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Adjusted for inflation, dollar hits fiat-era low

Section: Daily Dispatches

By John Melloy
Executive Producer, "Fast Money"
CNBC, New York
Thursday, April 28, 2011

A trade-weighted measure of the U.S. dollar against a broad basket of currencies that includes the yen, euro, and China's yuan is at a post-gold-standard low when adjusted for inflation, according to calculations by Deutsche Bank's economic team. The milestone could be viewed as a failure of the country's monetary and fiscal policies upon which all paper -- or fiat -- currencies are based.

The Broad Trade-Weighted Dollar Index, which was created by the Federal Reserve, differs from the more popular "Dollar Index" because it includes a larger group of currencies and is weighted based on foreign trade. The stellar economics team at Deutsche Bank, led by Joe Lavorgna, then adjusts this measure for inflation to get what they believe to be the true measure of the dollar's value in the world.

"In our risk scenario, little progress on the fiscal front raises the probability of a fiscal crisis and the odds that the Fed becomes the buyer of the last resort," said David Woo, currency strategist for Bank of America Merrill Lynch, in a note to clients today. "This would accelerate the process of the U.S. dollar's demise as the global reserve currency and cause it to decline in a disorderly manner."

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Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

For the complete announcement, please visit:

The dollar hit new 2011 lows versus the euro and the British pound Thursday as traders increasingly viewed Federal Reserve Chairman Ben Bernanke's monetary policy press conference a day before as dovish on inflation.

The Fed's statement described the economy as recovering at a "moderate pace," a dovish downgrade from the "firmer" recovery it stated before. The Fed also kept the language that it would remain accommodative for an "extended" period. In his first monetary policy press conference, Bernanke made no hints that his ongoing purchases of $600 billion in Treasury securities would be ended earlier than their June expiration date.

"QE2 has artificially reduced the risk premium of U.S. government bonds to below the level necessary to compensate investors for the worsened U.S. fiscal position," Woo added.

Gold settled at a record for a 12th time this month on Thursday and is now up 31 percent from a year ago on concern that Bernanke has lost control over inflation. Silver is inches away from its 1980 record and is up 150 percent in the last 12 months.

"The recent parabolic spike in silver and to a lesser degree gold shows that the market considers a 'disorderly decline' of the U.S. dollar an increasing possibility," said Jim Iuorio, managing director at TJM Institutional Services. "Devaluing your currency has always been a risky proposition and its success is dependant on knowing how to exit gracefully from monetary stimulus."

The dollar was convertible into gold until the early 1970s, when President Nixon ended that agreement. Soon after, as the major currencies went from fixed rates to floating, the U.S. dollar established itself as the world's reserve currency because of its economy's size and relative strength. Floating, paper currencies are worth only what others deem them to be, and central banks can print as much, or as little, of them as they want.

To be sure, the dollar's salve would be a pick-up in the economy as Bernanke's zero interest rate policy forces more risk-taking, more lending, more investment, and more hiring. That theory took a bit of a hit Thursday as first-quarter GDP data was released showing a 1.8 percent increase in economic growth, down from a 3.1 percent increase in the fourth quarter.

"If the economy is on a recovery path, as Ben Bernanke suggests, albeit slower than we would like, then we should anticipate that tax receipts and revenues should improve," said John Person, president of and co-author of the Commodity Trader's Almanac. "If that happens, then the U.S. dollar should gain some strength, or at the least cease the rapid descent. Right now it is very hard to find one dollar bull."

A showdown in Congress is brewing as the U.S. Treasury is poised to hit its debt ceiling in next month. Following a tough battle over the budget this month, traders selling the dollar are bracing for another partisan battle over the debt ceiling vote and possible austerity measures that could be attached to a lifting of this debt limit. Standard & Poor's changed the outlook on U.S. debt to "negative" last week based on the possibility of a stalemate in enacting any kind of meaningful fiscal policy by this divided government.

"Since the S&P downgrade last Monday it has become abundantly clear to policy makers, if it wasn't already, that the Fed will print whatever it takes to avoid default and debase the buck to a point where it will be very unlikely to remain the world's reserve currency," said Dan Nathan, creator of

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit: