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February 27, 1997
Moneychangers
"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."
"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."
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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.
FRIDAY
Across America 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 WEEKEND
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.
MONDAY
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.
TUESDAY
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 notice."
WEDNESDAY
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 declared.
THURSDAY
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, Boston, Chicago & 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 in Chicago, 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, & Mexico 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.
FRIDAY
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
Republic. [END]
Editor's Note:
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.
Franklin Sanders
www.the-moneychanger.com
Reprinted 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.
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