Addison Wiggin

“The country is living in debt,” Russian Prime Minister Vladimir Putin said yesterday when asked about the Grand Bargain the U.S. Congress is voting on today.”It is not living within its means, shifting the weight of responsibility on other countries and in a way acting as a parasite.”

History’s cruel irony: The deficit spending justified in the 1980s to defeat the Soviet Union became “business as usual” for the ensuing three decades.

Putin
Yeah, that was pretty much our reaction, too…

The agreement cut yesterday to avert default “was not that great overall because it simply delayed the adoption of a more systemic solution,” according to Putin, who was addressing a youth camp in central Russia.

“If the U.S. encounters a systemic malfunction, this affects everyone,” he said. Thus does the prime minister suggest, and not for the first time, his own “more systemic solution.”

“There should be other reserve currencies.”

Russia holds $115 billion in U.S. Treasuries. That’s only a 10th of China’s holdings, but still nothing to sneeze at.

For its part, South Korea — the world’s seventh-largest holder of U.S. dollars reserves — reacted to the “agreement” by announcing the Bank of Korea has tripled gold holdings over the past two months.

The $1.25 billion purchase is the first addition to Korean gold holdings since the Asian financial crisis of the late 1990s.

Thailand also made an announcement today. They added $900 million to their gold stash in June.

“The trend,” says the Financial Times, “means central banks, sovereign wealth funds and other so-called ‘official sector’ buyers are on track to record their largest collective purchase of gold since the collapse of the Bretton Woods system, which pegged the value of the dollar to gold, in 1971.”

With that, gold is powering into record territory this morning, the spot price currently up $17, to $1,637. Silver, meanwhile, has pushed past $40 again, sitting at $40.11 as we write.

Meanwhile, one of the “frontier markets” we follow is running away from the dollar in a different direction. Cambodia’s stock market, opened last month, will allow trading in U.S. dollars… but only for the next three years. Then the Cambodian riel will take center stage.

According to the Asian Development Bank, U.S. dollars account for 90% of the currency in circulation in Cambodia. But that’s due to change, says our contact on the scene — Leopard Capital chief and Vancouver speaker Doug Clayton.

“The U.S. dollar is losing its credibility from the reckless ‘quantitative easing’ programs of the U.S. Federal Reserve,” he tells MarketWatch. “It is becoming unsafe for Cambodia to delegate its monetary policy to the bankrupt U.S., which hopes to inflate its way out of its recession and huge debts.

“Foreign investors would initially prefer to trade shares in dollars since that is simplest for them,” he continues. “But once there are enough riels in circulation and sufficient liquidity in the foreign exchange market, trading shares denominated in riels will not pose any problems for investors.”

Regards,

Addison Wiggin,
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • http://www.tweed365.com.au/ Scott

    Cambodia

  • Bennet Cecil

    It is better for a gradual move away from the dollar than a sudden collapse. As the dollar is discarded, prices in the US will surge. This will force clueless American voters to choose smaller government and hard money. The US will have to abandon the warfare-welfare state.

  • Bretton

    The US government will NEVER voluntarily shrink. NEVER.

  • Frank K

    The politicians played Russian roulette on its sovereign debt the past 2 weeks. Now that the game is over they declared themselves winners. They had a lot of fun and now can find another war, at home or abroad, to play.

    But the world watched and decided the United States of America is a loser. Even the most solid friends and allies have decided it is time to put up a firewall and play another game. This Washington game of stupid brinkmanship, and the resulting grotesque ‘deal’, convinced the world that only the reality of losing the dollar reserve status can force responsibility in America.

    Because the game of last week is in effect US politicians calling the world bluff. We will find out soon who is bluff.

  • http://www.mogamboguru.com JMR Doug

    Hahahahaha, as Mogambo Guru would say, “we’re freaking doomed!”

  • bw

    I don’t remember Russia complaining when we gave them billions in bailouts and subsidies after their collapse !

  • Grod

    @BW — Citation please! Or did you just make that up? My recollection is that the west basically did nothing but rush in and try to grab everything that wasn’t nailed down, all the while advising them to privatize everything in sight, contributing to the economic chaos in spades.

  • Frank K

    @BW

    I suggest you read Naomi Kline ‘Shock Doctrine’ to purge your mind of falsehood about the US giving Russia after USSR collapse.

    The exact reverse happened. The US government sent in ‘shock doctors’ to advise the ex-communists of how to convert to a capitalist system overnight. The idea is to privatize all of USSR at penny pricing so that US corporations can buy them up. The resulting slaughter of the Russia economy resulted in a total collapse and default of Russia’s bonds. This is what some Russian officials referred to today, challenging the US to apply the same treatment it advised Russia 20 years ago. It’s a thinly veiled joke on US ‘shock treat’ itself into oblivion.

  • Emma Goldman

    Americans get 60 flavors of ice Cream, but only two politicaly, and they are wound around each other in one of those swirl type cones of soft ice cream. If voting changed anything they’d make it illegal.

  • http://www.an-m.net Nick Of OZ

    The spending didn’t continue Business as usual but rather became self justifying & self consuming after 911. Not everyone believes the official story but regardless take a couple of minutes to view this video of Donald Rumsfeld the day before 911.
    http://an-m.net/Waste.htm
    Here they couldn’t account for a small amount of money & yet no-one went to prison instead they accelerated the scam right through the other scam the GFC. All that money never disappeared it is still in the accounts of some who apparently were too big to fail! Amazing the Bush/Obama circus went about taking public money & swapped the debt with tax money. That means the people who did create the mess walked away with your taxes. If that’s not scam you must be brain dead, the collapse is coming.

  • TFB

    I’m with Scott.

    Cambodia?

    RUFKN KIDDIN’ ME?

  • John Smith

    Buy gold and silver now. Along with plenty of guns and ammunition. The USSA is finally going down! Obama, Bernanke and Geithner all deserve execution for treason.

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