Hedgefundistan

Since the May issue of Foreign Affairs, I've wanted to examine a big clue to new "Powers Dat Be" thinking. Foreign Affairs is the mouthpiece of the Council on Foreign Relations, or CFR, which has about 3,500 members at a given time. The CFR recently admitted actress Angelina Jolie to its ranks, but its core membership is much less attractive, consisting of past presidents, secretaries of State, bankers, spooks, wonks and ideology wankers. Like Henry Kissinger, who sits on its board, the CFR exists to do one simple thing: run the world. As for Foreign Affairs, it modestly declares itself "the most influential publication" in that world. It calls the dance steps, and Washington, Wall Street, think tanks, newspapers, and finally, lowest down on the food chain, the network talking heads, they boil it all down into 'Lord of the Dance' rhetoric and take the show on the road.

Therefore, when Foreign Affairs runs a lead article titled 'The End of National Currency," calling the Almighty Dollar "an absurdity, supported only by faith," while you may not know the exact steps yet, you know the dance just changed. Radically. Less than six months later, here we are with the US dollar worth 90 cents against the Canadian loonie (their $1 coin), and with the Euro climbing relentlessy towards two bucks. The article was tapped out by Benn Steil, whose analysis was neither concise nor communicative on first reading. One might even describe it as veiled. Then, on second reading it was more like, a-ha..."white man speak with forked tongue."

Steil advocates a world financial system based on only three currencies: Euros, Yen, and yes, those Dollars he just referred to as an absurdity. Occasionally, he rather off-handedly advocates buying gold, and makes some fairly elliptical statements about the power of private liquidity. Hard to understand it all without some key information. Here it is: Benn Steil is a hedge fund manager. He wants to let hedge funds be the saviors, or rather the arbitrageurs, of government loans, about 80% of which have Uncle Sam's I.O.U. on them. In essence, he's out to stick a fork in America, and many other countries. Where I said "stick a fork in," he would say, "optimize and transform." As he puts it, "National currencies and global markets do not mix." Well, dust my britches and call me a tumble-weed! If we can just do away with national currencies, we can get on with perfection.

Steil is a flat-out economic royalist, and what he's saying is that national sovereignty (or power to create money, same diff) should be transferred to hedge funds in a final step toward globalization. I repeat: he's calling for the end of national sovereignty. For a New World Order. He's also telling the wealthy they shouldn't worry about this transition, and to calm themselves they should personally buy more gold, in addition to that being quietly accumulated by their hedge-fund portfolios. It's a smart idea anyway, and Central Banks certainly won't need it anymore. Then, since the hedge funds will control the gold, hedge funds will back the currencies. No need for pesos, rubles, or those troublesome Thai bahts. See how simple?

Put 'The End of National Currency' into a context of a Federal Reserve Chairman who once said, "We can drop dollars out of helicopters," and you've got your roadmap. Controlled hyperinflation, dollar devaluation. The plan is for the stock markets to look like they're still going up, which they are. Trouble is, the Dow Jones and the S&P are obsolete as value benchmarks. More meaningfully for me, to a Canadian two hours up the road, my house is cheaper by half compared to 5 years ago. A bargain! As for gold, it's at $790, up from the $440 level I started dabbling at. Since 2002, gold went up 17.5% a year against both the dollar and the yen. A better way to think about it, probably, is that the dollar and yen are equally devalued, and gold is enjoying a return to popularity as certain currencies experience FTQMs (flight to quality moments).

Bottom line, Foreign Affairs is telling rich people to plan on doing business in Euros, and hold core wealth in gold. This is very good advice for rich people. The Rest Of Us dollar rubes, well, we're pretty much screwed for a while. Oh, and by the way: expect that it will be declared illegal for private citizens to hold or conduct business in gold. You'll need the auspices of an off-shore corporation to perform those tasks for you. Preferably, a hedge fund, like the one Benn Steil runs at http://www.efficientfrontiers.com.