One of the most compelling arguments yet for why hyperinflation is a necessary end result of our current monetary policy and how gold will continue to perform well going forward regardless of an inflationary or deflationary economic effect.
We highly recommend our readers give this one a full read.
The Dollar Rally is Hugely Bullish for Precious Metals
by Stewart Dougherty
For many years, the common viewpoint has been that an inverse price relationship between the United States Dollar and gold constitutes the First Monetary Commandment, and that this Commandment is chiseled into a stone tablet before which markets must genuflect. This false and misleading â€œDollar up, gold downâ€ religion has been proselytized at enormous, covert, public expense by the best market manipulations the high priests of Dirty Money have ever been able to buy. This has been done to deceive and delude the people about the true nature of honest money, and its devious, diabolical and immoral imposters. Now, every single corrupt market fallacy is about to be blown to smithereens as the global sovereign debt crisis performs an ages-old form of creative destruction: fiat currency annihilation. The First Monetary Commandment is already being smashed upon the rocks of common sense, and is about to become a costly heresy for those who cannot face the new and radically different monetary paradigm that the future is speeding back through time to bring us, as a deliverance.
As we all know, the Dollarâ€™s sure-to-be-ephemeral Lazarus rally is due to the Euroâ€™s extreme distress, which has been caused not just by Europeâ€™s hopeless fiscal problems, but by the Greek populaceâ€™s response to their countryâ€™s particular version of them. The violent Greek protests demonstrate that there is little understanding among the people about the â€œendgameâ€ nature of their nationâ€™s and the Westâ€™s fiscal, financial and economic crisis.
This is because citizens worldwide have deliberately been given by their ruling elites a World Class education in Stupidity when it comes to government budgeting and spending, national deficits, sovereign debt, citizen entitlements, government salaries, public welfare programs, government employee and military pensions, socialized health care and virtually all other fiscal matters of state. When it comes to government finance, the people are living in a state of sheer cluelessness and delusion, which is exactly what governments want. If the people truly understood how their money, financial futures and general welfare are being destroyed by governmentsâ€™ fiscal lunacy, the whole world would â€œgo Greek.â€
The citizens have also been awarded, compliments of the financial Master Class, Doctorates in Ignorance in the subject of how the money elite, epitomized by Goldman Sachs, has over the past twenty years plundered the West and sucked its national economies dry. Apparently, the people, at least in Greece, believe that protests, Molotov cocktails and rage can bring back to life the parched economic Waste Land they now inhabit. But that earth has been so mercilessly scorched by the uncontained and sociopathic predations of politicians and their Money Power blood brothers that it will be years before true rehabilitation can be achieved, if the people are fortunate.
In the context of Europeâ€™s broad and intensifying public and private financial crisis, the Dollar is now rallying in what is simplistically and repeatedly referred to by State Televisionâ€™s Mouthkateers as a â€œflight to safety.â€ State Media always finds it appealing to reduce complexity and the unknowable into sculptured sound bites, so that it can act intellectually superior, condescend to the people and please its masters.
For anyone to consider the fiat Dollar a â€œsafeâ€ asset is monetary insanity, given that the United States is the most hopelessly indebted nation in the world. The likelihood that the federal government will control its deficits, no matter what vast new taxes might be imposed or what kind of transformational epiphany it might experience as to its criminal and treasonous fiscal negligence is roughly zero. And the probability that the nation can pay its exploding debts or fund its contingent liabilities, which now exceed $100,000,000,000,000.00 ($100 trillion), is precisely zero.
Let us repeat that last point, to be categorical and to excise any lingering, â€œaudacious,â€ Sugar Plum hopes dancing in citizensâ€™ brains: it is arithmetically impossible for the United States government to pay its debts or contingent liabilities, unless it hyperinflates the Dollar into worthlessness. The claims of various government carnival barkers, State Media spokespersons and self-serving, parasitic, bankster shills that America can â€œgrowâ€ its way out of its debt grave are cold, callous and cynical lies told for exactly one purpose: to falsely elevate consumer confidence, and convince people to go shopping so government can kick the fiscal time bomb down the road. (We outlined this sad reality in copious numeric detail in a previous article, entitled â€œAmericaâ€™s Impending Master Class Dictatorship.â€ It is available at many fine web sites, via a Google search.)
So the question becomes, â€œGiven that Americaâ€™s severe fiscal crisis undoubtedly is well-known to Big Money, why on earth is Big Money flooding into the risky fiat currency known as the Dollar?â€ The answer is: because Big Money does not know what else to do with itself right now. Therefore, hundreds of billions of Euros and other currencies perceived to be at-risk are flowing into what Big Money views as the â€œleast worstâ€ currency at the present time: the Dollar.
Consider an analogy: There is a large haunted house high on a hill. It is old and made of wood that is as dry as the Sahara. There is no fire department within 500 miles of the house, and the water well has run dry. There is a party at the house for rich and influential guests, including politicians, central bankers and money managers, who have come from all over the world to have a good time.
The house is full to the rafters with the signature arrogance, haughtiness and self-importance of these self-anointed Masters of the Universe, and soon the party is in full gusto, with the drinks and drugs flowing. And as they drone on to each other about Keynesian solutions, Quantitative Easing, nationalized health care, Davos, financial weapons of mass destruction, stimulus packages, Federal Reserve toxic asset warehousing, rescuing the housing market by federalizing Fannie Mae and Freddie Mac, and the like, it becomes clear that these people are nothing but pompous, overpaid, delusional, self-serving, immoral, parasitic idiots.
In a daze, one of the Greek guests drops a cigarette on the floor, and his bedroom catches fire. Because the house is desiccated, the fire spreads fast toward the bedrooms of the visitors from Portugal, Spain, Italy and Ireland, and it wonâ€™t be long before half the house is a raging fireball. The celebrants gather in the main hallway in a panic. â€œWhere should we go? Where should we go?â€ they feverishly ask one another. Then one of them gets a great idea: â€œLetâ€™s go to the other side of the house, where the Americans are staying. Surely we will be safe there.â€Â So all the guests go racing down the hallway toward the rooms where Geithner and Bernanke reside, while the fire, inflamed by its natural prey drive, is in hot pursuit.
They stampede into the American suite and slam the door shut. â€œPhew! Weâ€™re safe!â€ they say, as they head over to the well-stocked bar to continue the party. But the fire, overhearing them, says, â€œSafe? I donâ€™t think so. You havenâ€™t seen anything yet, you puffed-up little idiot non-savants.â€ The fire then exhales a gust of flame down the hallway, incinerating it. The fire has the fever, and surely it wonâ€™t long before the entire structure is an inferno.
That home on the hill is The Haunted House of Fiat Currencies. It is on fire, and there is absolutely nothing that can put it out, other than water cannons drenching it with truth, common sense, honesty and reform, and washing away the plunderers and thieves who have laid waste to public and private finance through their epic power-lust and greed. Since the deployment of such water cannons would be embarrassing and inconvenient for the idiot non-savants, that solution will not be implemented. Instead, gasoline will be poured onto the fire, in the hope that maybe it will rage on forever, creating a distracting spectacle that will obscure the crimes of the arsonists who ignited it in the first place.
When the fire started, Big Money might have done the smart thing and simply left the house. Instead, Big Money stayed in the house, in the assumption that it could continue to party while sidestepping the fire by going from room to room. Big Money was so inclined to habit that it could not think â€œoutside the house.â€
In time, and not much of it, thinking outside the Haunted House is going to become a requirement for Big Money, because the whole house is burning down. Big Money is going to be forced to flee disintegrating fiat currencies, which have all been set on fire. But where can Big Money go?
Big Money could go into equities, but the conflagration at the Haunted House is going to create a Depression (look at Greece), and that is not good for stock prices. So Equity Avenue will not be a great road to travel. Big Money could go into bonds, but they are Ground Zero when it comes to fiat currency risk. And at current yields, particularly for United States debt, they are the proverbial Guaranteed Certificates of Confiscation. How about real estate? Big Money has been there and done that, and it didnâ€™t work out very well, to which currently skyrocketing CMBS defaults testify. Maybe Big Money could show up in force at upcoming Sothebyâ€™s and Christieâ€™s auctions. But those auctions are infrequent, and there are never enough chairs for Big Money. Diamonds? They have certainly been a long-time friend of Big Money, but again, there arenâ€™t enough of them. Moreover, the transaction logistics are tedious, and the buy – sell spreads are irritating. And besides, how do you front-run, flash trade, black box or algorithmicize them?
So where is all the money going to go, now that the Haunted House is burning down?
The fact that Big Money is now fleeing into United States Treasuries reflects desperation, not enlightened financial strategy, and is surely a short term fix that indicates Big Moneyâ€™s lack of perceived options. Big Money is trying to buy time, as it figures out what to do. If Big Money is concerned about the Euro, then surely it is similarly concerned about the Dollar, because the situation in the United States is the Mother of all ticking fiscal time bombs. By moving into the Dollar, Big Money appears to be saying that it is trapped, but is it, really?
The fact is that Big Money now has an opportunity to make some seriously big money. As one room after another in the Haunted House is consumed by flames, Big Money is going to have no choice but to get creative, and think outside the house. Ultimately, it is going to jump out the nearest window, before it gets burned. By a simple process of elimination, it is going to realize that precious metals in general, and gold and silver in particular represent an enormous opportunity, given the huge sums of Big Money that need to find a new home, and the extreme shortages of physical metal available in the marketplace.
Big Money is going to be way too smart to buy the ETFs that have been pimped to retail investors as a way to sterilize their money and keep it out of the metals markets for which it was intended. No, Big Money is going to want the real thing, physical, and it will not be available at todayâ€™s prices in the quantities Big Money will desire and require. Big Money is going to do its supply â€“ demand calculations and realize that any price less than $5,000 per ounce for physical gold and $300 per ounce for physical silver is dirt cheap. And Big Money is going to be relieved that it has at last found an asset class that cannot be created to infinity by politicians and central bankers who have now demonstrated without a shadow of doubt that they are monetarily insane, greed- and power-diseased destruction devices who are completely clueless as to what to do, and just making things up as they go, one error after another after another.
Big Money may have many failings, but it does have proven survival instincts, and it will not go down in flames without a fight. Up until now, when it comes to precious metals in general and gold and silver in particular, much of Big Money has been illiterate. It never had to learn about precious metals, because investing in other asset classes such as equities, bonds and real estate was like shooting fish in a barrel. Now this has changed, and Big Money is taking a crash course in financial and monetary safety, and in alternative asset classes. Once it learns that there really is no other place to go, it will gravitate to gold and silver, in size.
The current Dollar rally proves without question that enormous sums of money are running to safety. Big Money knows that the Dollar does not represent genuine safety, but it is the only storm port it knows, at least for now. What is significant is that gold has risen from $250 to $1,200 per ounce without Big Money; that move was engineered by Little Money, which is early, quiet and smart. When Big Money wakes up to the paucity of viable options, and sees the large opportunity precious metals represent, the flood of money into the sector will become a torrent.
To put the opportunity in context, one statistic is illustrative. At $1,200 per ounce, the total gold reserve of the United States of America is worth around $314 billion. The countryâ€™s fiscal year 2010 deficit is projected to be $1.6 trillion. In other words, this yearâ€™s deficit will amount to more than FIVE TIMES the value of the nationâ€™s gold. To fund the deficit, the government and Federal Reserve will have to create that $1.6 trillion out of thin air, and over the next decade, it will have to create, at minimum, an additional $7.5 trillion to cover projected federal deficits. This is above and beyond the existing national debt of $13 trillion, which alone is FORTY-ONE times the value of the nationâ€™s gold.
To put this in another way, the fiscal year 2010 deficit in the United States alone would purchase, at todayâ€™s price, 30% of the gold ever mined since the beginning of civilization. In other words, one nation just lost, in one year, the equivalent of one-third of the total global value of the gold that has been mined worldwide over the past 5,000 years. That same nation has promised to lose, over the next decade, far more than the current total value of all gold in existence. Do you think there might be a supply issue when more and more people figure out what is really going on?
Nations throughout the world face the same deficit and debt pandemic. They can print money high into the sky, but they cannot print precious metals. Big Money is going to do its sums, and it is going to like what it sees.
Not to mention that Golden Swans are aloft, and are preparing to land any time. We estimate the probability that Americaâ€™s Fort Knox gold reserve exists as-stated by the government to be between 0 â€“ 5%. In other words, there is a 95+% probability that some or all of Americaâ€™s gold is gone. The Federal Reserveâ€™s panic about being audited, and its outright refusal to audit the nationâ€™s gold supply can ONLY be cause for grave concern; or, optimism, if you have traded Federal Reserve Notes for gold. What is the Fed so worried about? Americaâ€™s gold supply (or what is left of it, if anything) belongs to the people, not The Federal Reserve, the Treasury, JP Morgan Chase, Goldman Sachs, HSBC, the White House, or Congress. Why wonâ€™t the government show its citizens their gold? The likely reason is that it is not there any longer, because it was peddled away by a Fed that got in way over its head, and played derivative and swap games that blew up in its face. If that particular Golden Swan comes in for a landing, which we view as inevitable, the price of gold will go in the opposite direction, skyward.
As these developments play out, â€œZimbabwe Moments,â€ the inflection points when fiat money supply goes exponential, hang over the western world like swords of Damocles. Desperate central bankers will attempt to carpet-Zimbomb their economic landscapes with dying fiat currencies in a vain attempt to keep the wheels on their crippled and careening fiscal and monetary systems. These alchemists and witch doctors have demonstrated that they couldnâ€™t care less if their misguided actions result in zombie nations populated by financially paralyzed Zimbombwees, as long as they can continue to pontificate at fancy, meaningless hearings, fly around in private jets and act like gods. Throughout their histories, central banks, in particular the Federal Reserve, have shown a total lack of humility or remorse, despite the damage they have done to the nations they have despoiled. Looking forward, we should expect nothing but escalating trouble from them, and it.
Big Money, which up until now has been no friend of the common man, is being forced to abandon its long-time comfort zone, the burning house. It has run to Dollars for now, creating a false rally, and is about to discover the unparalleled financial virtues of precious metals. As it makes its move into metals, especially gold and silver, it will light the way for an enormous popular migration out of phony fiat currencies and into the worldâ€™s only true and honest money.
Stewart Dougherty is a specialist in inferential analysis, the practice of identifying historic and contemporary patterns and then extrapolating their likely effects upon the future. Dougherty was educated at Tufts University (B.A., magna cum laude), and Harvard Business School (M.B.A. and an academic Fellow). He can be reached at [email protected] He is not affiliated with or compensated by those he references or recommends. He does not offer investment or trading advice, and nothing in this article should be construed as such. This article represents the authorâ€™s personal opinions, and nothing more. The reader has the authorâ€™s permission to share, print, forward or post this article provided that the content is not changed and the author is acknowledged.
Copyright 2010 by Stewart Dougherty, with all rights reserved.
This is a great one…but SSHHHH, no need to spread this around too far,Â I need to buy some more before the SHTF.Â I like silver where it is right now at under $20/oz for the next few months until I am done buying.
I hear ya, let’s keep it our little secret shall we? Really hope it peaks right now for a little bit so I can finish buying too. Damn, why can’t it still be at $15/oz?
Something else to consider as you protect yourself from our dumbassÂ U.S. government which is totally corrupt and inept:
Buy both silver and gold as it is possible the greedyÂ bastards in Washington D.C.Â might try to confiscate citizen’s gold as they attemptedÂ in the 1930’s.Â Â My thinking is that they may not be so interested in silver and that silver would be safer from theÂ probability of confiscation.Â Â
However I doubt many people will be lining up to forfeit their gold to the government clowns in D.C. this time around.Â Â Â It’s a lot more likely citizens would instead supply the government agentsÂ with a hail of bullets to defend the assets they need to feed themselves and their families.
Good luck to confiscationÂ feds!Â Â Â Â Â
While I personally enjoyed this article and subscribe to the ideas put forth, I am still not convinced gold is going to go up if we see a massive stock market crash.
The dollar may see a significant rise in such an instance, and investors are going to be selling stocks as fast as they can, and that may include commodity-based ETF’s like GLD and SLV, which “hold” massive amounts of precious metals. At least initially, this could lead to serious price declines in gold and silver.
I would actually prefer this temporary scenario, as it would likely be the last chance to jump into gold near $1000 and silver around $15….
The end of 2008 was a great year for acquiring metals… I’d love to see it again!
And profit taking is an opportunity to get a better price. Great article. There are just too many negative things happening or about to happen, and there is no place for all of these dollars to go, except to metals. Back up the truck!
“Boobquake” 524 402 925 TCA
Zuk, I continue to try and break the code and remain confused… but if 5/24 ends up being a major turning point for something, than all will bow at the alter of the zukadu!
I went with Omaha in my previous comment because 402 happens to be the area code for that city…
In a previous post you mentionedÂ When, where and what… i went with that order when looking at the numbers..
It was actually interesting that 402 was Omaha and happens to be the area code for Berkshire Hathaway…
It’s getting to the point that I go to sleep chanting 5-2-4, 4-0-2, 9-2-5… T C A…..
GladÂ I have captured your imagination Mac. I figured you guessed Omaha for the 402 area code. It was a good guess. But not the right one. When it happens. If it happens. It will all be self evident.
If it does happen, you will indeed bow in awe. But not at my altar. Time is the protocal by which God catalogs eternity. The earth is the Lords to do with as He pleases.
Ok, so I may have been looking at this all wrong.. I was approaching it in a physical earth-bound sense, When, Where, What….
But it seems your coordinates are some sort of “time” coordinates (the TCA is throwing me off a bit.. hehe)… So, I took a look at some “God Time” info and I am thinking perhaps this is the direction I should be going….
There is a lot of info out there on this — not sure if 12 days will be enough to crack the code!
I am curious if there have been other “coordinates” in recent history that have panned out accurately.
Good stuff Zuk…. this one’s got me puzzled but interested.
Doesn’t that term referenceÂ what the Shiite leaders in Iran wereÂ prophesising about recently?Â Â Â
Namely that the world was being punished with more earthquakes due to women’s ‘immoral’ show of cleavage.Â Â Â Â Â Â Â
If so, Hugh Hefner’s mansion shouldÂ be the epicenter for the next big one.Â Â
I like your persistance Mac. Yes Mac they have, which is why my confidence level is so high on the accuracy of the timing of this event. If you had evidence that you could hold in your hands …. the proof of the pudding always in the eating of it …. wouldn’t youÂ be confident of other data, similarly acquired? I think so.
As for Hugh Hefner’s mansion being the epicenter of “Boobquake” I think you are quite astute, Paul Revere. But not precise.
Let’s try this again.
Earthquake on May 24th…….. Time 4:02……….Â epicenter in area code 925 (Alameda County)……..Â T for?………..CA California
There is no area code in this code
Zuk, no doubt. I was curious and figured that you wouldn’t be so sure of these ‘coordinates’ if you hadn’t see some form of evidence already.
You’ve got my wife curious as well. She had me sitting here at 1:00 AM last night pulling up lat/long coordinates and all sorts of other things.. haha
TCA……. Total Collapse America?
Totally Corrupt Administration
(yeah Barry Kenya Obama, I mean you)
It will not be the total collapse of America, but it should hamper our projection of power going forward, significantly, as this eventÂ is another burden for the American taxpayer and economy.Â For this reason the consenus building by Obama, internationally, has been a good thing for all of US.Â
America has served its leadershipÂ role well and must now recede,Â step back from the front, and letÂ other nations share the burden of world leadership. Europe must step up. Europe will step up. It is that time. And time is the protocal …….
Paul Revere: A “T” for you, because you are on target. But not precisely on target.Â 🙂