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In most civilized countries, we have laws designed
to protect the average citizen from unscrupulous individuals or entities
desiring to separate them from their hard earned money. As best I can
determine, there's only one small problem with the legal system. Historically
the biggest frauds have been carried out by governments and not individuals. What's
more, they've almost always stood behind the rule of law when they did it. I
contend that the greatest frauds in history all involved currencies and it is
the greatest Ponzi scheme the world has ever known. You start by using gold
and silver coins to gain the confidence of the masses. Then you tell them
that "for there own good" your going to convert to a 100% gold
backed paper money, a/k/a fiat money. After all, it's less cumbersome and a
sight more convenient. Slowly, almost imperceptivity, you reduce the
percentage of gold required to back the paper money saying that it's a bad
investment to have all that metal just lying around. Hell, just think of the
cost to have someone come around everyday and dust those dirty old gold bars.
Most of the debasements go unpublicized and are signed into law after
midnight. Finally, after much time has passed, the public is told that you
really don't need any convertibility at all because the currency is fully
backed by a responsible government. There's a contradiction in terms for you:
the words "responsible" and "government" used in the same
phrase.
What I have described to you has taken place in
every major country in the world on at least one occasion, and that includes
the US.
Go and look up the 'Continental' on Google if you don't believe me. France, Germany,
Italy, and England have
all had numerous fiat currencies over the last four hundred years. Then
there's Latin America. In Peru alone, I
have seen Soles de Oro, Soles, Intis, and Nuevo Soles in the last thirty
years. From an historical perspective printing money in Latin American is
almost a national pastime. Then there are forth world countries in Asia and Africa where it's cheaper to use the local currency in
the bathroom than… well, you get the idea. If you could put all of
histories monetary failures in current U.S. dollars, I have no doubt that the
figure would dwarf the size of our present day world economy. Trillions upon trillions of dollars up the stack!
With that in mind, I want to take a look at the U.
S. dollar. More years ago than I care to remember, I was sitting in an
introductory economics class when the professor asked anyone in the student
body if they knew the definition of a dollar. Being a wonderful and
thoughtful person, and realizing we were all dumber than dirty, he then
supplied the answer: "it is a store of value" he proudly announced!
Many people still believe that to be the correct definition, so I will begin
here. The dollar is a product of the Federal Reserve Bank created more than
ninety years ago. Congress, in there infinite wisdom authorized a private
company (the Fed), to create money. The original shareholders included Morgan
and Rothschild and a number of the "owners" weren't even American
(so much for national security). Originally, dollars were required to be
backed by some percentage of gold and bore the inscription "gold
certificate" or "silver certificate" indicating they were redeemable
in that metal. To the best of my knowledge, no one ever audited the Federal
Reserve so there is no way of knowing if the metal existed or not. In the
early 70's, Nixon made the debate a mute point when he closed the gold
window.
With a swipe of the pen, gold became a barbarous
relic and dollars were now backed by the full faith and credit of the U.S.
government. I suppose it's just a coincidence that the United States
completed the transformation from being a creditor nation to a debtor nation
at the same time. Today the U.S.
holds the honor of being the world's largest debtor nation and we owe it all
to the Federal Reserve. So there you have it folks, a dollar with no tangible
assets and backed by the largest debtor nation the world has ever known! If
that's not a scam, I don't know what is. What's more every new dollar printed
is destined to service existing debt, or represents new debt, and that brings
me to the present day definition of a dollar: debt! The dollar
is nothing more and nothing less than debt, generated by a Federal Reserve
which is not only illegally constituted, but also has no assets. And they
charge for the pleasure! That weren't satisfied to just defraud Americans
either, they had to defraud the world by making the dollar the world's
reserve currency.
Given everything I've said, I would like to take a
quick look at where the dollar has been, where it is today, and where it'll
be a little further down the road. Let's begin by taking a look at the
historical chart for the U.S. Dollar:
 
From early 2002 until late 2004, the dollar was the
short sale of the century, bottoming at 80.50. Then we spent almost all of
2005 rallying back up to 92.00. Now it appears that we are preparing to test
the late 2004 lows. What will the test depend on? First and foremost on my
list is the interest rate. If the dollar suspects that rates could
rise, it could slow the decent or even create a short term rally. Such a
rally would find resistance at 86.50, 87.92, 89.50 and 90.70. My personal
opinion is that any such rally would run out of gas somewhere in the 86.90
area due to a trend line that passes through and extends back to the 2002
top. Short term support comes in at 85.50 and 83.50. I would expect
that we'll remain in a trading range of 85.50 to 87.50 until the November
elections pass, and then we'll head down; maybe with a vengeance.
Long term the dollar has no place to go but down and
it will go down. I want to end this discussion by posting a Daily Point &
Figure Chart of the U.S. Dollar:
I really like to use P & F charts because it strips
out all the opinions, prejudices, politics, and other assorted garbage and
boils everything down to price. It tells you what price is saying and price
is saying new multi-decade lows! If you want an opinion, I give you one: the
dollar will go a lot lower than 76.00 over time. I predict that by the end of
the decade, the dollar as we know it today will cease to exist. Inflation, or
better yet hyperinflation, will see to that. And if we should be unlucky
enough to see deflation, I suspect we'll all resort to barter and gold coins.
No matter which of the above mentioned three horsemen pop to the surface,
there will be only two monies of choice: gold and silver. After all, it's in
the U.S. Constitution and our forefathers had the presence of mind to put it there
because they not only had foresight, but a good understanding of human
nature.
11 october 2006
Enrico
Orlandini
Website : Dow Theory Analysis
Dow Theory Analysis S.A.C.
Lima, Peru
Phone:
001-51-56-973-5599
Email: ebo@dowtheoryanalysis.com
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