WorldNetDaily: Gates, Buffett, China 'run from dollar'

World Net Daily ^ | February 3rd, 2005 | Craig R. Smith

[Paul Ross]

Thursday, February 3, 2005

---

---

Gates, Buffett, China
'run from dollar'
Expert sees development as sharp warning to Americans

---

Posted: February 3, 2005
1:00 a.m. Eastern

---

© 2005 WorldNetDaily.com

Decisions by the world's two wealthiest men to bet on a further weakening of the U.S. dollar, coupled with China's lack of confidence in American currency should grab the attention of every working person, says Craig Smith, CEO of Swiss America Trading.

Warren Buffett (Photo: Honolulu Advertiser)

Microsoft Chairman Bill Gates is following the example of Berkshire Hathaway Chairman Warren Buffett, who made a pretax gain of $412 million in the fourth quarter of 2004 by buying foreign currencies.

Citing widening U.S. trade and budget deficits and a federal debt of $7.62 trillion, Gates said in a TV interview at the World Economic Forum in Switzerland last weekend he expects the dollar to extend its three-year decline.

"I'm short the dollar," Gates said, according to Bloomberg News. "The ol' dollar, it's gonna go down."

Smith, whose company specializes in tangible assets, told WorldNetDaily he can't believe this news is not the big headline across the nation.

"When I saw this quote, literally I had to catch my breath," Smith said. "This is a clear-cut signal that the people who know money are running -- they are not walking -- in my opinion, they are running from the dollar."

Smith said the actions of Buffett, worth more than $42.9 billion, and Gates, $46.6 billion, are significant in light of the lack of confidence recently expressed by leaders of the world's fastest growing economy, China, which has its currency pegged to the dollar.

Fan Gang, director of the National Economic Research Institute in Beijing, said last week at the World Economic Forum that "the U.S. dollar is no longer -- in our opinion -- a stable currency and is devaluing all the time."

Chinese Central Bank adviser Yu Yongding also has chastised U.S. policy makers, saying, "The U.S. should take the lead in putting its own house in order."

Hedging your bet

Since the beginning of 2002, the dollar has dropped 26 percent against a basket of six major currencies, and the trade deficit grew to a record $609 billion. In addition, the Bush administration expects the budget deficit this year to hit an all-time high of $427 billion.

Smith notes that big investors such as Buffett, Gates and the Bank of China can hedge their portfolios by shorting the dollar -- making a profit off of its decline -- but the average person must turn to tangible assets such as gold.

"That's why this [news] is music to our business," he said.

Dollar-denominated investments such as retirement, 401K, college and savings accounts are in jeopardy with the currency's slide, Smith said.

"An average American has to ask himself this question, 'If the two richest men in the world are abandoning the dollar, why should I stay in it?'"

Stephen Moore, senior fellow in economics at the Cato Institute in Washington, told WorldNetDaily, he still believes it's anybody's guess which way the dollar will head.

"These guys have been famously wrong in the past," Moore said, referring to Gates and Buffett, who are partners in investment deals. "I don't think there are any gurus who know what is going to happen."

Moore says he has faith in the Bush administration and Federal Reserve Chairman Alan Greenspan, whose announcement today of a quarter-percent interest-rate hike led to a rise in the dollar.

"I think the dollar has fallen about as much as it should," Moore said, "and the fact that the White House and Greenspan have made it clear that the dollar's decline is not good for the consumer makes it more likely it will be addressed."

Smith points out, however, that when the dollar began sliding in 2000, then-Treasury Secretary John O'Neill said the Bush administration would maintain a strong dollar policy. When O'Neill was replaced with John Snow, the new secretary said the same thing.

"It still kept falling," Smith said. "We can't depend on the dollar, with the debt, the twin deficits and the trade gap."

Smith points out the silver lining that usually accompanies a drop in the dollar -- an increase in exports because U.S. products become cheaper for foreigners -- has not materialized.

In fact, the November report was predicted to show a trade deficit of some $50 billion, but instead turned out to be $60.3 billion.

Losing our place?

Greenspan has expressed concern that the deficits poses the risk that investors may stop buying U.S. assets, propelling the dollar even lower.

In that situation, Smith said, interest rates will have to rise in order to encourage people to hold on to the dollar. But consequently, he warns, the "stock market goes in the toilet."

Smith said his big concern is that ultimately the U.S. may lose its place as the reserve currency of the world.

He speculates that this possibility may be behind the investment strategies of Gates and Buffet.

"We are first world reserve currency issued by a debtor nation," Smith said. "How long will the rest of the world accept that?"

---

[monday]

"Wrong. Government spending has virtually nothing to do with the trade deficit, except when we do stupid things, like use our hard-earned taxpayer dollars to buy foreign-made weapons."

Sigh.... the trade deficit has nothing to do with dollar devaluation. The trade deficit is almost wholly due to more foreign investment in the US than US investment elsewhere.

What causes currency devaluation is an excessive money supply. This money supply is controlled directly by the US government bond market. When they issue new bonds they increase the money supply. When the government spends more than it brings in it must issue more bonds.

Admittedly this is an over simplification and there is more to it than that, but the fact is that excessive government spending is like the government printing more money in order to pay it's bills instead of using tax revenues. Of course such an action will devalue the currency. This is what the government is doing.

[JeffersonRepublic.com]

"I would doubt that Berkshire Hathaway (Buffet's company) outsources any of its workers. The type of business it does wouldn't require that."

They do - India. Most of their call centers for the insurance side of Berkshire is handled in India.

[Southack]

"Deflation indeed. Foreign goods became too expensive. To the consumer, and for those tangible hard goods which held their prices, it sure looked like inflation. Especially compared with their new, lowered standard of living. Over 30% of the U.S. population was forced into bankruptcy."

What a silly argument. Prices went down for assets, so you argue that it somehow *looked* as though things were more expensive.

If you want to bring back a DEpression (with coresponding DEflation), simply grow the money supply *less* than the rate of GDP growth. Switching the currency to gold (which can't grow very fast because you can only find and mine it at a certain speed) would be a prime way to accomplish such a national impoverishment.

Deflation can slow your speed of money (i.e. how fast financial transactions occur). Slowing down your money slows down your economy, a very bad cycle in which to be in.

Deflation does enrich the very wealthiest, of course, at the expense of the rest of society.

[Paul Ross]

Never mind.

In fact Alan Greenspan hasn't got the message then, while behind the camouflaging rhetoric, saying the economy is "now on solid ground", yeah right, he plans a whole string of more or less continuous rate increases, as shown here. This is precisely what we would predict as a result of the trade deficit. Not because of domestic inflation, but because of trading away our industrial economy. "Inflation/Deflation" is only a side-effect of lowered U.S. standard of living being imposed by the conjoined interest of plutocrats and marxists.

[oceanview]

and that is what this is all about - getting china to drop the peg, its killing us, its killing europe and japan too because as the dollar drops, chinese goods get even cheaper in those markets. we should be using tariffs to get china to drop this peg, but we eliminated that ability by signing onto these insane GATT agreements. I am not sure what we can do to force this.

[monday]

"Jim Robinson ought to get paid for this advertisement."

lol

[Paul Ross]

But you haven't seen groceries here in the U.S. rise 30% since 2002...

What groceries you been buying? Milk, eggs, bread, are just some of the ones going through the roof. Here is an almost year-old report:

from the April 30, 2004 edition - http://www.csmonitor.com/2004/0430/p03s01-usec.html

Inflation hits the family dinner table

After years of stability, prices rise on key items, hitting pocketbooks and economy.

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK - Many of life's necessities are becoming more expensive.

Let's start with breakfast. Eggs: up 5.2 percent so far this year. Butter for your bread: up 62 percent. A glass of 2 percent milk to wash it all down: It may rise as much as 50 cents a gallon next month.

Time to head to work: filling up the gas tank now costs 30 cents a gallon more since January.

After more than a decade of quiescence, inflation is returning - eating away at family pocketbooks and rippling through almost every segment of the American economy.

The latest evidence came Thursday, when the government reported that the first quarter Gross Domestic Product grew at a steady 4.2 percent rate, but inflation virtually doubled: from 1.2 percent annually at the end of 2003 to 2 percent now.

The rate would have been much higher if it were not for some big-ticket items, such as automobiles and computers, which came down in price. In fact, in the category most families would relate to - food and gasoline - prices rose at a 5.3 percent annual rate.

Those numbers echo the more widely watched Consumer Price Index, which shows inflation running at 5.1 percent annually. Those are the highest numbers since 1990.

The inflationary pressures could well lead to the end of a historically low period of interest rates. Although no immediate rate hike is expected when the Federal Reserve meets next week, analysts believe inflation is reaching the point where the central bank will signal that it will increase rates early this summer. The stock market, anticipating such a move, has already been spooked in recent days.

"Yes, inflation starting to creep up, but still creeping," says David Wyss, chief economist at Standard & Poor's in New York. "It's time for the Fed to start thinking about it, but not panicking about it."

Consumer prices have started to pick up in particular in the past three months. Before that, US companies, facing competition from abroad, had absorbed most of the price increases.

Now, however, the dollar is weaker, and Asian economies are expanding. "The modest acceleration of price increases reflects the welcome revival of pricing power and not the beginning of a problematic inflation," says Clifford Waldman, an economist for the Manufacturers Alliance/MAPI in Arlington, Va.

Unlike other inflationary periods, economists say there are some unusual twists this time. The US economy is now more attuned to the global economy. Last year, for example, the prices of imports fell. So far this year "they are up 2 percent and probably going higher," says Robert Gay, chief economist at Commerzbank Securities in New York.

One reason for the higher import prices is rising inflation in China. The Chinese have become major buyers around the world of everything from scrap metal to waste paper. They're now buyers of one-third of all the aluminum produced in the world. "They don't have the margins to play with, so they are passing on their higher commodity prices to their exports," says Mr. Gay.

China may be planning to do something about its booming economy. On Wednesday, Reuters reported that Chinese Premier Wen Jiabao, in an interview, indicated the country may need to slow things down to moderate inflation. This news dropped the price of gold, aluminum, and other metals.

Consumers may have noticed the higher prices this spring when they shopped for new clothes - most of which are made in China. At the Village Finery, a boutique in Shepherdstown, W.Va., prices are up 5 to 8 percent, says Heather Schott, the owner. "Even the more throwaway types of clothes that you wear for the backyard barbecue are up in price," says Ms. Schott.

For most consumers, the closest encounter with inflation comes when they go to the grocery store, particularly the dairy section. According to the US Department of Agriculture, butter has gone from $2.84 cents per pound to $3.46. Milk is actually down from the beginning of the year. But it will probably go up soon, since wholesale prices are slated to rise 50 cents a gallon in May.

Behind the rise in dairy products is a 1.8 percent reduction in the nation's cow population. Dairy farmers, with the lowest prices in history in 2002, started reducing their herd sizes when beef prices started rising. At the same time, the US, concerned about mad cow disease, cut off imports of dairy cows from Canada. "It's typical of an inelastic product - small changes have a greater impact on price," says Mary Keough Ledman, a dairy economist in Libertyville, Ill.

It could be worse. Many businesses are absorbing the price hikes in order to keep their customers. Take Il Forno, a restaurant on Manhattan's Upper West Side. Joe and Mike Chaghlil sell ham and egg sandwiches for $2.50. They used to make good money on them. But, in the past year, the price of the eggs went from $20 a case to $40, while the price of ham climbed from 42 cents a pound to 56. Even the bread became more expensive.

"We're probably losing money on each sandwich," says Joe Chaghlil, who has not taken a salary in eight months to help keep the restaurant in business. "But the customers won't pay more."

Yet other stores are starting to pass on part of their higher costs. That's the case at Schaller & Weber, a deli on Manhattan's Upper East Side. "The chickens have gone up like crazy, the pork prices are going up, the bacon - bacon is through the roof now," says Chris Cunningham, the manager who notes the store passes on about 75 percent of the the higher costs to consumers.

One place where higher prices have become evident - quickly - is a Papaya King on the East Side. The store, which sells about 1,500 hot dogs a day, has increased prices four times in the past 14 months. Next up: higher prices for the soft drinks. "We have to stay competitive within the fast-food price range," says Alexander Poulos, the general manager.

• Kimberly Chase contributed to this report.

Full HTML version of this story which may include photos, graphics, and related links

---

www.csmonitor.com | Copyright © 2004 The Christian Science Monitor. All rights reserved.
For permission to reprint/republish this article, please email Copyright

[Southack]

"Inflation/Deflation" is only a side-effect of lowered U.S. standard of living being imposed by the conjoined interest of plutocrats and marxists."

You might as well toss in Bilderburger and Illuminati if you are going to post that sort of above tin-foil rant.

Anyone who thinks that 68+% national home ownership, 70+% nationwide stock ownership, cars in every garage, phones and internet in most all homes, outstanding medical care, and higher wages is somehow a "lowered" standard of living simply isn't paying attention to the relevant facts.

[superiorslots]

Quote: like use our hard-earned taxpayer dollars to buy foreign-made weapons. Putting our own industry out of business

The american people can care less about all of this talk about defecits, etc etc. They are more concerned about brittany spears nail polish color.

I personally am buying real estate. I have very bad feelings about the US economy in the future.

The gov't is out of control. Bush wants to raise Osama's bounty from 25 mil to 50 mil. He is spending money like a drunken sailer.

[Southack]

Eggs going up 5% won't give you the 30% Dollar devaluation that we've seen.

[Paul Ross]

You might as well toss in Bilderburger and Illuminati if you are going to post that sort of above tin-foil rant.

Can't dispute anything, I see.

[Paul Ross]

Eggs going up 5% won't give you the 30% Dollar devaluation that we've seen.

You don't read too carefully. That was just in the first 4 months before the article. At that rate, if it continued, it would have been 15%. In one year.

[Southack]

"Can't dispute anything, I see."

That's because none are so blind as those who choose not to see. I already debunked your "looked like inflation" nonsense where you wanted to pretend that the Great DEpression had INflation instead of DEflation. I disputed your silly "eggs up 5%" must somehow equal "30% Dollar Devaluation" (to paraphrase).

Some people don't know when they are beaten or when to come in from the rain...and you're all wet.

[Southack]

"At that rate, if it continued, it would have been 15%. In one year."

It didn't continue.

[Zon]

Basically it's to keep from pricing U.S. goods, services and labor out of the market. Rather, the US. markets become more accessible.

A weaker dollar increases exports. If the dollar is strong when a NRST is implemented it would become even stronger and somewhat offset the increase in exports due to the new tax system. It works the same with increasing labor/jobs in the U.S. 

Perhaps an even bigger concern is the global economy relative to the US. dollar. Having a low dollar at the inception of an NRST would further a global free market. 

By not pricing the U.S. economy out of the global market America can pull the global economy up with it. Making the global economy more accessible. Towards a freer market economy.

[superiorslots]

Quote: You forgot that the Japanese will own most of America. Remember that one?

I read an article and will try to find it. However the jist of the article was how you cannot compare what is happening with China today as what happened with Japan 20 years ago.

China has near slave wages and Japan had a wage base that was similar to ours. We will continue to spiral down until trade policies are revamped with low wage countries especially China.

[Paul Ross]

Anyone who thinks that 68+% national home ownership, 70+% nationwide stock ownership, cars in every garage, phones and internet in most all homes, outstanding medical care, and higher wages WHERE??? is somehow a "lowered" standard of living simply isn't paying attention to the relevant facts.

You postulate facts which are not all in fact real. The wages are not going up. The price of medical care is beyond the uninsured, and is inflating far faster than the normal inflationary pace. And the need for medical care will only balloon as the population greys. The home ownership demographic is great, however, we need to recognize it was due to the historically aberrant low mortgage rates. Not seen this low since the 50's. Not sustainable, as we will soon see.

[Paul Ross]

I see you haven't debunked anything, but I have debunked you. Give it up, loser.

[Paul Ross]

It didn't continue.

Oh really, and your proof for that is precisely where?

[Mi-kha-el]

OK, then he will have to buy expsensive dollar afterwards.