Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.]

So says Alasdair Macleod (www.goldmoney.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) edited the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Macleod goes on to say:

The one chart which defines the background to all the events [that will unfold] in the coming years is the Mises Institute’s True Money Supply (TMS) for the US dollar. TMS consists of cash, checking accounts and no-notice deposit accounts, as well as a few other minor cash balances. It represents the actual cash and electronic cash in the system that is instantly available for purchases of goods and services, and the chart goes back to 1959.

The Hyperbolic Course of the True Money Supply

The dotted line [in the graph above] is the exponential growth trend, in other words the maximum rate of growth that can continue for ever. This trend was valid until mid-2002…[at which time the] TMS began accelerating at a faster rate telling us that TMS growth [had] entered a hyperbolic phase when the Fed eased rates in the wake of the dot-com collapse. Put another way, TMS is already hyperinflationary.

Bear in mind that economists are now telling central banks to accelerate monetary growth even faster to offset the tendency for bank credit to contract. They see no other way to avoid a bank balance sheet implosion with all the deflationary consequences that implies. [As such,] the prospects for 2012 and thereafter are for TMS to continue its hyperbolic trend…[as it] supply funds for a government deficit completely out of control. Also bear in mind that when such a trend becomes established it becomes almost impossible to stop, since the whole debt-based economy and the banking system would collapse.

The Hyperbolic Course of the Price of Gold

The chart [below] shows gold’s established hyperbolic course…[as] put together by Armand Koolen… In Koolen’s words, the hyperbola fits in with the official gold price in the early 1900s, the revaluation to $35 in 1934, the onset of the secular bull market in 2001, the bottom in October 2008 and its approximate track since then.

His discovery is interesting. Singularity for this curve, or the point where the gold price goes to theoretical infinity, is in February 2014, only 26 months away. Unless this long-term trend is somehow broken, gold is also telling us the dollar is heading for hyperinflation.

It would be a mistake to vest magical powers in such an extraordinary discovery, but given [that] TMS itself is showing signs of going hyperbolic we must sit up and take notice… [It will prove to be virtually impossible] to stop printing money at an accelerating rate [as evidenced by the fact that when the ECB showed a reluctance to do so it threatened]… to collapse the eurozone. Will the Fed pull the trigger on the US economy or chicken out? The answer is clear.

What Does the Future Hold?

We can expect:

1.  a further escalation of money-printing in 2012…
2. followed by unexpected and accelerating price inflation
3. nominal interest rates will then rise at the market’s behest
4. bringing a sovereign debt crisis for the dollar with it as the cost of borrowing for the government escalates…

*http://www.goldmoney.com/gold-research/alasdair-macleod/money-supply-explosion-will-lead-to-accelerating-inflation.html

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Related Articles:

1. Egon von Greyerz Interview on Future QE, Hyperinflation and the Price of Gold

3. Continuing High Unemployment = More Money Printing = Higher Gold & Silver Prices

 

The Federal Reserve has a dual mandate set by Congress of maximum employment and stable prices. During Chairman Bernanke’s most recent press conference he indicated that the Federal Reserve has done a better job of maintaining price stability while falling short of fostering maximum employment. [As such,] we believe the Federal Reserve will continue to increase the monetary base and weaken the dollar as long as unemployment remains elevated. While the economy (measured by real GDP) and the unemployment rate have not benefited from a substantial increase in the monetary base, the price of gold and silver have benefited from money printing. We believe this statement is quite important for monetary policy and for investors. [Let us explain further.] Words: 388

4. The U.S. is Headed Toward a Complete and Utter Collapse of its Financial System

 

The U.S. is headed inexorably toward a systemic failure, a complete and utter collapse of the financial system. TARP and all the other machinations have not improved the underlying insolvency of the banking system. They have, however, deferred a collapse and ensured that it will ultimately be worse. [Let me explain.] Words: 1385

 

5. There Are 2 Ways Out of Global Economic Mess – Hope for One of Them & Prepare for the Other

 

 

It all comes down to this: We have to match growth to debt. If we can’t create miracles from growth, we have to consider inflation to reduce the value of our debt. [Those are the] only two ways out of our current global economic mess – innovation and inflation. As the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation). [Let me explain why that is the case.] Words: 1195

 

6. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

 

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 - devolution.] Words: 1520

 

7. New Boom-bust Cycle Risks Hyperinflationary Depression and Much Higher Gold Price – Here’s Why

 

 

It is my view that the world has entered a new boom-bust cycle driven by oil prices. Oscillating oil prices – as opposed to credit cycles – will repeatedly stimulate and crash the highly levered global economy. Governments have not recognized this new cycle, and as part of a fruitless effort to retain control over deteriorating real growth and rising unemployment central banks will print more and more money, risking a hyperinflationary depression (stagflation at best). [As such,] the only respite for many investors is gold. [Let me explain.] Words: 925

 

8. Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

Question: What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks? Answer: An exceptionally potent formula for higher gold prices that could send gold to the unimaginable level of $10,000 an ounce. [Let me explain further.] Words: 1049

9. Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low

Countering Krugman’s argument that today’s low interest rates show that no one is worried about lending money to us and, therefore, that we should borrow and spend our way to prosperity, Ferguson argues that today’s interest rates are irrelevant. When countries get into trouble, he says, they get into trouble quickly – the way Greece and…

10. Debt Bubble: We’re in a Dangerous New Phase – Here’s Why

 

The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.” Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment. Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week. What is Lagarde going to do about the debt problem? Words: 1752

 

11. Brace for Impact: U.S. About to Go Off a Financial Cliff!

 

 

The kind of impact [our economy is] going to have will not be like flying into the side of a mountain. It will be the kind of crash that skids over land, clipping trees and buildings until the plane ends up wingless in a smoldering heap. I just hope the fuel tanks don’t ignite when the long rough ride is over. [Let me explain.] Words: 832

 

12. Another Economic Collapse and Great Depression are Coming! Here’s Why

 

 

It really is hard to find the words to describe the true horror of the national debt of the U.S. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what “normal” is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. Our current system is headed for an inevitable collapse. There is no way of getting around it – a horrific economic collapse is coming [and] it is going to change the world. You better get ready. [Let me explain further.] Words: 1771

 

13. America’s Future: Growing Deficit, Shrinking Economy, Imploding Dollar and Exploding Inflation

 

 

The new [debt ceiling deal] legislation will add $2.4 trillion to the $14.3 trillion national debt in a little over a year – and we don’t even start saving money until after the debt reaches $16.7 trillion! This bill doesn’t even cut the deficit. It just slows the growth of government spending to around 8% a year! So, even if Congress cuts $2.1 trillion out of the budget over the next 10 years, we will still be running annual deficits of more than $1 trillion…[That means that in addition to a deficit that will continue to grow we can look forward to a shrinking economy, an imploding U.S. dollar and exploding inflation. Some future! Let me explain.] Words: 827

 

14. What Would USD Collapse Mean for the World?

 

I came to the conclusion several years ago that it was just a matter of time before the world realized that the relative functionality of the U.S. dollar was about to go belly up – to collapse – and that that time happened to coincide with that fateful date all the prophecies are going crazy about – 2012! Words: 881

 

15. The U.S. Dollar Crisis is About to Accelerate! Here’s Why

 

 

If the debt ceiling deal agreement is fully implemented [it is only going to exacerbate America's financial and economic woes and accelerate the demise of the U.S.] Dollar Standard which is inherently flawed and increasingly unstable. Its demise is imminent. The only question is will it be death by fire—hyperinflation—or death by ice—deflation? Fortunes will be made and lost depending on the answer to that question. [Let me explain how the collapse of the dollar could well unfold.] Words: 944

 

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 - devolution.]

So said Alf Field in an article* posted on Gold-Eagle.com six years ago that is so insightful it warrants a re-read.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Field goes on to say, in part:

Most of the major problems facing the USA (and thus the world) commence with the letter “D”,[as follows]:

1. DEFICITS (US CURRENT ACCOUNT AND BUDGET)
2. DOLLAR (US)
3. DEVALUATIONS (COMPETITIVE)
4. DEBT
5. DEMOGRAPHICS
6. DERIVATIVES
7. DEVOLUTION

Most readers will be familiar with the first 6 but will be puzzled by the last one, DEVOLUTION. It is included because the first 6 problems, combined with the likely Government responses, will probably lead to a situation where one single investment criterion will become so important that it will transcend all other factors in investment decisions. That situation will lead to DEVOLUTION. We will return to this later.

The first 6 problems have received a great deal of coverage elsewhere and there is no need to regurgitate them in detail here. These problems generally involve huge mind-numbing, incomprehensible numbers of dollars. Those numbers continue to grow so rapidly that they tend to be out of date shortly after they are published. The following brief notes on the first 6 “D’s” deliberately ignore these gigantic numbers.

1. Deficits

The U.S. Current account and Federal Government DEFICITS have grown to chronic levels… How will these continuing deficits be financed? The answer, by creating increasing quantities of electronic US Dollar credits.

2. Dollar

The US DOLLAR will be under downward pressure while these deficits continue. The lower the US Dollar declines, the greater the pressure on those countries that export to the USA.

3. Devaluations

Those countries that export to the USA will protect their markets by invoking competitive DEVALUATIONS. This cannot happen in a freely floating exchange rate system, but is effectively done by foreign countries creating massive quantities of their own currencies. These new foreign currency electronic credits are then dumped on the foreign exchange markets, thus weakening their currencies. In this way the American problem is exported to the rest of the world.

4. Debt

DEBT of all kinds in the USA has been reaching record high levels for decades and continues to do so. This is the way the economy is stimulated in a fractional reserve banking system. DEBT must continue to grow. A contraction in DEBT will lead to those other unmentionable “D” words, DEFLATION and DEPRESSION. This will not be allowed to happen. New electronic US Dollar credits will be created to whatever quantity is required to avoid this outcome.

5. Demographics

DEMOGRAPHICS refers to the imminent retirement of the Baby Boomers generation and the huge unfunded liabilities that exist in Social Security, Medicare, Pension Funds and other US programs that need to be funded…Those unfunded liabilities will be funded, probably once again by the creation of new electronic US Dollar credits to the extent necessary to meet the unfunded liabilities.

6. Derivatives

DERIVATIVES have been the fastest growing area in US finance over the past 15 [now 20] years. The numbers involved are truly mind boggling. About 25% of the Derivative instruments in existence are Exchange traded items such as futures and options. The other 75% are Over-the-Counter instruments, privately created and traded between major financial institutions. These tend to be extremely complicated transactions that are often difficult to value. They rely heavily on their counter parties in these transactions actually meeting their obligations when they fall due.

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There is a grave risk of counter party failure in the Over-the-Counter derivative area. If one major counter party goes bankrupt and fails to meet its commitments, it could trigger a domino like collapse of major institutions in the financial markets. The numbers involved are so vast that there is potential to bring down the entire financial system in the event of a major counter party default.

If this risk is readily discernible to outsiders, then bankers and others involved in the OTC derivatives must be acutely aware of the problem. Bankers are not stupid. They are extremely clever, cautious people. So how could they allow the OTC derivative situation to grow to such a massive extent with all the concomitant risks involved?

One suspects that they know something we don’t. Do the major players in the market have some assurance that there will be no counter party failure? Without that assurance, the gigantic build up of OTC derivatives over the past decade would surely have been unthinkable. Alternatively, they must have deliberately built up the derivative market without considering the size or risks involved on the assumption that, as with past similar cases, the Federal Reserve and Federal Government would combine and to come to the rescue of a failed major counter party.

The OTC derivative market looks like an accident waiting to happen. Already some lesser players are showing signs of strain. How do the authorities rescue a problem situation when it occurs? Again by creating electronic US Dollar credits to the extent necessary to prevent a catastrophe.

Recap of the Above

The common thread that runs through this brief summary is that when problems emerge in the US financial system, the authorities will solve them by throwing money at the problem, by creating new electronic US Dollar credits whenever necessary and to whatever extent necessary…

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…

7. Devolution

We can now return to the final factor, the 7th “D”, which is DEVOLUTION. [A] dictionary definition that is applicable here is: A passing down or descent through successive stages of time or a process.

Imagine an inverted pyramid of various investment type assets where the least secure (and most prolific assets) are in the very wide top layers. The inverted pyramid then narrows down through layers of increasingly more secure asset classes to the small point at the base which consists of the most secure (and least prolific) assets. This is an idea propagated years ago by John Exter.

The theory is that in times of financial crisis investors will cause their investments to devolve downwards (hence DEVOLUTION) through the different asset class layers in the inverted pyramid as they search for greater security. DEVOLUTION is thus a movement by investors out of riskier, speculative asset classes into more secure ones.

This [see chart below] is what can be expected in the months and years ahead as the creation of electronic US Dollar credits gathers momentum and faith is lost in the US Dollar:

• The assets in the most secure category at the tip of the inverted pyramid are gold and silver bullion, assets that have performed the function of protecting wealth throughout the ages.
• In the layer above the precious metals lie the companies that mine and hold large deposits of gold and silver.
• The least secure assets in the envisioned environment, which form the broad layers at the top of the inverted investment pyramid, will be the electronic US Dollar credits and assets or loans that are repayable in US dollars.

The DEVOLUTION of assets into more secure investments is not just an esoteric theory – it is already happening and can be observed in the actions of thinking investors [around the world]… [This] move into precious metals and their associated mining companies…[will bring about a major] change in the public perception of this asset class [and] then the devolution of investments down through the asset classes of the inverted pyramid will truly gather momentum.

The quantity of precious metals and their associated mining company shares is very limited while the quantity of electronic US Dollar credits is infinite. It will be a question of “first come, first served“.

Other Articles by Alf Field:

 Considering the fact that you can fool some of the people some of the time but you cannot fool all of the people all of the time, is it any wonder millions, both through the Tea Party demonstrations and now the Occupy Wall Street Movement across the country and elsewhere around the world, are protesting the abysmal scourge that fiat currency has brought upon us as a result of that fateful day back on July 25th, 1965. To appreciate the significance of that historic day we must fully understand what fiat currency is and why such a concept is about to implode and this article does just that.

So says James Jaeger in edited excerpts from his original article* as posted on www.thedailybell.com:

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The report’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Jesger goes on to say, in part:

For anyone that doesn’t understand what fiat currency is, it’s reasonably simple. Here’s a primer.

If any of this has confused you, the good news is this that you do not have to get lost in any of the above details because you can, the government or the free market can defins a “dollar” as whatever it wants BUT the free market is the ONLY valid definition IMO.

[If and] when we go back onto a Gold Standard (as many say we will), we will probably have a new Coinage Act passed by Congress[there have been six to date, the most recent one passed in 1965] to get things started…The earliest…Coinage Act (1792)…established the original definition of what a dollar was to be, how much silver there was supposed to be in a dollar coin or redeemed for a paper dollar certificate. This is what we could go back to when the Gold Standard is reinstated.

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We all remember the infamous Coinage Act of 1965 or, at least, we should. That was the Act of a misguided Congress that turned our quarters, dimes and half dollars into clad tokens. On 23 July 1965 the Congress, operating in its own interest and in the interest of greedy New York bankers against the interest of “we the people”, removed all the silver from dimes and quarters and debased the silver content in the half dollars down to 40% from 90%. They then made up the weight and size of the coins with copper. Remember that ugly copper sandwich that suddenly appeared in the middle of all coins starting in 1965?

Just like the JFK assassination, I remember the exact place I was when I first saw the new quarters. I thought to myself: “What the hell? They took the silver out of these. Who did this? Who gave them permission to cheapen the quarters we all use?” It alarmed me. That VERY day I KNEW something was wrong in America. This was a symbol that America was being cheapened and should have alarmed all Americans!

[In answer to the above two questions as to:

• who did this? -  The elite banks
• who gave them permission? -  The U.S. Congress

The above brings up an all important third question:

•  why did they do so? 

The answer is really quite simple: to debase the currency [by turning it into a] fiat currency (i.e. money NOT redeemable in silver or gold -[but just paper money])…so they could endlessly print more paper money because they could not print up more gold and silver. By getting gold and silver out of the picture…[by] removing it from coins, not redeeming paper bills for it, blatantly confiscating it as they did in 1934, defaulting on foreign redemptions as Nixon did in 1971, and by making the false claim of “shortages” − they can literally print up (known as “monetizing debt” or “quantitative easing”) as much currency as they want to expand the welfare-warfare state…

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[The continued] use of silver coins would have prevented fraudulent bankers and their rogue accomplices in Congress from increasing the money supply. Think about it. When the money supply is increased…[it is] the government and the banks that get the increase. That is [precisely] why they conspired to get control over coinage and printing of the nation’s currency and eliminated gold and silver [as it backing]. This is also why the framers of the U.S. Constitution stated in Article I, Sections 8 & 10 that money [had to] be gold or silver coin and [that] NO bills of credit were permitted.

A bill of credit is, essentially, a Federal Reserve Note − what we use as “money” now that the banking frauds have extracted all the silver and gold out of our money supply. So technically, the “money” we are now using is illegal (unconstitutional), and the congressmen that played a part in effectuating the overt or covert transition to it are actually partners with the elite New York banks in a long-term criminal conspiracy. See the movie FIAT EMPIRE for details (http://www.MoviePubs.Net/singles).

Given these considerations − and the idea that you can fool some of the people some of the time but you cannot fool all of the people all of the time − is it any wonder millions are protesting (both through the Tea Party demonstrations and now the Occupy Wall Street Movement) across the country, and even the world (fiat currency is also the source of the European debt crises as well)?…Millions of people have had the value sucked out of their lives in exactly the same way the Federal Reserve System and its rogue congressional partners sucked the silver out of our quarters back in 1965.

Wake up. It’s time to put value back into our money and remove from power the bankers and government officials that played a part in this worldwide monetary scam. It’s also time to end the unjust enrichment of the corporations that surround these banks, as Jefferson once warned there would be.

*http://www.thedailybell.com/3308/James-Jaeger-What-is-Fiat-Money

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So reports The Economist online (www.economist.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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2012  and the US Dollar Collapse

I came to the conclusion several years ago that it was just a matter of time before the world realized that the relative functionality of the U.S. dollar was about to go belly up – to collapse  – and that this time happened to coincide with that fateful date all the prophecies are going crazy about – 2012! Words: 881

So said Chris Laird (Prudentsquirrel.com) in paraphrased comments from his original article* which Lorimer Wilson, editor of munKNEE.com (Your Key to Making Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. 

Laird goes on to say, in part:

I find this coincidence remarkable because, were the USD to actually collapse, just think of the many economic and political disasters that would indeed unfold. The U.S. economy would stop dead for a period of time and the rest of the world, hitherto dependent on the old industrial/consumer economic model, would have to find a new economic paradigm to plan their economies.

A USD collapse means the entire structure of the world economy would collapse for a period of time, with a collapsed supply chain, among other things. The world would also go through cataclysms politically during that period. That usually leads to massive wars, starvation and mass homelessness around the world. Interesting. That’s the same stuff being prophesied in many of the numerous 2012 prophecies of various major religions! That is quite the coincidence. The demise of the USD will collapse the entire world economy and lead to collapsed policies, and then a massive world war. Yep, it fits like a glove.

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Of course, some people cringe at an analyst such as myself talking about ‘religious bunkum prophecies’ but consider that I am a mathematician and also a former Oracle database systems engineer. I’m not exactly some dreamer. I certainly know the analytical methods. So, why am I saying this stuff then? How can I combine prophecies with analytical methods? Well, for one thing, I have a thinking paradigm where ‘if it works, it must be true, don’t leave out weird things in analysis, insisting only on some calculation based prediction’. That’s what chartists do. I don’t. Everything must be analytical to lots of people, and that is totally wrong often! The trouble with being analytical all the time is that there are times, and this is proven, where chaos enters the picture and everything changes. Chaos, by definition, is not predictable…

What Would Happen in a USD Collapse?

• The U.S. and Western economies would all face insolvency simultaneously, with the U.S. first in line.
• The entire Western industrial/consumer/credit economy would fall apart so fast it would make your head spin. The supply chain would stop and stores would empty quickly.
• The USD would fall over 50% in one week’s time and then temporarily stabilize before its final last gasp…
• Worldwide currency panic would set in paralyzing what’s left of the world economy which means the ‘emerging markets’ would stop dead too.
• China would have a revolution, or go into military mode, which would be even worse.
• A one-world currency would be demanded and implemented.
• Asia would fare fare horribly…If Western consumerism goes away, then the entire foundation of the Asia macro economy would instantly crash and stop cold. Do you remember what happened that fateful last quarter of 2008, after the Lehman debacle, and the world banking system almost collapsed en masse? Exports from China and Japan for example collapsed over 30%! Don’t think economic demand cannot stop on a dime, because we already had one very scary case of this in 2008. So, all the pundits aside, Asia would get killed too economically. The big question is, could they successfully adapt to a new economic paradigm before they had their own revolutions? I do not think so.

It would be a dark time worldwide.

*http://www.thecomingdepression.net/survival-tips/new-world-order-by-2012/

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• Move Aside USD: The New Safe Haven Currency is the “Swissie”
• Why the USD Index Could Fall to 65 and Gold Rise to…
• The U.S. Dollar Index: A Deceptive Indicator of USD Strength
• The Dollar Bear Is Returning In 2011! Got Gold?
• USD Index Drop Below 72 Will Devalue USD by 50%
• Richard Russell: Demise of the “Yankee Dollar” vs. the Rise in Gold
• Why America Should Relinquish Reserve Status for its Dollar
• US Dollar Weakness Adding to Inflation Threat
• Will the U.S. Dollar or Euro Collapse and Cause Financial Armageddon?
• U.S. Dollar to Rise into May 2011 and then…. and then?
• The U.S. Dollar Will Collapse Within 24 Months! Got Gold (or Silver)?
• “The Great Dollar Devaluation Disaster” is Only Just Beginning – and the Intended Victim is YOU!
• Will This Be The USA in 2012?
• The Dollar Bear Is Returning In 2011! Got Gold?
• The Dollar is Doomed!

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.

T

Richard Duncan presents below excerpts* taken from his book, The Dollar Crisis, Chapter 20: Bernankeism, which was written in December 2004 to remind his readers what is coming down the pike that much more assuredly as a result of the recent debt ceiling agreement.He could have written a new article but there was absolutely no need to do so as the following excerpts from his book read as though they were just written yesterday! Duncan’s comments are presented below by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), in a further edited ([  ]), abridged (…) and reformatted manner for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Duncan’s chosen excerpts are as follows:

It is almost certain that policymakers will respond to the approaching crisis by applying the two great economic policy tools of the last century: Keynesianism and Monetarism. The abuse of those tools will prolong and exacerbate the death throes of the Dollar Standard.

The first recourse will be to employ more fiscal stimulus. With prices falling and in light of the extraordinary amount of paper money that has been created in recent years, interest rates will be very low and there will be little difficulty in paying interest on a much larger amount of government debt. It would not be surprising to see the U.S. budget deficit surpass $1 trillion by 2007 or 2008 if the U.S. current account deficit has come down significantly by that time.

If, at that point, the U.S. current account deficit has been reduced, foreign central banks would not have a sufficient inflow of dollars to finance such a large deterioration in the U.S. budget deficit, even assuming that Fannie and Freddie have ceased issuing any new, competing, debt of their own.

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The Fed, however, as Governor Bernanke explained, has already put considerable thought into how to deal with such a contingency and stands ready, in Bernanke’s opinion, to support “a broad-based tax cut” through “a program of open-market purchases to alleviate any tendency for interest rates to rise”.

How long could such “cooperation between the monetary and fiscal authorities” underpin the global economy? For quite a number of years most probably. Economic trends play themselves out over very long periods of time. Moreover, US policymakers will use every last tool at their disposal to prevent, or, at least, delay a global depression. An economic system underpinned by large-scale fiscal stimulus financed by central bank monetization of government debt could hardly be described as capitalism (perhaps the term Bernankeism would be appropriate) but, with any luck, it could stave off disaster for a considerable length of time.

Nevertheless, despite the best efforts of policymakers to keep the Dollar Standard alive and to stave off the depression that would most probably follow its collapse, ultimately, one of the following scenarios is likely to overwhelm even Bernankeism.

1. A protectionist backlash against free trade, resulting in a trade war similar to that which occurred during the Great Depression.
2. A US asset price bubble (as interest rates fall toward zero), that drives property prices so high that they can’t be financed even at very low interest rates. This is similar to what occurred in Japan at the end of the 1980s.
3. A meltdown of the $200 trillion derivatives market. $200 trillion is roughly six times global GDP.
4. A  loss of nerve by policy makers that deters them from undertaking ever more unorthodox economic policies, resulting in a “deer in the headlights” kind of policy freeze.
5. A decline in interest rates to 0% or very near 0% as in Japan at present.

Any one of the first four scenarios could undermine the Dollar Standard, but the final scenario, where interest rates fall very near 0%, would certainly deal it a fatal blow. From that point, the only option left to stimulate aggregate demand would be to drop paper money from helicopters. That too would fail, however, for who would accept paper dropped from helicopters in exchange for real goods and services?

Hyperinflation would quickly set in. Economic transactions would then be conducted through barter rather than via the medium of a debased script.

A gold standard would eventually re-emerge.

A “Deer In The Headlights” Policy Freeze?

Related Articles:

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above

Five Trades to Make Before the Euro Implodes 

Greece is going to default and even take the euro, and maybe the EU, with it. There will be 5 investment opportunities should that unfold as expected and one of them will be the U.S. dollar. [Let me explain.] Words: 1187

So says a commentary* from the staff of www.thedailybell.com on an article by Marketwatch’s Matthew Lynn which Lorimer Wilson, editor of munKNEE.com  (Your Key to Making Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.  The article goes on to say:

Lynn contends in his article that:

You don’t exactly need a crystal ball to know what the biggest event in the financial markets of the next 12 months is going to be: Greece defaulting on its debts. This week Standard & Poor’s cut its rating on the country to CCC, the lowest of any nation in the world. Only last week we learned that Greek industrial production was down 11% year-on-year. Unemployment has risen 40% over the past year, and now stands above 16% nationally. The debt is too high and the deficit is too deep. Greece will default and every one knows it – even though no one will say it!  The question is simply one of time and amount.

With this in mind, Lynn provides us with five trades based on the unraveling of the euro that he believes are positive:

1. German bunds: Buy them and sell the DAX stock index. The deutsche mark that will arise from the ruins of the euro will be a dominant currency. This means German bonds will rise in value as the currency appreciates; at the same, Lynn believes Germany’s exports may not have such a good time of it, at least not at first. Eventually German manufacturers will once more figure out how to do business with a strong currency as they did throughout much of the 20th century but the learning curve will offer pain. Why participate? Sit on the sidelines.
2. The Swiss franc: Sell it. Investors are buying the franc right now, and even the Israel shekel, desperate for a safe haven. What IS safe right now? The dollar? The yuan? The Japanese yen? Most countries are struggling these days one way or another, but if the euro evaporates, several currencies will likely emerge that might definitively claim safe-haven status. The deutsche mark, Lynn writes, will certainly draw money away from the Swiss franc, which will then depreciate.
3. The Belgium index: Another sell. This is an obvious one for Lynn. Brussels, a tiny little pimple of a country, has been in the right place at the right time. The euro and the EU have puffed it up, and today somehow it presides over a super-state the size of America. Maybe not for long. Brussels is chock full of lobbyists, politicians and diplomats, all buying expensive meals and renting luxurious flats. That will change if the euro withers and the EU collapses. The economy shall surely deflate and many Belgium companies along with the stock index.
4. European travel companies: Buy them. A problem with the strong euro is that it has virtually eviscerated the travel business to Southern Europe – one of the reasons the PIGS are having so much trouble economically – but once the pesky euro goes away, the normal balance of Europe will reassert itself. Northern Europeans will continue to enrich themselves and then, in the summer, travel south to Spain, Italy or Greece to relax. The local travel industry will re-establish itself. Even the Greeks will prosper.
5. The US dollar. Buy. (Imagine that!)  Lynn believes the PIGS debt, dumped by German and French banks, has ended up in US hands. Thus, [while] the U.S. economy will take a hit, the dollar as a currency will appreciate. There is no alternative. The dollar, he writes, will be the recipient of a second wind and spend at least another decade as the world’s reserve currency.

Our Comments on Lynn’s Expectations/Recommendations

The above suggestions are logical trading strategies, clearly laid out. Our only disagreement might be with the initial assumption. We’re not convinced the euro is going away, nor the EU, at least not any time soon. We would like to think so, but we’ll settle for a hampered euro and a humbled EU that cannot do so much damage to people’s civil liberties as its handlers would prefer.

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The initial idea of the EU as a free trading zone might be seen as a good one. The current monstrosity is a vicious mess that aspires to be an empire, though it’s crumbling now. This is one trend worth encouraging.

Sure, Greece may drop out of the euro, even Spain and Portugal. The eurozone might simply default toward the North – Germany and the Scandinavian countries. If there is to be a euro, the northern industrial engine will run on it. They can form a formidable currency block if they wish to.

Lynn’s remarks about selling the Swiss Franc seem feasible to us, if we accept the euro lingers on in the North. If so, Brussels won’t entirely shrivel away. Too bad.

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We are not sure we agree about buying the dollar. The U.S. is in terrible trouble financially; we might be tempted to make it an honorary PIG. The U.S. has been under attack by the power elite for over a century and we have trouble believing that attack will diminish any time soon. They regard the libertarian and republican sentiments of the U.S. with enimnity; they are trying to crush the culture and the economy and these attacks will no doubt continue.

Even a shrunken EU and euro would be an enormous victory and a defeat for the powers-that-be who are trying to use the EU as a stepping stone to a kind of one world order. The most poisonous ambitions of the Anglosphere elite would be lanced. Defeat is a terrific prophylactic.

There would be knock-off effects as well. The currency unions that the Western elites have been so assiduously encouraged in South America, Asia, Africa and even the Middle East would likely become less attractive given the euro’s implosion. All to the good.

Concusion

There will surely be numerous trades to contemplate as the euro situation evolves. Who knows, they may even hold it all together. We hope not. We would much rather bet against this evolving authoritarian empire than for it.

*http://www.thedailybell.com/2501/Ways-to-Invest-as-Faith-in-Fiat-Money-Withers.html

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
• Sign up to receive every article posted via Twitter, Facebook, RSS Feed or our FREE Weekly Newsletter.

 

The Swiss Franc Is the Only Safe Haven Currency

So says Adam Kritzer (www.forexblog.org)  in excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com  (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.  Kritzer goes on to say:

As you can see from the chart below, however, the Swiss franc has begun to distinguish itself from the other two, leading some to argue that there is now only one true safe haven currency.

What’s not to like about the franc? It boasts a strong economy, low inflation and low unemployment. Unlike the U.S. and Japan, Switzerland is not plagued by a high national debt and perennial budget deficits. Its monetary policy has been extremely conservative: no quantitative easing, asset-purchases, or any other money printing programs with euphemistic names.

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Ironically, the only thing that makes investors nervous about the franc is that it has already risen so much…reaching parity against the dollar in 2010 [see chart below]. Since then, it has appreciated by an additional 20%, and seems to breach a new record on an almost weekly basis. The same goes for the CHF/EUR and CHF/JPY…

As you can see from the graphic below (courtesy of the Financial Times), the balance of trade continues to expand, and has exploded in a handful of key sectors. To be sure, economists expect that this situation will eventually correct itself and are already moving to revise downward 2011 and 2012 GDP growth estimates. Then again, they made the same erroneous predictions in 2010.

The main variable in the Swiss franc is the Swiss National Bank [SNB]. Having booked a loss of CHF 20 Billion from failed intervention in 2010, the SNB is not in a position to make the same mistake again. In fact, SNB President Philipp Hildebrand has not even stooped to verbal intervention this time around, undoubtedly cognizant of the fact that he has very little credibility in forex markets.

At the same time, the SNB is not in any hurry to raise interest rates, lest it stoke further speculative interest in the franc. Its June meeting came and went without any indication of when it might tighten. Interest rate futures currently reflect an expectation that the first rate hike won’t come until March 2012. Thus, the downside of holding the franc is that it will continue to pay a negative real interest rate. The only upside, then, is the possibility of further appreciation. Fortunately, the SNB is unlikely to stop the franc from rising, since it serves the same monetary end as higher interest rates. In other words, a more valuable franc serves as a direct check on inflation because it lowers the cost of commodity imports and should (eventually) soften demand for Swiss exports.

It is possible that the Swiss franc will suffer a correction at some point, if only because it rose by such a large margin in such a short period of time. On the other hand, given that its economy has proved its ability to withstand the franc’s appreciation, it’s no wonder that investors continue to bet on its rise.

*http://seekingalpha.com/article/276384-the-swiss-franc-is-the-only-safe-haven-currency?source=email_macro_view

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

At present the USD is at yet another major inflection point and what it does from here will have direct implications for U.S. investors, not only asset allocation (bonds, stocks, commodities, currencies) but also sector allocation (cyclicals, non-cyclicals). [Let's take a closer look at the situation.] Words: 2102

When the dollar is strong you typically see the reverse of the above relationships…as shown below. U.S. stocks (S&P 500), commodities (CRB Index), and the emerging equities market (EEM) relative to the S&P 500 tend to have an inverse correlation with the USD Index which is shown below in green and inverted for directional similarity. Looking at the figure we can see that when the USD is rising (falling in chart) commodities and the S&P 500 are weak and emerging market equities underperform the S&P 500 (2008, early 2010), and the converse is also true (2009, late 2010-early 2011).

Source: Bloomberg

Movement of  USD Index During 1970s vs. 2010/11 

Then

So far there has been a remarkable similarity in how the USD [Index] moved in the 1970s to the present, and [as such] I believe it becomes quite valuable to bear that in mind in terms of portfolio management… A look at the figure below shows the USD Index in the 1970s on the top panel and the USD Index presently on the bottom panel. You will notice in the 1970s that the USD Index had a big decline from early- to mid-1973, before it staged a dramatic bounce heading into 1974. The second decline occurred from 1974 to 1975, followed by yet another bounce heading into 1976. [Please refer to this article (3) on what the similarity of the movement in the price of gold in the 1970s could mean for the upcoming price of gold using fractal analysis.]

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The moves in the USD Index in the early ’70s created a pennant formation which is formed by lower highs and higher lows. After peaking in 1976, the USD Index steadily declined until late 1977 in which it then accelerated its decline and broke the lower pennant support. In 1978, the USD Index rallied to test the underside of the broken trend line and then fell more than 15% in 109 trading days.

Source: Bloomberg

Now

Looking at the bottom panel, the USD Index looks to be eerily mimicking the 1970s general movements. Back then we saw two big down moves followed by sharp rallies and then a third decline that witnessed a break of the pennant lower trend line. Not only has the USD Index broken the lower pennant trend line as it did in 1977, it has now tested the underside of the lower trend line. [For other supportive articles on the impending crash of the USD - but from a different perspective - go here (4) and here (5).]

Conclusion #1

What comes next, if past is prologue, is a 15% decline in the USD Index to roughly 65.

There is absolutely no guarantee that the 1970s analog will play out in the current case as the USD may have a false breakdown of the pennant and then rally back above into the pennant formation. [Read this article (6) that presents charts showing inherent strength in the USD.] However, the further the USD declines from present levels, the more and more likely the bearish case for the USD is in play and the ‘risk on’ trade has a green light. My personal leaning is that we do in fact continue to track the 1970s example.

Moving Averages of the USD Index

Since the early part of May, the USD Index has been experiencing a short-term rally [referred to as just a "dead cat bounce" in this article (7)]. It looked like it was going to make a move to test its 200-day moving average… [but] once the USD Index broke its 50-day moving average (green line below) the bearish trend resumed.

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Presently, the USD Index is testing its 50-day and 20-day moving averages and a decisive close below both would likely indicate the dollar is continuing its decline. Also, given the break in the multi-year pennant formation, the USD’s decline may accelerate to the downside.

Source: Bloomberg

The USD [Index] vs. Other Currencies and Precious Metals

What supports my belief in the bearish case for the dollar stems from its broad-based weakness to global currencies. Over the last month the USD [index] has experienced a decent bounce, but this strength is deceptive and not as strong as would appear on the surface. To gain an understanding as to how weak/strong the USD is on a global basis I track 30 world currencies and all four precious metals returns relative to the USD [index] over various time frames as shown in the table below.

The USD [Index] began to rally roughly one month ago and the third column from the left shows the 1-month returns relative to the dollar. You can see that only six out of 34 currencies and metals declined relative to the USD [Index], while 82% of them rallied. This indicates that the countertrend bounce has been incredibly weak. A strong reversal in the [USD Index], such as was seen in the summer of 2008 or late 2009, often occurs when it displays widespread strength.

Source: Bloomberg

Conclusion #2

As shown in the table above, whether one looks at a one day relative return or a one year relative return, the USD Index is weak on a global basis and is not showing improving strength that would indicate a major reversal of its bearish trend.

U.S. Governmental Holdings of Gold Bullion vs. the U.S. Monetary Base

If the… [USD Index] does experience a decline similar to 1978 (declining over 15% in less than four months), one of THE primary beneficiaries would likely be commodities in general, and precious metals in particular. With gold already above $1500/ozt., [for some insight into the significance of the term "ozt." vs. "oz." read this (8) informative article] some have a hard time imagining how much further it can advance. One way to analyze gold is on a relative basis to help create some price targets and, rather than purely analyze how high gold can rise, we also need to analyze how far the USD can fall as gold and the USD are two sides of a the same coin. Therefore, looking at the value of U.S. governmental holdings of gold bullion in relation to the U.S. monetary base helps in determining some price targets for gold and to gauge how expensive it may be.

Shown below on the left hand side [of the chart] is the percentage of the U.S. monetary base backed by the value of U.S. governmental gold bullion ([troy] ounces of gold x current price). On the right hand side is the required price of gold necessary to back the U.S. monetary base to a set percentage with 25%, 50%, and 100% backing shown.

Source: Bloomberg

I’d like to make a few quick points. First off, please note [above] that the beginning of the secular bull market in gold in the 1970s that took it from $35/ozt. in January 1970 to $835/ozt. ten years later (+2285%) began with gold representing a mere 17.8% of the U.S. monetary base. By the middle of the decade after the first big run in gold, U.S. government bullion holdings represented 58% of the monetary base, and by the peak in early 1980, the value of governmental gold bullion represented 131% of the U.S. monetary base. By the time the secular bull market in gold was over, the value of U.S. gold bullion represented more than the entire monetary base!

While it may come as a huge surprise that after rallying from $254/ozt. in 2001 to a recent high of $1577/ozt. (+520%), the present value of governmental holdings of gold bullion backing the U.S. monetary base is currently BELOW the starting point of the prior secular bull run in gold!

I believe this point is too big not to reiterate, the present value of gold bullion relative to the U.S. monetary base is BELOW where it stood at the beginning of the last secular bull market and a large part of this is due to rapid expansion in the monetary base caused by quantitative easing (QE1 and QE2) by the Bernanke Fed, which has more than doubled the monetary base in short order.

Conclusion #3

To bring the gold backing of the monetary base to

• 25% would require a gold price of $2382/ozt.,
• 50% would require a price of $4763/ozt. (which would still be less than the 58% peak seen at the mid point for the last secular bull market in gold)
• 100% of the monetary base, we would need to see gold rally to $9.526/ozt.



[Interestingly, 129 analysts concur that a much higher price is coming for gold and convey their respective rationale in this (9) article. Given the historical relationship between silver and gold even greater percentage gains will be realized in silver according to this (10) analysis.]

Growth in the Monetary Base vs. Global Gold Production

As you can see [in the graph below showing] the growth in the monetary base and global gold production, we do not have an overabundance of gold bullion as we did of technology companies in 2000 or a glut of homes [as we did] in 2005-2006. What we do have is a glut of U.S. dollars. Since 1990, the monetary base has grown by 570% thanks to the Federal Reserve, while global gold production has grown by a mere 21%.

Source: Bloomberg

Conclusion #4

It is highly erroneous for anyone to [say that] gold is a bubble.

Summary

If the USD Index tracks the path of the 1970s and witnesses a sharp decline in the months and years ahead, it is likely that the ‘risk on’ trade will come back with a vengeance. This would be in a case where emerging markets would outperform the S&P 500, the S&P 500 would vastly outperform government bonds and higher yielding fixed income securities like investment grade and where high yield corporate bonds would outperform U.S. Treasuries. Commodities would rally as would commodity currencies relative to the USD, and cyclical sectors will outperform non-cyclical sectors.

For a sign that the ‘risk on’ trade is actually “on,” I would look for a decisive close of the USD Index below its 50-day moving average. However, if the USD instead stages a strong rally back above its prior broken trends, then the converse of the ‘risk on’ trade will likely be the order of the day.

Conclusion #5

My personal leaning,  given the USD [Index's] widespread weakness relative to global currencies, is an accelerated decline in the months ahead [with] precious metals being likely to be the ultimate beneficiary.

Links and titles to articles referenced above:

1. What the 1970′s Performance of Gold, Silver and USD Says About Tomorrow http://www.munknee.com/2011/05/what-the-1970s-performance-of-gold-silver-and-usd-says-about-tomorrow/
2. The U.S. Dollar Index: A Deceptive Indicator of USD Strength  http://www.munknee.com/2010/05/the-usd-index-is-not-all-that-it-seems/
3. GOLDRUNNER: Gold on Track to Reach $1860 – $1920 by Mid-Year  http://www.munknee.com/2011/04/goldrunner-gold-on-track-to-reach-1860-1920-by-mid-year/
4. The Dollar Bear Is Returning In 2011! Got Gold?  http://www.munknee.com/2010/12/the-dollar-bear-is-returning-in-2011-got-gold/
5. USD Index Drop Below 72 Will Devalue USD by 50%  http://www.munknee.com/2010/11/u-s-dollar-collapse-is-fueling-inflation-trade-mania/
6. U.S. Dollar NOT Facing Draconian Outcome Any Time Soon! Here’s Why http://www.munknee.com/2011/01/these-7-charts-show-underlying-future-strength-of-u-s-dollar/ 
7. U.S. Dollar “Strength” Just a Classic “Dead Cat Bounce”: Own Any Gold Stocks Yet?http://www.munknee.com/2011/05/us-dollar-strength-just-a-classic-dead-cat-bounce-own-any-gold-stocks-yet/
8. What’s the Difference Between 1 Gold Karat, 1 Diamond Carat and 1 Troy Ounce?  http://www.munknee.com/2011/03/whats-the-difference-between-1-gold-karat-1-diamond-carat-and-1-troy-ounce/
9. Take Note: These Analysts Believe Gold Will Go to $5,000 – or More!  http://www.munknee.com/2011/04/take-note-these-analysts-believe-gold-will-go-to-5000-or-more/
10. Why Silver at $398.52 is a Realistic Parabolic Peak Price  http://www.munknee.com/2011/05/silver/

*http://seekingalpha.com/article/272404-gold-and-dollar-at-biggest-inflection-point-of-the-year?source=email_macro_view

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
• Sign up to receive every article posted via Twitter, Facebook, RSS Feed or our FREE Weekly Newsletter.

USD Index