Current Shamrock Missive

From the Publisher's Desk
August 2008

"The time is now near at hand which must probably determine whether Americans are to be freemen or slaves; whether they are to have any property they can call their own-The fate of unborn millions will now depend, under God, on the courage and conduct of this army. Our cruel and unrelenting enemy leaves us only the choice of brave resistance, or the most abject submission. We have, therefore, to resolve to conquer or die."
- General orders, 2 July 1776, in J. C. Fitzpatrick (ed.) Writings of George Washington vol. 5 (1932) p. 2

The Decline of Amerika!

During our recent sojourn, we couldn't help but over hear a group of American tourist complaining about paying US$25 for a so-so lunch buffet at a tourist stop on their literary.

"I don't mind paying ten bucks for lunch, but twenty five dollars is ridiculous," said the Yankee man in his mid forties.

Hello! $10 for lunch I thought? One can barely buy a meal for ten bucks at a fast food joint these days, at least outside Amerika!

The problem is that tour group, as well as most Americans, simply don't get it. They don't realize that the USD has dropped more than 45% in these past few years for any number of reasons, intentional or not on the part of the US authorities. Other than oil prices this dollar depreciation is not easily discernible until one leaves Amerika and
travels abroad. Then Americans are in for a real "sticker shock!"

Oil is hovering around and nearly at US$150 per barrel as I write these words. Many say US$200 per barrel is not unexpected before 2009 arrives! Nearly everyone is blaming the oil companies for 'raising' prices. The fact of the matter is that the rise in oil prices is due in good part, but not solely, to the declining dollar. A little history can go a long way in explaining the rapidity depreciating dollar and how it affects everyone, even non Americans.

From the mid 1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel.

In 2000, oil prices were $20 per barrel. During 2004 the price rose above $40, then $50. A series of events led the price to exceed $60 by August 11, 2005, briefly exceed $75 in the middle of 2006, fall back to $60/barrel by the early part of 2007, then rise steeply to $92/barrel by October 2007 and $99.29/barrel for December futures in New York on November 21, 2007. Source

Meanwhile let's take a look at the USD: For the U.S. dollar, the first administration of George W. Bush was the worst era since the crash of 1987. Since it peaked in October 2000, the value of the dollar has fallen by more than 45% relative to the euro - which means nearly a 70% rise for the European currency. From a height of 1.179 Euros to the dollar - or $0.821 to the euro, it has reached its current historic low of 062 Euros to the dollar. (As of this writing, one euro is now worth $1.595). As the downward spiral of the dollar continues, a chorus of voices warns about the scope of the depreciation, and demands measures to reduce the U.S. current account deficit.

Is anyone listening?

I have not heard a single US presidential candidate or a single US major news outlet be it newspaper or television, mention a single word about the declining dollar being behind (mainly) the rising cost of oil!

Even New Yorkers Say No To USD

Whilst tuning in and out of the 2008 Presidential Campaign on CNN, a piece about the US dollar caught our attention.

It appears that even in New York City, people are now beginning to reject US dollars in favour of foreign currencies such as the Euro. CNN interviewed an antiques dealer who has a large sign outside his store in New York City saying "EUROS ACCEPTED".

The dealer went on to say that he first started accepting Euros when he went to Paris and had his dollars rejected. He said, "In France they were like, urgh! Dollars? No!" The man had been to Paris over the years many times and said that attitudes to the US dollar had changed dramatically. Whereas before the man said European businesses had the attitude of "Oh great the Americans are coming, but now its like we are a third world country." Therefore from now on this New York businessman is accepting Euros wherever possible.

This is a real life example of how the dollar is losing its respect and good reputation all over the world, even in New York!

Although we do not feel that the Euro is the best currency, as we would pick gold and silver above all major world currencies, it appears as if almost anything is better that the US dollar. We expect to see more rejection of US dollars and other major currencies as this financial crisis continues to unfold. Once inflation gets out of hand, expect to see all currencies being rejected in favour of physical assets such as gold and silver.

America may not yet be a third world country, but the American dollar is certainly a third world currency and that is one of the main factors driving gold to between $2000 and $3000 over the next few years. You can invest and profit from this crisis by investing in gold and gold stocks.

Housing crash?

The former president of the Federal Reserve Bank of St. Louis, William Poole, said that both Fannie and Freddie are technically insolvent.

"Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole said in the interview with Bloomberg.

We've been complaining about overprices real estate in London and elsewhere for ten years now. It appears that with a housing crash looming on the horizon, we will finally, regrettably, be vindicated with our dire overpriced housing price prediction worldwide.

What have the effects been?

The value of the dollar plays an absolutely central role in the global economy.

Oddly perhaps, the US suffers least of all. Although its rampant consumers will find it harder to slake their thirst for imports, its companies will become far more competitive, reaping profits and boosting jobs.

Meanwhile exporters in Europe and Asia have found it harder to sell their products into the US market.

American tourists, the free-spending mainstay of many a European or Asian resort, may stay at home.

International companies will suffer uncertainty and complicated book-keeping.

And because commodities such as metals and crops are traded in dollars, their prices may have to rise; gold and oil have both boomed as the dollar fell.

The decline in the U.S. dollar is having a ripple affect on the Caribbean causing islands to suffer a loss in remittances, the money sent home by Caribbean immigrants working in the United States.

"The U.S. dollar dominates everything which causes a rippling effect. In comparison to the US, prices have gone up and the cost of living is high. The money that we receive from family [in the U.S.] helps, but with prices sky rocketing it is quickly used up," says Trinidadian Joycelyn Wilshire, recently visiting family in New York. She says that prices have increased up to 120 percent.

In places like Trinidad and Guyana, the cost of living has increased so much that people are encouraged to grow food in their back yards to help each other out.

The current state of the U.S. economy is strenuous to most of its citizens, especially those who work extra hours just to send enough money back to loved ones abroad. Last year, U.S. immigrant workers sent $42 billion dollars abroad, the most from any country, according to the BBC.

Portfolio Manager Steve Chapman says:

"I feel most people still don't understand the far-reaching consequences of the dollar's decline.

And I get the distinct impression that some even go so far as to welcome the dollar's decline as a quick-and-easy fix to the nation's bulging trade deficit - short-term possibly, long-term, no way. They figure it's like declaring a store-wide sale on everything made in America. And they hope that will make it easier for the U.S. to sell its goods overseas.

That's the theory. The actual practice, however, is another matter entirely: The U.S. dollar has been sliding virtually nonstop for five years. But during that same period, the U.S. trade deficit has grown by leaps and bounds. That tells me the ignore-the-dollar-to-fix-the-deficit tactic just isn't working.

Meanwhile, the impact on Americans - already reeling from the housing mess and already pinched by rising fuel costs - is growing by the day:

First, we face the imminent prospect of surging prices for everything we import.

Years ago, that might not have made much of a difference. But when you go shopping today - for big-ticket items or just everyday stuff - it's actually getting hard to find products that are not imported or are not made from imported components and materials. That includes"

  • Almost every gallon of gasoline.
  • Nearly every automobile.
  • Virtually all computers, electronics and home appliances.
  • Even many of the other products that you use in your everyday life.

Second, when foreign savers and investors lose confidence in the U.S. dollar, we could lose access to the money they lend us as creditors.

Why is that such a big deal?

Simple: For the past generation or more, while foreign investors have been busily pinching pennies and saving every dime they possibly could, millions of Americans have been merrily borrowing and spending.

Problem: This borrow-and-spend-foreign-money binge has become a national pastime at all levels: Millions of homeowners. Big banks and mortgage lenders. And biggest of all, the U.S. Treasury Department itself.

In the 1980s, it was the Japanese that lent us most of the money. In the 1990s, the Germans took the lead. And now, the Chinese have emerged as big lenders to the U.S. 3 But regardless of nationality, I think virtually all would say

"As long as the dollar's decline is gradual, OK. We can cover the loss by charging a higher rate of interest. But once the dollar starts sinking uncontrollably, we need to cut back, back off, or even pull out."

And unfortunately, that's the risk we now face."

Kenneth Froot, a Harvard university professor and former consultant to the US Federal Reserve, warned: "Part of the depreciation [of the dollar] is permanent. There is no doubt that the dollar must sink against periphery currencies to reflect their increase in competitiveness and productivity."

A very interesting read on the declining dollar is:"It's the Iraq War that's Killing the Economy, Stupid!"

How To Protect Yourself before It's Too Late!!!

To Be Continued In Our Next Issue!

See you next issue


"The people never give up their liberties but under some delusion."
- Edmund Burke, 1784

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