Gregor Weekly Model Portfolio Update: 18 November 2009

• Gregor Macdonald
• November 18th, 2009

Dollar down. Stocks down. USTreasury prices down. Gold and Silver up. Although we are seeing this in very light form once again today, this is the configuration to watch for as the next phase of the financial crisis gets underway. In short, the broken pieces of the largest debt and credit bubble ever have now been taken on to the balance sheet of the United States. The currency unit, the USDollar, has begun to reflect the problem despite the current misunderstanding surrounding the Dollar as “a trade.” The USDollar is not so much a trade, as a condition. The notion that it’s just a trade is a popularization of a much more complex set of circumstances.

We have a couple of models before us, with regard to the fate of the United States and the USDollar. First, there is the post-war experience of the United Kingdom, starting in roughly 1949. Second, there are the inflationary currency collapses of Latin America. More broadly, there are myriad other examples of post-Empire economic decline and other instances of price and systemic instability. Structurally the United States most resembles 20th C Latin American examples of countries that eventually devalued and repudiated their debt. However, as the US is the most recent of all the Empires then its reserve currency status is braking the fall as the rest of world remains bound to the dollar paradigm. The US has now reached the point where no realistic pathway of future economic growth exists to offset our liabilities, but that’s not merely our own problem, it’s everyone else’s too.

Of course, there’s a banality and tedium that often attends any discussion of the irredeemable USDollar, off balance sheet US spending, future entitlement obligations, and the growth of USTreasury supply. There have been warnings about these issues for at least three decades. What I believe has changed, however, is that the United States has lost the ability to leverage…(this article continues for subscribers through the membership gateway, on the right side of this page)

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