EUR/USD Outlook

June 4th, 2007

The US is no longer publishing the M3 report, as of back in March of 2006. This report tells the world how much US currency is in circulation and how much money the Fed is printing. The decision to stop publishing this report almost certainly shows that the US is printing far more money than they want anyone to know.

Other countries around the world are now starting to worry that their US currency reserves are going to lose value. Some are threatening to start selling the US currency. Oil is traded in US dollars around the world. A lot of money is held in US currency just to trade oil. Many countries are threatening to start using Euros for oil trading as well.

Why is the US printing so much money? The biggest reason is war. Why are they in the war? There are two primary reasons: terrorism and oil. As we all know, China owns a lot of US dollars. Enough that they can essentially cripple the US economy by selling US dollars en masse at any time they deem necessary. This is something the US can’t do much about… or can they? US dollars are not backed by gold. The dollars are nothing more than paper (well, it’s a different material, not paper). The world runs on oil. Without oil there is no economic activity. From the ploughs and tractors that grow food to the diesel that runs heavy equipment and machinery, nothing runs without oil. Oil is of real value.

So, what can the US do to protect itself? It did what it had to. It has secured most of the oil in the world, and in the Middle East. Now when China threatens to sell US dollars, there is something the US can do… slowly squeeze China through the supply of oil. Securing the Middle East oil fields also prevented countires from switching to Euro based oil trading, which would have flooded the market with US dollars. And to top it off, it brought the war to their home (terrorist’s), away from US soil. Will there ever be another terrorist attack? Hopefully not, but it could eventually occur. Where there is a will, there is a way. But it has prevented any new attacks on US soil for the past several years. Now instead of them fighting unarmed American’ civilians, they must fight trained soldiers… on their own turf too.

China wouldn’t want to cripple the US economy, not yet anyways. American investor’s and the US economy are responsible for helping build China into a super power. China is still being built up (with the help of American business and investor’s), and it will probably continue for a decade or two to come. But after they are an established super power with a middle class, the US will become nothing more than a nuisance to them. This world has never been big enough for two super powers, and with finite resources, it may never be. China, being a communist country, may seize American assets in the future if a war breaks out. When investor’s ask about investing in China all we can say is two things. Yes, there is money to be made. But be careful, it might just come to bite you in the ***. There are a lot of other democratic countries which are developing and there is plenty of money to be made from them, and they are allies, not future enemies (or at least we hope not).

As for the USD… eventually oil trading will be in Euros. It will occur eventually, especially if the US keeps printing money like it grows on trees… oh wait, it essentially does. But still, there seems to be a lot of pressure on the USD. We wouldn’t be surprised to see it continue its trend downward.

We have heard rumours (rumours, probably nothing more!) that the US expects its currency to plummet. The rumours we heard say there is a plan for an Amero, a currency for Mexico, US and Canada. This currency would be backed by silver. Who knows if that’s true? Not us. But it is an odd thing to think about and would explain why they are taking advantage of their powerful currency while they can. You can’t just print more money if it’s backed by silver, unless you purchase the silver. This is probably nothing more than a rumour.

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