The US dollar took centre stage this past week by plumbing new depths. The US Dollar Index made a record low, as we can see on the following chart.
I first presented the arrow on the above chart in my alert on November 11, 2007, and made the following observation. "When taken together, the eerie calm as the dollar collapses and the arrow in the above chart pointing to the building downside momentum suggest that the dollar is nowhere near its final low." That eerie calm remains. Few people are yet facing the facts.
For example, this past week I heard a business television reporter make the following ridiculous comment: "The dollar is at an all-time low because the European Central Bank doesn't want to cut interest rates." It is of course easy to blame others for the dollar's problems, rather than those truly culpable, namely, the spendthrifts in Washington, D.C. and the apparatchiks in the Federal Reserve who provide the politicians with all the dollars they want.
Another example of ignoring reality are the misguided media reports that state rising commodity prices are due to crop shortages. In reality, a tight supply of wheat cannot possibly explain why the prices of nearly all commodities are rising. It's not because there are too few commodities, but rather, too many dollars.
The Federal Reserve stopped reporting M3, the total quantity of dollars, in March 2006. But thanks to the work of John Williams of www.shadowstats.com we know how rapidly M3 is growing. The red line on the following chart shows the growth in M3 since the Fed stopped making that data available. The Fed obviously did not want us to know how many dollars they would be creating, which is now approaching record rates of growth.
The dollar is falling off the edge of a cliff, and for good reason. I continue to believe that the possibility of a dollar collapse is both real and imminent, and the probability of this outcome for the dollar increases with each new high in the precious metals - like those achieved this past week. Ominously for the dollar, the following charts indicate that more new highs in gold and silver look probable in the weeks immediately ahead.
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by James Turk
Copyright © 2007 by James Turk. All rights reserved.
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