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Last
week FOFOA posted a long
article on the coming devaluation of the dollar
and how it might play out. He thinks it will be sprung on us without warning
-- sooner rather than later:
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The
point is that during times of transition, surprises are always the order of
the day. We have a crazy-out-of-control government that has given in to the
temptation of printing its way out of this mess. The deflationists view
this as an exercise in futility, while the inflationists say that you
cannot print these amounts of dollars without it affecting the markets
sooner or later.
A few cunning analysts are hedging their bets saying we will see another
deflationary collapse first, followed by a bout of high inflation. But
nearly all of the pundits who are still predicting "doom" have
lengthened their horizon to several years to make way for the slow speed at
which this train is tumbling down the tracks.
Frankly, I'm not buying it.
Call me contrarian, but I say that when the rubber band breaks this time it
will snap back with a speed and fury that will make your head spin. In
fact, I think that the longer this drags out (and I'm only talking weeks
and months now), the more abrupt the correction will be.
Both the 38 year timeline and the 96 year timeline have created an
imbalance in the fractional reserve system that has gone parabolic in the
last decade. I am talking about gold. No, the price of gold has not gone
parabolic, but the ratio of available gold to outstanding paper currency
HAS gone parabolic. The central banks of the world are well aware of this.
It is why they have slowly, inconspicuously changed from net sellers into
net buyers. This gradual shift is extremely significant, because as net
sellers they were supporting their own fiat regime. But now as net buyers,
they, as a group, are stressing it. Why would they do this unless they knew
it was about to reset?
This fractional gold reserve imbalance is the one imbalance the media and
governments do not want you to know about. This is the one that will RESET
the entire system. This imbalance, once corrected, will make central bank
fiat currencies sustainable once again. This is why they are net buyers!
Do I think this magnitude of a reset could happen overnight? Yes, I do.
Why? Because that is the way you get the most "bang for your
buck". Surprise is the order of the day! "Devaluations always
happen by complete surprise as to exert maximum leverage effect."
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The idea that we’ll wake up one day to discover that the international
monetary system has been “reset” and that our dollar/euro/yen
savings have taken a huge hit (while the local currency value of our gold and
silver soar) reminds me of an exchange in The Virgin’s Lover,
by Philippa Gregory (yes, I like historical romances). The year is 1560
and the young queen Elizabeth rules a country nearly bankrupted by a Spanish
alliance that produced only war and debt. The English treasury has been
systemically debasing its coins by clipping and shaving them, so that their
face value vastly exceeds their gold content.
Elizabeth’s
advisors have decided that the monetary system needs to be reset, and have
been importing borrowed gold. On the appointed day they intend to call in the
circulating coins and replace them -- by weight rather than face value --
with newly-minted coins. This devaluation will transfer citizens’
wealth to the government, impoverishing the former and enriching the latter.
And if all goes as planned it will come as a surprise to most of the country.
But
Elizabeth’s lover, Sir Robert Dudley, learns of the plan and is not
happy:
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Elizabeth
turned and smiled at him and took his hand and held it to her cheek.
“My Robert.”
“Tell me, my pretty love,” Robert said quietly. “Why are
you bringing in boatloads of Spanish gold from Antwerp, and how are you
paying for it all?”
She gave a little gasp and the color went from her face, the smile from her
eyes. “Oh,” she said. “That.”
“Yes,” he replied evenly. “That. Don’t you think
you had better tell me what is going on?”
“How did you find out? It is supposed to be a great
secret.”
“Never mind,” he said. “But I am sorry to learn that you
still keep secrets from me, after your promises.”
“I was going to tell you,” she said at once. “It is just
that Scotland has driven everything from my mind.”
“I am sure,” he sad coldly. “For if you had continued
with your forgetfulness till the day that you called in the old coin and
issued new, I would have been left with a small treasure room filled with
dross, would I not? And left at a substantial loss, would I not? Was it
your intention that I should suffer?”
Elizabeth flushed. “I didn’t know you were storing small
coin.”
“I have lands; my tenants do not pay their rents in bullion, alas. I
have trading debts which are paid in small coin. I have chests and chests
of pennies and farthings. Do tell me what I may get for them?”
“A little more than their weight,” she said in a very small
voice.
“Not their face value?”
She shook her head in silence. “We are calling in the coins and
issuing new,” she said. “It is Gresham’s plan -- you know
of it yourself. We have to make the coins anew.”
Robert
let go of her hand and walked to the center of the room while she sat and
watched him wondering what he would do. She realized that the sinking
feeling in her belly was apprehension. For the first time in her life she
was afraid what a man was thinking of her -- not for policy but for love.
“Robert, don’t be angry with me. I didn’t mean to
disadvantage you,” she said and heard the weakness in her own voice.
“I know,” he said shortly. “It is partly that which
amazes me. Did you not think that this would cost me money?”
She gasped. “I only thought it had to be a secret, a tremendous
secret, or everyone will trade among themselves and the coins will be worse
and worse regarded,” she said quickly. “It is an awful thing,
Robert, to know that people think that your very coins are next to
worthless.”
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Now, at least three things can be gleaned from all this:
1)
FOFOA is right that the world’s governments stand to gain most
from a surprise devaluation,
since it will prevent us commoners from preemptively swapping our paper
for real things, setting off an inflation that would make an even deeper
devaluation necessary.
There's a rumor that I was reluctant to mention when it first
started circulating, because it seemed a little too far down the tin
foil hat / black helicopter road. But in this context it seems pretty
reasonable. According to widely-followed newsletter writers Harry Schultz and
Bob Chapman:
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”Some
US embassies worldwide are being advised to purchase massive amounts of
local currencies; enough to last them a year. Some embassies are being sent
enormous amounts of US cash to purchase currencies from those govts,
quietly. But not £’s. Inside the State Dept there is a sense of
sadness & foreboding that ‘something’ is about to happen,
unknown re a date—just that within 180 days, but could be 120-150
days.”
Bob quotes another source that “Panasonic has told their people to be
back in Japan by Sept 09.”
Harry Schultz’s remarkable take on the situation:
“My HSL suspicion is that the elite plan another FDR style
“bank holiday” of indefinite length, perhaps very soon, to let
the insiders sort-out the bank mess which is getting more out of their
control every day. Insiders want/need to impose new bank rules. Widespread
nationalization could result, already under way. It could also lead to a
formal US$ devaluation, as FDR did by revaluing gold (& then confiscating
it). But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the
IMF basket of currencies (which seems more likely)—& much in the
news recently.
Any kind of bank holiday will push the US$ lower, which may be a bonus
benefit to their ongoing scenario of letting the $ fall. Such a fall would
get the devaluation they want without having to declare it. In sum, the
insiders want more bank & system control, fewer banks & a lower
US$. A bank holiday would suit all their needs."
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2) This details of the plan will spread within an ever-widening
circle of banking and government folks who, like Sir Robert, will
demand the chance to profit from the insider trade of the century.
Because such a secret is impossible to contain for long, once in place the
plan has to be executed as soon as possible.
3) If the rest of us play it right, we’ll be able to at least protect
ourselves, and maybe even make out (in percentage terms at least) like
Goldman Sachs no doubt will.
Harry
Shultz: “Obviously, U can’t open safeboxes if the banks are
closed, so plan accordingly. During the FDR bank holiday, thousands of banks
never reopened; it was a face-saving way of shutting them down. I would guess
the same would occur today; thousands have little or no net value, loaded
with debt, bad mortgages.”
FOFOA:
“It matters not one iota how well you do in the stock and bond markets
leading up to the reset. Neither does it matter what the "gold
market" does between now and then. The ONLY thing that matters is how
you are positioned on that one - fateful - day! Everything will
be reset and surprises will abound.”
John Rubino
DollarCollapse.com
John
Rubino is co-author, with GoldMoneys James Turk, of The Coming Collapse of
the Dollar and How to Profit From It (Doubleday, December 2004), and author
of How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main
Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New
York University, he spent the 1980s on Wall Street, as a Eurodollar trader,
equity analyst and junk bond analyst. During the 1990s he was a featured
columnist with TheStreet.com and a frequent contributor to Individual
Investor, Online Investor, and Consumers Digest, among many other
publications. He now writes for Fidelity Magazine, CFA, and Proto.
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