the market typically reacts positively in the short term as it has done for the past 2 weeks or so. This has pushed foreign currencies and precious metals down from their recent highs and created a new buying opportunity. It’s a certainty that until our country stops incurring war debt and our monetary policy is changed to end inflationary credit that the dollar will continue to slide making investments in foreign currency and precious metals a sure bet.

It’s impossible to know in the near term how many more surprises the fed is going to spring in order to delay metals and currencies from returning to their highs, but rest assured they can’t fool me and they can’t fool the market for long.

Mr. Bernanke can tell me one thing but the fact that the Swiss Franc and Canadian Dollar both traded above the value of the dollar and the Australian Dollar is just pennies away proves he is obscuring the facts.

Still watching the AUD?

What’s the big deal if the Australian Dollar increases in value against the US dollar?

To you, not much since you aren’t buying many gadgets made in Australia though you may notice an increase in your meat and wine prices. What it signals is the general failure of the US economy and banking system in direct contradiction to what our political leaders and banking system(Bernanke) would have us believe.

The official Federal Reserve position is that a weak dollar doesn’t hurt the average American. I guess Bernanke doesn’t think the average American needs gas, food and other products to live. I think the absence of these key items from his inflation index probably reinforces that.

Here are some quick currency (inflation) facts that are hurting you right now.
Chinese Currency(Y) has increased in value 2.25% so far this year. That’s an annual rate of 15.2%. That means that the same item you bought for $5.00 just a month and a half ago would cost $5.11 today. If the inflation continues that item will cost $5.76 by year end.

We’ve all heard that China is one of the leading countries in upcoming oil demand. How does this currency increase weigh on that?

At the beginning of the year oil was about $96/barrel or Y701.24/barrel. When the US dollar falls against a foreign currency the other country’s buying power increases relative to our own. When there is an increase of 2.25% in the value of Chinese currency a $96/barrel price translates to Y685.72/barrel. This means that China can afford to continue offering the price of Y701.24/barrel that they are used to which would drive the price in US dollars up to $98.17/barrel. Consider how high oil could go if China actually offered more. With inflation alone oil is likely to cost over $110/barrel by year end and that’s without the Chinese actually increasing their offer per barrel.

Is it any wonder then that oil today traded from 97.16 – 99.37 and closed at 98.81?

It’s time to open our eyes.
This is not some sinister Chinese plot at world domination. This is much more heinous.

This is a continuous and intentional attack on the US dollar in the name of maintaining and saving the economy. This is our government at all levels spending money they don’t have which ultimately results in the printing of money at the federal reserve. This is the result of central banks in most of the civilized world acting in collusion to prop up their failed system of fractional reserve banking and cheap credit as evidenced by their suicidally low interest rates.

This is your warning.
It’s a matter of time before this ball of yarn unwinds.
In fact it may have started already. Don’t rely on the government and their FDIC to guarantee your money because if it comes to that it’s already too late. The FDIC is designed to protect against a single bank failure, not a system wide collapse of public confidence in the banking system.

Wall Street Bank Run – Washington Post
The big plan that’s as flimsy as the Rock it’s built on – Sunday Herald, UK

Watch the AUD/USD exchange rate.

Feb. 4th the reserve bank of Australia will meet and is expected to raise the cash rate to 7% while most of the other central banks are slashing rates in collusion with one another.

What does this mean? While Canada, England and the US are actively inflating their currency by cutting key rates in a doomed (and misinformed) attempt at preventing recession Australia is fighting the core cause of recession, inflation. If the cash rate is increased to 7% expect the USD/AUD exchange rate to move in favor of the AUD. Already the AUD has gained to the tune of 44% annualized against the dollar this year.

Where is your money?

I’ll keep this short. Get your savings out of US Dollars.

Fed rate cuts and the upcoming economic stimulus package are further demonstrating the inflation of the US dollar (which means your savings, despite having the same dollar amount, are becoming worthless). Consider, so far since January 8th the Australian dollar has gained against the US dollar by 2.12%. That’s an annual rate of 33.63%. This means that if your savings account isn’t paying you at least 33% interest you are not even keeping up with inflation, forget growing your savings.

My advice? Stop asking the government for things. They can’t give you anything they don’t take from you to start with. If they don’t take it through direct taxation than they take it through inflation. Oh, and divest of the US dollar.

Thanks for nothing Bernanke

Once again Ben Bernanke has demonstrated his marked ability to harm us all in a vain attempt to prevent a recession he and his predecessor have caused.

Ben Bernanke believes that our economy can’t be stable without control from the federal reserve. I think Ben Bernanke doesn’t know what he’s talking about.

Consider, our economy has never been more unstable than it has since 1913 and the inception of the fed. Since then we’ve had 100 years of the very booms and busts the fed claimed it would prevent including the Great Depression.

Bernanke’s response? The great depression was caused by the wrong kind of government intervention. My response, read a book Mr. Bernanke. Take a few days and sit down somewhere solitary and think on it.

I’ll even suggest one.
Mr. Bernanke’s response to the great depression and creating a stable economy reminds me very much of the Democratic response to government interference in health care. I say the problem is too much intervention, they say not enough of the right kind.

If you haven’t figured out the “right” kind of intervention in 100 years, Bernanke, give up. Let a sound economic theory prevail and put this country back on the right track.

Mr. Bernanke says the market crash is a problem that must be fixed through intervention.
Mr. Bernanke says the Mortgage crisis must be fixed by the government.
Mr. Bernanke thinks the recession is caused by a lack of economic stimulus.

What Mr. Bernanke refuses to admit is that these are just symptoms of the problem and treating them won’t cure the illness, in fact it will make things much worse by trying. Our economy has a virus and the virus is called the federal reserve.

Please, don’t take my word for it. Read any of a multitude of books from minds much greater than mine. Fee.Org and Mises.Org

Oh thanks for the rate cut Mr. Bernanke. You sent my Australian Dollar denominated CDs straight up today. Too bad for those still invested in the US dollar though.