Devaluing the Dollar - Against What?

When people talk about devaluing the dollar, as opposed to reissuing it completely, the natural question is, against what? What would one devalue it against officially if you do not wish to reinstitute a formal gold standard, which is clearly the preference of the Western central bank.

One likely candidate might be the SDR issued as a new currency for global trade, and for the pricing of international goods and commodities.

The major bone of contention as I have pointed out before would be the new 'basis' for the SDR. What Will the World's Reserve Currency Become?  The BRICs are adamant for the inclusion of additional currencies and gold and silver to make a portfolio that is less weighted to the US, Europe, and England.

A country would have the option to retain their own national currency for domestic use.

This is regards to devaluation as opposed to a hyperinflation and reissuance in which case old dollars would be scrapped for 'new dollars' with a couple of zeroes knocked off.

A friend sent this information about the US Post Office my way today. The speculation on the 'new composition' of the SDR is mine. I am assuming that the number of Euro countries decreases.

The US Post Office is using US$ to SDR conversion tables for international mail insurance --> US Postal Service US$ to SDR Policy and Tables

Earliest reference I could find to when the USPS started pricing in SDRs is 2009, which is well after the initial financial crisis.

IMF publishes daily tables on SDR values--> IMF SDR Daily Tables

Quick calc: at today's SDR rate of 1.52 SDR to 1 US$, if a new global dollar like currency was issued, then a current $1 US would buy you 66 cents of that new currency.

This is about a 34% drop in the $ value.

And that is probably best case scenario, since the daily SDR rate is priced
relative to 3 other currencies. If the US$ were to take a pounding prior to
issuance of a new currency, the exchange rate would be even less favorable to $ holders.

Summary: The pricing mechanism for replacing the greenback is in place. As
your anxiety level rises on the $, feel free to check daily to see what your bank deposits would be worth after a bank "holiday".

Net Asset Value Premiums Of Certain Precious Metal Trusts and Funds

A Quick Look At the Market Technicals: SP500, Gold, Silver, VIX

The gold and silver charts have not been updated for today's rally.

As is clear from the metals charts, gold and silver were DEEPLY oversold short term. So this *could* be a relief rally. The talking heads say it was because of the weak leading indicators this morning with overtones of QE3, but I think it is more likely that the momentum traders took it as low as it would go without hitting the physical markets and threatening a major divergence.

We will know if this is a new bull leg in the metals if they can take out and hold their exponential moving averages on the charts below decisively.

You cannot see it on this chart, but on my daily charts it appears that gold and silver are in a trading range, with the triangles being negated.

Stocks are also short term oversold. I hear that Facebook will go out at $38 per share tonight, and will likely color the market action tomorrow. The SP may tip its hand in the last hour of trading into the weekend.

It appears that tomorrow is the option expiration for May in stocks, and so I suspect that the selling today are the usual animal spirits one sees around such expirations, and tomorrow there will be quite a bit of pressure to maintain a 'stable market' for the secondary shenanigans on Facebook.

So I have taken off all stock short hedges and am letting the bullion run. I *might* put them on into the close before the weekend depending on what I see on the tape.

Another Take on Inequality From Nick Hanauer and the Restoration Roundtable

I would add that the source of the payment for the consumption is a major factor.

If it comes from a growing median wage that permits consumption and savings by the broader public, then the virtuous cycle is engaged.

However, if the consumption comes from borrowing and credit expansion with the benefits flowing overseas or to the wealthy, there is no virtuous cycle, or the amelioration of misery.  Debt in this case is a narcotic.

In the end it is all about balance, and reform. Stimulus, taxing the rich, and austerity by themselves will only further distort the distortions. Although it should be noted that large imbalances in wealth go hand in hand in imbalances of power, which tend to erode the happy moderation of a functioning democracy with a vibrant middle class.   And the 15% tax on capital gains and the other tax loopholes used by the wealthy is an exorbitant privilege, repugnant to a government by the people.

Imbalances in wealth and distorted domestic economies are often the impetus to war and empire, as nations ruled by the superwealthy seek overseas markets in colonies.  Such economies only maintain themselves by continual expansion and domination. 

The recovery, in whatever form it takes, will be sustainble when the median wage improves.

It is astounding how significantly one idea can shape a society and its policies. Consider this one.

If taxes on the rich go up, job creation will go down.

This idea is an article of faith for republicans and seldom challenged by democrats and has shaped much of today's economic landscape.

But sometimes the ideas that we know to be true are dead wrong. For thousands of years people were sure that earth was at the center of the universe. It's not, and an astronomer who still believed that it was, would do some lousy astronomy.

In the same way, a policy maker who believed that the rich and businesses are "job creators" and therefore should not be taxed, would make equally bad policy.

I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed and all those jobs would have evaporated.

That's why I can say with confidence that rich people don't create jobs, nor do businesses, large or small. What does lead to more employment is a "circle of life" like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me.

So when businesspeople take credit for creating jobs, it's a little like squirrels taking credit for creating evolution. In fact, it's the other way around.

Anyone who's ever run a business knows that hiring more people is a capitalists course of last resort, something we do only when increasing customer demand requires it. In this sense, calling ourselves job creators isn't just inaccurate, it's disingenuous.

That's why our current policies are so upside down. When you have a tax system in which most of the exemptions and the lowest rates benefit the richest, all in the name of job creation, all that happens is that the rich get richer.

Since 1980 the share of income for the richest Americans has more than tripled while effective tax rates have declined by close to 50%.

If it were true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment is at record highs.

Another reason this idea is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the median American, but we don't buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, we go out to eat with friends and family only occasionally.

I can't buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can't buy any new clothes or cars or enjoy any meals out. Or to make up for the decreasing consumption of the vast majority of American families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
Here's an incredible fact. If the typical American family still got today the same share of income they earned in 1980, they would earn about 25% more and have an astounding $13,000 more a year. Where would the economy be if that were the case?

Significant privileges have come to capitalists like me for being perceived as "job creators" at the center of the economic universe, and the language and metaphors we use to defend the fairness of the current social and economic arrangements is telling. For instance, it is a small step from "job creator" to "The Creator". We did not accidentally choose this language. It is only honest to admit that calling oneself a "job creator" is both an assertion about how economics works and the a claim on status and privileges.

The extraordinary differential between a 15% tax rate on capital gains, dividends, and carried interest for capitalists, and the 35% top marginal rate on work for ordinary Americans is a privilege that is hard to justify without just a touch of deification.

We've had it backward for the last 30 years. Rich businesspeople like me don't create jobs. Rather they are a consequence of an eco-systemic feedback loop animated by middle-class consumers, and when they thrive, businesses grow and hire, and owners profit. That's why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.

So here's an idea worth spreading.

In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class, is the single smartest thing we can do for the middle class, the poor and the rich.

Thank You.
Nick Hanauer

Prepare to meet Nick Hanauer. He's a venture capitalist from Seattle who was the first non-family investor in Amazon.com. Today he's a very rich man. And, somewhat jarringly, he's screaming to anyone who will listen that he, and other wealthy innovators like him, doesn't create jobs. The middle class does - and its decline threatens everyone in America, from the innovators on down.

From The Inequality Speech That TED Won't Show You at National Journal.