Both have low prices, and are filled with Chinese merchandise. That's why I don't go into them, but that's also beside the point. Maybe K-Marts have lost a lot of mass purchasing power, due to their shrinkage, and this might make prices tilt in favor of Wal Mart. (K Marts are descended from the Kresge five and dime stores, in case you didn't know) Locally, where I live, the K-Mart was driven asunder almost the minute Wal Mart came in. The few K-Marts I have been in, left a lot to be desired, cleanliness and order wise. They seemed to have no plan or layout that I liked. Maybe that's what happened. I do know that Wal Marts have far better senior management, and K-Mart went through a few bad apple CEO's. Enough of that though, because the comparison with Dollars and Euros is similar.
Putin (Russia) is threatening to sell his oil in Euros, and Saddam already was doing it, when America invaded. The Brits still have their pounds, and have declined to go the Euro way, but the march towards the Euro is underway. Why? Compare them to K-mart and Wal Mart, if you please.
The buck once ruled the world, but it is fading. It is fading deliberately, because the DC crowd, have decided that if the dollar goes the way of all flesh, imports will be more expensive, and it will attenuate exports. This may be true to an extent, but since the Chinese yuan (renminbi) is pegged to the dollar, it won't help much. DC has tried to get the Chinese to loosen up, but they say a flat no.
Are there other similarities? Yes, and the fact that the Euro is supposed to be 15% backed by gold, makes it far more desirable, whether there is any gold or not. No one has told me where they store it, shown photos of it, or given quantities of it, so it may not even be there. Like other propaganda, the mere releasing of it, helps. Warren Buffet seems to have discarded the dollar, and that doesn't help it. The Canadian dollar used to be 55 cents, and now is 75 cents US. I'll guarantee you the Canadian dollar hasn't gone up. The US dollar has gone down. Same with Swiss Francs.
England's Pound Sterling was the currency of the world until 1931, when it was taken off the gold standard, so favor was switched to the dollar, which was still backed 40% by gold.
Ever notice that you never hear of the Swiss or Canadian legislative bodies giving away their currencies by the truckload to the undeserving, or getting themselves into endless skirmishes with other nations? Ever hear of the Swiss or Canadians invading another land? Notice that the Germans and French stayed out of Iraq. As a matter of fact, after the French gave up on Viet Nam, and went home to nurse their wounds, good old America went in and lost. Did the Germans or French go into Korea? Can't remember, but probably not, but I know the Swiss always mind their own business. None had to print, to fight a war.
We now see twelve European nations combining their economic systems into one. Twelve nations, all using the same currency, are hurting the dollar very seriously. When twelve of anything combine into one force, that force has far more power than twelve individual things, which usually pull in different directions. If England joins, or a few others, it will only make the Euro stronger.
If America continues printing without end, and sends its dollars everywhere with no rhyme or reason, other than the DC urge to help, fight, or invade, the very increase of dollars, by the billions every week, will weaken it in relation to all other currencies. DC just sent $200 million to Liberia, and sold (printed) another $60 billion yesterday. I'll bet the Swiss didn't. The battle of the currencies is interesting. The South African Rand has gone up so much, that South African mines now lose $16, for every ounce of gold they mine. Same gold, same mines, but the currency has vaulted up, making costs of things higher. The Krugerrand, as well as the Rand is named after an early South African hero, Paul Rand, who died, actually believing the earth is flat.
The battle of the currencies, is really like a funny Broadway Play, because it is all make believe. It is a huge Monopoly game, being played on a world wide scale. The players are dead serious. As each day passes, traders trade worthless currencies, backed by nothing, around the world. Arbitrages are done, to squeeze out profits, and everyone is so serious about this Monopoly Game, that it seems comparable to something real, like surgery, or building a home. Thousands of players, move their pieces on the board, and buy and sell Francs and Pounds, and Dollars, using all the cunning and experience they possess. I know, you will say that these trades are real, and I won't disagree. The traders possess skill and experience, and I won't disagree with that either. Still, it is a charade. It is using energy and skill to deal with nothing. I am reminded of an old Jimmy Durante line. He was asked to sing a song about the Grand Canyon, and of course he knew none. He then said, "What's the Grand Canyon? It's a hole. And what's a hole? It's nothing, and if you think I am going to sing about nothing, you're crazy."
In a Monopoly Game, the adventure cannot be denied, nor can the purchasing power of currencies be denied either. Still, the lack of anything to back any currency, also is a fact. On the other hand, an ounce of gold is not dependent on anything, and neither is an ounce of silver. These tangible items, like a home, car, desk, clock, or banana, are products of capital expenditure, skill, planting harvesting, finishing, manufacturing, or whatever. Printing endless monsoons of currencies, merely requires cutting down trees and pushing the start button on a press.
For the first time in history, as far as I can determine, there is not a single currency in the world, that has any backing, except possibly the Euro, and I have serious doubts about that. If the Euro is backed, even 15% by gold, it will doom the dollar. Even the Swiss Franc isn't backed by gold. Neither is the Pound Sterling backed by Sterling. Does the dollar have a Chinaman's Chance in Hell, of holding its value? It will always buy something, but if the Euro keeps coming up, like Wal Mart killing K-Mart, the dollar will plunge further. This means quite simply, that not only will they buy less, but a dollar stash is even more pointless, if held in dollar denominated things such as savings accounts and Certificates of Deposit. Certificates of having deposited a failing measurement at less than 1% interest, makes no sense.
My dear old, long gone Grandad, back in the 1920's bought a Rickenbacker car, named after the flying ace Eddie Rickenbacker. He ran it into a tree or something like that, and traded it for a new Frigidaire. The wrecked car bought a new Frigidaire, both worth a bit less than $100. Both were tangibles. Tangibles, are things you can place your hands on, and feel something of substance. Tangibles are things you can weigh, operate, drive, burn, eat, sit in, watch, or whatever. Pieces of paper with ink on them, representing nothing, can easily be reduced to zero, either by burning, devaluation, over supply, or bankruptcy of the issuing party. A mortgage on a home, which is not protected by fire insurance, is worthless if the home burns. This is why mortgages are required to be backed by insurance. Just in case of a fire. Even the Rickenbacker, in its wrecked condition, had enough tangible value to buy a Frigidaire. Maybe Grandad had insurance, but I doubt it. If mortgages are required to be backed by insurance, as are time purchases of autos, where is the insurance for dollars? Sorry Virginia, there may be a Santa Claus, but there is no dollar insurance. Protect yourself.
November 7, 2003
Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com