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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 “Dollar up,
gold down” 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 Dollar’s sure-to-be-ephemeral Lazarus rally is due to the
Euro’s extreme distress, which has been caused not just by
Europe’s hopeless fiscal problems, but by the Greek populace’s
response to their country’s particular version of them. The violent
Greek protests demonstrate that there is little understanding among the
people about the “endgame” nature of their nation’s and the
West’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
governments’ fiscal lunacy, the whole world would “go
Greek.”
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 Europe’s broad and intensifying public and private
financial crisis, the Dollar is now rallying in what is simplistically and
repeatedly referred to by State Television’s Mouthkateers as a
“flight to safety.” 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 “safe” 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,
“audacious,” Sugar Plum hopes dancing in citizens’ 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 “grow” 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 “America’s
Impending Master Class Dictatorship.” It is available at many fine web
sites, via a Google search.)
So
the question becomes, “Given that America’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?” 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 “least
worst” 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
won’t be long before half the house is a raging fireball. The
celebrants gather in the main hallway in a panic. “Where should we go?
Where should we go?” they feverishly ask one another. Then one of them
gets a great idea: “Let’s go to the other side of the house,
where the Americans are staying. Surely we will be safe there.”
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. “Phew!
We’re safe!” they say, as they head over to the well-stocked bar
to continue the party. But the fire, overhearing them, says, “Safe? I
don’t think so. You haven’t seen anything yet, you puffed-up
little idiot non-savants.” The fire then exhales a gust of flame down
the hallway, incinerating it. The fire has the fever, and surely it
won’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
“outside the house.”
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 didn’t work out very
well, to which currently skyrocketing CMBS defaults testify. Maybe Big Money
could show up in force at upcoming Sotheby’s and Christie’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 aren’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 Money’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 today’s prices in
the quantities Big Money will desire and require. Big Money is going to do
its supply – 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 country’s fiscal year 2010 deficit is projected to be
$1.6 trillion. In other words, this year’s deficit will amount to more
than FIVE TIMES the value of the nation’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 nation’s gold.
To
put this in another way, the fiscal year 2010 deficit in the United States
alone would purchase, at today’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 America’s Fort Knox gold reserve
exists as-stated by the government to be between 0 – 5%. In other
words, there is a 95+% probability that some or all of America’s gold
is gone. The Federal Reserve’s panic about being audited, and its
outright refusal to audit the nation’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? America’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 won’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, “Zimbabwe Moments,” 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 couldn’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
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 world’s only true and honest money.
Stewart Dougherty
Stewart
Dougherty is a specialist in inferential analysis, the practice of
identifying patterns and trends from specific, contemporary events, and then
extrapolating their likely effects upon the future. Inferential
analysis can be highly predictive. Dougherty was educated at Tufts University
(B.A.) and Harvard Business School (M.B.A., and an academic Fellow). He can
be reached at: trident888@cs.com.
He is
not affiliated with or compensated by those he references or recommends.
Copyright
2009 by Stewart Dougherty, with all rights reserved.
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