The Online Investing AI Blog

I recently read Robert Kiyosaki’s latest book, Conspiracy of the Rich. I highly recommend it to everyone because it explains so much of what is happening around us. It also helps us question so many of the things that we tended to  just accept.

One of the things he points out is that the government is diluting our money through inflation. And I think it’s true. After doing some research, I discovered that the CPI is not only inaccurate, but is designed to understate inflation. The government pays money to people and other governments based on the CPI. It pays money to people through programs such as social security. It pays other governments to repay the money that it has borrowed.

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Recently, as the stock market soars, there has been a large amount of news about how well the economy is doing. They say that the housing market has hit bottom, and that the economy is recovering. However, this article by the Associated Press is about how unemployment is rising.

Regardless of what the newspapers say, it is important to look at the fundamentals that drive the economy. The government has created massive band-aids to prevent a depression, and they seem to have worked. But it is important to understand the difference between a recovery and a temporary band-aid.

What effect will the band-aid have?

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The United States has had a free ride for the last 100 years. Every country in the world held the dollar as its reserve currency. That means that there was more demand for the dollar than for any other currency. The massive natural resources, growing economy, military dominance and overall desirability of America made it possible to establish the dollar as the common measure of value throughout the world. In addition, until Richard Nixon took us off the gold standard, the dollar was redeemable for gold.

The net result of all this is that America has been able to print as much money as it wanted. Deficit? No problem. We’ll just print more money. All the countries around the world will hold the dollar, and there is no limit to the amount of debt they will buy. No money to pay back the debt? No problem. Just print more money.

What’s happening now?

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“The recession is very likely over at this point”–
Ben Bernanke

Ben Bernanke is pronouncing us out of the recession woods. He isn’t the only one. Obama administration members are saying they see the light at the end of the tunnel.

There are economic signs that normalcy is returning, too. Job loss is slowing down. Consumers are returning (sorta). And confidence is rebounding.

But, not everyone is so sure. A number of financial experts are saying that for the amount of stimulus, we should be rapidly pulling out of the recession. But, we’re still limping.

The dollar, as the chart shows, is declining. The worse may be far from over on this recent slide, according to one financial blog.

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bradip@Flickr

With trillions of dollars in currencies exchanging hands each day, the market for money draws considerable interest for traders.

The currency market is becoming more democratized, as well. Online brokerages offer nearly limitless access to currency exchanges, like Forex. Trading currency is also popular because there’s a potential to make a lot of money quickly.

If you don’t adjust for risk and prepare for emotionless trades, you can lose a lot of money, too.

Here’s the Globe Mail list of the top eight tradable currencies.

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I don’t pretend to be an expert on macroeconomic policy and I certainly am not an expert of the gold standard, so take this post with a grain of salt or a fleck of gold dust.

The gold standard meant that each paper dollar was backed by dollar of gold held in Fort Knox, or some other federal gold reserve facility. The standard also kept the government budget in check, say gold standard bearers.

In case you haven’t notice, we’re running a bit of a deficit.

The logical conclusion would be to go back on the gold standard and the economic crisis will go away. Again, not an expert here, but this idea just doesn’t jibe. First, historically speaking, there were lots of economic panics while we were on the gold standard. Take the Great Depression. Please.

Secondly, like oil reliance, gold reliance can cause problems, too. Any disruption or threat of disruption to the gold supply can cause the economy to unhinge.

Third, the economy is no longer based on gold. I suppose at one time, especially in the west, gold was a precious commodity. At one time, economies were based on coconuts and ox hides. Should we go back to the coconut standard or the ox hide standard? Now, it’s fair to say that a few pounds of silicon are capable of producing far more value than a couple pounds of gold.

I believe the real economy is based on information and innovation today and there’s no way to equate that value with a lump of metal.

The gold standard is just an excuse for financial responsibility. And this blame goes all around: financial irresponsibility on the part of the citizens and businesses who look at government handouts as some type of bottomless piggy bank and fiscal irresponsibility on the part of our government and its agencies.

Going back to the way things were done in the past isn’t change. Let’s move from the gold standard to the bold standard.

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I read George’s post yesterday about the demise of the dollar and began to pack my cans of beans and six-shooter so that I could head out into the wilds of some barren area of Montana where I would live in a shack and write cryptic letters about the coming financial destruction of America and the lack of good sushi in Montana.

But I stopped.

Here’s why: While George’s probably right that the dollar won’t be what it was, there’s no reason to assume that this is the end of the world. It will be the beginning of a new one.

First of all, financial situations are always in flux and currencies reflect that change. It might even be good for the American economy if we don’t have an easy ride. We may begin to watch our own financial books a little more closely and become more competitive and more inventive.

Second, the world is getting richer. That’s a good thing. The global economy is not a zero-sum game. We’ll have more people to trade with and more people to invest in. As technology gets better and investments become more available, our autotrading systems will seek out exponential gains.

Which brings me to my third point, the borders of investment are blurring. In this new age of financial turmoil, with its incredible highs and desponding lows, you should realize that there is always money to be made. It just takes a smart investor and a smart investment system like the ones Online AI are designing.

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Most Americans are totally unaware, but the the US dollar is losing its power. And not just its buying power.

Americans are totally unaware, but we have had a free ride for the last 80 years because the dollar was the default currency for the whole world. There was no country that could compete with America’s technology, economy, or military strength. Therefore, the dollar was the safest, strongest and best currency for all other countries to hold wealth. And, those factors made it the default currency for the pricing of such commodities as oil and gold.

This means that every country in the world would hold dollars in their central banks, and America could issue as much debt as it wanted. Because no matter how much debt is issued, other countries were willing to buy it. Its like a credit card with no limit. And American politicians borrowed and borrowed. They didn’t care; they knew that they would not be responsible for paying it back. And, even if Americans did end up paying it back, the politicians would pay the smallest amount. Think about it. They make the rules, so they make rules that work for them.

All good things come to an end, and America’s economic free ride is no exception. Changing technology, great equalizers such as the internet, and the rise of the European Union, China and India have made America’s strengths moot. In fact, America’s insurmountable strengths have been replaced by a nearly terminal weakness: the national debt.

As America’s debt soars, we can barely make payments on the existing debt. Social Security and Medicare are going to make our debt soar, and there is no political players on the horizon that can solve the problem.

So, that means the dollar has gone from the most desired currency in the world to being extremely weak. And the weakness will continue, as the debt grows, and other countries’ economies (China and India) become stronger.

The dollar has lost much of its value already. It has lost 50% of its value in the last 5 years alone. That is part of the reason that oil has hit an all time high (priced in dollars). And it will continue. As other countries start to sell the dollar, inflation will increase, and the dollar will lose more and more of its value.

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