Undollars.com - Advocates For Honest Money

"Our purpose is to expose the failure of America's fiat money system."

That original goal, expressed at the outset of this site 7 years ago, still holds true. But how incredibly more complex the global economic landscape has become, and how much more challenging the financial markets are as a consequence.

This site will continue to shed light on the demise of modern central banking and the tragic fiat-money fiasco that threatens our wealth and welfare and is now unfolding before our eyes.

The Undollar Digest

The UnDollar Digest features articles & commentaries online and other information regarding the current market. Member Log-In or Sign Up on left.


The time has come…
Will Reishman, Strategic Financial Management, Inc., 07/17/2013

Yes, the moment has arrived for the UnDollar Digest’s editor to devote full attention to other duties. Though the UDD was a ‘labor of love’ – a commitment to truth about money and economics, and a measure of devotion to education for those willing to spend some time with often cerebral material – the time required to render good service, even in this ‘hobby’ format, is no longer available.

For those who want to stay in touch with our thinking about the economy and markets, we invite you to sign up to receive via e-mail (with no obligation) our occasional “client memos” by sending a request to val@strategicfmi.com.

As for other resources, it should be obvious to any who have frequented this site how highly we regard the work of Doug Noland. Essential reading, in your editor’s view. Mr. Noland posts late Friday at www.prudentbear.com.

Another key resource, one that has had a remarkable influence on our thinking in a relatively brief period of time, is the blog of Martin Armstrong. We strongly commend Mr. Armstrong’s unique perspective to your attention; check in at www.armstrongeconomics.com.

Two other regular resources, bastions of Austrian economic understanding: www.mises.org and www.lewrockwell.com.

Two closing notes:

(1) There’s a lot of good material in the UDD archives. Some of it is relatively timeless, as it represents an Austrian explanation of a then current topic, but the principles are universally applicable. The site will remain up until late 2013, please avail yourself of this resource also.

(2) As outlined in our recent piece,” “The One-eyed Man’s Last Hurrah,” (see below) over the next several years, America will likely enjoy a period in which the US dollar is remarkably and surprisingly strong. This will be destabilizing for the global economy, and very much so, for the US itself. This may well usher in the final chapter in the demise and decay of the fiat money central banking regime as we have known it.  Use these years to prepare your family well for uncertainties that most definitely lie ahead.

God bless and God Speed!

Will Reishman, will@undollars.com

The One-eyed Man’s Last Hurrah
Will Reishman, Strategic Financial Management, Inc.,

We sail tonight for Singapore

We’re all as mad as hatters here…

The captain is a one-armed dwarf

He’s throwing dice along the wharf

In the land of the blind, the one-eyed man is King…

Tom Waits, “Singapore,”


Once again confession is in order: communication overdue. We’ll do our best to be more consistent, but with the current manic markets, it can become difficult to know when to ‘freeze frame’ things, and offer some intelligent commentary. So, with the understanding that this effort is very much a fluid ‘work-in-progress,’ there are a few key points that are timely to share.

One of the obvious realizations, the full implications of which have yet to be fully realized by the financial markets, is that the Euro currency cannot now, nor will it likely ever be a rival reserve asset to the US Dollar. Think back a mere three years. Since its inception in 1999 it was presumed by many that the Euro was on its way to becoming roughly the equal to the dollar as a central bank reserve asset, as a store of value (short-term at least), as a denominator for long-term global debt financing – all the hallmarks that made the USD the indispensable financial medium of the post-WWII era.

The most significant indication of this relatively abrupt change – because in the realm of major currencies, change is rarely anything other than glacial – is the current state of China’s reserve position. It is estimated that just eighteen months ago, the percentage of China’s foreign reserves in Euro’s was 26-28% (1). Latest number reported: a mere 7%. This is an incredible change of direction for the world’s largest reservoir of liquidity.   Read more»

Financial Euphoria
Doug Noland 05/17/2013

“Understanding the dynamics of market euphoria and crowd behavior remain a fascinating and worthwhile endeavor. From an analytical perspective, however, I’ve always focused more on the finance underpinning the boom. Show me a manic Bubble period in the markets and I’ll show you underlying monetary disorder.”

“Bubbles are at their core about a self-reinforcing over-issuance of mispriced finance. Major market misperceptions are integral to fueling Bubbles – and these misperceptions are often associated with some form of government support/backing of the underlying Credit financing the boom.”

Tepper stokes the melt-up: “I am definitely bullish. The budget deficit is shrinking massively. Guys who are short, they better have a shovel to get out of the grave.” Hedge fund manager David Tepper, CNBC, May 14, 2013

Mr. Tepper has every reason to be euphoric. His $7bn estimated net worth places him #53 on the Forbes U.S. Billionaires list (and ascending briskly). Few have profited more from central bank monetary largess and attendant asset inflation. Few are currently benefiting as much from the Fed’s $85bn monthly quantitative easing program.

I’ll view Tepper’s Tuesday CNBC appearance as confirmation of the U.S. stock market officially attaining “Financial Euphoria.” So it’s not an inopportune time to reread John Kenneth Galbraith’s little gem “A Short History of Financial Euphoria.” There is a long history of manias and, as Galbraith points out, there are common themes and common conclusions.

The commonly accepted view sees manias as episodes of irrational crowd behavior (i.e. a bunch of lunatics running around trading tulip bulbs). Mr. Galbraith sees the “mass escape from sanity by people in pursuit of profit.” Fair enough, though I tend to view perfectly rational behavior as the more typical yet unappreciated theme of major financial Bubbles. Bouts of irrationality would be far less dangerous.   Read more»

Thoughts on the Electronic Printing Press
Doug Noland 05/10/2013

“While different countries and regions suffer divergent ill-effects, financial and economic systems everywhere are today dependent      on uninterrupted aggressive monetary stimulus. One would have to go back to the 1920’s to see any comparable period with such extreme maladjustment and imbalances on a global basis.”

“History is replete with examples of how once the printing presses get revved up there’s no turning them down…”

“The contemporary electronic “printing press” is an altogether different animal [vs." traditional printing press inflation"]. It essentially feeds liquidity directly into the financial markets – first and foremost inflating securities prices. There is little generalized inflation…[A]sset inflation and Bubbles potentially have significantly more pernicious effects than traditional consumer price inflation.”

Indicators of serious market excess abound.

The yen was hit for 2.6% this week, with the dollar/yen breaking above 100 to the highest level since 2008. Gold was down 1.5%, silver 1.5%, and platinum 2.0%. Japan’s Nikkei jumped 6.7%, increasing 2013 gains to 40.5%. Japan’s 10-year government bond (JGB) yield jumped 13 bps to the highest level since February, as sovereign yields generally moved higher across the globe. Global equities generally added to recent gains. Meanwhile, currency markets have turned increasingly unsettled. The dollar index gained 1.2%. So called “commodities currencies” came under pressure. The South African rand fell 2.3%. The Australian dollar dropped 2.9%, falling below parity to the U.S. dollar for the first time in almost a year. The New Zealand dollar sank 2.7%. Other notable currency declines this week included the Swiss franc down 2.2%, the Indian rupee down 1.6%, and the Russian ruble 1.2% lower.

May 9 – Bloomberg (Simon Kennedy and Jennifer Ryan): “Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland. As Group of Seven finance chiefs gather in the U.K. tomorrow, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains. ‘Most central banks in our coverage universe still have a bias to ease,’ Morgan Stanley economists led by… Joachim Fels said… ‘South Korea’s rate cut today was the 511th reduction worldwide since June 2007… While the tide of liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth. ‘Central banks are our best friends not because they like markets, but because they can only get to their macro objectives by going through the markets,’ Mohamed El-Erian, chief executive officer at Pacific Investment Management… said.”

Global central banks around the world continue to push monetary easing like never before. The Fed and Bank of Japan currently combine for almost $180bn of monthly quantitative easing, an historic experiment in monetary inflation. And as economies respond little to unprecedented monetary stimulus, global central banks resort to only more dramatic measures. In the face of virtually unlimited global liquidity, commodities prices trade poorly. It seems an appropriate market juncture to take a little deeper dive into contemporary “money printing.”   Read more»

Radio Notes for 05/09/2013
Will Reishman 05/09/2013

Results of Fed’s prolonged ZIRP (zero interest rate policy)

I.) Damaged Real Economy

It’s clear that the US economy has significant burdens apart from the Fed’s misguided monetary policy:

(1) One of the worst corporate tax policies in the world, including double taxation of dividends which recent tax changes have made worse for high-net worth individuals;

(2) An increasingly hostile regulatory climate, starting with the Obama EPA and a notoriously pro-labor union Dept of Labor;

(Neither of these headwinds for US business are all that new,

but they’ve clearly deteriorated under the current regime.)

(3) Add to these now the uncertainty about the real cost of health care. Costs might be one thing for starters in 2014, but who can say what the true burden will be on companies, and the economy in a few more years.

So, risk tolerant investors are less likely to consider direct capital investments, and more likely to direct dollars to the money game on Wall St. This is where the best and brightest are drawn, as this is the locus of personal wealth creation for those with reasonable talent, but no special genius, or brilliant creative breakthrough. Investment capital is most definitely flowing in the same direction.   Read more»

When Zero Is Not Low Enough
Steve Saville 05/05/2013

[Excerpt, Weekly Market Update]

“Most people with [a modicum of economic] knowledge know why it wouldn’t make sense to have a committee set the price of eggs, and yet they seem incapable of seeing that it doesn’t make sense to have a committee set the price of credit.”

The European Central Bank (ECB) cut its main Refinancing Rate, which is the rate at which euro-zone (EZ) banks can borrow overnight money from the ECB, from 0.75% to 0.50% last Thursday [05/02]. This move was widely expected and didn’t provoke much reaction in the currency market. However, Mario Draghi, the ECB President, then announced at a press conference that Europe’s central bank was open to making a future cut in its Deposit Rate, which is the rate that commercial banks receive when they park money at the central bank. Since the Deposit Rate is presently zero, this means that the ECB is prepared, if conditions are deemed to warrant it, to set a NEGATIVE nominal interest rate. This provoked more of a reaction from the currency market, although the reaction was still small considering the implication. The implication is that if economic conditions don’t show a marked improvement — and how could they possibly show a marked improvement with central banks and governments implementing one stupid market-distorting policy after another — then charges will start being levied on ‘excess’ cash. It looks like another shot has just been fired in the war on saving.

Perhaps someone should point out to Draghi that if economic weakness persists after years of near-zero interest rates, then a too-high interest rate is not a constraint on the economy. On second thoughts, that would be a waste of time. You don’t go into central-banking unless you have total belief in, or are at least prepared to pay unswerving lip service to, the proposition that the economy can be strengthened via the artificial lowering of interest rates.    Read more»

Too Much Asset Inflation
Doug Noland 05/03/2013

“When the mortgage finance Bubble burst in 2008/09, policymakers essentially confronted two alternative courses of policymaking…[With Option #1], [t]here would have been difficult, trying years, although the upshot would have been a sounder economic structure… Policymakers, of course, chose scenario #2, resuscitating Credit Bubble dynamics and asset inflation.”

“The Fed and global central banks have made an incredible mess of things. Global asset markets today enjoy robust inflationary biases, while stagnant real economies suffer from deep structural deficiencies and maladjustment.”

“The inflationists fail to appreciate Monetary Disorder’s myriad negative consequences. It’s the nature of liquidity to gravitate to where it believes it will most benefit from prevailing inflationary forces and dynamics. And with global central banks backstopping the securities markets, liquidity is today further incentivized to play securities inflation as opposed to seeking risky real economy investment returns.”

Stock prices surge to record highs, while Credit market risk premiums collapse to multi-year lows.

We’re now well into the fifth year of unprecedented monetary and fiscal stimulus – with, incredibly, no end in sight! Predictably, economic results have been disappointing. Also, and just as predictable, the most outspoken proponents of aggressive “Keynesian” measures are these days claiming the limited success is due to stimulus not being administered in sufficiently powerful doses. This is regrettably consistent with the history of monetary inflations. They corrupt money, minds, markets and economies.

Thoroughly relishing his “I told you so” moment, Paul Krugman titled his Friday New York Times piece “Not Enough Inflation”: “Ever since the financial crisis struck, and the Federal Reserve began ‘printing money’ in an attempt to contain the damage, there have been dire warnings about inflation — and not just from the Ron Paul/Glenn Beck types. Thus, in 2009, the influential conservative monetary economist Allan Meltzer warned that we would soon become ‘inflation nation.’ In 2010, the… Organization for Economic Cooperation and Development urged the Fed to raise interest rates to head off inflation risks… In 2011, Representative Paul Ryan… raked Ben Bernanke… over the coals over looming inflation and intoning solemnly that it was a terrible thing to ‘debase’ the dollar. And now, sure enough, the Fed really is worried about inflation. You see, it’s getting too low.”

Well, I’ll follow Dr. Krugman’s “told you so” lead. In CBB writings more than four years ago, I pleaded that the Fed not orchestrate a Credit Bubble resurgence and warned of the major risks associated with the unfolding “global government finance Bubble.” Rising consumer price inflation has never been the major risk from deficits and Fed monetization. Rather, the risks were of a similar nature to those that fashioned the 2008 crisis and so-called “great recession”: gross over-issuance of mispriced finance, speculative excess and destabilizing asset Bubbles. We’re now in a full-fledged unwieldy Bubble environment on a global basis.   Read more»

Two Sides of the Same Debased Coin
Hunter Lewis 05/02/2013

[This article originally appeared in the January 2013 edition of The Free Market.]

In the beginning of The General Theory, John Maynard Keynes says that his ideas will no doubt be rejected because they are so novel and revolutionary. Toward the end of the same book, he seems to have forgotten this because now he says he is reviving the same centuries-old ideas that he had once dismissed as the most absurd fallacies. At least he acknowledges that he is changing his position, although he does not explain how his ideas can be new, revolutionary, and also centuries old.

This is of a piece with his describing himself as a member of “the brave army of rebels and heretics down through the ages” even as he recommends policies that appeal to the basest and most self-serving instincts of politicians — and even as he enjoys all the immense privileges that accrue from being at the top of the existing financial and political establishment.

Although it may be true, as the art historian Kenneth Clark said, that Keynes “never dimmed his headlights,” it cannot be said that he knew how to drive on a single side of the road. Keynes, would become the principal apologist for “crony capitalism,” which is perhaps the best term to describe our current system. As you probably know, much of Keynes’s writing is intentionally obscure, although the threads can be unraveled and rebutted, as Henry Hazlitt so brilliantly proved in The Failure of “The New Economics.”

What is the very essence of Keynesianism? Can we describe it in the briefest and simplest terms, so that anyone can understand what is wrong with it, and thus strip away the intellectual fog that surrounds and protects crony capitalism?   Read more»

The Global Reflation Trade
Doug Noland 04/26/2013

“Major Bubbles at some point inevitably turn susceptible to the marginal risky borrower losing access to cheap finance.”

Global markets are nothing if not unstable.

April 26 – Financial Times (Michael Steen): “Germany’s Bundesbank has criticised the bond-buying programme designed by the European Central Bank to save the euro, questioning whether it is really necessary and suggesting it represents a great risk to taxpayers. Bundesbank president Jens Weidmann has been public from the outset in his institution’s opposition to the Outright Monetary Transactions programme launched in September by Mario Draghi, ECB president, after pledging to do ‘whatever it takes’ to save the euro. But revealed in an opinion written by the Bundesbank for the German constitutional court are a series of detailed objections to the plan…”

April 26 – Bloomberg (Jana Randow): “The Bundesbank criticized the European Central Bank’s bond-buying plan in an opinion for Germany’s Constitutional Court, saying diverging interest rates within the euro region aren’t necessarily something the ECB should fix. ‘Even though monetary policy is having different effects within the euro area, it is questionable whether these differences constitute a malfunctioning to be addressed by monetary policy,’ the Bundesbank wrote in an opinion… dated Dec. 21… Rising sovereign bond yields ‘cannot be used definitively as an explanation for a disturbance of monetary- policy transmission,’ the Bundesbank opinion says. Germany’s top court has scheduled hearings for June 11 and 12 to look into cases challenging the nation’s participation in the European Stability Mechanism and ECB policies… ‘It’s not possible to say whether a ‘distortion’ in yield developments for sovereign bonds is due to fundamentally justified causes or whether there are potential exaggerations, irrationalities or other forms of inefficiencies… Higher refinancing costs for the private sector could also reflect higher national fiscal risks… That wouldn’t be a development for monetary policy to address, but rather a direct consequence of national fiscal policy.”

Draghi’s OMT (Outright Monetary Transactions) Plan has been heralded as “one of the most successful central bank operations in history”. After trading above 7.50% last summer, Spanish yields ended the week at 4.26%. Italian yields closed out the week at 4.05%, down from July 2012’s 6.50%. Since last summer, Spain’s economy and fiscal standing have deteriorated significantly. Italy’s economy has weakened and its political situation has become more unstable. Yet fundamentals have mattered little in the market for pricing Spanish and Italian debt, not with Draghi’s market backstop “bazooka” ready for action (and the Japanese apparently lined up to buy and the speculators lined up to front-run the Japanese).   Read more»

Bundesbank Declares ‘War’ on Mario Draghi Bond Bail-out at Germany’s Top Court
Ambrose Evans-Pritchard 04/26/2013

Germany’s Bundesbank has issued a devastating attack on the bond rescue policies of the European Central Bank, rendering the eurozone’s key crisis measure almost unworkable.

The hardline central bank – known as the temple of monetary orthodoxy – told Germany’s top court that the ECB’s pledge to shore up Italian and Spanish debt entails huge risks and violates fundamental principles. “It is not the duty of the ECB to rescue states in crisis,” it wrote in a 29-page document leaked to Handelsblatt.

The Bundesbank unleashed a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies – or Outright Monetary Transactions (OMT) – unveiled last summer to stop Spain’s debt crisis spiralling out of control.

The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The credibility of the pledge rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question.

The report borders on economic warfare,” said Harvinder Sian from RBS. “We think there is going to be fear and dread in the market that the court will reject OMT.”

The document said OMT entails the purchase of “bad bonds”, violates ECB independence and entails a high risk of heavy losses in the “not unlikely” event that debtor states are forced out of EMU.

It said Greek debacle had shown that conditions cannot be enforced, and, in any case, is “very questionable” whether it is desirable to drive down the borrowing costs of profligate states.

To cap it all, the Bundesbank said the ECB has no mandate to uphold the “current composition of monetary union”. Its task is to uphold price stability and let the chips fall where they may.   Read more»


Browse the archives »