Thursday, May 04, 2006

The Big Money

Billmon writes about the international financial system and how the increase in the price of gold is most likely due to central bankers switching from holding dollars to holding gold.

The dollar's down to $1.27/Euro. It's been above that before (becasue Jeebus hates me, when I was last in Europe) but it was hovering around $1.20 for quite some time before this recent rather fast slide.

There's nothing wrong with a falling dollar. It's generally believed to be inevitable and necessary and there's no reason it has to be harmful for the economy, though it'll sure make those trips to London more expensive than they already are. The danger, if there is one, is that central banks not wishing to see the value of their reserve holdings diminish by a substantial amount will start unloading them and we have a minor or major financial panic on our hands.