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--- Begin Message ----Caveat Lector- ------------------------ Yahoo! Groups Sponsor ---------------------~--> <FONT COLOR="#000099">Buy Ink Cartridges or Refill Kits for your HP, Epson, Canon or Lexmark Printer at MyInks.com. Free s/h on orders $50 or more to the US & Canada. </FONT><A HREF="http://www.c1tracking.com/l.asp?cid=5511";><B>Click Here!</B></A><FONT COLOR="#000099"> </FONT><A HREF="http://us.click.yahoo.com/mOAaAA/3exGAA/qnsNAA/WfTolB/TM";><B>Click Here!</B></A> ---------------------------------------------------------------------~->By Christopher Mayer Tuesday, May 4, 2004 http://www.dailyreckoning.com The monetary world is one of competing devaluations, currency blocs, exchange controls, political posturing and jawboning -- in short, a sort of serial economic conflict. Where once all money found a common denominator in some metal, today's currency is fragmented money with an added layer of political instability on top of the natural uncertainty of free market prices. This added uncertainty is not without consequence. Capital as a financial concept is defined by the price of money. Monetary calculus takes place in dollars, or yen, or euros, amongst a myriad of other monetary symbols. When that money price no longer reflects the realities of supply and demand, becoming distorted -- as is often the case when the political mixes with the economic -- you have the ingredients for a crisis. Currency manipulation is effectively a cloaking device, where political ambition seeks to change the natural pattern of the market. Today, it is frequently in the news, as America continues to suffer job losses to nations that can produce the same for less. Chief among the new habitats for these migrating jobs is China. The Chinese yuan is linked to the dollar, as are other Asian currencies -- the Hong Kong dollar, and the Malaysian ringgit. Japan, while not officially pegging the yen to the dollar, has joined its Asian neighbors as a large purchaser of U.S. dollars. As James Grant noted in the April 9 issue of Grant's, "The pell-mell purchase of dollars for yen, renminbi, and other Asian currencies constitutes the largest exchange-rate manipulation in the history of the world." By absorbing America's prodigious production of dollars, the finance ministries of Japan and China, in particular, have helped to bolster the dollar's value. The Asian countries follow this path to keep their own currencies from appreciating against the dollar, thereby protecting what they perceive to be the key to their own prosperity -- namely, exports. In times when the paper monetary emissions of a nation's government were redeemable in specie, such a charade had a definite life span that was circumscribed by its gold stock. Eventually, the offending treasury's gold reserves would start to dwindle, and the inflation would either have to be brought to heel or the gold standard suspended (which happened frequently enough). Either way, the jig was up. Not so in today's accommodating monetary marketplace, which allows for evermore widespread and extended inflations. Nonetheless this, too, will end, as all manipulations end, in disaster. It will end in devaluation, as tremendous purchases of dollars cannot be sustained. That is the way of all unsustainable trends. They go on for longer than most people think likely, eliciting elegant theories to rationalize them... and then the trends stop, usually to the surprise of many and to the detriment of their portfolios. The relationship between these Asian countries and the United States is such that the Asian countries seem to have ceded their discretion over monetary policy to the United States. Ludwig von Mises observed that the monetary policy of one nation voluntarily becomes a satellite of a foreign power when it pegs its own country's currency rigidly to the currency of a monetary "suzerain-country." Under such an arrangement, the pegged-currency country is bound to follow all the changes the "suzerain" brings about in its own currency, against other currencies and against gold. Today, it is not hard to discern that the United States is the suzerain. China, for as long as she cares to link her currency at a fixed rate with the dollar, is forever at the mercy of U.S. dollar policy. The media highlights China's advantage, however ... derived, they say, chiefly from the fact that her currency is deliberately fixed at a cheaper value than the market might independently appraise. But China's policy in this regard is hardly wholly beneficial to China. China sells its exports for dollars. These dollars have gotten cheaper and will likely get cheaper still. China sells, and in return receives notes that, in a sense, will never be repaid at par value. But the cycle doesn't stop there. Devaluations are often followed by more devaluations, as each nation is deluded into thinking that the way to prosperity is to destroy the native currency to stimulate exports and to preserve jobs. "At the end of this race," Mises warned, "is the complete destruction of all nations' monetary systems." Whatever the advantages put forth by advocates of devaluation, Mises pointed out that they were at best temporary, resting entirely on the fact that adjustments to currency changes take time. Temporarily, exports are stimulated by devaluation, as that nation's goods and services suddenly appear cheaper to customers overseas and abroad. But ultimately, devaluation simply means that those bound by the currency must work that much harder to purchase the same quantity of foreign goods that they were able to purchase before for less work. Devaluations make one poorer, not richer. Any manipulation of exchange rates, devaluation or otherwise, creates imbalances and tensions that foment crisis and economic ruin. China, by continuing to allow for the cheap accumulation of yuan with overpriced dollars, is doing U.S. consumers a favor that cannot last. When China stops, and when the rest of Asia follows suit, the end result ought to be higher interest rates and a cheaper dollar ... not to mention painful economic adjustments. ---------------- Christopher W. Mayer is a veteran of the banking industry, specifically in the area of corporate lending. His essays have appeared in a wide variety of publications, from the Mises.org Daily Article series to here in The Daily Reckoning. He is also the author of "Capital and Crisis," a recently launched investment advisory for contrarian-minded financial observers. For details, see: Capital & Crisis http://www.capitalandcrisis.net/ ---------------------------------------------------- To subscribe to GATA's dispatches, send an e-mail to: [EMAIL PROTECTED] To unsubscribe, send an e-mail to: [EMAIL PROTECTED] ---------------------------------------------------- RECOMMENDED INTERNET SITES FOR DAILY MONITORING OF GOLD AND PRECIOUS METALS NEWS AND ANALYSIS Free sites: http://www.jsmineset.com http://www.cbs.marketwatch.com http://www.mineweb.com/ http://www.gold-eagle.com/ http://www.kitco.com/ http://www.usagold.com/ http://www.GoldSeek.com/ http://www.capitalupdates.com/ http://www.DailyReckoning.com http://www.goldenbar.com/ http://www.silver-investor.com http://www.thebulliondesk.com/ http://www.sharelynx.com/ http://www.mininglife.com/ http://www.financialsense.com http://www.goldensextant.com http://www.goldismoney.info/index.html http://www.howestreet.com http://www.depression2.tv http://www.moneyfiles.org/ http://www.howestreet.com http://www.minersmanual.com/minernews.html http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html http://www.goldcolony.com http://www.miningstocks.com http://www.mineralstox.com http://www.321gold.com http://www.SilverSeek.com http://www.investmentrarities.com http://www.kuik.com/KH/KH.html (Korelin Business Report -- audio) http://www.plata.com.mx/plata/home.htm (In Spanish) http://www.plata.com.mx/plata/plata/english.htm (In English) Subscription site: http://www.lemetropolecafe.com/ http://www.hsletter.com Eagle Ranch discussion site: http://os2eagle.net/checksum.htm Ted Butler silver commentary archive: http://www.investmentrarities.com/ ---------------------------------------------------- COIN AND PRECIOUS METALS DEALERS WHO HAVE SUPPORTED GATA AND BEEN RECOMMENDED BY OUR MEMBERS Centennial Precious Metals 3033 East 1st Ave. Suite 403 Denver, Colorado 80206 www.USAGold.com Michael Kosares, Proprietor US (800) 869-5115 Canada 1-800-294-9462 European Union 00-800-2760-2760 Australia 0011-800-2760-2760 [EMAIL PROTECTED] Colorado Gold 222 South 5th St. Montrose, Colorado 81401 www.ColoradoGold.com Don Stott, Proprietor 1-888-786-8822 [EMAIL PROTECTED] El Dorado Discount Gold Box 11296 Glendale, Arizona 85316 http://www.eldoradogold.net Harvey Gordin, President Office: 623-434-3322 Mobile: 602-228-8203 [EMAIL PROTECTED] Investment Rarities Inc. 7850 Metro Parkway Minneapolis, Minnesota 55425 http://www.gloomdoom.com Greg Westgaard, Sales Manager 1-800-328-1860, Ext. 8889 [EMAIL PROTECTED] Kitco 178 West Service Road Champlain, N.Y. 12919 Toll Free:1-877-775-4826 Fax: 518-298-3457 and 620 Cathcart, Suite 900 Montreal, Quebec H3B 1M1 Canada Toll-free:1-800-363-7053 Fax: 514-875-6484 http://www.kitco.com Lee Certified Coins P.O. 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