A POSSIBLE 1999 SCENARIO
In light of the economic, financial and monetary morass enveloping the entire globe, few can argue that the world is not entering a conceivably LONG PERIOD OF DEPRESSION… sadly reminiscent of 1929 and aftermath.
Asia has been suffering stock market and currency turmoil for more than a year - with little probability of respite on the horizon. Furthermore, the Asian Contagion is rapidly rippling toward western shores. While the Japanese banking system teeters at the brink of the abyss, the Chinese yuan (renminbi) and Hong Kong dollar barely hold their par values through massive government support by using their US dollar reserves to purchase their own currencies. Obviously, their US dollar reserves are finite - and once they get close to the bottom of the barrel, their currencies will be suffer severe devaluations. Consequently, this will cause further defensive devaluations in all Asian currencies. Then the vicious cycle of retaliatory devaluations begins.
Apparently, the adverse effects of the ASIAN CONTAGION have already tidal waved over the fragile Russian economy. In recent days the unstable Russian government was obliged to halt trading in the rouble as the currency plummets to worthlessness.
Moreover, the "Northern Peso" (Canadian Dollar) and Australian Dollar are vying for first place to become worthless the quickest.
As anticipated by area experts like John Kutyn, the sea of red-ink has already washed up on South Amercian shores. Both the Venezuelan and Brazilian currencies are losing value almost daily. Continued monetary and financial weakness in Brazil will have dire implications for Argentina - its most important import/export partner. It is foreseeable Argentina will be obliged to devalue its US dollar pegged Peso. Further north from "Gaucho" land, the Mexican Peso continues devaluating.
While most currencies worldwide are crumbling (US dollar being the only exception), stock markets WITHOUT EXCEPTION are being battered across the board. It appears rather obvious and inevitable that the world is being plunged into a 1929 DEPRESSION. On August 27 the DOW plummeted 537 points on all-time record volume of more than 900 million shares. Furthermore, the same day AP News-Service announced: "Commodity prices collapsed to 21-year lows as panicked selling shook world stock markets and further depressed foreign currencies against the U.S. dollar, making American goods too expensive." Interestingly, the last time commodities were this low (1976/77) was on the very 'Eve' of GOLD's record breaking bull market - when it subsequently soared more than 550% to $850/oz in January 1980.
It is imperative to always remember the immutable Law of Cycles.
But It Goes Even Further
There are three other problems which will intensify and accelerate the current downtrend in stocks, commodities, currencies and economies everywhere: Y2K Bug, the growing wave of international terrorism and the increasing tension in the Middle-East.
Perhaps the most potentially dangerous element is the Y2K peril -- as it will affect the entire world. Ironically, the greatest possible devastation might be wrought right here in the USA. The reason is simple. No other nation on the globe depends more on computers for its heretofore high standard of living. In sharp contrast, a totally undeveloped country like Afghanistan will go relatively unscathed in a worse case scenario of the MILLENNIUM MENACE. In any case everyone will indeed be subject to the mounting apprehension - which may ultimately mushroom into panic as New Year's Eve 2000 danger draws near.
Not to mention the possible consternation generated by the distinct possibility of the US president resigning, or worse, being the target of impeachment, would be negligence on our part. No one knows for sure what eventually will be the ramifications of the "Sexgate" and "Campaign Fundsgate" investigations. But one thing is absolutely certain: IT AIN'T GONNA FOSTER CONFINDENCE AND CERTAINTY in the near future. The last time something similar happened (Watergate/Nixon), US markets tanked and GOLD SUBSEQUENTLY SOARED.
DRACONIAN ACTION IS NECESSARY
It's indeed a grim picture… especially when we review historical precedent.
Globally, all economies are now caught in the sucking vortex of spiraling deflation… it's undeniable. And if left unchecked by the powerful governments of the world, it will inexorably submerge world economies into a deep DEPRESSION… the likes of which have not been seen for nearly 70 years. Someone must take the bull by the horns. But the sine quo non question is WHAT AND WHO?
What measures must be taken and by whom? Any attempt to answer this monumental question is forced to carefully review history for a similar occurrence. NOT a few would argue 1929 is a perfect example.
It is far beyond the scope of this brief treatise to examine and analyze all the factors which affected the 1929 WORLDWIDE STOCK MARKET CRASH and subsequent GLOBAL DEPRESSION. Nonetheless, there is one aspect of the depression years which played a vital role in prolonging the length and severity of the Great Depression. And that is the failure of governments to take the necessary action to end the downward price spiral of commodities.
After the masses struggled a few years with the GREAT DEPRESSION, it was left to the then president of the US, Franklin Delano Roosevelt, to realize that a way must be found be stimulate commodity prices to jump-start the world economies and renew the public's confidence in the future. It was 1934.
Avid students of economic history will recall that the then president of the USA, Franklin Delano Roosevelt, heroically implemented several draconian measures to turn the economy around. He and his advisors were convinced that the US economy would be pulled out of the GREAT DEPRESSION, unemployment would subside, and the floundering world would be led to economic recovery.
With great foresight and courage FDR revalued gold from $20.67 to $35 per ounce. According to contemporary experts his specific objectives in increasing the price of Gold by 69% are precisely documented by economic historians.
"In an effort to rise out of the economic depression, and generate more employment, FDR on January 31, 1934 devalued the dollar by raising the price paid for gold by the U.S. Treasury. It was hoped that by raising the price of the yellow metal, the U.S. dollar price of goods would become cheaper for foreigners in their own currencies. As a result, U.S. exports would be encouraged and imports reduced."
Needless to remind those familiar with the era, unemployment began to abate, and world economies to improve.
Undeniably, the world is plunging head long into another GREAT DEPRESSION. Asia is already in total shambles. Russia is imploding… forcing the ex-citizens of the U.S.S.R. to longingly remember the 'Good Old Days' under Communism. Certainly, beneath the hammer & sickle red flag they lacked freedom and worldly wealth in the Western sense, but they had strong leadership and purpose. Now, they have NOTHING but misery - hopelessness. It is utter desperation aggressively seeking a radical leader. World War III ?
Latin-America, notably Mexico, Brazil and Argentina are also showing overt signs of going belly-up. When they indeed do, the rest of Latin-America will be sucked down into the maelstrom.
The Canadian and Australian currencies are madly racing to achieve a One to One Parity with the US dollar: One US penny for each Canadian and Australian Dollar! Exaggerated? YES, but entirely NOT outside the realm of possibility, since both Canada and Australia foolishly dumped most of their gold reserves in exchange for 'paper.' Significantly, the US FRB sold not one ounce of gold in the last 15 years.
Stock markets worldwide are tanking in concert… something is obviously and terribly wrong! Why even politicians in Washington should be able to discern this.
Someone must demonstrate decisive leadership and take the necessary draconian measures to avert another GREAT DEPRESSION lasting numerous excruciating years before recovery… ŕ la 1929, or even worse, requiring another World War to cure the malady.
It is my considered opinion a dramatic and official increase in the value of gold will go a long way to wrench world economies from the jaws of another agonizing and protracted GREAT DEPRESSION…
and yes, even postpone the next World War.
1 September 1998
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