But the supply of virtual dollars is, almost by definition, infinite. For example, each time the debt ceiling is approached, they just raise it higher.

If you have an infinite number of virtual dollars and reduce it by some number, the number remaining is still the same.

I feel tremendously uneasy. Glad I don't have much in cash. Still hanging onto my 401(k), perhaps foolishly.

The structure is now based entirely on perceptions, and they're getting more and more warped. It's like we're traveling on a bridge made of taffy that keeps getting stretched longer . . . and thinner.

Gold getting hammered again, and the dollar is about to bust 80.

Target on gold for me to be a buyer again is $650.

Heineken,

When virtual dollars are destroyed, and credit becomes increasingly hard to come by, then the dollar's value, virtual and physical, is a function of supply and demand. In short, the supply demand ratio has shifted favorably to the demand side, hence the dollar's value rises.

Whatever you say, firestarter. I don't understand these things very well. To me if dollars are virtual, then concepts of supply and demand don't apply.

He said, "dollars good".

The bigger bargain (than gold) might be silver. $10.86 as I write.

WOW silver is way down. I never thought it would go so low. I blew ALL my money the last few weeks buying it for $13 and I thought it was a great deal. DAMMIT. now I'm broke and I can't do anything except watch DAMMIT!!!!!

Don't fret. In one, two, or five years, silver will be back to $20 or beyond, and then you'll be bucks up.

Remember, the dollar, under the official veil, is worthless. Can't go wrong buying silver at ANY price with worthless money.

virtual dollars = every thing dollar denominated (example: credit) EXCEPT physical dollars (FRN's)

There's a boat load more of electronic dollars relative to physical dollars (FRN's). The electronic dollars are being destroyed through debt defaults, hence there are less virtual dollars in the total pool of physical and virtual dollars. Less supply = more relative value =stronger dollar. There is also an increasing demand demand for dollars--mainly virtual dollars--when de-leveraging takes place (read: margin calls).

If you can find any, that is. The gap between "walking silver" and "paper silver" is so wide right now, it's rediculous. Nobody has silver anywhere, and if by some miracle you do find some, they are charging 7-8 dollars over spot price for it. All of the online dealers are either posting "out of stock" warnings, or increasing their delivery wait times to "Whenever we feel like it".

Gold bricks and bars are being dumped but the govt mints appear not to be minting any more coins. Same with silver, I guess. A lot of demand is on the coin side, as many people don't have the money to buy a bar or a brick. So the demand just isn't being figured in, the way it should be.

Good job, Gov, and exactly what I would do if I was a scum sucking elite.

This is the bust that preceeds the inflationary boom, in my personal opinion. All the deleveraging helps to set the stage for a massive interest rate cut to "stimulate the economy" and "get people back to work". I still think it's quite possible that the only way the US can maintain the strength of their currency, over the long term, is to allow it to become the vehicle of choice for the carry trade. Borrow dollars at zero interest, and buy foreign currencies (yen?) for yield.

I'm sure you're right, although my online dealer seems to have silver for sale. I agree that the premium is quite large---much greater on a percentage basis for an ounce of silver than for an ounce of gold. But not $7-$8 at my dealer. More like $3-$5. Still, too much.

Here is a piece about the carry trade here. It's written in February, when the prospect of the fed cutting rates appreciably and further weakening the dollar, against other currencies, wasn't likely. However, now the stage is set up beautifully to do just this, if there is a currency that can be purchased, issuing higher yields.

The markets are behaving a little like they're being run by a random number generator right now, but we should probably be focussing on how this is likely to play out, post election, or just prior to the election.

300 banks are looking like they might fail. This in no way warrants a "strong dollar"

Another gold bug site, fwiw:

"We do not know for sure how far the Fed will go with their interest rate cuts, but it is possible that Bernanke could bring it all the way down to zero. Even if the Fed only cuts rates to say 1% and not to absolute zero, there is still a strong possibility that we will see the beginning of a “US Dollar Carry Trade. With interest rates at around 1% it becomes incredibly attractive to borrow US dollars and invest in other currencies or foreign government bonds. In countries such as New Zealand, savings accounts in NZ dollars are paying anywhere from 8% to 9.5% for fixed term deposits. Therefore by borrowing at 1%, investing at say 9% and using a leverage of 10:1, traders could make 80% a year on their money."

http://www.gold-prices.biz/the-future-u ... rry-trade/