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Earthquake/tsunami that devastated Japan will add to dollar woes

The cost rebuilding the areas of Japan that were devastated from the one-two punch of the earthquake and  the tsunami will be enormous.

Fortunately, the Japanese are among the world’s biggest savers,  which means that  they have the funds to spend and will not have to solicit donations as did New Zealand after the 6.3 quake that nearly destroyed the country’s second largest city, Christchurch, on February 22.  Unfortunately for the dollar, though, much of the Japanese savings are in dollars, including the Bank of Japan’s treasury debt holdings of nearly $900 billion.

The Japanese will have to sell some of their treasury holdings for funds to rebuild.  How much of their holdings they will have to sell cannot even be guessed at, but it will be huge because the cost of rebuilding will be huge.  At least one nuclear power plant was lost, never to generate electricity again.

Because the Fed presently is buying between 65% and 75% of all new the Treasury debt and because Japan will not—at least not for a long time—be a buyer of treasury debt, the Fed will be the primary buyer as the Japanese liquidate.

While the Fed has announced that QE2 will end June 30, the Fed will have to step up and buy as the Japanese sell.  I don’t know if there will be another official QE, but the Fed will continue expanding its balance sheet as the Japanese sell, guaranteeing more monetary inflation that ultimately will result in massive price inflation.

Jim Rickards, Senior Managing Director for Market Intelligence at Omnis, Inc. and a frequent guest on, says, “QE has now become a permanent part of the financial landscape of the United States.”  The coming liquidation of Japanese treasury holdings will guarantee that Richards is right.

Thursday saw sharp declines in gold and silver.  Friday morning they sold off more, but as word spread that the earthquake and the tsunami had devastated parts of Japan, the metals rallied with gold ending the day up $8.80 from Thursday’s close and silver up $.86.  This week we will learn of the metals’ selloff is over or if they will march still higher in this move.

6 Responses to “Earthquake/tsunami that devastated Japan will add to dollar woes”

  1. J. Wayne Watson

    Hi Bill,
    What do you think has caused the precious metals to drop along with the stock market?
    God bless,
    Wayne Watson

    • Bill Haynes


      It was a classic “flight to safety,” although I think the concept is flawed with what the dollar now is, “an electronic impulse on a silicon bubble.” The dollar is no longer “as good as gold,” but investors are oblivious to that.

      Obviously, a real flight to safety would have been to gold and silver, but we do not yet have a populace that is knowledgeable about money. Will we ever have? Probably not, but daily — yes, daily — a portion of the populace learns the truth.

      The yen is in trouble because of Japan’s cost of rebuilding, which makes the dollar look good. But, it’s temporary, as investors will realize that the Fed will have to continue quantitative easing. This week may see a bottom in the metals; there is no reason to abandon them as the world’s financial problems became worse with the earthquake/tsunami that hit Japan.

  2. Bud

    PMs should be higher in value as compared to fiat bank notes (American dollars). Well known PM analysts such as Ted Butler, Eric Sprott and Harvey Organ have put forth very good cases of price manipulation by JPMorgan Chase, the bullion banks and the Federal Reserve Bank!

    It is very interesting that the main stream media chooses to downplay and ignore this very probable manipulation. In all my reading of news articles on PMs, I have even noticed that the authors will sometimes refer to Butler, Sprott and Organ as some kind of conspiracy fringe elements (all three of these men are well respected in their chosen field)….. Any thoughts on the relevancy of their claim and subsequent harsh rebutal by some of the “talking head” experts in the media….thanks….Bud

    • Bill Haynes

      I don’t think there’s any doubt but that the bullion banks throw their weight around in the gold and silver markets, and there is evidence of manipulations. However, when silver was $5, there was a hue and cry that the PMs — but especially silver — were being “manipulated,” with manipulation meaning suppressed. Today, silver is $35, so if the bullion banks were suppressing the PMs, they failed. Still, there is compelling evidence to many analysts that the bullion banks have often raided the PM markets.


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