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Politicians Around The World Are Sure To Sink The US$ Other Fiat Currencies

Precious Metal Investment Expert
October 1, 2013

The U.S. government has begun a partial shutdown for the first time in 17 years, after the two houses of Congress failed to agree a budget. The Republican-led House of Representatives insisted on delaying Mr Obama's healthcare reform - dubbed Obamacare - as a condition for passing a bill.

More than 800,000 federal employees face unpaid leave with no guarantee of back pay once the deadlock is over.

The Senate is to meet again at 09:30 (13:30 GMT) on Tuesday, Democratic Senate Majority Leader Harry Reid said.

The news prompted a sell-off in gold on the opening of the US session on Comex. Possibly, traders see this as a short-term opportunity to knock the price down as the possibility of a total shut-down and a US default is practically impossible. However, this latest clown show will undoubtedly cast a shadow of doubt on the value of the US dollar.

Several Federal agencies have been instructed to reduce services after US lawmakers could not break a political stalemate. But spending for essential functions related to national security and public safety will continue, including pay for U.S. military troops. The fiasco has sparked new questions about the ability of a deeply divided Congress to perform its most basic functions.

At this stage, it is unclear how long the shutdown may last and so far there is no clear plan to break the impasse. The Senate has planned to recess today until 9:30 a.m., at which time Democrats expect to formally reject the House of Representatives' latest offer for funding the government.

The shutdown will continue until Congress resolves its differences, which could be days or months. But the conflict could spill over into the more crucial dispute over raising the federal government's borrowing authority.

The current disagreement is over Obamacare – Obama's health care initiative. The goal of Obamacare is to increase the number of Americans with insurance. In short, everyone is now eligible for insurance. And not just eligible… it is compulsory. All Americans must carry a minimum level of insurance by January 1. If you don't, you will be fined the greater of $95 or 1% of your annual income.

The launch of Obamacare comes at a time when the official national debt of the United States is about $17 trillion and the national deficit is some $1 trillion per year. When Obama was elected in 2008, the official national debt stood at only $10 trillion. That means the Obama Administration has added more than $7 trillion in debt in only five years.

A failure to raise the $16.7 trillion debt ceiling would force the country to default on its obligations, dealing a potentially painful blow to the economy and sending shockwaves around global markets.

While mainstream media proclaim victory for the Obama administration because of a supposedly “shrinking” deficit, what they either fail to mention or are too stupid to understand is that the official reporting of the deficit does not account for real deficit expenditures each year. The official deficit does not include “unfunded liabilities,” like Social Security and Medicare, or off-book agencies like Fannie Mae and Freddie Mac. If one were to calculate the true national debt, of the US including “unfunded liabilities,” it could well be in the region of anywhere from $120 trillion to more than $200 trillion.

The question remains is how is this going to be funded. The total revenue from taxes won’t be sufficient. So, what about foreign treasury investment? At this time it seems that investors are more likely to sell their holdings of US debt than buy more. U.S. Treasury holdings by foreign creditors witnessed a record sell-off in June of this year.

The majority of all Treasury purchases by foreign investors are short-term bonds, meaning international faith in America’s ability to cover its debts has fallen considerably. Creditors now want only bonds that mature quickly, so that they can be liquidated at a moment’s notice. Foreign investment in the United States is currently either static or dropping, depending on the country, meaning no extra cash flow for the US government.

No matter how this drama plays out, there is another one about to start… It's the new battle over the debt ceiling that Congress and the White House are due to have in a couple weeks.

Meanwhile, what I find absolutely fascinating, is while these political clowns can’t agree on some major issue, threatening their own government, they are all quick to agree on a policy that does not pose such a serious threat and which is pretty much meaningless to the average US individual. For now, that issue has disappeared, but for a few weeks it was in the headlines. If you haven’t already guessed what I am on about, it is the situation in Syria.

Recently the price of gold was pushed upwards due to the possibility of a US military strike against Syria. As US Secretary of State, John Kerry, and US President, Barack Obama, tried to convince the world that for humanitarian reasons, it was necessary to punish the Assad regime for their alleged involvement in a chemical attack that took place in Syria, much of the rest of the world did not share their point of view. In their speeches, both the US President and the US Secretary of State often pointed out to the senseless killings of some 1400 innocent victims. Yet, while they publicly condemn this atrocious act of violence, thy remain silent about the on-going political strife that exists in Africa that results in the brutal killings of thousands of individuals, and the displacement of hundreds of thousands of innocent individuals. This lack of consistency in their policy leads me to think that it has nothing to do with human rights at all. Surely, if their concern was really the safety of individuals and in order to have a consistent meaningful policy, most of their attention should be focused on the African countries where a lot more than 1400 individuals including women and children have been massacred.

Obviously, the US government has an ulterior motive and they are merely using the killings of innocent citizens as a smoke screen. It is evident, that the killings of innocent individuals are not really the major issue, but rather the potential of a disruption of the flow of oil is the main problem. For without oil, the US economy will sink and the massive military machine of the US will be put in jeopardy.  Also, without the flow of oil, the US petrodollar is at risk.

A petrodollar is a United States dollar earned by a country through the sale of its petroleum (oil) to another country. The term was coined in 1973 by Georgetown University economics professor, Ibrahim Oweiss, who recognized the need for a term that could describe the dollar received by petroleum exporting countries (OPEC) in exchange for oil. And, of course a collapse in the petrodollar will ultimately lead to the end of the US dollar being the reserve currency of world. In such an instance, the price of gold will soar. So, whether the US government uses peace or aggression in the Middle East, I maintain that their sole objective is to ensure the flow of oil and thus the survival of the greenback as well as other fiat currencies.

Meanwhile, while the US government feel it necessary to flatten Syria, despite the fact that Syria has not made any direct threat against the US in any way, after some thirty years of a freeze in relationships between their two countries the US President Obama and Iranian President Hassan Rouhani spoke by phone in the first conversation between an American and Iranian president since 1979.

On Friday, the US president revealed that the two leaders had spoken. He said he believes the two countries can reach a “comprehensive solution” on Iran’s nuclear program, and said he and Rouhani had both directed their diplomats to pursue an agreement.

In a press conference, and before talking about the US government funding that needs to be approved before Tuesday, he gave an update on the relations between the U.S. and Iranian governments.

“Just now I spoke on the phone with President Rouhani," Obama said. "The two of us discussed our ongoing efforts to reach an agreement over Iran's nuclear program. I reiterated to President Rouhani what I said in New York: While there will surely be important obstacles to moving forward, and success is by no means guaranteed, I believe we can reach a comprehensive agreement."

The call came after Secretary of State John Kerry met on Thursday in New York with his Iranian counterpart on the side-lines of the United Nations session. The White House had apparently floated the possibility of Obama meeting, casually, with Rouhani in New York, but U.S. officials said the Iranians nixed the idea.

While many U.S. lawmakers, as well as Israeli leaders remain sceptical about Obama’s claim that Rouhani represented “new leadership” in Iran, the conversation has resulted in many complaints that Obama is ignoring Republicans while engaging America's adversaries.  Kevin Smith, a spokesman for House Speaker John Boehner, tweeted: "[Obama] negotiates with Iran, Putin but not Congress #shocking."

However, it appeared the two countries still have a long way to go resolving their relations. On Friday the Wall Street Journal reported that U.S. officials alleged Iran have hacked unclassified Navy computers in recent weeks. If true, it would mark one of the most serious infiltrations of government computer systems by the Iranians.

The countries' disagreements are grave and plentiful. Relations have experienced few ups and countless downs since the 1979 Islamic Revolution and subsequent hostage crisis at the U.S. Embassy in Tehran.

While any peace accord between these two countries would be admirable, it is unlikely that the current political turmoil in the Middle East will end any time soon. All it would signify is a decrease in Middle East tensions which is likely to be a bearish factor for the crude oil market, and may result in some added selling pressure to the gold market.

While geopolitical tensions such as these will likely impact on gold prices in the short-term, they are hardly the main determining factor. They will come and go and re-emerge. What is of much greater significance is the unprecedented amount of money central banks have pumped into the global financial system.

If the Fed continues to print money at the current rate of $85 billion a month and does not announce cuts to its quantitative easing program when it meets in October, the US central bank's balance sheet will exceed some $4 trillion by the end of the year. But the US has not been the only government in the world to print more money and together with the Bank of Japan, the European Central Bank and the Bank of England, more than $9 trillion has been pumped into the financial system.

Furthermore, even if the Fed was to taper, the Fed is wholly committed, as is the ECB, the BoE and the Bank of Japan, to maintaining close-to-zero interest rates for up to two more years, which is the overriding consideration.

While quantitative easing is a very effective way to ensure monetary expansion, it also finances the government deficit at virtually no cost, while stealing money from savers. However, this policy is likely to have inflationary consequences. In the long-term, this policy will destroy these economies as the governments steal from the public to finance their worthless endeavours.

Thanks to our politicians in most countries, in my opinion the US dollar will end in a collapse. In addition to all this money being printed, the U.S. Treasury is holding more than $2 trillion in short-term debt that must be refinanced within the next 12 months. And, the only way the government will be able to finance this debt will be to continue to print more money. This will only delay the day of reckoning while debasing the value of this fiat currency. According to the American Institute for Economic Research, the purchasing power of the dollar has already decreased by more than 95% since 1913.

As geopolitical tensions come and go, the consequence of this unprecedented money printing experiment will have far dire implications. It is for this reason that it is important for individuals to diversify some of their assets into physical gold and silver.


Gold prices continue to trade sideways, holding well above the support of $1300/oz. However, they will need to break back above $1345/oz. to gain some upward traction.


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David Levenstein is a leading expert on investing in precious metals. Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.

His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.

David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

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