Powering Into Record Territory

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“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.

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.”

Reprinted with permission from The Daily Reckoning.

Addison Wiggin [send him mail] is the editorial director and publisher of The Daily Reckoning. He is the author, with Bill Bonner, of Financial Reckoning Day: Surviving The Soft Depression of The 21st Century and the upcoming Empire of Debt. His latest book is The Demise of the Dollar…and Why It’s Great for Your Investments.

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