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- THE FRIDAY LETTER -
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| http://www.gilder.com/ | Issue 333.0/March 21,
2008
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HEADLINES:
- The Week / Gilder Telecosm Forum: Volatile Dollar Debate
- Friday Feature / Steve Forbes: Here’s How to End the Panic
- Friday Blogger Bonus / John Rutledge: A
Jaw-dropper
- Readings /
|
THE
12TH ANNUAL GILDER/FORBES |
The
Week / Volatile Dollar Debate
Gilder Telecosm Member (3/17/08): The dollar is a
byproduct of economic fundamentals not the other way around.
George Gilder, Gilder Telecosm Forum
(3/18/08): This is so if the relevant government bodies
all say it is so and if rather than improving fundamental policy, they further
debauch the currency as a way of rebalancing trade. Fundamentals are what the
government does and what it says it will do. Leaving currency values to the
free market is a self-defeating prescription for a volatile dollar that fails
to provide a reliable unit of account or store of value for transactions or
investment.
The gold price remains the best signal of monetary conditions.
Gilder Telecosm Member (3/18/08): Where is the proof for
that statement? Why is gold assumed to have no supply/demand curve itself? Is
it just an article of faith that should be accepted without proof? Why can't
advocates of gold ever answer this question?
And why is gold a better signal of monetary conditions than the level and
shape of the yield curve? Unless it can be shown that the law of supply and
demand are somehow suspended when it comes to gold then the price of gold is
influenced by demand for jewelery, demand from ETFs, demand from speculators
responding to prices and the production output from gold mining firms, central
bank sales etc.
Interest rates on the other hand are a function of inflation. So again why
is gold a better indicator of monetary policy than interest rates?
George Gilder, Gilder Telecosm Forum
(3/20/08): Gold is not assumed to have no supply/demand
curve, just a curve that is relatively constant because of the some 150 metric
tons of the stuff that is available around the globe to be marketed at any
time. The available gold dwarfs the annual production and the marginal changes
in its use, which in turn are influenced by the demand for paper money.
(Purchase of jewelry, for example, is one of the traditional ways people
register their fears of inflationary turmoil.)
But gold is not an absolute gauge. You are right that monetary policy must
consider a variety of indicators, including productivity changes. However a
tripling of the gold price over the last few years, affirmed by similar rises
in other commodity prices, comprise an important inflationary signal. Moreover
the devaluation of the dollar in itself constitutes inflation.
Interest rates are just as significant, but expected inflation can mimic
deflation or combine with it in stagflation and devaluation in ways that are
far from self-evident. The gold price remains a crucial measuring stick for
monetary conditions.
Nonetheless, monetary policy can only do so much in the face of bad
fundamentals deriving from destructive economic policies. We may well have to
accept inflation in the current environment in which an array of destructive
trade, tax, labor, energy and other policies is in the offing, portending a
drop in the future demand for dollars.
To
read more of George Gilder’s posts and those of the Gilder Telecosm Forum
members, visit http://www.gildertech.com/ and become a
Forum member today.
__________________________________________
DON’T MISS THE “PHOTONIC INTEGRATION”
PROGRAM ON MAY 29, AT TELECOSM 2008,
featuring George Gilder, EZchip CEO Eli Fruchter and NetLogic CEO Ron Jankov,
and Cavium CEO Syed Ali. Register
online today: www.TelecosmConference.com
|
The Gilder Telecosm Forum To learn how to join this powerful network of
talented, tech-savvy investors and thinkers online daily to debate, discuss,
and decode new and emerging technologies and share valuable and actionable
investment advice, visit www.Gildertech.com
today. |
Friday Feature / Here’s How to End the Panic
Steve Forbes, Forbes.com (03/20/08): The Bush administration must take two steps
immediately to quickly halt the unending, enervating credit crisis: shore up
the anemic dollar and, for the time being, suspend "marking to
market" those new financial instruments, such as packages of subprime
mortgages.
The
weak dollar is pummeling equities, disrupting the economy, distorting global
trade and giving hundreds of billions of dollars in windfall revenues--through
skyrocketing commodity prices--to our adversaries such as Iran and Venezuela.
Not since Jimmy Carter has the U.S. had a President so oblivious to the damage
done by an increasingly feeble greenback.
The
Federal Reserve can rally the markets for a day or two by finding some new
mechanism through which to lend more money to banks and other financial
institutions. But this is the proverbial Band-Aid for a patient who is
beginning to hemorrhage.
The
Administration acts as if the dollar were like the sun, it’s rising and falling
beyond any control. Countless times experience has shown that notion to be
false. The U.S. Treasury Department could buy dollars in the currency exchange
markets. Our allies would gladly cooperate with such an operation; their
exports are being hurt more and more. The Fed could mop up some of the excess
liquidity it has created since 2004, even as it makes targeted loans to
beleaguered banks and financial houses.
The
other measure: The Treasury Department and the Fed should get together with the
SEC, the Comptroller of the Currency and other bank regulators and announce
that financial institutions for the next 12 months will no longer write down
the value of exotic financial instruments (primarily packages of subprime
mortgages). Instead, write-downs will occur only when there have been actual
losses on those assets. If a mortgage defaults, a bank will then--and only
then--recognize the loss.
It's
preposterous to try to guess what these new instruments are worth in a time of
panic. Such assets are being marked down to increasingly arbitrary low levels.
But when a bank books such a loss, it must replenish depleted capital, even
though cash flows for most financial firms are still positive. Worse, when forced
by panicky regulators and lawsuit-fearing accountants to write down the value
of these securities, institutions will dump assets in a market where there are
temporarily few or no buyers. The result is a spiraling disaster. So let's have
a time-out on markdowns until we actually have real experience in what
kind of losses are actually going to occur.
These
two steps would quickly end the panic. Until that happens, expect more trouble.
Read
Complete Commentary:
http://www.forbes.com/home/columnists/forbes/2008/0407/015.html
__________________________________________
Friday Blogger Bonus / A Jaw-dropper
John Rutledge, Dr. John Rutledge blog (3/13/08): Here's a jaw-dropper. Telecomasia.net reports that Vietnam
has decided it needs to launch its own satellite to make sure that its
communications infrastructure is up to the demands of today's global economy.
Vinasat No. 1 is scheduled to be launched April 12 from South
America, and will be ready for use in May. The $200-million satellite will make
Internet and television accessible nationwide.
"Vietnam has reached the point where significant improvements
of the telecommunication infrastructure are needed for its economic and social
development," said a Vietnamese telecom official. Better
telecommunications would bring more investment into the country. Vietnam's
economy has grown at an average annual rate of more than 7% for the last 10
years. It has 19 million Internet users, and more than 40 million telephones.
That means Vietnam has joined the club of developing nations,
including China, India, and Brazil that has figured out that high-speed
telecommunications networks, information technology and technical education are
the best strategy for providing the rising productivity, jobs and living
standards for their people without ruining the air and water and fighting over
oil.
Competing for capital. Competing for technology. Competing for
scientists, engineers and entrepreneurs. That's the policy game of the future.
All three are in danger in the current US election.
Check out Rutledge’s blog:
http://www.rutledgeblog.com/
__________________________________________
Readings /
Verizon
Wins Key FCC Auctions
http://online.wsj.com/article/SB120603843805652459.html?mod=hpp_us_whats_news
Hi-Def Cellular
http://www.forbes.com/technology/forbes/2008/0407/048.html
Appeals Court
Rules Against Qualcomm
http://online.wsj.com/article/SB120596751297750075.html?mod=technology_main_whats_news
Radio
interfaces make the difference in 3G cellular systems
http://spectrum.ieee.org/archive/1582
Long Distance Wi-Fi
http://www.technologyreview.com/Infotech/20432/?a=f
The Networked
Pill
http://www.technologyreview.com/Biotech/20434/
__________________________________________
Friday Letter Editor: Mary Collins George / mcollins@gilder.com
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