Since much of my career focused on relative valuations of currencies and the 'odds' the derivatives market placed on changes to them (put & call option prices imply expected volatility), here's a brief comment on the current state of affairs.
It is highly unlikely in my opinion that the major currencies will return to a gold or silver standard. The Central Banks have been selling off some of their gold holdings during the past several years, which is a bit surprising in that gold is cheap compared to the past 25 year constant dollar average price. The money supplies have grown massively, and the price of gold might have to be set at US$5000/oz or more if any attempt was made to back all outstanding credits/tokens with it. (currently US$300) Those holding currencies that depreciated drastically during the past few years would have had a huge relative gain if they had bought gold before the currency declines even in the face of a gradually declining $US/gold price; some smart ones did so, and some bought $US. A friend who lives in France is here in Canada for a year sabbatical. Compared to major US city prices for housing, food, entertainment, and now even cars, things are less expensive in Ottawa. I expected him to say that France was more expensive, but he said that was so only for gasoline, electricity, cars, and perhaps a few other things. Mostly things were cheaper in France! (Euro is now their currency) I am diversified in my investments, and now feel even more comfortable with my Euro position. I read today that Italy is getting testy about 'Italy first' rather than 'one Europe'. This kind of growing pain is to be expected. Perceptions of relative value, profit opportunities, 'real interest rates' (excl inflation) and safety are the main drivers of currency flows in the investment world. Right now it appears that safety is #1 in the minds of financial professionals. The $US is today like the Br. Pound was 50 years ago: the *standard* to which all else is compared. It might stay that way for a while longer, but it is a confidence game that can lose efficacy over time if the fundamentals erode. (like Enronitis) Huge national and corporate debt, & trade, budget and current account deficits have been funded by huge foreign capital inflows. This flow MUST continue, or the game stops and a run on the dollar starts. It is that crazy! I have around 10% in gold as insurance. I still have maybe 33% in US & Canadian dollars. The Australian and New Zealand dollars are undervalued in my opinion, so I have some along with some Br. Pounds and a few Asian currencies (not Yen). What else can a retiree do? Some borrow against their homes (home equity loans) for cash flow or investments. I think that unwise despite the tax writeoff in the US. If one needs money to live, a reverse mortgage will at least guarantee you will not be evicted. Perhaps I'm too conservative, but I sleep ok. The credit ratings of the bonds I own are AA average. If governments default, it's back to work I guess. I'll answer any questions off-list should anyone want my opinion on similiar matters. BTW, caveat emptor still applies. These are just my no cost opinions. Steve -- http://magma.ca/~gpco/ http://www.scientists4pr.org/ Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.--Kenneth Boulding
