I remember the movie Treasure of the Sierra Madre, when Bogart and his gold prospector buddies are holed up in the Sierra Madre. The classic Mexican bandit encounters them and demands that they surrender, claiming the bandits are the mounted police. The prospectors are shaking in their boots with itchy trigger fingers. The bandit yells at Bogart to come out and they will 'buy their horses' or something like that.. (doesn't that sound like a good idea!)

Bogart says.. "Show us your badges!"

Bandit: "Badges? ... we don't have no badges..we don't NEED NO STINKIN BADGES!"

And the bullets fly. That's my example of a Mexican stand-off. Each side is pointing guns at the other, and if anyone fires it's a blood bath either way. There is a whole lot to that analogy in the state of the US dollar vs the WORLD.

Well, the world has a lot of holders of US dollars and Treasuries. A lot lot. But this is like a 5 or 10 bandit stand-off, and if any one bandit fires first, then all the bandits will fire, or be creamed. So its a very dicey Mexican stand-off, this one is. (It only encompasses the economic welfare of the entire world).

First, let us talk about several individual stand-offs, and then the real stand-off of the overall US dollar situation and US dollar debts vs the world...how it could unfold rather fast...

We have the Japanese, with almost a trillion dollars in US foreign reserves, plus God knows how many trillions in US treasuries. The Japanese are mumbling that the US needs to address the value of the dollar, and doing things like hinting that they may increase their gold reserves via foreign reserves...thats a big gun, and the gold market reacted accordingly on that one...

We have the Chinese, with the better part of 500 billion in US foreign reserves.

The US is holding the cards in the sense that the Chinese need the US for growth of their exports, while they are worried about their banking crisis...Meanwhile the Chinese are holding off revaluing the renminbi to the dollar, and making the US pay for China's incredibly cheap labor and competitive advantages of not having things like retirement programs and plans for all those pesky old people who don't produce.

We have the Oil sheiks and Kingdoms in the Middle-East who are concerned that the dollar is dropping. They are selling us their hard assets, oil, and getting deflated dollars for them. But even more important to them is the fact that Bush has the bad taste to tell them they need democracy over there... making the US not very popular with the powers that be in the Middle-East. It's a great way to lose influence there.

Now some discussion about the larger issue of how the US dollar could tank big time in maybe a day or an hour...

We have, for illustration, an example of a little party who has a gun in this too. Take a small billionaire who wants to move a pissy 10 billion into metals such as gold. How much would that buy at today's market? Well, 10 billion buys 25 MILLION ounces of gold at 400 dollars, or about 781 tons. That is more than the proposed gold bullion sales of France this year. ( and where would someone get 781 tons in one crack anyway? well in a SECRET DEAL, that's how... If you were a very influential guy, say a billionaire, what would stop you from offering a secret purchase of say a couple hundred tons at twice or three times the going price, knowing that your money is evaporating anyway in some unfolding crisis?) .

How fast do you think things can move in today's US dollar saturated world? And how much is transparent? I don't really think we have any idea of what is POSSIBLE. Nobody does. There has never been a world this rich and as saturated with one paper currency ever. Hence, no historical comparisons of this magnitude or scope. This is a new ballgame folks.

How fast do you really think things can happen today??? That is a GOOD question.

Suppose Japan wanted to liquefy a trillion dollars in US treasuries, just suppose. The dollar would instantly tank. And I'm willing to bet that at that point a lot of holders of US dollar assets would be really thinking of salvaging what they could of at least SOME of their dollar asset hoard. That would be the other bandits firing after the first shot, or probably firing at the same time. That all means one whole lot of paper money being revalued. Remember, it only takes one party in a Mexican stand-off to fire, whether he is smart or not is irrelevant.

At some point the supporters of the US dollar are going to cut the cord, and we are swinging over hell on a spider web, blissfully unaware for most people. I also believe that whether it's hyper inflation or deflation, there will be some genesis point event, similar to the Asian currency crisis, only this time there will be a lot of parties with very itchy trigger fingers, and probably most of them related to computer decision systems. And such an event involving the US dollar would make the Asian crisis small rice indeed. In a real crisis there is no such thing as a circuit breaker.

This stand-off could cascade and erase the value of a dollar in a few days, or, yes even in the biblical hour too. All that is necessary is a large enough lack of confidence, and follow through. The actual time window in which this could happen is very very short today due to the power of technology and communications. The actual time window is much less than we are accustomed to thinking right now because, 1. we haven't seen a real DOLLAR crisis yet, 2. automated trading decision systems could just cascade and erase our economic world in less time it takes the FED to make one call to Japan. Make no mistake, I truly believe that it is possible (probable or not) for an electronic currency crash unheard of, that could wipe out the US dollar in an hour.

But some will say, 'THEY' won't let that happen, a dollar collapse that big in an hour. What makes you think 'They' can do anything about it? Are you assuming that 'They' have control of this dollar world market? That 'They' know how to control it in anything other than benign times, but have absolutely no paradigms involving the scope of the penetration of the US dollar in the world, the commodity market, the banking system, the other world currencies. No, the FED and whoever else would want to intervene wishes they had that kind of knowledge and control, but they do NOT.

With our whole economic world defined and designed with just in time manufacturing and commerce getting paid instantaneously with electronic dollars, and our food in our homes coming off the farm a week before, and out of the canneries two weeks before? And that scenario going for everything you can buy in the US today. We are totally dependent on electronic commerce, and electronic systems making lots of decisions, and all these systems are interdependent. Do you know that Los Angeles, my home town, has about three days of food in the stores, warehouses and such, and if the 'just in time delivery' of just about everything gets interrupted even for a week there will be rioting in the streets...

And the derivatives! My god what have we here today???

I hesitate even to write the numbers down, they sound so preposterous. Numbers like 100 trillion. 150 trillion. 200 trillion. And all closely dependent and not at all clear what would happen to the dollar if only a small percentage aren't honored. Or honored in a timely manner.

Look at the LTCM crisis, which is nothing by comparison, the damage that did to banks.

The FED did a lot to squelch that one before it ballooned out of control. But the numbers in that one are absolutely nothing compared to the present tensions.

I believe that 99 percent of the US and the World thinks or likes to think that things are going to go on as before. But regardless of what we think, the whole picture has already changed and is just waiting for the genesis point of the NEW ERA. It has always been thus in new era times.

That genesis event will be currency related, but this time the currency of concern is the world's reserve currency, the US dollar, with nothing really backing it, other than the good will of our trading partners, most of whom have already fought a world war to the death with us, and who will hold no real sympathy at all for the US once our financial use to the world has run its course. There will be no 'Marshall Plan' for the US should this event occur. Do you expect they really care about us? How much de we really depend on these foreign entities for our economic security??? That is the question.

Is it possible that we are moving along in the world, with not a CLUE to what is waiting to happen, that our so called friends may be really waiting for our day to come, and will just watch it happen. I know that is not a nice thought, but my point is, it is worth thinking about. Particularly when the US is depending on the world economic community to bail out the dollar. Maybe these people are just waiting for the time they can cut the cord to the US, when their internally calculated rate of real return on their US dollar assets falls below a secret internal threshold. Maybe that's when the first Mexican bandit fires.

Former Treasury Secretary Lawrence Summers said in a speech to the International Institute of Economics : "...it surely cannot be prudent for us as a country to rely on a balance of financial terror to hold back reserve sales that would threaten our stability" http://biz.yahoo.com/rf/040324/economy_summers_1.html

All it takes for a Mexican stand-off to result in a blood bath is for an irreconcilable impasse to occur, all the time one side is waiting for the other to fire, and thinking of jumping the gun...

Chris Laird
tec_10000@yahoo.com