DOOMED DOLLAR LOOMING
Watch the Dollar for an Indication of Doom
On March 6th and 7th, there was a meeting of top Russian Politicians,
Bankers, Economists held in Moscow. Sponsored by an agency of the Russian
government, its focus was entirely on the U.S. economy. The conference
attracted some 200 investment bankers, scholars, diplomats, economists and
members of the Russian Parliament. The two main concerns addressed at the
conference were the following:
1) If the U.S. economy crashes, how does the rest of the world keep from
crashing too?
2) Given the ever more obvious weaknesses in the US economy, what can Europe and the industrialized world do proactively to achieve a measure of independence?
The Russian conference, which of course was not even mentioned in the U.S.
press, is just another example of a growing awareness around the world that
something is terribly wrong with the global economy and that an overvalued
US dollar is at the heart of "this something."
Interestingly, the manipulation of the U.S. gold markets by the Fed and
Goldman Sachs, and Robert Rubin was openly discussed at the Russian
conference by the distinguished scholars who participated in the
conference. Ironically, the scholars at the Russian conference appear to
have a more clear idea that the U.S. economy is in trouble and why, than do
establishment U.S. analysts who seem to know less about free markets than
do the Russians. Someone is telling our media not to cover the Gold
manipulation story. After Ron Insana covered it initially when Bill Murphy
launched GATA, the U.S. press has marginalized any of us who stand up for
GATA on the merits of its arguments. I think that may be about to change,
but for now, the merits of the GATA case are simply not being given the
light of day in America, though it is being given growing levels of credibility overseas.
The problem is that the U.S. dollar is by DESIGNED DEFAULT, the only
currency in which international reserves are allowed to flow. And the
sicker the currency and the American economy gets, for now at least, the
stronger the dollar gets. That the dollar has gotten so far overvalued has
of course enabled the bubble economy to develop, which I believe has only
just begun to unwind. The stock market in my view has miles and miles to
descend before this bear market is over. This could all have been avoided if
the U.S. had followed an honest monetary policy constrained by some
adherence to the discipline of a Gold Standard or at least a quasi Gold
Standard. Such a quasi Gold Standard may have worked to a great extent, if
Clinton folks had not sought short-term political and economic gains by
rigging the price of gold. But they did, and now because of the enormous
amount of credit/debt expansion during the Clinton years, we face the
gravest economic downturn since the Great Depression.
The Euro, is a political currency rather than a currency that sprung into
being from spontaneous market forces, so in my view, its future is very
doubtful. The Japanese Yen is not suitable for a reserve currency because
the Japanese economy remains in depression. (By the way, printing money did
not do a thing to lift the Japanese out of depression.) Some other
currencies like the Swiss Frank might be a good alternative except that it
is simply too small to act as a world reserve currency. If gold were traded in a free market, gold would be the best option for an international currency, but since powerful forces who want to print money for their own benefit are in control, namely the U.S. government and more significantly the banking industry that owns and controls our government have trashed gold, we are left with the U.S. dollar.
Had gold been permitted to rise vis-à-vis the US dollar, that would have
taken away the ability of the Clinton Administration to pro-actively manipulate markets for their short-term economic and political gain. So, given the pro-activist ideological bent of the Democratic Party, when the
international economy was threatened by the Mexican, Asian, Russian, Long
Term Capital Management and Y2K problems, they acted through the Exchange Stabilization fund to rig the price of gold to lower and lower levels, and thus remove the only currency that could have kept the bubble economy from developing - and thus the catastrophic decline that we now face from taking place. So now we face a global Kondratieff winter which Ian Gordon believes will be as great or greater than the economic downturn of the 1930's. But the longer and further out of equilibrium the global economy spins, the scarier it gets to allow the markets to self adjust. So how the Bush Administration, which is ideologically more pro-free market comes out on this matter remains to be seen. Perhaps we may learn more soon depending on how Reginald Howe's anti-gold price fixing law suit is handled by a Boston Federal court.
In theory, an overvalued currency should self adjust because its
overvaluation will price its exports out of the world market. The currency
should then decline to the equilibrium point. But strangely enough, as the
U.S. trade deficit has gotten worse and worse, to the point now where it is
over $1 billion per day, the dollar has gotten stronger and stronger. This
has been the case for at least three reasons including: 1) An absence of
any viable alternative to the dollar accept gold, 2) The concerted and
clandestine effort on the part of the Clinton Treasury and powerful banking
interests to trash gold by manipulating its price lower and lower vis-à-vis
gold and 3) by massaging productivity numbers to lead the world to think
investments in the U.S. were far more profitable than they in fact were and
are. All three of these factors have resulted in an enormous flow of
foreign investment into the U.S. such that this demand for dollars created
to buy US investments has more than offset downward pressure resulting from declining exports.
The bankers do not care that declining exports are resulting in a declining
manufacturing, mining and farming industry in the U.S., because they are
making tons of money via their investment and funding activities which grow
as long as dollars are being created out of thin air. And the ability to
continue printing dollars without an adverse repercussion has been
dependent on the false premise about the strength of the dollar that the
Clinton Administration pro-actively fostered.
THE DOLLAR DILEMMA & PEERING OVER THE ABYSS
But now, with declining profitability for American companies, it is
becoming increasingly obvious to the world that Emperor Clinton was wearing
no cloths, not only literally when with Monica in the Oval office, but also
figuratively in the sense of productivity numbers. How can it be, if U.S.
industry was so enormously productive and with American consumers still
spending like mad, that corporate profits are plunging? The answer in part
is that as a result of mountains of printing press money, mal investment
has taken place such that huge investments were made in foolish endeavors,
the dot-com companies being the best example. But also, As Richard Russell
noted, we have simply produced too much of everything. This was made
possible only by creating the illusion of a strong dollar by the manipulative practices of the Clinton Administration as discussed above and by printing money under the pretense that doing so creates wealth.
If Greenspan were to do what he should, namely return to an honest monetary policy by switching off the printing presses, and allowing gold to rise, the stock market would spin out of control on the downside. So predictably, he has responded by speeding up the printing presses while at the same time, investor attitudes about gold are being manipulated by the arranged (bogus) announcement of Putins gold sale last week.
But printing money only creates a bigger problem, because it is at the very
heart of the mal investment and oversupply problems that have gotten us in
this mess in the first place. Printing press money has resulted in the
most overvalued stock market since 1929.
The bankers could get away with printing money and profiting from that
activity as long as they could convince the world that somehow the U.S. had
an ability to produce things more efficiently than other countries and that
what we produced was desperately needed around the world. But now that that myth of American investment superiority is being laid to rest, running the printing presses at overtime may begin to bring the same results printing
money has brought every other country throughout history, namely 1) rising
levels of price inflation or 2) lost confidence in a currency, depression
and debt repudiation or 3) a combination of 1) and 2).
Economic forces can be defied for a while by manipulative forces, but at
great cost. The Clinton Administration has really mucked up our markets for
its own political gain. We are now going to pay a huge price when the
enormous amount of debt created during the Clinton years, is unwound during the next Kondratieff winter. Speaking of the Kondratiff winter, in our June 2001 issue, we will be conducting an update interview with Canaccord broker Ian Gordon. He will tell us where he thinks we are now in the 60 to 70 year Kondratieff cycle. Be sure to keep your subscription so you don't miss Ian's latest view. Not only is it fascinating material, but it could be life sustaining not to mention highly profitable. If Ian and others
like Ravi Batra are correct, we are now peering over the abyss into an
economic decline that will be at least as severe as that of the 1930's.
So you have not heard anything of a doom and gloom nature on CNBC lately
right? I am assuming as a subscriber to J Taylor's Gold & Technology Stocks you will not wonder why this gloom and doom view is not expressed in
the major media, and I assume you will not believe it can't be true BECAUSE
it is not being addressed in the major media.
May 29, 2001
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
http://www.miningstocks.com
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