In an enviroment of floating exchange rates, feedback effects can form with all manner of diasastrous and surprising results. In the absence of coherent currency management by monitary authorities, a change in the currency's value or exchange rate can lead to a change in demand for money,back to a change in exchange rate, which leads to more economic changes, and so forth ad infinitum.

The system of interest rate pegging in use today is extremely chaotic, and "reflexive" effects are paramount. This era of floating exchange rares has been puntuated by a never ending series of monitary disasters, some large enough to threaten the world ecomomy.

We'll let Soros speak for himself: (Incidently he was one of the world's most succesasful curency speculators between 1973 and his semiretirement in 1989.)

And I quote, "While reflexive interactions are intermittent on the stock market, they are continuous in the market for currencies.I shall try show that freely floating exchange rares are inherantly unstable; moreover, the instability is cumulative so that the eventual breakdown of a freely floating exchange rare system is virtually assured.

The traditional view of the currency market is that it tends toward equilibrium . . . Speculation cannot disrupt this trendtoward equilibrium---if speculators anticipate the future correctly, they accelerate the trend; if they misjudge it they will be penalized by the underlying trend that may be delayed but will eventually assert itself.

Expierienc since floating exchange rates were introduced in 1973 has disproved this view. Insatead of fundamentals determining exchange rates, exchange rates have fpund a way of influencing exchange rates."

The regime of floating currencies today is characterised by unpredictability. In such an enviroment the reflexive effects can reach full bloom!

All such effects are in essence changes in the demand for money. A curenncy can only go up or down; a reflexive effect is onr where the fall ofd a currency tends to create a relative shrinkage of demand, leading to a further fall, or vice versa.

A falling currency is, of course, inflation, and in an inflation peoples willingness to hold cash diminishes.

Cash moves into other asset classes, with gold/silver, the only true reserve currencys, moving to one of the assets of first choice.

Their equities also falling in line.

Hence the "reflexive" slide in the $US, inflation, and the continuing "bull" market in PM's!

Enter stage right --- SANGOLD!

RUF