Clean Float – Why the Dollar Must Collapse

For us, taking a long term view, it's easy to see beyond
the dollar's politically maintained currency value as
represented in exchange rates. Using the above part of
Mr. D's speech, one doesn't have to be very strategic
to dodge the coming US currency collapse.
-FOA

The purpose of this post is to further explain and define the "clean float" I have been implying since last June, and to show why the dollar's collapse is an integral part of it. My view of the future international monetary system is one of a predominantly (but not mandated) "clean float" in currencies, which is the monetary side of what I call "Freegold". Physical gold movements will only settle the voluntary imbalances of individual past and present savers, not aggregated imbalances as those will be corrected gradually, through the clean float. I should add that I see this as an effect of Freegold, not a prerequisite.

Back in January, with the dollar at 93 and rising fast, Bright Aurum asked, "Should the USD strengthen too much… can the FED buy euros without calling it a peg, but say ... active monetary operations... - a strategy to shake off speculators, and so on."

Yes, the Fed could certainly do so at the behest of the US Treasury. But the irony of this transition is that the US itself has been running a clean float since 1971. It's the ROW that has been running a dirty float against the dollar.

The dirty float is any official or unofficial exchange rate fix, peg, floor, ceiling or band defended by the public sector (CB). That's what causes imbalances to grow to system-busting levels, because the public sector steps in whenever the profit-driven private sector panics which is when it would otherwise correct. Occasional FX interventions for the purpose of combating unusual volatility, as long as there is no target exchange rate level, can certainly happen within a clean float. I'm not a purist. ;D

The majority of CB FX interventions are done visibly, for all of the logical reasons, and also empirically as well as admittedly according to a survey by the BIS. (The rare reasons for secrecy, according to the survey, are 1. to not actually affect the exchange rate when the goal is simply to acquire defensive reserves, 2. in cases where the intervention is expected to fail, 3. when the CB doesn't want to intervene but is forced to do so by politicians, 4. where intervention is inconsistent with other policy objectives, hence confusing signals will be given, and 5. where the central bank is not sure what it wants to achieve.)

For the US dollar, FX interventions are executed by the Fed under the direction of the US Treasury. This happens very rarely. In fact, it only happened twice from 1996 through 2006. At the end of each quarter, the Fed reveals if any interventions happened, and there were none in 2014. See here, here, here and here. The US has been philosophically and openly opposed to exchange rate manipulations of all kinds since 1971 (except for that brief time in 1978 when it asked Germany, Switzerland and Japan to print and swap their currencies for dollars to help Carter throw everything but the kitchen sink at the problem).

Today's dollar is essentially in a similar position to a currency that has been supporting its own overvalued exchange rate by running down its foreign reserves and will inevitably collapse when they run out, only it hasn't been doing that. The ROW has been doing it to the dollar, putting it in that position. Not that the US protested much while it was getting addicted to its privilege over a half century, but of course the ultimate irony is the ongoing protestations coming out of Treasury calling for the ROW to Stop Currency Manipulation!

It should be quite entertaining to watch how it all plays out next time the dollar starts plummeting, as long as you have some of those items I mention occasionally which let you sleep well at night. In terms of foreign reserves to deploy, the US has fewer than Korea, Mexico and Thailand, but slightly more than Malaysia and Indonesia. Of course it also has its gold, but that was not earned through running a surplus recently, it was earned through running a surplus 70 years ago and would have been long since gone were it not for the genius of Nixon, so US gold can't really be deployed in any meaningful way (yet). Treasury will ultimately be put in the singularly-unique position of having to both print like Mugabe to keep the bloated government functioning at status quo, AND simultaneously beg the same foreigners it has been telling to stop currency manipulation to start massively printing their own currencies to manipulate the dollar. Ouch!

It's difficult to even imagine the insane contradictions of the situation, but I imagine that's what FOA had in mind when he wrote about the US Treasury "shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates," but only "within official channels"(!), as physical gold returns "to official hands in Europe in exchange for Euros" which will presumably be used as FX reserves to support an ever lower dollar. "American policy has only the wish to manipulate its currency valuations with official currency trading" (in other words, IMO, meaning through the occasional FOREX interventions rather than a return to BW-style CB fixing or the post-BW dirty float of unofficial pegs and channels/bands) which is why "it will be in the US advantage for gold prices to rise and rise strongly" so that Treasury can get enough euros for its gold to at least slow the dollar's collapse. Remember, gold doesn't work well in currency defense at its discount market price, "just ask the Koreans and Indonesians". ;D

FOA (08/24/01; 10:54:30MT - usagold.com msg#101)
Part 2

=============================

I have presented this topic many times and again state that "all gold paper will burn". Most mine values included. Then and only then will gold values soar as physical units traded. Not before. As an adjunct, the illusion of most American paper wealth will also burn with this process that transitions the dollar away from reserve status.

At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: its basket currency function dissolved, gold will have to flow from American based stocks. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.

With the world credit gold markets paralyzed in default and dollar credibility placed in question along with American economic stamina; physical gold will return to official hands in Europe in exchange for Euros. A paradox observed as high gold places more demands upon Euros and sends the dollar ever lower.

=====================

In all of this Alan Greenspan will say goodbye. A gentleman of his ability and stature will find no use for a position he cannot change from; a good general does not only retreat. Any lesser player can buy public and treasury debt for the purpose of constant hyper inflation; there is no policy strategy or gamesmanship in this.

As for gold being a problem to buy in the USA? Once again, I point out that American policy has only the wish to manipulate its currency valuations with official currency trading. It will be in the US advantage for gold prices to rise and rise strongly. An acknowledgment to Euro planning and a defeat for 30 years of American gold misuse. If treasury gold is traded at all, it will be within official channels to help control dollar values.

However, as paper gold values freeze up and their use fails the public, physical bullion brokers will become a popular as "crude oil" is to producers. I wish you "a deep well" in your affairs, my friend, and will respond more for a time.

======================================

Thanks Mr. speaker,,,,

Thanks all
TrailGuide

That was fun, but let's get back to the question, "can the FED buy euros without calling it a peg, but say ... active monetary operations... - a strategy to shake off speculators, and so on?"

As I said, yes they can! But the problem is the US trade deficit. You see, a normal currency (that is, any currency other than the global reserve currency) generally feels upward pressure when its economy is either growing strongly due to a low starting point or already in a healthy surplus position. That's usually when those CBs start buying foreign exchange reserves in order to keep their currency down (at least that's what they do in this system).

The dollar, on the other hand, feels the same exact upward pressure even though its economy is living on food stamps and has been in deficit for 40 straight years. That's the curse of the reserve currency! The curse is that your situation, your status quo, is based on others buying your currency as reserves and investments, and that includes the foreign private sector which does so based purely on the profit motive.

The Fed could theoretically print an infinite amount of dollars and buy unlimited euros and every other currency in order to drive the dollar down, but that would be suicide. You see, for currencies like the yuan, the euro, the Swiss franc, even the Russian ruble, which are all in a healthy surplus position, driving their currencies down may not be a good decision (I think it's not), but even so, it's like pushing down on or putting your weight on a yoga ball—it always pushes back, and can only go down so far.

But for the dollar, in its perpetual (and structural) deficit position, pushing down is more like testing your weight on this:

Balance means everyone has a yoga ball to push on if they want, and no one is left hanging, and the clean float means balance. Even though it won't be absolutely perfect at all times due to private sector speculators, it will correct and revert to the mean because speculators are only after the profit.

How Normal, Profit-Driven Payment Flows Relate to Currency Exchange Rates

When we talk about payment flows, we are really talking about the net flows. There are flows happening in both directions in both the current and capital accounts. And if the flows in both directions were equal, they would cancel each other out and have no effect on the exchange rate. But if there's a little more in one direction than the other, that's a net flow which does have an impact on the exchange rate.

In general, a net flow in the current account is matched by a net flow in the opposite direction in the capital account. If you have a net outflow of payments for goods in the here and now, also known as a trade deficit or current account deficit, then you likely have a net inflow in the capital account which balances the two. The outflow in the current account matches the inflow in the capital account, and in a clean float, changes in the exchange rate of the currency make sure they match. In a clean float, it's a perfectly natural adjustment mechanism, kind of like how supply matches demand because changes in the price make sure they match.

The capital account inflow is basically investment money flowing in. It can be lending from foreigners, stock or bond sales to foreigners, real estate sales to foreigners, the sale of ownership stakes in local businesses to foreigners and so on. The capital account is basically the sale of claims on local future payment streams to foreigners. It's the sale of things that cannot actually be moved or exported, but their future revenue is what is being sold. This contrasts with the current account which generally pays for stuff that can and is being moved and exported or imported in the present, as well as services rendered in the present.

The sale of claims on future payment streams to foreigners goes on the capital account, but when those payment streams start flowing, the yield payments go on the current account, because the business or debtor or whatever is yielding in the present. So the current account is not a perfect representation of the balance of trade in the present, but it is close enough for our purpose.

So what we have is four different flows which add up to a single net flow. We have the current account outflow (payment for imports and foreign services), the current account inflow (payment for exports and services), the capital account outflow (locals making foreign investments) and the capital account inflow (foreigners making local investments). Add them all up and they should balance, or net out to zero. But in reality they don't.

In reality, there is always a net flow in one direction or the other. And that flow is not necessarily reflected in the BOP (because it is supposed to balance by definition). Instead, it is reflected in one of two things. It is either reflected in a change in the currency exchange rates (if they are allowed to change), or it is reflected in a change in central bank foreign exchange reserves. If either (or both) of those two things are in motion, then there is a net flow of payments, also known as an imbalance, driving that motion.

Net private sector, profit-driven payment flows do represent an imbalance. If there wasn't an imbalance, there would be no net flow. And as exchange rates change, they correct that imbalance, keeping the BOP balanced. But when central banks intervene in the foreign exchange market, the imbalance is not corrected, and is instead built up and accumulated as foreign exchange reserves.

We see this most clearly in the Bretton Woods system because it was automatic. Exchange rates were fixed, so imbalances in net private sector, profit-driven payment flows simply built up and accumulated as central bank dollar and gold reserves. But in the dirty float of the last 44 years, it's a little less clear what is happening.

Of course we know about the US trade deficit, but that's only half of the picture. The US has also been running a capital account surplus. The BOP balances by definition, so it doesn't reveal much about overall net flow, or imbalance. The only way to deduce the net flow is to look at the two places it shows up, 1. changes in the dollar's exchange rate and 2. changes in foreign central bank dollar reserves.

My general thesis is that, whenever the dollar's exchange rate is rising, the net inflow is coming primarily from the foreign (profit-driven) private sector, and when the dollar's exchange rate is declining is when I'd expect to see foreign CBs begin intervening in their foreign exchange markets. Smaller CBs will sometimes do this just to keep their currency from appreciating versus the dollar, but larger ones have, in the past, done it simply to support the dollar reserve system, which we learned from Another.

The Mechanics of CB Foreign Exchange Interventions

Central bank foreign exchange interventions generally act in opposition to normal, profit-driven payment flows, and therefore have a different motivation than the private sector. On one side, we have normal, profit-driven, private sector payment flows—both in the here-and-now ongoing trade of goods and services, and in the financial plane of debt, equity and their many derivatives—driving exchange rates, and then on the other side we have central bank foreign exchange interventions occasionally pushing back against the private sector.

In the full version of this post, I go into detail about the motives, tactics, implications and effects of CB exchange rate interventions, to give you a real feel for what is actually going on there. I explain how none of it is structural support for the dollar in the way that A/FOA explained it. Even China, whose "support" I think explains the last 15 years, had a different motivation than the European central banks who supported the dollar from 1979-1999 in order to launch the euro.

European-style structural support for the $IMFS ended at the turn of the century, and what we have today is willy-nilly support, both foreign official and foreign private sector. Financial flows into dollar-priced assets are all that is supporting the dollar right now. Remember my bomb shelter analogy? ;D

Why the dollar's exchange rate must collapse

As I stated at the top, Freegold implies a clean float, and we are well on our way there already. What's standing in the way is the perpetual nature of the US trade deficit and the overvaluation of the dollar it implies, and the only way that can be resolved is through a collapse in the dollar's exchange rate.

There are two main flow dynamics to bear in mind here. The first is the BOP, or how the capital and current accounts balance each other out vis-à-vis the currency exchange rate. And the second is the interplay between the foreign public and private sectors who have each maintained the dollars perpetual overvaluation at different times and with different motivations.

The US current account and trade deficits peaked back in 2006, and throughout the mid-2000s there was a chorus of mainstream economic pundits, including Paul Krugman, Larry Summers, Ken Rogoff, Martin Wolf, Nouriel Roubini, Brad DeLong and Brad Setzer (h/t JP Koning) explaining how this implied an overvalued dollar and its eventual collapse. Of course Peter Schiff was doing it too, and John Rubino started his popular Dollarcollapse.com around that same time.

Also around the same time, an interesting and controversial theory appeared which tried to explain the perpetual US trade deficit by proposing that the US is in fact not a net debtor, but a net creditor, if we simply factor the awesomeness we export into the current account data. The authors of the theory, Ricardo Hausmann and Federico Sturzenegger, dubbed this mysterious and magical American export "dark matter". But "dark matter", according to them, is more than just American mojo. It actually consists of the expertise and know-how we export to the rest of the world, both in business and finance, the safety and stability of our amazing financial products which acts like insurance against the instability in the rest of the world for which it pays a premium, and the fantastic liquidity of our financial system and markets, for which the rest of the world pays an additional premium.

If we could somehow put a price on such a valuable product as "dark matter" and count it as an export, says the theory, then we'd see that our trade with the rest of the world is actually balanced, and all the free stuff we've been getting for more than 40 years now has actually been paid for with sheer awesomeness. I thought Brad DeLong explained the theory well in a 2006 post on his blog titled Dark Matter:

"The late Rudi Dornbusch said that one of the infallible warning signs that we are near the collapse of an overvalued currency associated with an unsustainable trade deficit is when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable.

Now come Hausmann and Sturzenegger (2005), "U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?" (Cambridge: Harvard CID Working Paper) with a theory that the U.S. trade deficit is not so big and not so unsustainable after all.

[…]

In the BEA's book-value accounting, in 2006 U.S. companies will invest $600 billion in foreign direct investment elsewhere in the world--building factories, establishing links in value chains, taking over existing foreign-owned businesses, and so forth. In HS's accounting, that $600 billion in visible FDI will be accompanied by $300 billion worth of "dark matter" organizational and technological know-how that American firms carry to their operations abroad. The FDI flow will thereafter generate as much income as would a pure $900 billion bricks-and-mortar FDI flow.

In the BEA's book-value accounting, U.S. residents will also purchase $600 billion in foreign securities, and U.S. banks and other corporations will acquire $400 billion in loans payable and other credits. The gross overseas asset accumulation of Americans will thus amount to about $1,600 billion (in the BEA's book-value accounting) and to about $1,900 billion of income-producing assets (including the $300 billion of "dark matter" that boosts the income-producing potential of U.S. FDI).

Now let's look at the liabilities side. In the BEA's book-value accounting, in 2006 foreign governments will invest $800 billion acquiring U.S. securities--Treasuries, Fannie Maes, and others. Because the U.S. is at the center of the world monetary system it has the "exorbitant" privilege of being able to sell its securities at lower interest rates. In HS's accounting, that $800 billion consists of the U.S. providing foreign governments and central banks seeking foreign exchange reserves with $600 billion of income-producing potential and an extra $200 billion of "dark matter" liquidity.

Similarly, foreign private investors will spend $700 billion acquiring U.S. securities, which HS assess as consisting of $600 billion of income-producing potential and $100 billion of extra security--insurance because whatever happens to foreigners' assets in their home countries, their U.S.-housed assets will still be there.

In addition, foreign companies will make $300 billion of FDI investments in America, and foreign banks and companies will acquire $600 billion in loans payable and other credits from U.S. residents. The gross accumulation by foreigners of assets in America will thus amount to about $2,400 billion (in the BEA's book-value accounting), and to about $2,100 billion of incomes-producing potential (plus an extra $200 billion of liquidity and an extra $100 billion of security provided by the superior qualities of [the assets]).

[…]

The way that HS see it, U.S. trade is nearly balanced. We are importing some $2,000 billion and exporting some $1,200 billion of regular goods-and-services every year, but we are also exporting (a) $300 billion of technological and organizational knowledge via FDI, (b) $200 billion of liquidity services by serving as reserve banker to the world's central banks and governments, and (c) $100 billion of security services by giving foreign private investors a safer place to plant their wealth. Properly evaluated, HS argue, U.S. trade is nearly balanced.

The debate over HS's "dark matter" claims is rolling around the internet, with Willem Buiter and Ricardo Hausmann exchanging views at Martin Wolf's distressingly ovary-free Martin Wolf's Financial Times Economic Forum, Brad Setser harassing Hausmann and Business Week's Michael Mandel from his perch at Roubini Global Economics, and Michael Mandel parrying at his Economics Unbound.

Do I believe in Hausmann and Sturzenegger's "Dark Matter"? No. This post is in the interest of explicating an interesting line of argument only.

I believe what Rudi Dornbusch said: that when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable, that is the time to start running for the hills, because the crash is near."

On one hand, I agree with Brad DeLong and the rest of the critics of this theory that it is simply wrong. On the other hand, I have to agree with Hausmann and Sturzenegger that there has been a certain awesomeness imbued in the dollar and its financial markets. Where I probably differ, however, is whether this quality of awesomeness—this "dark matter" product—is an export or an import. I think it is an import, as it only exists because of the structural support provided by European central banks throughout the 80s and 90s in order to buy enough time to make it to the launch of their own dollar replacement. Here is FOA on this matter:

FOA (02/09/01; 14:24:03MT - usagold.com msg#59)
Current background

Make no mistake, CB support for our US unit is the only reason its exchange rate didn't plunge, throwing us into a massive, local price inflation. And, because most other countries held dollars as a reserve, they would have inflated also. All this support was done in order to stop a complete economic trade breakdown before EMU. A decades long wait.

The trick for the CBs was to keep holding dollars and even expanding those holdings as needed to balance US trade deficits. Deficits, by the way that have not only been negative for a long time, but have grown explosively during the 90s and right up and thru EMU. This dollar support made sense because holding reserves in a failing currency, while building a new one offered little loss potential. Yes, once the new system began to function, your dollar holding's value would eventually be reduced almost to nothing. But those reserves only represented support for the system itself, not actual buying power in the native currency's land, USA. You see, once a permanent trade deficit becomes structural to the function of the currency's economy, those dollars,,,,,, those units of reserve buying power,,, can never return for the purchase of anything! Without killing the exchange rates and native economic structure first. Yes, in the case of what comes first (chicken or egg), you cannot send dollars home to buy useful goods at a reasonable price if the whole trade structure fails. In the US's example, used here, local inflation would drive the dollar prices of everything we export through the roof, long before all the goods were bought. Completely, negating any and all exchange gains from a falling dollar exchange rate.

Trail Guide (02/15/01; 17:02:46MT - usagold.com msg#: 48325)
Reply

Eventually, as the dollar works its way toward becoming just a regular money, it's exchange rate will tumble. Vastly aggravated by our world class trade deficit. A deficit, I might add, that has become structural to the function of our economy in a non price inflation manner.

FOA (08/06/01; 09:37:25MT - usagold.com msg#91)
Gold Mobilization

Indeed, as an ongoing trade deficit in the US has become irreversibly structural to the integrity of the local economy and remained in this function for many years; the legal tender function of foreign dollar reserves comes very much into question. It begs this suggestion: does the international dollar have any internal political force backing its value overseas?

FOA (10/3/01; 10:21:26MT - usagold.com msg#110)
The makings of a dust storm

For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained; with its IMF agenda intact, gold polices followed and foreign central bank support all being part of that structure. Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.

FOA (10/8/01; 08:04:08MT - usagold.com msg#113)
Gold on the trail.

The US placed its money into this current equation in 1971. Then it failed to accept the internal price inflation that over printing its money demanded and a remarking of its gold reserves would expose to the world. Once off the last possible connection to a gold exchange standard, the dollar became a modern political tool. Little more than a derivative of value that depended upon what it could buy within our American borders. While this will be the fate of every new currency in our modern world, the US was politically and structurally unprepared for this shift in dynamics. We left our currency in this international pot, subject to every bit of unknown economic evolution that would come along. Because we could not walk away from the free lunch it brought us, that evolution dynamic is now upon us. The price we will now pay is the complete loss of dollar utility.

We managed this threat with help from our Euro friends; somehow thinking they enjoyed and wanted our fleecing their lifestyle to the same degree we did it to the rest of the world. Their cooperation, we will find out, was but a structural policy that bought time; time for a dollar replacement to be made.

You see, our perpetual trade deficit is the structural foundation underlying everything, and the US dollar exchange rate is the key. "Make no mistake, CB support for our US unit is the only reason its exchange rate didn't plunge, throwing us into a massive, local price inflation." Foreign public sector (CB) support wasn't meant to bolster our markets, it was meant to slow the decline of the USD whenever it became unprofitable, so that it wouldn't plunge into the abyss. A dollar consumer price inflation that matches the dollar's past currency inflation would end the US trade deficit in a heartbeat, and the entire $IMFS along with it.

In Freegold, with the clean float it implies, there will still be trade deficits and surpluses, but they won't be perpetual with a cumulative imbalance that builds up until it collapses. There will still be financial markets in key financial centers around the world that will drive trade imbalances at various times, but they will correct periodically and revert to the mean. There will still be reserve currencies which will be the larger, more liquid currencies that will be held in some proportion by the smaller CBs for the purpose of international liquidity in their local banking system. But none of them will be structurally supported—bought for the sole purpose of maintaining an imbalanced system. And gold will be the primary reserve asset held by CBs as an insurance policy against future crises.

The very first signs of transition might be an uptick in both the trade deficit and consumer price inflation, combined with a downtick in the dollar's exchange rate. Curiously, we have all three happening right now. I'm not saying that means this is the beginning of the end for the $IMFS, just that it's what it might look like, and in the full version of this post, I'll go into that in greater detail. ;D

I think the clean float, as I imagine it operating in Freegold, is basically already here, and now it's just the foreign private sector piling into the dollar bomb shelter, global stagnation and its vicious circle explained in the full version of this post, and possibly a few other technical phenomena playing out that are supporting the dollar and the entire $IMFS. I don't think it has been here for a long time, but maybe for the past year or so.

The dollar strength over the past year has forced many foreign CBs that were already predisposed to a clean float to take the idea quite seriously. Remember all the proclamations by Russia back in September and October about their commitment to a free floating currency? And there were several others too.

Our perpetual trade deficit is really just an effect of the rest of the world's monetary and financial actions, not a cause. But even so, it has become structural to not only the entire global financial system, but to our own economic system and, most importantly, to our voracious and spendthrift federal government, who also controls the US dollar printing press in extremis.

Our current account/trade deficit exists in the current/present/here and now, and it requires an ongoing here-and-now net inflow in the capital account. If that net inflow stops, reverses, or even just slows down considerably, our trade deficit will shrink and disappear in real terms no matter what our government tries.

All of the large currencies in the world are, for the most part, floating freely now, and after the past year, the small CBs have good reason NOT to resist an appreciation of their currencies brought on by a declining dollar. Central banks, both large and small, are already conditioned for the clean float. Much of what they already do today is "clean float friendly", and those interventions that are not will go against their self-interest the next time they are "warranted", i.e., next time the dollar depreciates rapidly.

True structural support ended at the turn of the century, and what we have today is willy-nilly support, both foreign official and foreign private sector. And because of the $9T debt problem, the strong dollar being driven by the foreign private sector is choking emerging market economies. So this time a collapsing dollar will be a godsend to their CBs, and not something to resist. In fact, some of them are already intervening to strengthen their currencies against the dollar, which means selling down their dollar reserves. Saudi Arabia is one that has been in the news lately. This is quite a change!

Suffice it to say that I don't expect the foreign public sector to resist even the most dramatic decline in the dollar's exchange rate, and once that avalanche picks up momentum, I don't think even Superman would be able to stop it. So now I think the question is what could cause the foreign private sector to turn and run from the dollar.

The simplest thing I can think of would be a dramatic correction in either the US stock or bond markets. Bear in mind that while a correction in one generally causes a flow into the other, that sloshing back and forth between risk-on and risk-off is not enough to support the dollar. Support requires a constant net inflow of foreign money, not just a flow from US stocks into US Treasuries and then back again.

Any way I look at it now, it seems apparent that the clean float is already here, and all that's left is that the dollar must collapse. Either that, or maybe it will just be strawberry fields forever for those of us lucky enough to live in the magical land where exporting our sheer awesomeness brings in all the free cell phones, free school lunches and free food stamps we could ever need.

I have a confession to make. More than two years ago at FOFCON, on January 26, 2013, I launched a second blog called the Freegold Speakeasy. Some of you have wondered where a lot of the commenters disappeared to, and now you know. The Speakeasy is a hangout for my top supporters. Anyone whose donations reached a certain level received a private invitation and, once inside, they learned that the #1 rule was the same as the Fight Club—you don't talk about the Speakeasy anywhere except inside the Speakeasy, and they kept the secret very well! :D

Today I am making the Speakeasy available to anyone for a small subscription fee. The subscription will be $110 for six months, which works out to about $18 per month, or the cost of a Grande Oprah Chai Latte at Starbucks once a week, and zero calories to boot!

The post above, "Clean Float – Why the Dollar Must Collapse", is a shorter version of the one you'll find at the Speakeasy, which is more than twice as long and much more detailed. It also already has more than 50 comments under it. In addition to that, there are 35 archived posts, including at least a dozen that never appeared here in any form, with names like…

Another's Wager
Another Angle on GLD
Another Angle on GLD 2
Gold: The World's Best Store of Value
Pricing DP
Random Thoughts
Runaway Train
The Circle Jerk
Ugly Gold Event
Where is Victor Aiming?
Why Paper Gold Can't Go Much Higher (or Lower)
Why Robert Mundell is Wrong

At the Speakeasy, I post and comment more often than I have in many years here at the main blog. It's more like the early years, and it's a friendly group of people. That was the main reason I started it.

So what you'll get for about 60 cents a day is a thriving discussion forum with many familiar faces, more posts and direct interaction with me, an archive of additional posts, and the full version of this post as well as all future posts. I will also be discontinuing the comment section at this blog.

If you have been following the comments here, please don't think of this as something lost. Think of it as something gained, because the Speakeasy comments are awesome, and I'm pleased to be opening it up to you. But if you are a troll, don't bother subscribing, because trolls will not be tolerated. And if you're looking for trading advice, timing charts, nonsensical gold hype and hyperbole, or big geopolitical conspiracy theories, then the Speakeasy is probably not the place for you.

If you, however, would like to follow my thoughts on current events, plus all of the good stuff from this blog and none of the trolls, then the Speakeasy is a good blog and a vibrant, ongoing discussion forum. You don't need to comment or even reveal your presence. I have many lurkers and welcome more! So if you'd like to join, just CLICK HERE to subscribe.

If you choose to subscribe, please be patient because admission is not automatic. I need to send you an invitation after you subscribe, so please allow several hours in case I'm away from the computer, though in most cases it will be very fast.

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Sincerely,
FOFOA