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Doomed Dollar Looming

Watch the Dollar for an Indication of Doom

May 29, 2001

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.


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.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.
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