Sunday, March 20, 2011

Currency Curiosities

Question: why, when the U.S. is destroying whole forests printing funny money, can't pay its debts, is in political gridlock, has an unofficial unemployment rate near 20%, and Wall Street is rife with insider trading, flash crashes and flash-trading, isn't the greenback dans la toilette?  Answer: because the rest of the world sees it as a safe haven.  (By now you may surmise I'm not with "the rest of the world" on that.)  Everytime there's a crisis of some sort, money bails out of Troublezania into the U.S. for safekeeping.  Admittedly the shortlist of other safe havens - the Euro, Yen and Swiss Franc - has been reduced to the latter by recent sovereign debt crises (yes, folks, unbeknownst to many the Yen was toast even before the earthquake).  True bastions of strength in today's world, like the Aussie Dollar or Canadian Loonie just don't circulate in large enough quantities to be used as a reserve currency, although they are arguably backed by "in the ground" riches that surpass many a desert sheikdom.  (Another disadvantage, thank you Royal Canadian Mint, is we're stuck forever with that Loonie moniker for our moolah.  Couldn't you have picked a bison or elk or something?  Only the beaver would've been worse.)  Meanwhile Dennis Gartman, of the famed Gartman Letter, says that gold is now effectively the third or fourth reserve currency of the world.  (Something to ponder for your portfolio, perhaps?)  So, which nation in the world has the most gold in it's vaults?  Surprise, surprise, it's good old Uncle Sam.  Which - despite the protestations of American financial talking heads - just may be another reason people around the world continue to hold USD's.