"Food riots break out in New York, Los Angeles, Chicago, San Francisco,
St. Louis, & New Orleans. In Cleveland & Chicago, enraged mobs of
housewives kill three Kroger store managers before police riot squads &
SWAT teams can clear the buildings. In other cities, dazed shoppers are glad
to find bread at $75 a loaf, but few can afford hamburger at $119.50 a
"Traders briefly panic when shots are fired in the gold pit at the
commodity exchange in Chicago,
but calm quickly when they realise the shots come from the few remaining
short sellers committing suicide."
It Couldn't Happen Here
This article appeared first in the 2/97 Moneychanger, & has since been
reprinted numerous times in places as far away as Australia. I am posting it because of the economic crises in Asia and Russia. On
one day in January, 1998 the Indonesian currency dropped twenty-five percent
(25%), & the Korean won dropped about 30% the week before. In Indonesia
shoppers surged to buy anything they could of value, stripping stores of
appliances & even cooking oil. Rioters have several times violently
persecuted ethnic Chinese there. In short, Asian investors have seen a decade
of saving evaporate in a few months. In Russia, the last two weeks of
August and first week of September 1998 took more than 66% off the ruble's value. This is the second time in five years
Russians have suffered the theft of all their wealth by a collapsing ruble. Still Americans smugly believe, "It couldn't
happen here." They maintain that in the teeth of a stock market that has
already given a Dow Theory signal of a primary trend change, and has dropped
18.2% in the not-quite two months since its July high. Don't kid yourself:it is already happening
here. How do you think those Asian investors fared who bought gold? Sure, the
price of gold has dropped this year, but nothing likethe
ringit or won or rupiah.
In their own currencies gold has appreciated
mightily. Take warning from their suffering; sell you stocks & real
estate, & buy some gold. Not tomorrow, but right now - before it happens
here. In April, 1993 the Russian Rouble collapsed, losing 99.9% of its value
in one week. Prices rose 1,250%. It couldn't happen here? Maybe not, but if
it did, here's how it might unfold.
it seems like an ordinary Friday. The Dow trades nervously in a 200 point
range, weaker at the day's end on reports the Japanese Finance Ministry is
complaining about the high dollar & being forced to digest too many US government
securities. Still, the Dow closes up 8.90 points at 6,825.35. Gold jumps
strongly to finish the day in New
York at $380, silver at $5.25. Experts on Wall
Street Week that evening are reassuring, certain that the Japanese complaints
are only one more in a series of inconsequential negotiations in US-Japanese
financial relations. On the way home, millions of Americans stop by the gas
station & tank up at $1.38 a gallon. At the grocery store, they buy bread
for $1.25, & pick up a pound of hamburger for $1.99.
The nation's weekend is disturbed by news that Treasury Secretary Robert
Rubin & Federal Reserve Chairman Alan Greenspan flew to Tokyo late Friday to confer with their
Japanese counterparts about their threatened sales of US government bonds.
The Japanese stonewall, insisting that the high dollar will ruin the already
suffering Japanese economy, & that they can no longer afford to absorb US government
debt. Sunday's reports brings them no closer to an
agreement. Finance ministers from the Asian Tigers fly to Tokyo to join the negotiations. Sunday
night finds them still at an impasse.
By the time the markets open on Wall Street, a tidal wave of foreign orders
to sell US
government securities washes over the market. Panic in the bond market
spreads quickly to stocks as the Dow plunges to 3,850. The dollar falls 67%,
from 115 to 38-1/3 yen as gold soars to $1,140 an ounce. Silver briefly hits
$18.00, but settles at $15.75. Late in the day frantic grocery store clerks,
operating under orders from corporate headquarters, begin to change prices,
raising bread to $3.75 a loaf & hamburger to $6.00 a pound. By 5:00 p.m.
Pacific time, a gallon of gas costs $4.14.
On orders from the SEC, stock, bond, & commodity markets open an hour
late. The stock selling panic turns into a stock buying panic as the Dollar
collapses another 75% to 9.58 Yen & investors rush to buy anything of
value. Stocks close the day at 75,670 while the US treasury bond market
collapses. Gold rockets to $4,560 & silver to $95. Housewives spend their
day waiting in lines at gas stations to fill up at $16.50 a gallon -- for
regular. Latecomers at grocery stores feel lucky to buy bread for $15 a loaf
& hamburger for $24 a pound. Grocery store shelves are nearly empty.
Banks nation-wide begin to call in loans. The five largest US insurance companies announce
they will not honour requests to cash in policies "until further
Food riots break out in New York, Los Angeles, Chicago, San Francisco, St. Louis,
& New Orleans.
In Cleveland & Chicago, enraged mobs of housewives kill three Kroger
store managers before police riot squads & SWAT teams can clear the
buildings. In other cities, dazed shoppers are glad to find bread at $75 a
loaf, but few can afford hamburger at $119.50 a pound. Coin dealers in major
metropolitan centres close their doors & sneak out back entrances,
leaving lines of customers blocks long. In Los Angeles, two gas station clerks are
burned alive when irate customers trap them in their kiosk, shove a gas tank
hose into the payment slot, fill the kiosk with High Test at $82.899 a
gallon, & throw in a lit match. The dollar drops another 80%, closing at
$1.916 to the Yen. At banks, interest rates rise to 72% per day for
creditworthy borrowers. Early in the day, banks began to call mortgages. At
4:00 p.m. the president declares a banking holiday. But Wall Street is
booming, with the highest Dow ever posted, 168,650.
Trading in the gold market becomes frantic as gold goes crazy, flashing
through the $20,000 mark to close at $22,800. Two gold traders suffered heart
attacks on the trading floor, but are trodden to death by frantically trading
clerks before medics can reach them. Managers of three of the nation's
largest pension funds commit suicide. Silver rises even faster than gold as
millions rush to spend their remaining dollars & save whatever they can.
The white metal closes the day at $651 an ounce. Under FEMA, the president
takes control of all the nation's businesses & immediately shuts them
down for seven days. National guard units patrol the streets. Martial law is
With grocery stores & other businesses closed, housewives panic. Flea
markets sprang up in shopping mall parking lots. Bread, when you could find
it, brings $600 a loaf -- or a dime in pre-1965 silver coin. The few daring
farmers who bring in meat are asking $955 a pound for hamburger, $50 apiece
for eggs. In Los Angeles, Korean truck farmers
commandeer a US Army armoured personnel carrier & use it to hawk
vegetables through Orange
County. The president
appoints Dr. Jocelyn Elders head of a commission to investigate price gouging
in food stores. Army units withdraw from Watts
& cordon off the entire area, leaving it to burn. Interstates leading
from New York, Philadelphia,
& other major metropolitan areas gridlock as millions of fleeing refugees
run out of gas. Tent cities spring up at Interstate exchanges, patrolled by
grim armed militias. The Army, with its hands full in the cities, makes no
effort to control suburban, much less rural, areas. In the Southwest, border
crossings are hopelessly clogged by millions of Mexicans rushing southward.
Stock & commodity traders spend Wednesday night at their desks, unable to
leave their buildings on account of the mobs. When trading begins Thursday,
gold opens at $182,400, while silver climbs to $7,600 an ounce. Traders
briefly panic when shots are fired in the gold pit at the commodity exchange
but calm quickly when they realise the shots come from the few remaining short
sellers committing suicide. Interest rates on dollars climb to 2,880% a day,
but only in the overseas markets. US banks remain closed. Brazil, Nigeria,
pay off their entire foreign debt to US banks. The dollar drops another
87.5%, & closes at $4.174 to the Yen, but the Dow posts another record
high at 275,920. Advancers lead decliners by a margin of 108 to 1. The oils
& retail businesses are lagging.
An entire nation is in shock as the remaining millions try to escape urban
areas. In Washington,
police & Army units wage a pitched battle on Capitol Hill trying to
defend congress against a well-armed mob. Order is restored after flame
throwers are brought in, but in another part of town a mob ransacks the
Federal Reserve building & leaves three hapless economists hanging on the
porch. In the markets, chaos reigns. Gold reaches $2,067,180 an ounce while
silver climbs through $125,000 an ounce to close at $129,129.00. The dollar
is offered at $47.30 to the yen, but nobody is buying. It loses another 91.2%
of its value on Thursday. Interest rates climb to 32,639% a day, but that
doesn't stop the Dow, which settles at 595,805. At noon the President
addresses the nation on radio & TV, calling for calm. He introduces
Federal Reserve chairman Alan Greenspan, who announces that the Government is
issuing a new dollar backed by the 261 million ounces of gold in Fort Knox.
Government printing presses in Washington & Fort Worth will work round
the clock to overprint the old notes with new denominations. The exchange
rate is fixed at one new dollar ("N$1.00") for 100,000 old dollars.
On Crossfire, Bob Dole replaces liberal Newsweek editor Eleanor Cliff as a
panelist. In Austin, the Texas
legislature, acting on the Treaty of 1848, exercises its right to declare the
independence of the Texas
This story explains why you own gold: not so much to make money but to
protect it. Maybe it wouldn't happen this bad in America.
Maybe it would only be as bad as Israel in recent decades (divide by 1000
instead of 100,000) or Bolivia (multiply by 100,000 or so) or Argentina
(divide by 1,000) or Russia or Germany or Hungary or China or Nicaragua or 2
dozen other countries where the currency has collapsed one or more times this
century. It can & will happen in your lifetime. Be prepared.
with permission from The Moneychanger. Franklin Sanders lives on a farm in
Middle Tennessee by choice, deals in physical gold & silver, and has been
writing and publishing The Moneychanger for nearly 26 years. In 1993 he wrote
Silver Bonanza for Jim Blanchard. Last year he published "Why
Silver Will Outperform Gold 400% and & The Professional Trading Secrets
That Will Make the Most of Your Silver & Gold Investments," still
available at www.the-moneychanger.com/order/publications.html.
You can sign up for Mr. Sanders' free daily e-mail
commentary on gold & silver at www.the-moneychanger.com, and download your free portfolio calculator to
keep up with your gold and silver investments.