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Posts Tagged ‘Dollar Collapse’

Interview by James Turk
The Gold Report
November 7, 2011

 

A war-mongering U.S. government could be less than 18 months away from decimating the last 5% of value left in the dollar, says Richard Maybury, the author of the U.S. & World Early Warning Report. Until some new exchange-traded-fund-like basket of natural resources provides a store of value, this “juris naturalist” has some advice about how to protect your wealth during the coming collapse.

The Gold Report: Richard, last month, you made a presentation at the Casey Research/Sprott Inc. “When Money Dies” Summit entitled “The War that Will Kill the Dollar.” You explained that the corrupting influence of power had sent our country’s leaders shopping for war, disregarding Westphalian respect for sovereignty and hastening the collapse of society. What are the signs that we are reaching a critical point? And, is there any way we can change course?

Richard Maybury: You can see the signs very clearly in the Middle East and North Africa. The Federal government is involved in several wars there that have nothing to do with America. One of the best examples is Libya. U.S. officials are taking credit for Moammar Gadhafi’s death just a year after they were bragging about having tamed the threat. Now Libya is a mess. It will very likely be taken over by some sort of Islamic government that isn’t going to be very friendly to America.

TGR: Why do we, as a country, do this? If it’s not going to end well for us, what’s the economic or political reason to get involved?

RM: The U.S. government gets into wars in far corners of the world that have nothing to do with America because the leaders like getting into wars. That is how presidents achieve greatness in the history books. A president has no prayer of going down in history as great unless he has won a war. Look at Mount Rushmore. All four presidents featured there won wars. That seems to be the number one criteria historians use for deciding whether someone is a great president. It constitutes an automatic incentive to go out looking for wars.

TGR: What is the incentive for the American people to go war shopping?

RM: Nothing. It’s absurd. During the First Gulf War, people had a tremendous good feeling about going to war with Iraq. They would come home from work, order a pizza, sit in front of their TV sets and watch the war like it was a football game. War became a form of entertainment.

TGR: Is there anything we could do to incentivize our presidents to act peacefully?

RM: I doubt it very much. People go into politics because they seek political power. Once they get the power, they naturally want to use it on somebody. What is the point of having power if you can’t use it? So, no matter what kinds of controls you put on, future presidents will find a way around it.

The ideal situation would be one where war is used as a last resort. Westphalian sovereignty, a set of agreements dating back in the 1600s, established the precedent that the European powers would only go to war in self-defense. You had to have a clear and present danger before you could go to war. And, even then, it was supposed to be the last resort. That was the basis of international law up until this year. That isn’t to say that the Westphalia treaties weren’t violated a lot of times, but they helped. After Iraq, Serbia and now Libya, it is pretty clear that the policy is we can just go out and hit anybody we want for any reason we want as long as we believe the other guy is up to no good.

TGR: If this is the new reality, then let’s talk about some of the economics around it. War is expensive. You have pointed out that since the Federal Reserve was created in 1913, the dollar has lost 95% of its buying power. You said, “War destroys currencies.” It usually leads to governments printing more dollars to pay for guns and tanks. How much debt and overprinting can the country take before the velocity of economics, which is something that you also talked about in association with how quickly dollars are exchanged, catches up with reality and the dollar loses that last 5% of its value?

RM: Velocity refers to the speed at which money changes hands, and it is a measure of money demand. When people don’t really want the money, they start trading it away faster, trying to get their hands on things they do want, things that have value that they trust. The cost of this war in the Islamic world will continue going up. At some point, it’s going to be a major contributor to people losing what confidence is left in the dollar and people all over the world will start dumping it. This is a psychological thing. It’s about emotions, so it is hard to pinpoint when they will lose all confidence in the dollar.

TGR: What would it look like if that last 5% were gone? Are we talking about hyperinflation? Are we talking about banks collapsing? Are we talking about bartering? What would it look like?

RM: We are talking about all of that. It would be chaos. We saw it in Zimbabwe when the Zimbabwean dollar became worthless because the government printed so many that people wouldn’t accept them anymore. The country experienced enormous runaway inflation where prices were rising 50% a day before the Zimbabwe dollar collapsed.

It would probably start with someone somewhere in the world selling off his dollars and begin trading them for whatever it was he had confidence in. The foreign exchange value of the dollar would fall. Other people would notice; they would get scared and start selling their dollars. The foreign exchange value of the dollar would drop more. This process would continue until you have panic around the world to get out of dollars. Americans would be the last ones to get involved. We are always the last to know what is happening to America. Suddenly Americans would wake up one morning and find that a gallon of milk that cost $4 the day before costs $6 today. The next day they would find that it costs $12. And the next day they would find that it costs $36. That is when Americans would realize that they are in deep trouble; their dollars are about to become worthless.

TGR: Of course the Fed wants to avoid that scenario. You describe yourself as a follower of Austrian economics made famous by the Nobel laureates Friedrich Hayek and Ludwig von Mises. They describe financial systems as complex processes run by billions of constantly changing individuals rather than something that can be manipulated from a central point, which seems to be what is being attempted right now. If that is the case, what will be the outcome if the central government tries to force a more Keynesian control of the flow of money?

RM: They will mess it up even worse than they already have. The world has been living under Keynesian economics since 1971 when Nixon took the dollar off the gold standard. John Maynard Keynes was a semi-socialist. He believed that the way to fix the economy was to print a whole bunch of dollars and dump them out there. This has been standard procedure for the past 40 years. All currencies have been dropping in value during that time. Another round of quantitative easing (QE) could further speed the rate at which the money circulates, something that has the same effect as increasing the supply of dollars, creating a larger demand for goods and services and having an inflationary effect. I think Fed officials are dropping hints about the next QE because they are trying to cause velocity to rise, a secret QE if you will.

TGR: What if the stealth QE campaign doesn’t work? What form might a real QE3 take?

RM: It is hard to tell what they will do. One of the myths that everyone is taught is that the government has some sort of tremendous understanding of economics and the ability to make adjustments to economic activity. The term fine-tuning is used sometimes. Actually, we are talking about a group of human beings who don’t know much more about real economics than anybody else. They think they do, but they don’t. They just bounce around from one attempt to control things to the next, making a mess of the country. The economy is not a machine. It is people, human beings. It is a biological system, not a mechanical system. But, the government treats it like a mechanical system, so they are always making mistakes.

TGR: If war and hyperinflation are the inevitable future, how can investors survive or maybe even thrive during a time like this? What are the opportunities? Natural resources? Commodity equities? Where can we be safe other than putting that $100 bill under the bed?

RM: Well, I wouldn’t put $100 under the mattress, at least not for very long, because it will soon become worthless. But commodities, stocks of raw materials firms, gold and silver and platinum coins have value. Generally, I try to see the world in terms of two kinds of investments: dollars and non-dollars. You definitely want non-dollars, things that do not have their value tied to the value of the dollar. An example of a dollar asset is something like a bond or bank CD. Their values are tied directly to the value of the dollar. If the dollar falls, then their values fall.

Gold is a non-dollar asset. When the dollar falls, usually gold rises. The same is true with silver and oil. All of these things have values that are not tied to the dollar. My advice is to invest in non-dollar assets. Gold would be at the top of the list, silver and platinum and then oil.

TGR: In your Early Warning Report Newsletter, you predicted that gold will top $3,000/ounce (oz), silver will hit $50/oz and oil will exceed $300/barrel. Gasoline will go to $9/gallon. When will we see these rises? And what will be the catalysts that take them there?

RM: The next QE, which I expect to come along no later than March, could set off a flight from dollars. Then we could see those predictions realized within 18 months.

TGR: You said that once we have had this loss of the entire value of the dollar and people are looking for another way to trade, money could be based on some collection of metals with currency acting as a receipt for the tangible gold, silver, platinum and whatever else happens to be in that basket. What would that transition look like? How painful would that be? How would it be orchestrated?

RM: It doesn’t have to be painful. The markets are moving in that direction. People trade exchange-traded funds (ETFs) for practically everything now. I can envision a mutual fund or an ETF that is a collection of various things. It could be gold, silver and platinum. It could have oil in there. It might include Swiss francs. It could even have various patches of real estate. The ETF itself would then become a currency, not because anybody has it planned that way, but because the markets will see that there will be a demand for something that is a non-dollar asset that is easily tradable and seen as a store of value. There would probably be hundreds of these baskets of assets at the start. Some would work better than others would; the less workable ones would shake out. You might wind up with maybe a half dozen ETFs or mutual funds that are baskets of various assets circulating in the world. They would essentially become the currencies.

TGR: Would investing in ETFs now be a good way to prepare?

RM: No. I don’t know of any that are arranged that way. It may be a while until somebody catches the idea and decides to give it a try.

TGR: What about the precious metal equities? Would that be a good way to prepare?

RM: Yes. There are lots of good precious metal stocks. I own quite a few. That is another way to protect yourself. However, be sure to deal with a broker who really knows natural resources. You have to have some skill in picking those stocks. It’s not like going down and buying a gold coin where you just walk into the coin dealer and tell him I want a handful of American Eagles or Canadian Maple Leaves. You really have to know what you are doing when you are buying gold stocks.

TGR: Any final thoughts you want to leave with The Gold Report readers?

RM: The world has changed. When you look at the news and you say to yourself, “My God, America isn’t what it was; the world isn’t what it was,” have the confidence to know you are right. We are probably not going back to what America or the world was anytime in my lifetime. Therefore, you want to start learning everything you possibly can about this new condition and adapt to it.

TGR: Thank you for sharing your thoughts.

RM: Thank you, JT. I appreciate being here.

RACHEL METZ
August 14, 2011
Associated Press

SAN FRANCISCO (AP) – For gold sellers on eBay, the recent stock market turmoil has been a boon for business. Gold and silver sales on eBay had already been rising steadily over the past several years – so much so that eBay Inc. created a special area in May to make it easier for buyers to find sellers.

Now, activity on that part of the site, the Bullion Center, is intensifying as consumers unnerved by the economic uncertainty flock to gold in hopes it will be a stable investment.

“When people are coming down to the question, ‘Do they want to have cash in the bank or gold in their hands?’ the answer is they’d rather have gold or silver,” said Jacob Chandler, CEO of Great Southern Coins, the largest seller of precious metals on eBay.

The stock market just ended one of its most volatile weeks in years, prompted in part by a downgrade in the nation’s credit rating and fears of another recession. The Dow Jones industrial average fell nearly 6 percent on Monday, its worst one-day drop since December 2008. Then the index rose Tuesday, fell Wednesday and rose Thursday and Friday to end the week 2 percent lower than a week ago.

Through most of last week, the average selling price increased for gold bullion – bars or coins stamped with their weight and level of purity.

According to the most recent data available from eBay, sales of 1-ounce gold American Eagle coins and 1-ounce gold Pamp Suisse bars rose steadily from Aug. 5 to Wednesday, before dipping slightly on Thursday.

On Aug. 5, when Standard & Poor’s lowered the nation’s credit rating, American Eagle coins were selling for an average of $1,800 among eBay’s featured sellers. The average price of the coins, produced by the U.S. Mint, rose more than 8 percent to $1,952 on Wednesday, before dropping to $1,915 on Thursday.

The Pamp Suisse brand of gold bars sold for an average of $1,787 on Aug. 5 and climbed nearly 8 percent to $1,927 by Wednesday. On Thursday, the bars dropped slightly to $1,890.

Even before last week’s market turbulence, investors were cautious because economic signals in the U.S. and overseas pointed toward trouble.

The Dow index fell 6 percent in the week ending Aug. 6. That week, the number of gold buyers on eBay rose 11 percent compared with the year’s weekly average. The number of gold sellers rose 14 percent. EBay would not provide the total number of buyers and sellers.

“With all the turmoil in the markets, this is seen as a way to diversify,” said Anthony Delvecchio, eBay’s vice president of business management and strategy for eBay’s North America business.

EBay, which is based in San Jose, Calif., does not impose minimum purchase amounts for bullion. Sellers offer gold both through auctions and “Buy It Now” fixed-price sales.

The increased popularity of gold on eBay echoes what’s happening in the broader gold market, where prices have spiked during the past two years.

Gold traded at about $900 per ounce in the summer of 2008, before the financial crisis unfolded that year. It passed $1,600 in late May and briefly rose above $1,800 for the first time on Wednesday before pulling back to $1,784. On Friday, gold fell to $1,740.60 per ounce, still nearly twice the summer 2008 prices.

Great Southern Coins has benefited from this uptick. Chandler said the company is selling more gold lately, and its silver sales remain strong, too. Chandler estimated his business has nearly quadrupled in the past 45 days, and he said it appeared to be up about five or six times during the past week, with most of this growth coming from sales on eBay.

Daniel Hirsch, a New York-based statistician who recently purchased more than a dozen gold coins on eBay from Great Southern Coins, said he started buying gold less than a year ago in an effort to expand his investment portfolio.

“It’s kind of a safe haven and a hedge against low interest rates,” he said.

Read the entire article HERE.

 

By Chris Martenson PhD
07/28/11
Financial Sense

For the record, I still believe that there will not be a breach of the debt ceiling and no overt default for the US. Things will be worked out in the nick of time, like they always are.

However, the media is full of articles wondering about what ‘investors’ might do in response to a US default and/or credit downgrade. What will happen to Treasury prices? Will they go down as investors dump them en masse in response to a credit downgrade forcing interest rates to climb?

It’s a big question and the most likely answer is “No, not really”. Partly because these so-called investors have been well-conditioned to believe that another bailout is always around the corner, but mainly because they have nowhere to go.

The big money is trapped.

For example, imagine that you are in charge of a money market fund with $100 billion under management and your job is to both cover your expenses and assure a return for your depositors and you are heavily invested in US Treasurys. Or imagine that you are in charge of a public pension with $200 billion under management with the same basic concerns of managing expenses and delivering returns and a heavy exposure to US Treasurys but with a much longer time horizon.

In either case, in light of the possibility of a US default what would you do? Where would you put your money right now if you were suddenly of the mind that the $50 billion you had in Treasurys should be placed somewhere else? In reality there are not that many places to quickly move such large sums of money. Further, there might be fiduciary restrictions that limit your investment options to regions, securities types and/or ratings grades or there might be a minimum liquidity requirement for the investment pool.

So let’s imagine that you have to make very large and important financial decisions and that you have to put your money to work; it’s either an actual fiduciary or operational requirement of yours. An excessive amount of cash is not an option and neither are hard assets such as land, gold or silver. Where would you put it? What realistic options exist?  It turns out there are not that many.

The Treasury market is the largest and most liquid in the world, by far. For many big money funds there really aren’t any realistic options other than the Treasury market, and this present reality will limit the market reaction to any downgrade.

A Foul Choice

With interest rates on ‘safe’ sovereign debt at or near zero on the short end, and well below the rate of inflation on the long end, safe bonds offer a negative real yield (meaning a yield below the rate of inflation). This is a compounding disaster for everyone but especially for pension funds with their longer time horizons. Worse, we now know sovereign debt can no longer be considered safe (even the US is facing a downgrade threat) - which means that on a risk-adjusted basis, the returns are even more unattractive than the negative real yields on offer.

On the surface, the choice that Bernanke has engineered for investors is between guaranteed losses via the miracle of negative real compounding and taking on more investment risk. But he’s managed to combine both negative returns and risk into a very unattractive investment brew.

Most big money funds have opted to take on more risk rather than suffer such low returns (and who could blame them?) and have done so by going to where the yields happen to be. This means buying up corporate paper and European debt, both of which have far more risk than their nominally more attractive yields would imply.  For individual investors, especially savers and those living on small incomes tied to interest rates, the negative interest rates have been especially difficult if not an outright disaster.

Once again, we can thank Ben Bernanke et al for driving interest rates into punishingly-low territory forcing everyone with a desire or responsibility to save and invest to either lose to inflation or to take on more risk.

Part of the goal behind ultra-low interest rates was to drive money back into the stock market, which the Fed has been specifically and openly targeting in both word and deed.  It is a well known fact that low interest rates are supportive to the stock market and so far that strategy has worked.

On the flip side of this success is the fact that a lot more risk has been forced into the system. When prices are artificially distorted to the upside for stocks or bonds, then it is axiomatic that risk becomes mispriced.

Having to choose between mispriced risk and negative returns is truly a foul choice indeed.

The Deficit Theatre

All of this brings us to the current sad state of affairs now put into high relief by the deficit talks in DC, which more properly should be viewed as political theater rather than a legitimate attempt to square the federal budget up with reality. If the talks were truly legitimate, then on the expense side everything would be on the table, especially and including defense spending and a balanced budget amendment would not be a source of contention but a mutually agreed upon goal.

Instead the Democrats are willing to entertain higher spending cuts in the vicinity of $250 billion per year as long as they can have a debt ceiling increase that would get them safely past the 2012 elections. Conversely, the Republicans as represented by Boehner are ready to concede to relatively meaningless spending cuts in the vicinity of $100 billion per year as long as they can force the debt ceiling to be an issue for the 2012 election cycle:

Mr. Reid, the Senate’s top Democrat, was trying Sunday to cobble together a plan to raise the government’s debt limit by $2.4 trillion through the 2012 election, with spending cuts of about $2.5 trillion. He would seek to avoid cuts to entitlement programs, but it was unclear how those savings would be achieved.

Notably, the plan does not currently contain any new or increased taxes, an approach that many in his caucus would probably balk at.

The contours of Mr. Boehner’s backup plan were far from clear, but it seemed likely to take the form of a two-step process, with a short-term increase in the debt limit along with about $1 trillion in cuts, an amount the Republicans said was sufficient to clear the way for a debt limit increase through year’s end. That would be followed by future cuts guided by a new legislative commission that would consider a broader range of trims, program overhauls and revenue increases.

(Source – NYT)

Just looking at the proposed levels of deficit reduction, whether it’s $1 trillion or $2.5 trillion, neither plan will drop the deficit enough to prevent the US from slipping deeper and deeper into the red. The true drivers of the debate, such as they are, center on political advantage and power. Count us among the unsurprised at this turn of events.

It would be nice – essential even – to have enough information to go on to really assess the true dimensions of the deficit reduction proposals but, even for a committed analyst like myself, there’s just too little detail to make a decent analysis of any of the competing packages.

However, we can be almost certain that their baseline assumptions about GDP and revenue growth that undergird the putative future deficit levels are unrealistic. They always are in these sorts of circumstances, which means the amount of future savings being bandied about are unlikely to be as robust as claimed.

For example, the most recent CBO budget projections (the foundation upon which the deficit reduction proposals are most likely built), assume that over the next 5 years (2011 – 2016) that revenue will grow at a compounded rate of 11.4% per annum(!), expenses by 3.9% and GDP by a whopping 4.95%.

Per year.

(Source)

These assumptions are just silly. Costs have risen much faster, and revenue and GDP far slower, over the prior five years, and if these pie in the sky projections do not come to pass then all of the deficit numbers will blow out to the upside in those future years.

For example, if we assume that GDP growth is 2.5% per annum instead of nearly 5% (and that revenues are tied to GDP),adn that revenues will therefore ‘only’ increase by 5% per annum (both completely reasonable assumptions at this stage) then the additional cumulative deficit that will accrue between 2011 and 2016 is $2.7 trillion dollars.

That will completely eliminate all of the projected savings from even the most agressive of the proposals on the table.  Is this unlikely?  No, in fact these are a far more defensible set of assumptions than those currently being put forth by the CBO.

To really make a mockery of the current budget projections, there is absolutely no chance of the government both cutting its share of GDP by 2% per year and having the GDP grow by nearly 5% per year. Implied is a rate of economic growth in the private sector that would be truly extraordinary.  Further, there is no chance of revenues climbing by more than 11% per year over the next five years without an enormous increase in taxes, which neither party is currently proposing.

In short, without knowing the underlying assumptions that are driving the projections, we cannot say much about the proposals themselves. All I can tell you for sure is that for as long as I have been crunching government numbers, taking their rosy projections and cutting them in half has always been a reliable and reasonable starting point.

A Dawning Awareness

What should not be lost on anyone is the degree to which some of the biggest names in the financial world are starting to openly question fiat money and the entire system of debt itself. They’re even doing it on TV, in prime time and on the op-ed pages of the largest newspapers.

Again, by the time we are seeing such open questioning of the very firmament of the entire system, this tells us something about how far along in the narrative we really are. Just a few years ago such talk would have been relegated to the very fringes of the blogosphere.

Here are a few recent examples:

Debt talk damage has already been done

As Washington dithers over raising the nation’s debt ceiling, investor confidence is flowing away.

“The issue is not just whether Moody’s or Standard and Poor’s were to downgrade (U.S. Treasury debt), it’s whether the market decides to downgrade,” said Rochdale Securities bank analyst Richard Bove.

“If they lose faith in the Congress and the government to, in essence, create a solid security for the buyers of that security, then you get the downgrade,” he said.

The sentiment was echoed overseas, where many countries hold U.S. Treasuries as an investment. “An adverse shock in the United States could have serious spillovers on the rest of the world,” warned Christine Lagarde, the managing director of the International Monetary Fund.

“We live in a highly interconnected international financial world that is really based upon confidence,” said financial services industry lobbyist Paul Equale.

“And without confidence, both domestically and internationally — that the United States is mature enough and has a system that can handle making the big decisions — without that confidence we’re going to see things like the dollar becoming less important as the world’s reserve currency.“

Debt-based fiat money relies on multiple levels of confidence. There has to be confidence that the money will not be over-produced in response to every perceived crisis (oops), that its allocation is justified and fair to all parties when it is placed into circulation (oops, again), and there has to be confidence that the future will be exponentially larger than the past to justify ever-increasing levels of debt (this is the big ‘oops’).

We are drawing ever closer to the recognition that endless growth is simply neither possible nor a reasonable expectation. There are even doubts now that growth as we’ve recently know it will return for one last cameo appearance over the next five to ten years.

With the evaporation of that all-important narrative of growth, everything else becomes immediately suspect, especially money itself.

Sometimes you will hear or read someone exclaim that ever since the slamming of the gold window in 1971 that US dollars are not backed by anything. This is not true, they are backed by debt. Debt is an incredible motivator and assures that the person, entity or country under its yoke will dedicate some portion of their productive efforts towards servicing that debt.

Another Big Round Number (and a Nice Symmetry)

On August 15th 2011 we experience the 40th anniversary of the slamming of the gold window back on the same date in 1971. Perhaps we should all bow our heads and have a silent moment to mark the occasion.

Interestingly, that’s almost exactly the date, give or take a few days, on which the US treasury will run out of money here in 2011:

“We don’t think there will be a default,” Ahrens, head of U.S. rates strategy for UBS in Stamford, Connecticut, said yesterday in a telephone interview. He estimates the Treasury has enough cash to make all payments until Aug. 8-10.

(Source)

Forty years between a final abandonment of the last vestige of external restraint on money/credit creation and the dawning recognition that the US has simply gone too far, spent too much, and is now in an enormous fiscal predicament.  In the annals of history that’s just about right for the lifespan of a purely fiat currency.

Mark the date on your calendars: we’ll certainly be observing the anniversary here at ChrisMartenson.com. Forty is a big, round number and therefore important.

So what’s likely to happen to the dollar and key asset classes in the aftermath of the looming August 2 deadline? In Part II of this report: What Should Happen and What Will Happen we analyze the probable future direction of stocks, bonds, precious metals, commodities, real estate and other assets. Additionally, we assess the odds of a resumption of quantitative easing by the Federal Reserve, and what changes to the picture that will cause when/if it occurs.

Read the entire article HERE.

by Graham Summers
Phoenix Capital Research
04/20/2011 09:33 -0400

In case you missed it, earlier this week China announced that its foreign currency reserves are excessive and that they need to return to “reasonable” levels.

In politician speak, this is a clear, “we are sick of the US Dollar and will be taking steps to lower our holdings.” Remember, the US Dollar is China’s largest single holding. And China has already begun dumping Treasuries (US Debt).

This comes on the heels of China deciding (along with Russia) to trade in their own currencies, NOT the US Dollar. Not to mention the numerous warnings Chinese politicians have been issuing to the US over the last 24 months.

In simple terms, China is done playing nice and is now actively moving out of US Dollar denominated assets. This is the beginning of the US Dollar’s end as world reserve currency.

The dimwits in Washington don’t understand this because their advisors are all Wall Street stooges who don’t think debt or deficits matter. After all, why would they? Their entire business model is now based on endless cheap debt from the US Fed. So it’s only logically (in their minds) that the US as a sovereign state engage in the same strategies.

What does this mean? We’re on out own in terms of preparing for what’s coming. The US Dollar has already taken out its 2009 low in the overnight futures session. We now have only one line of support before the US Dollar breaks into the abyss (all time lows).

So if you’re not preparing for mega-inflation already, you need to start doing so NOW. The Fed WILL continue to pump money into the system 24/7 and it’s going to result in the death of the US Dollar.

Read the entire article HERE.

Submitted by Jeff Clark of Casey Research
Wednesday, 23 March 2011

What will happen to the U.S. economy and the dollar in the near term? Will inflation increase dramatically? What is the outlook for gold, and where should you put your money? BIG GOLD asked a world-class panel of economists, authors, and investment advisors what they expect for the future. Caution: strong opinions ahead…

Jim Rogers is a self-made billionaire, author of the best-sellers Adventure Capitalist and Investment Biker, and a sought-after financial commentator. He was a co-founder of the Quantum Fund, a successful hedge fund, and creator of the Rogers International Commodities Index (RICI).

Bill Bonner is the president and founder of Agora, Inc., a worldwide publisher of financial advice and opinions. He is also the author of the Internet-based Daily Reckoning and a regular columnist in MoneyWeek magazine.

Peter Schiff is CEO of Euro Pacific Precious Metals (www.europacmetals.com) and host of the daily radio show The Peter Schiff Show (www.schiffradio.com). He is the author of the economic parable How an Economy Grows and Why It Crashes and the recent financial bestseller The Little Book of Bull Moves: Updated and Expanded. He’s a frequent guest on CNBC, Fox Business, and is quoted often in print media.

Jeffrey Christian is managing director of CPM Group (www.cpmgroup.com) and a prominent analyst on precious metals and commodities markets. CPM Group produces comprehensive yearbooks on gold, silver, and platinum group metals, and provides a wide range of consulting services. Jeffrey publishedCommodities Rising, an investors’ guide to commodities, in 2006.

Walter J. “John” Williams, private consulting economist and “economic whistleblower,” has been working with Fortune 500 companies for 30 years. His newsletter Shadow Government Statistics (shadowstats.com) provides in-depth analysis of the government’s “creative” economic reporting practices.

Steve Henningsen is chief investment strategist and partner at The Wealth Conservancy in Boulder, CO, assisting clients interested in wealth preservation. Current assets under management exceed $200 million.

Frank Trotter is an executive vice president of EverBank and a founding partner of EverBank.com, a national branchless bank that was acquired by the current EverBank in 2002. He received an M.B.A. from Washington University and has over 30 years experience in the banking industry.

Dr. Krassimir Petrov is an Austrian economist and holds a Ph.D. in economics from Ohio State University. He was assistant professor in economics at the American University in Bulgaria, then an associate professor in finance at Prince Sultan University in Riyadh, Saudi Arabia. He is currently an associate professor at Ahlia University in Manama, Bahrain. He’s been a contributing editor for Agora Financial and Casey Research.

Bob Hoye is chief financial strategist of Institutional Advisors and writes Pivotal Events, a weekly market overview. His articles have been published by Barron’s, Financial Post, Financial Times, and National Post.

BIG GOLD: A lot of economists, including the government, believe the worst is behind us economically. Do you agree? If not, what should we be on the lookout for in 2011?

Jim Rogers: It is better for those getting all the government largesse, but the overall situation is worse. More currency turmoil. State and local problems, plus pension problems.

Bill Bonner: None of the problems that caused the crises in Europe and America have been resolved. They have been delayed and expanded by more debt and more money printing and will lead to more and worse crises. Deleveraging takes time. 2011 will, most likely, be a transition year… not unlike 2010. But the risk is that one of these latent crises will become an active crisis.

Peter Schiff: To me, it’s like watching someone walk into the same sliding glass door again and again. Wall Street must know by now that large infusions of liquidity from the Fed spur present consumption at the expense of investment for the future. We are an indebted family going out for an expensive meal to celebrate getting approved for a new credit card. It might feel good (at the time), but we’re still simply delaying the inevitable.

Jeffrey Christian: We believe the worst is behind us economically, in the short term. The recession ended in late 2009, and 2010 saw U.S. economic growth in line with what CPM had expected, but higher than the more pessimistic consensus had been. In 2011 we expect continued expansion. We think some economists and observers are too enthusiastic about economic prospects right now.

For the U.S. in 2011, we are looking for real GDP of 2.5% – 2.8%, inflation to remain low, and for the economy to avoid deflation. Interest rates are expected to start rising, perhaps significantly in the second half of 2011. The dollar is expected to be volatile, rising somewhat against the euro but continuing to weaken against the Canadian and Australian dollars, the rupee, yuan, rand, and other currencies.

European sovereign debt issues will continue to plague financial markets, but market reactions will be less severe than they were regarding Greece in April 2010.

John Williams: An intensifying economic downturn – what formally will be viewed as the second dip of a double-dip depression – already has started to unfold. The problem with the economy remains structural, where household income is not growing fast enough to beat inflation, and where debt expansion – encouraged for many years by the Fed as a way to get around the economic growth problems inherent from a lack of income growth – generally is not available, as a result of the systemic solvency crisis. Accordingly, individual consumers, who account for more than 70% GDP, do not have the ability, and increasingly lack the willingness, to fuel the needed growth in consumption on which the U.S. economy is so dependent.

Steve Henningsen: The governments worldwide (I don’t pay much attention to economists) want us to believe that the worst is behind us because the financial system is built upon the foundation of trust and confidence. Both of these were battered badly when it was shown that much of the world’s prosperity over the past few decades was simply a mirage that, once dispersed, left behind only debt with no means of future production. Now they want us to believe that they fixed the problem via more debt.

What I will be watching for this year is sovereign and U.S. municipal debt corpses floating to the surface sometime in the months ahead.

Frank Trotter: Right now I have a somewhat dark but not dismal outlook. I think that over 2011, we will continue to experience a Jimmy Carter-style malaise that combines continuing high unemployment, tentative business investment, rising prices, low housing numbers when looked at on an absolute basis, and creeping interest rates.

As a very large mortgage servicer, we are not seeing significant improvements in payment patterns that would indicate the worst is fully behind us, and with mortgage rates moving upward, we see less ability for current mortgage holders to refinance and reduce payments.

Krassimir Petrov: No, the worst is yet to come. No structural changes have been made, no problems have been fixed. Printing money, a.k.a. Quantitative Easing, is a quick fix that has postponed the problem, yet also made it a lot worse. I would say that we are still in the early stages of the crisis and have another 4-8 years to go.

Bob Hoye: The worst of the post-bubble economic adversity is not behind us.

BG: Price inflation is creeping up, but the enormous amount of money printing hasn’t really hit the system yet. Does that happen in 2011, further down the road, or not at all?

Jim Rogers: It is happening. The U.S. and CNBC lie about it. Most other countries do not lie and acknowledge it is worsening.

Bill Bonner: Most likely, substantial consumer price inflation will not show up in 2011. The explosion of money printing is being contained by the bomb squad of deleveraging. That will probably continue in 2011. But not forever.

Peter Schiff: 2010 was the year that China began cutting back its Treasury purchases in favor of gold, hard assets, and emerging market currencies. The Fed has stepped in as a major purchaser of Treasuries. This represents a new phase on the path to dollar collapse, and it will manifest in 2011 in the form of more “unexplainable” inflation – as we are now seeing in the prices of everything from corn to gasoline.

Jeffrey Christian: We are now beginning to see some increases in monetary aggregates, suggesting that some of the monetary accommodations are beginning to filter into the economy. We expect this trend to accelerate over the course of 2011. This will bring some increase in inflation, but we expect the major manifestation will be through higher U.S. Treasury interest rates as the Fed and Treasury seek to sell bonds to sterilize the inflationary implications of the monetary easing and to finance ongoing massive federal deficits.

John Williams: The problems of the money creation will become increasingly obvious in exchange-rate weakness of the U.S. dollar. Related upside pricing pressure already is being seen on dollar-denominated commodities such as oil. There is high risk of consumer prices rising rapidly before year-end 2011, setting the stage for a hyperinflation. The outside date for the onset of a U.S. hyperinflation is 2014.

Steve Henningsen: My guess is further down the road, as the deleveraging cycle continues with deflationary-housing winds in our face and the banks still hoarding money like my 9-year-old daughter stockpiles American Girl doll paraphernalia. I still expect inflation to continue in areas such as energy, bread, circuses, and whatever else provides sustenance to the Romans – I mean people.

Frank Trotter: Most research has shown that over time the increase in money supply is not a short-term economic stimulus, but rather has a moderate effect in the 18- to 36-month range. In addition, this theory contends that a growth in the monetary base – which is what has happened so far – only increases economic activity when accompanied by a decent multiplier; this is not occurring. The real risk is that with rising rates and continued soft economy, the Fed will feel obliged to continue to QE3, QE4, and so on, all of which may have a significant inflationary impact.

I am more concerned about general price inflation here in the U.S. and the potential it has to reduce global growth.

Krassimir Petrov: This is a tough one. I would have thought that price inflation would have been raging by now, but this is obviously not the case. I have the feeling that 2011 will be a repeat of early 2008, with commodity prices (CRB) making new all-time highs. A falling dollar will trigger a rush into commodities as a hedge against inflation. I am really tempted to make a totally outrageous forecast that oil could make a run for $200 as QE3 unleashes another dollar scare, or maybe even a dollar crisis.

Bob Hoye: Massive “printing” has been widely publicized and is “in the market.”

BG: The U.S. dollar ended 2010 about where it started; does it resume its downtrend in 2011, or are fears about its demise overblown?

Jim Rogers: No, but further down the road.

Bill Bonner: No opinion. But there is more risk in the dollar than potential reward.

Peter Schiff: It’s hard to pinpoint exactly when the dollar will collapse, but it will take a miracle to avoid that outcome in the near term. It really depends on when the creditors of the United States realize that they are not going to get their principal returned to them in real terms, but rather in grossly devalued dollars. We have already seen the average duration of U.S. Treasury debt drop below that of Greece. No one wants to buy a 30-year bond with negative real interest rates as far as the eye can see.

Jeffrey Christian: We expect the dollar to be volatile against most currencies in 2011, but that its demise has been prematurely predicted. The dollar may move sideways to slightly higher against the euro, yen, and pound, while continuing to deteriorate against the Canadian and Australian dollars, the rupee, yuan, rand, and other emerging economy currencies.

John Williams: There remains high risk of a dollar selling panic unfolding in the year ahead, as the U.S. economy tanks anew, as the Fed continuously expands its easing, and as dollar holders dump the U.S. currency and dollar-denominated paper assets. Such would be a precursor to the inflation problem.

Steve Henningsen: Similar to my thoughts last year, I still believe the dollar is headed down long-term, but it could bounce around over the next year. If sovereign debts become a problem again, like I think they will later this year, then everyone will go running back to “Mother Dollar” once again for one last hug before she lies back down on her sickbed.

Frank Trotter: As the economy waffles and the global investing community’s attention is drawn from one crisis to the next, I expect the U.S. dollar to bounce up and down in the current range. After that, however, my analysis suggests that measured by the key factors of fiscal and monetary policy, combined with a significant trade deficit, the U.S. does not look as good as our major trading partners, and I thus expect the dollar to decline, perhaps significantly, in the intermediate term. Big geopolitical events may accelerate this or create a flight to U.S. dollar quality, so hold on to your hats.

Krassimir Petrov: I think the dollar resumes lower. I expect QE3 and QE4 – a dollar-printing fest that will eventually sink the dollar. Sure, all fiat currencies are in deep trouble and prone to overprinting, but the reserve status of the dollar actually makes it more vulnerable now. Whether the dollar sinks against other currencies is a fool’s game not worth playing. It is like being in the hospital, where all patients are suffering from cancer, and trying to guess who will feel best at the end of next year, or trying to guess who will succumb first. That’s why it is so much safer to play the dollar against gold.

Bob Hoye: Fears of the dollar’s demise have been widely discussed and are “in the market.” The dollar, itself, will not be repudiated – just the mavens that have been “managing” it.

BG: Gold has risen 10 years in a row, so some are calling it a bubble, yet it’s roughly $1,000 below its inflation-adjusted high. What’s your outlook for the metal in 2011?

Jim Rogers: It is hardly a “bubble” when very few own it still. Who knows? Overdue for a correction, but who knows?

Bill Bonner: The smart money is in gold. It will stay in gold until the bull market that began 10 years ago finally reaches its peak. It is extremely unlikely that the top will come in 2011; it’s probably years in the future. In the meantime, gold is bound to have a losing year or two. Don’t worry about it. Buy gold. Be happy.

Peter Schiff: The funny thing about a bubble is that when it’s real, no one can see it. The same commentators who were blind to the tech bubble, the housing bubble, and now the Treasury bubble are quick to call gold a bubble. The truth is that many of them have a personal aversion to gold because they directly benefit from our fiat money system. Goldman Sachs was paid 100 cents on the dollar in the AIG bailout, which never would have happened in a gold-based system. It’s a lot easier to print a billion paper dollars than dig up a million ounces of gold.

Gold will continue to climb in 2011 as the currency war continues and investors continue to seek stability. Unless there is a major sea change in the way the U.S. does business, I think the gold trade is a safe one.

Jeffrey Christian: A price of $1,550 is possible, although given the enormous investor buying pressure, prices could spike to almost anywhere. After that, we expect prices to fall back, initially to around $1,340 or $1,380. We expect gold prices to stay above $1,280 or so for most of 2011, and to average around $1,369 for the full year.

John Williams: As the U.S. dollar increasingly is debased, and where gold tends to preserve the purchasing power of the dollars invested in it, the upside to gold in the year ahead is open-ended, restricted only by any limits to the massive downside potential for the U.S. dollar. Any intermittent gold price volatility, extreme or otherwise, will be short-lived. There is no bubble – only increasing weakness in the U.S. dollar – with the gold price fundamentally headed much higher in the years ahead.

Steve Henningsen: I believe gold will once again prove the bubble-boys wrong and end the year positive (I have no idea by how much and don’t really care). However, I think this year will be more volatile and that Gold Bugs better remain seated on the precious metals express or they might get squished.

Frank Trotter: I still think that with price inflation on the rise and big political events occurring, there may be room to continue to rise. If stock markets take off, then there will be a reduction in appreciation or even a significant decline, but based on the factors I mentioned above, I don’t see that as highly likely.

Krassimir Petrov: Gold still has outstanding fundamentals. I believe that over the course of 2010, the fundamentals have strengthened significantly: (1) “No Exit [Strategy] for Ben” as he unleashed QE2, and will likely unleash QE3, QE4, etc., (2) no more central bank selling of gold, (3) more central banks become buyers of gold, and (4) trial balloons for a global gold-backed currency.

I have no idea how people could even claim that gold is in a bubble – barely 1 out of 100 people have any idea about investing in gold. During the real estate bubble, every second person was involved in it. Maria “Money Honey” Bartiromo has yet to report from the COMEX gold pits; gold fund managers and analysts have yet to obtain rock-star status; and glamorous models are not yet dating the gold guys. Who is the Henry Blodget [co-host of Tech Ticker] of the gold sector, do we have one yet?

Yes, gold will eventually become a bubble, but that feels 5-8 years away.

Bob Hoye: In 2011, gold’s real price will resume its uptrend.

BG: What’s your best investment advice for 2011?

Jim Rogers: Buy the rmb [renminbi, the Chinese currency].

Bill Bonner: We are in a period much like the period following WWI, in which the great debts and losses of the war had to be reckoned with. It is an era of great risk. The U.S. faces many of the same challenges faced by Germany and England after WWI. Like England, it has huge debts. It is a waning imperial power. And it has the world’s reserve currency. And like Germany, it is attempting to fix its problems by printing more money. This is not a good time to be long either U.S. stocks or U.S. bonds.

Peter Schiff: Don’t be suckered into the idea that recovery is just around the corner. The current climate is like living in a hurricane or earthquake zone; it’s important to stay vigilant because you never know when disaster will strike. Physical gold is the financial equivalent of a flashlight, first-aid kit, and store of canned goods. It’s a basic way to protect yourself from any eventuality. From there, if you’re looking for returns, there are plenty of foreign markets with strong fundamentals, as well as commodities that feed those markets.

Investing in the U.S. is now driven largely by force of habit. It’s a habit you should resolve to break.

Jeffrey Christian: Do not invest based on what you believe, but on what you know. Gold is a market, like other markets. It rises and falls. You probably want to stay long gold on a long-term basis, but may want to cull the weaker gold assets from your portfolio in the first quarter, and put some hedges in place to protect a long-term core long gold position against the potential of significant price weakness over the next two years or so. Such a period of weakness would be an excellent time to add to one’s gold assets.

John Williams: As an economist, I look for the U.S. dollar ultimately to lose virtually all of its current purchasing power. Accordingly, for those living in a U.S. dollar-denominated world, it would make sense to move to preserve wealth and assets over the long-term. Physical gold is a primary hedge (as is silver). Holding some stronger currencies outside the U.S. dollar, as well as having some assets outside the United States, also may make sense.

Steve Henningsen: Dramamine (for volatile markets), a stash of cash (for potential investment opportunities), and move some of your assets offshore if you haven’t already.

Frank Trotter: My advice is first to look at the other side of your balance sheet – the liability and risk equation – before seeking out absolute gains. What are your goals, what resources do you already have to meet those goals, and what events (health, income stream, upheavals) might impact these risks? Place some assets to hedge these risks directly, then look to diversify globally into markets with higher growth potential than we see here at home, and that may balance your global purchasing power risk. Almost like a religion, we have had the phrase “Stocks are the only legitimate hedge against inflation” beaten into our heads. I say, look at assets that define inflation like commodities and currencies and evaluate where these fit into your risk portfolio.

Krassimir Petrov: Last year I recommended silver, and I would stick to silver again, despite the phenomenal run in 2010. Then it gets tricky. I usually don’t recommend diversification, but now I would again recommend a broad portfolio of commodities. Investing in 2011 should be easy: stay out of real estate, out of bonds, out of fiat currencies, and out of stocks; stay fully invested in commodities, overweight gold and silver.

What to watch in 2011: stay focused on the sovereign debt crisis and bond yields. Spiking yields will trigger the next stage of the crisis.

Bob Hoye: Once past the early part of 2011, the best returns are likely to be obtained from the junior gold exploration sector.

[These world-class experts are right to bank on gold and silver – because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening videoext on how China and Russia are plotting to dump the dollar… why you should be worried… and what to do about it.]

Read the entire article HERE.

By Gonzalo Lira
03/17/2011

I could be wrong—hell, most of the time, I’m way wrong. But I do think that today is the day the dollar breaks down.

Consider the evidence:

The Bank of Japan managed to keep the yen down following last Friday’s Sendai quake. It was trading in an eerily placid 81-to-82 band on Monday, Tuesday and Wednesday—but then Thursday (Japan time), someone at the BoJ must’ve prematurely decided that it was all over, because they let go of the gas.

What happened? It all went south—huge. As I write this morning (8:12am EST), the yen is trading at 78.50 to the dollar.

Meanwhile, on the eastern side of the Pacific pond, the Producer Price Index numbers came out yesterday—and they weren’t pretty. During February, PPI rose 1.6%, against a consensus estimate of 0.7%. For the year ending February 28, the PPI rose 5.6%. (report here)

Tomorrow, the Consumer Price Index numbers come out—and if the PPI numbers are any gauge, they do not look promising.

But Ben Bernanke and the Tools of the Fed are cavalierly dismissing any notion of incipient inflation. They keep insisting, “Core inflation is all that matters! Forget fuel and food and commodity prices! It’s Core Inflation!” As if people bought more of this magical “core inflation” at the supermarket than food, and filled their cars with “core inflation” rather than gasoline.

Anyway: Bernanke and The Tools need to keep interest rates artificially, sickeningly low. Their rationale is that their Zero Interest Rate Policy (ZIRP) and Quantitative Easing 2 (QE-2) are necessary so as to kickstart the economy. But they also recognize that if they raise interest rates, the Federal government would not be able to finance itself—

—in other words, the Federal government will go broke if the Fed raises rates.

This is really the crux of the matter: The Federal Reserve is in a position where they realize that if they raise rates, they bankrupt the Federal government. So they have to stand pat, and pretend to the public and to themselves that there is no inflation, it’s all just a mirage.

As it is, the Fed debt monetization policy otherwise known as QE-2 is buying up 50% of the Federal government’s deficit for FY 2011. And though QE-2 is supposed to end in June, Treasury funding requirements are so huge—and the Treasury bond market is so weak, especially now that Japan is in crisis mode and will not be able to buy up its regular share—that Quantitative Easing will have to be extended.

But that’s a side issue: For now, the markets all have the fim expectation that the Fed will not raise rates, no matter what the inflationary provocation, precisely because of the reality of the Federal government’s de facto bankruptcy.

Now, a couple of weeks ago, I wrote a piece called “The Dollar and the Next Ten Days”, where I argued that the dollar was at a crossroads: I argued that, off a three year trend, the dollar was at a crucial juncture of either breaking down, or bouncing back up, and that it would all happen over the next week and a half of trading—hence the caveat “the next ten days”.

I used the following chart:

The next ten days came and went, and the dollar essentially moved sideways: A little flirting upstream, a little more flirting downstream, but it just couldn’t seem to make up its mind.

Here’s the chart, the fortnight circled in red:

Then Sendai happened. On the Monday, Tuesday and Wednesday after the earthquake, the BoJ managed to control the situation, and keep the yen from rapidly appreciating.

But today, it’s slipping—big time. I woke up this morning and saw the overnights: As I write (8:19am EST), the yen is at 78.56, the euro at 1.402 and rising, gold smartly up, silver sort of up—

—and the dollar index is off nearly a percent, at 75.970.

I think this is it: I think this is the point in time when the dollar is going to break decisively lower—the next 48 hours. And if the Consumer Price Index numbers that come out tomorrow (Friday) are as bad as the PPI numbers would lead one to believe, then I think the dollar will fall harder over the next week.

I could be woefully wrong—like I said, I often am. It’s not just that the Fed and the other central banksters could finesse the situation—prop up the dollar one last time. It’s not just that the Bank of Japan might flood the markets with massive yen liquidity, forcing a scurrying to the dollar. It’s that I could just be wrong: The dollar might somehow—all on its own—muddle through.

But the thing is, if I’m wrong about the timing, I’m not wrong about the outcome. If the dollar doesn’t break down now, then it’ll break down the next time, or the time after that. And not next year or next decade—this year. Now.

The reason the dollar will break down now is because the Federal Reserve is out of options: No matter how you look at it, the dollar is on the path to oblivion—the egregious Federal deficit and the unpayable debt guarantee this outcome.

The Federal Reserve decided on a couple of policy option—ZIRP and QE—that they thought would prop up the U.S. economy. But instead of propping up the economy, these policies have only served to undermine and destroy the dollar.

My sense is that today and tomorrow are a turning point in the dollar’s road to hell. My sense is that either today or tomorrow, the dollar will break through the 75.63 floor—and then all bets are off. That’s what I think.

Of course, the road to destruction is not an immediate outcome: It takes a while for it to happen. But we have been seeing it happen. The rise in commodity prices to record-breaking highs. The inability of the Federal government to function without Federal Reserve monetization. The box the Federal Reserve has maneuvered itself into.

So no matter how much magic the Federal Reserve deploys to save the dollar this time, ultimately—like all magic tricks—it’s all smoke and mirrors: The Fed is merely postponing the inevitable—an inevitable outcome brought about by their own policies.

Update, 3/18/11 in the early a.m.: On Thursday, 8:00 pm EST (Friday 9:00 am Tokyo), the G-7 deliberately tried to make me look foolish, by intervening in the Yen. (I take currency manipulation personally, especially when I go out on a limb with a prediction.)

According to the Financial Times:

The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis.

Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81.

It is the first time the G7 has agreed to intervene as a group since it propped up the euro in 2000 and shows the extent of international sympathy for Japan.

Of note: Though the dollar index rallied up above 76.4 immediately after the intervention, it is now as I write this (6:41 am EST) back down to 76.053, and looking soft.

On a philosophical note, I whole-heartedly agree with the Bank of Japan’s efforts to soften the yen during a crisis like this—that is part of a central bank’s inherent mandate: To protect the people from currency volatility, most especially during times of crisis. In such times of crisis and currency volatility, only traders (and foolish bloggers) stand to win big—while everybody else loses. That is simply not moral, or acceptable.

However, propping up a currency—the dollar—not because of a natural disaster, but rather because it has been mishandled to death, is just postponing the inevitable. Postponing the inevitable, and adding to the misery when the end finally comes.

Read the entire article HERE.

By BARRY EICHENGREEN
Wall Street Journal
MARCH 2, 2011

The single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days.

Instead, it’s the extent to which the market remains dollar-centric.
Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise trade of both countries is with the U.S.

Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars. What’s more, what is true of foreign-exchange transactions is true of other international business. The Organization of Petroleum Exporting Countries sets the price of oil in dollars. The dollar is the currency of denomination of half of all international debt securities. More than 60% of the foreign reserves of central banks and governments are in dollars.

The greenback, in other words, is not just America’s currency. It’s the world’s.

But as astonishing as that is, what may be even more astonishing is this: The dollar’s reign is coming to an end.

I believe that over the next 10 years, we’re going to see a profound shift toward a world in which several currencies compete for dominance.

The impact of such a shift will be equally profound, with implications for, among other things, the stability of exchange rates, the stability of financial markets, the ease with which the U.S. will be able to finance budget and current-account deficits, and whether the Fed can follow a policy of benign neglect toward the dollar.

The Three Pillars

How could this be? How could the dollar’s longtime most-favored-currency status be in jeopardy?
To understand the dollar’s future, it’s important to understand the dollar’s past—why the dollar became so dominant in the first place. Let me offer three reasons.

First, its allure reflects the singular depth of markets in dollar-denominated debt securities. The sheer scale of those markets allows dealers to offer low bid-ask spreads. The availability of derivative instruments with which to hedge dollar exchange-rate risk is unsurpassed. This makes the dollar the most convenient currency in which to do business for corporations, central banks and governments alike.

Second, there is the fact that the dollar is the world’s safe haven. In crises, investors instinctively flock to it, as they did following the 2008 failure of Lehman Brothers. This tendency reflects the exceptional liquidity of markets in dollar instruments, liquidity being the most precious of all commodities in a crisis. It is a product of the fact that U.S. Treasury securities, the single most important asset bought and sold by international investors, have long had a reputation for stability.

Finally, the dollar benefits from a dearth of alternatives. Other countries that have long enjoyed a reputation for stability, such as Switzerland, or that have recently acquired one, like Australia, are too small for their currencies to account for more than a tiny fraction of international financial transactions.

What’s Changing

But just because this has been true in the past doesn’t guarantee that it will be true in the future. In fact, all three pillars supporting the dollar’s international dominance are eroding.

First, changes in technology are undermining the dollar’s monopoly. Not so long ago, there may have been room in the world for only one true international currency. Given the difficulty of comparing prices in different currencies, it made sense for exporters, importers and bond issuers all to quote their prices and invoice their transactions in dollars, if only to avoid confusing their customers.

Now, however, nearly everyone carries hand-held devices that can be used to compare prices in different currencies in real time. Just as we have learned that in a world of open networks there is room for more than one operating system for personal computers, there is room in the global economic and financial system for more than one international currency.

Second, the dollar is about to have real rivals in the international sphere for the first time in 50 years. There will soon be two viable alternatives, in the form of the euro and China’s yuan.

Americans especially tend to discount the staying power of the euro, but it isn’t going anywhere. Contrary to some predictions, European governments have not abandoned it. Nor will they. They will proceed with long-term deficit reduction, something about which they have shown more resolve than the U.S. And they will issue “e-bonds”—bonds backed by the full faith and credit of euro-area governments as a group—as a step in solving their crisis. This will lay the groundwork for the kind of integrated European bond market needed to create an alternative to U.S. Treasurys as a form in which to hold central-bank reserves.

China, meanwhile, is moving rapidly to internationalize the yuan, also known as the renminbi. The last year has seen a quadrupling of the share of bank deposits in Hong Kong denominated in yuan. Seventy thousand Chinese companies are now doing their cross-border settlements in yuan. Dozens of foreign companies have issued yuan-denominated “dim sum” bonds in Hong Kong. In January the Bank of China began offering yuan-deposit accounts in New York insured by the Federal Deposit Insurance Corp.

Allowing Chinese companies to do cross-border settlements in yuan will free them from having to undertake costly foreign-exchange transactions. They will no longer have to bear the exchange-rate risk created by the fact that their revenues are in dollars but many of their costs are in yuan. Allowing Chinese banks, for their part, to do international transactions in yuan will allow them to grab a bigger slice of the global financial pie.

Admittedly, China has a long way to go in building liquid markets and making its financial instruments attractive to international investors. But doing so is central to Beijing’s economic strategy. Chinese officials have set 2020 as the deadline for transforming Shanghai into a first-class international financial center. We Westerners have underestimated China before. We should not make the same mistake again.

Finally, there is the danger that the dollar’s safe-haven status will be lost. Foreign investors—private and official alike—hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so.

But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be asked about whether the U.S. intends to maintain the value of its debts or might resort to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket. At a minimum, the dollar will have to share its safe-haven status with other currencies.

A World More Complicated

How much difference will all this make—to markets, to companies, to households, to governments?
One obvious change will be to the foreign-exchange markets. There will no longer be an automatic jump up in the value of the dollar, and corresponding decline in the value of other major currencies, when financial volatility surges. With the dollar, euro and yuan all trading in liquid markets and all seen as safe havens, there will be movement into all three of them in periods of financial distress. No one currency will rise as strongly as did the dollar following the failure of Lehman Bros. There will be no reason for the rates between them to move sharply, something that would potentially upend investors.

But the impact will extend well beyond the markets. Clearly, the change will make life more complicated for U.S. companies. Until now they have had the convenience of using the same currency—dollars—whether they are paying their workers, importing parts and components, or selling their products to foreign customers. They don’t have to incur the cost of changing foreign-currency earnings into dollars. They don’t have to purchase forward contracts and options to protect against financial losses due to changes in the exchange rate. This will all change in the brave new world that is coming. American companies will have to cope with some of the same exchange-rate risks and exposures as their foreign competitors.

Conversely, life will become easier for European and Chinese banks and companies, which will be able to do more of their international business in their own currencies. The same will be true of companies in other countries that do most of their business with China or Europe. It will be a considerable convenience—and competitive advantage—for them to be able to do that business in yuan or euros rather than having to go through the dollar.

U.S. Impact

In this new monetary world, moreover, the U.S. government will not be able to finance its budget deficits so cheaply, since there will no longer be as big an appetite for U.S. Treasury securities on the part of foreign central banks.

Read the entire article HERE.

By Porter Stansberry
StansberryResearch.com

A little over ten years ago I founded Stansberry & Associates Investment Research. It has become one of the largest and most recognized investment research companies in the world, serving hundreds of thousands of subscribers in more than 120 countries.

You may know of our firm because of the work we did over the last several years – helping investors avoid the big disasters associated with Wall Street’s collapse.

We warned investors to avoid Fannie and Freddie, Bear Stearns, Lehman Brothers and General Motors and dozens of other companies that have since collapsed. We even helped our subscribers find opportunities to profit from these moves by shorting stocks and buying put options. To my knowledge, no other research firm in the world can match our record of correctly predicting the catastrophe that occurred in 2008.

But that’s not why I created this letter.

I reference our success and experience with Wall Street’s latest crisis because we believe there is an even bigger crisis lurking – something that will shake the very foundation of America.

And that is why I’ve spent a significant amount of time and money in the past few months preparing this letter.

In short, I want to talk about a specific event that will take place in America’s very near future… which could actually bring our country and our way of life to a grinding halt.

This looming crisis is related to the financial crisis of 2008… but it is infinitely more dangerous, as I’ll explain in this letter.

As this problem comes to a head, I expect there to be riots in the streets… arrests on an unprecedented scale… and martial law, enforced by the U.S. military.

Believe me, I don’t make this prediction lightly and I have no interest in trying to scare you.

I’m simply following my research to its logical conclusion.

I did the same when I tracked Fannie and Freddie’s accounting. The same with General Motors. And Bear Stearns and the rest. And when I began giving this warning in 2006 no one took me very seriously… not at first. Back then, most mainstream commentators just ignored me.

And when I presented my case and exposed the facts at economic conferences, they got angry. They couldn’t refute my research… but they weren’t ready to accept the enormity of its conclusions either.

That’s why, before I go any further, I have to warn you…

What I am going to say is controversial. It will offend many people… Democrats, Republicans, and Tea Partiers, alike. In fact, I’ve already received dozens of pieces of hate mail.

And… the ideas and solutions I’m going to present might seem somewhat radical to you at first… perhaps even “un-American.”

My guess is that, as you read this letter… you’ll say: “There’s no way this could really happen… not here.”

But just remember:

No one believed me three years ago when I said the world’s largest mortgage bankers Fannie Mae and Freddie Mac would soon go bankrupt.

And no one believed me when I said GM would soon be bankrupt as well… or that the same would happen to General Growth Properties (the biggest owner of mall property in America).

But again, that’s exactly what happened.

And that brings us to today…

The same financial problems I’ve been tracking from bank to bank, from company to company for the last five years have now found their way into the U.S. Treasury. I’ll explain how this came to be. What it means is critically important to you and every American…

The next phase in this crisis will threaten our very way of life.

The savings of millions will be wiped out. This disaster will change your business and your work. It will dramatically affect your savings accounts, investments, and retirement.

It will change everything about your normal way of life: where you vacation… where you send you kids or grandkids to school… how and where you shop… the way you protect your family and home.

I’ll explain how I know these events are about to happen. You can decide for yourself if I’m full of hot air. As for me, I’m more certain about this looming crisis than I’ve been about anything else in my life.

I know that debts don’t just disappear. I know that bailouts have big consequences. And, unlike most of the pundits on TV, I know a lot about finance and accounting.

Of course, the most important part of this situation is not what is happening… but rather what you can do about it.

In other words: Will you be prepared when the proverbial $@*% hits the fan?

Don’t worry, I’m not organizing a rally or demonstration. And I’ve turned down every request to run for political office.

Instead, I want to show you exactly what I’m doing personally, to protect and even grow my own money, and how you can prepare as well.

You see, I can tell you with near 100% certainty that most Americans will not know what to do when commodity prices – things like milk, bread and gasoline – soar. They won’t know what to do when banks close… and their credit cards stop working. Or when they’re not allowed to buy gold or foreign currencies. Or when food stamps fail…

In short, our way of life in America is about to change – I promise you. In this letter I’ll show you exactly what is happening.

You can challenge every single one of my facts and you’ll find that I’m right about each allegation I make.

And then you can decide for yourself.

Will you act now to protect yourself and your family from the catastrophe that’s brewing right now in Washington?

I hope so. And that’s why I wrote this letter.

I’m going to walk you through exactly what I am doing personally, and what you can do as well. I can’t promise you’ll emerge from this crisis completely unharmed – but I can just about guarantee you’ll be a lot better off than people who don’t follow these simple steps.

But I’m getting ahead of myself just a bit.

Let me back up and show you in the simplest terms possible what is going on, why I am so concerned, and what I believe will happen in the next 12 months…

The Greatest Danger
America Has Ever Faced?
In short, I believe that we as Americans are about to see a major, major collapse in our national monetary system, and our normal way of life.

Basically, for many years now, our government has been borrowing so much money (very often using short-term loans), that very soon, we will no longer be able to afford even the interest on these loans.

Again… I say these things as an expert in accounting and financial research.

You may not think things are THAT BAD in the U.S. economy, but consider this simple fact from the National Inflation Association:

Even if all U.S. citizens were taxed 100% of their income… it would still not be enough to balance the Federal budget! We’d still have to borrow money, just to maintain the status quo.

That’s absolutely incredible, isn’t it?

Yet I’ve never seen this fact reported anywhere else.

Normally I study these kinds of numbers when I’m looking at a business to invest in or to recommend to my readers. But lately I’ve spent most of my time looking into our national balance sheet, because as the banking system collapsed in 2008, all of the bad debts were absorbed by the world’s governments.

For example, when Fannie Mae and Freddie Mac collapsed in the summer of 2008, the U.S. government responded by simply guaranteeing all of their outstanding debt.

Since then these companies have recorded hundreds of billions of losses – all of which were passed along to the government. Yes, you can still get mortgages today. And yes, Freddie and Fannie are still in business. But costs associated with these programs are piling up at the U.S. Treasury – and they are enormously expensive.

These losses and trillions in other private obligations are now the responsibility of the U.S. government.

The problem is, even before this crisis, our government was deeply in debt. With each additional commitment we sink further and further into debt… closing in upon the moment that we can simply no longer afford even the interest payments on our obligations.

According to even my most conservative calculations (using numbers provided by the Congressional Budget Office) a debt default by the U.S. government would be inevitable – were it not for one simple anomaly… the one thing that has saved the United States so far.

I’m talking about our country’s unique ability to simply print more money.

You see, the U.S. government has one very important weapon to use in this crisis: It is the only debtor in the world who can legally print U.S. dollars. And the U.S. dollar is what’s known as “the world’s reserve currency.”

The dollar forms the basis of the world’s financial system. It is what banks around the world hold in reserve against their loans.

That’s a secret that most politicians don’t understand:

As things stand now, the U.S. government can’t go broke in any ordinary sense of the word because it can simply print dollars to pay for its bad debts. (It’s been doing so since March of 2009).

That might sound pretty good at first. Since we can always just print more money, what is there to worry about…?

Well, let me show you…

You see, as things stand today, America is the only country in the world that doesn’t have to pay for its imports in a foreign currency.

Let’s say you’re a German and you want to buy oil from Saudi Arabia. You can’t just pay for your oil in German marks (or the new euro currency), because the oil is priced in dollars.

So you have to buy dollars first, then buy your oil.

And that means the value of the German currency is of great importance to the German government. To maintain the value of its currency Germans must produce at least as much as they consume from around the world, otherwise the value of its currency will begin to fall, causing prices to rise and its standard of living to decline.

But in America…?

We can consume as much as we want without worrying about acquiring the money to pay for it, because our dollars are accepted everywhere around the word. In short, for decades now, we haven’t had to produce anything or export anything to get all the dollars we needed to buy all the oil (and other goods) our country required.

All we had to do was borrow the money.

And boy did we. Take a look at this chart…

Even as late as the 1970s, America was the world’s largest creditor. But by the mid-1980s we’d become a debtor to the world. And since the late 1990s we’ve been the world’s LARGEST debtor.

Today, our government owes more money to more people than anyone else in the world.

And that was before the financial crisis!

In short, with all of these bad debts piling up, we’ve had to begin repaying our debts by printing trillions of new dollars. The impact of this is only just now beginning to be felt.

And once our creditors figure out what’s happening, they’re going to be very angry.

I believe they will either completely stop accepting dollars in repayment… or greatly discount the value of these new dollars. I’m sure you think that sounds crazy, but as I’ll show you, it is already happening.

And that will make our consumption-led way of life impossible to afford.

Just think about the price of oil…

Access to cheap oil has been America’s #1 gift of owning the world’s reserve currency.

This has made gas cheaper in the U.S. than almost anywhere else in the developed world. I know you may think gas prices have skyrocketed in recent years… but look at how much less we pay than other developed nations…

United States: $2.72 a gallon on average

Oslo, Norway: $7.41…….. (172% higher)

Berlin, Germany: $6.82…. ( 151% higher)

London: $6.60…………….(143% higher)

Rome, Italy: $6.40…………(135% higher)

Paris, France: $6.04………..(122% higher)

Tokyo, Japan: $5.40……….(98% higher)

Toronto, Canada: $3.81……(40% higher)

And here’s the thing…

If oil is no longer priced in dollars, the price of oil for Americans will skyrocket immediately. It will change our lives, overnight.

Airline travel will get much more expensive. The cost to ship goods by truck to grocery stores around the country will get much more expensive. Farming itself will get a lot more costly… so will commuting to work… taking a taxi… just about everything we do will suddenly get much more expensive.

And just remember: In order for prices to start skyrocketing, all that has to happen is that other countries start preferring payments in something besides U.S. dollars.

The U.S. dollar has been the world’s currency for decades now… so most Americans don’t have a clue about what the repercussions are of losing this status.

You might think this could never happen… but it happens all the time when countries get too far in debt or when they consume too much or produce too little.

In fact, the same thing happened to Great Britain in the 1970s.

Most people don’t know this, but British Sterling was the reserve currency for most of the world for nearly 200 years… for most of the 18th and 19th centuries.

It continued to play this role until after World War II, when America was forced to prop up Britain’s economy with foreign aid – remember the famous Marshall Plan, when we gave billions to help European countries rebuild?

Unfortunately though, Britain pursued a socialist national agenda. The government took over all of the major industries. Like Barack Obama, Britain’s leaders wanted to “spread the wealth around.” Pretty soon the country was flat broke.

The final straw for Britain came in 1967, when things got so bad the Labour Party (the socialists) decided to “devalue” the British currency by 14%, overnight. They believed this would make it easier for people to afford their debts.

In reality, what it did was make anyone holding British sterling 14% poorer, overnight, and it made everything in Britain, much, much more expensive in the coming years.

And for the country as a whole, it ushered in one of the worst decades in modern British history.

Most Americans don’t know about Britain’s “Winter of Discontent” in the late 1970s, when the government put a freeze on wages. There were continuous strikes in nearly every sector… grave diggers, trash collectors… even hospital workers. Things got so bad at one point that many hospitals were reduced to accepting emergency patients only.

In 1975, inflation in Britain skyrocketed 26.9%… in a single year!

The government also imposed what was known as the “Three Day Week” in 1974. In short, businesses were limited to using electricity for only three specified consecutive days’ each week and they were prohibited from working longer hours on those days. Television companies were required to cease broadcasting at 10.30pm… to save electricity.

The extreme problems in the economy led to Britain being nicknamed, “the sick man of Europe.”

Just how bad were things, exactly?

Well, listen to several Brits tell of their experiences. Their stories were collected recently by the BBC television channel…

John Blackburn, from Wetherby said:
“I was a control engineer at Huddersfield Power Station at the time and part of my duty was to switch off the supply to various substations around the town, according to an official rota. On many an evening shift I would have to switch off the power to my own home before going back for a candle-lit supper!”

Richard Evans, from London, recalls:
“My mother had to cross a picket line to get into the maternity hospital (they told her she couldn’t come in….). My Grandmother had to bring in food for her to eat, and clean towels and bedding.”

David Stoker, Guildford, said:
“I lived in the North East near Newcastle and I vividly remember my grandmother and I walking from one shop to another in search of candles to buy. All were sold out. Innovatively, butchers placed string down cartons of drippings which we bought… These worked although the smell and risk of fire made them less practical than candles.”

Imagine… Britain was a global superpower for 150 years. But when they started intentionally devaluing their currency, things went straight down hill.

Maybe you don’t think something similar can happen here… but I’m telling you… it’s already underway!

In fact, the exchange value of the U.S. dollar has fallen about 8% so far this year. And its rate of decline is accelerating.

What happened to the British currency is now happening to the U.S. dollar.

Not only will the price of gas, oil, and other commodities skyrocket in America, almost EVERYTHING we consume will immediately get more expensive. All the clothing, furniture, and household goods we import from China.

All the food we get from Central and South America… all the electronics, televisions, computers, and cars we get from Asia and Europe.

In fact, it’s happening, right now before our eyes: The price of gold is up 85% since the financial crisis. Oil prices have doubled. Soy beans are way up. Copper prices are up more than 170% since 2009. Cotton prices are up 80%… in just the past few months, since July of this year!

As Wesley Card, the head of a clothing company that includes brands like Dockers and Anne Klein, recently said: “It’s really a no-choice situation. Prices have to come up.”

The chart below shows how much a few key commodities have skyrocketed in price, just since the beginning of 2009…

Of course, skyrocketing commodity prices are just the beginning.

There are other disastrous consequences to the U.S. dollar losing status as the world’s currency…

For example, there would be much less demand for U.S. dollars around the globe, so interest rates will skyrocket. Instead of getting a mortgage at today’s incredibly low rates of 4.5%, it might cost you 8% or even 10% or 15%.

Imagine what that would do to housing prices!

Stock prices will likely plummet by at least 40% in a matter of weeks as a result of this event in the currency markets.

It will cost every American business A LOT more money for supplies and materials. No one will be able to get a loan… and no bank will want to make loans.

In short, when the U.S. dollar loses its spot as the world’s ‘reserve currency,’ it will cause a brutal downturn in the economy, which I expect will be about 10-times worse than the mortgage crisis of 2008.

You see, what will also happen as a result of this currency crisis, and the end of the U.S. dollar as the world’s reserve currency, will be massive inflation, the likes of which we have never seen before.

When everyone is trying to get rid of their dollars, the government is printing more and more to pay debts, and no one wants to own them, the crisis will reach epic proportions.

Just look for example, at what happened to one European country that faced this type of crisis in the 1990s…

This is what happens during a major hyperinflation in the real world.

By the early 1990s, the national government of one European nation had spent nearly all its savings. So what did they do next? Simple… they began to steal the savings of private citizens by limiting people’s access to their money in government-controlled banks.

And of course, to finance the daily operations of maintaining their basic infrastructure, they started printing money, big time. Even so, the country’s basic infrastructure began to fall apart. There were potholes in the street, broken water pipes… elevators that never got repaired… and entire construction projects that simply shut down, before being completed.

At this point, the unemployment rate was more than 30%.

Not too bad, right?

But it got worse… much worse.

You see, once you start down the dangerous road of printing money, things can get extremely bad, very quickly.

As San Jose State University Economics Professor Dr. Thayer Watkins, an expert on countries that try to inflate their way out of big debts, wrote on this particular disaster:

“The government tried to counter the inflation by imposing price controls. But when inflation continued, the government price controls made the price producers were getting so ridiculously low that they simply stopped producing. bakers stopped making bread… slaughterhouses refused to sell meat to the stores… other stores closed down”

So what did the government do next to try to curb inflation?

Well, one bright idea they had was to force stores to fill out government documents every time they increased prices. They thought that this would slow down price increases, because the paperwork would take so much time!

But like many government plans, this one had terrible, unintended consequences.

Since stores had to dedicate an employee to do nothing but register this paperwork, and since the process took so long, stores began to raise prices on basic goods at even higher rates, so that they didn’t have to come back and file more paperwork!

Incredible, isn’t it?

Then, of course the government did what all governments do during periods of hyperinflation: They created a new currency… which basically removed six zeroes from the old one. So 100,000,000 old units were soon worth 100 new units. Of course, this didn’t work either… it never does.

Between October of 1993 and January 1995, prices increase by, get this: 5 quadrillion percent. That’s…

5,000,000,000,000,000%
In other words, a loaf of bread that cost $1 in 1993, suddenly cost

$50,000,000,000,001
Yes, that’s $50 TRILLION.

I know, it’s laughable… but I can guarantee that the people of this once proud European country weren’t laughing one bit, especially those living on a fixed income.

Of course, at this point, the country completely fell apart. As Dr. Thayer Watkins wrote:

“The social structure began to collapse. Thieves robbed hospitals and clinics of scarce pharmaceuticals and then sold them in front of the same places they robbed. The railway workers went on strike and closed down the country’s rail system.”

At this point, businesses and citizens across the country basically refused to take the local currency.

Instead, everyone started dealing in German Marks. Keep in mind, the daily rate of inflation was nearly 100%.

Can you imagine the panic in a society when the price of just about everything doubles… every single day? It was absolute pandemonium, and the economy basically came to a grinding halt. It was like living in a war zone. Truckers stopped delivering goods. Stores, restaurants, and gas stations all shut down.

In fact, the only way to get gas was to buy it on the side of the road, from someone selling it out of a plastic can.

Steve Hanke, an Economics professor at Johns Hopkins, wrote that:

“People couldn’t afford to buy food in the free market – they kept from starving by either waiting in long lines at state stores for irregularly supplied rations of low-quality staples, or by relying on relatives who lived in the countryside.

For long periods, all [the] gas stations were closed, with the exception of one station that catered to foreigners and embassy personnel. People also spent an inordinate amount of time at the foreign-exchange black markets, where they traded huge piles of near-worthless money for a single German mark or US dollar note.”

The number of operating busses dropped by 60%… and busses were so crowded that drivers couldn’t even collect fares. Government ordered blackouts left people without heat and electricity for long periods of time.

In another ridiculous government move, they actually made it illegal to NOT accept a personal check.

Imagine… you could write a check… and in the several days that it typically takes for a check to clear, inflation would wipe out almost all of the cost of covering your check.

Of course, as is typical, the government took none of the blame. As Dr. Thayer Watkins reported, the government’s official position was that the hyperinflation occurred “because of the unjustly implemented sanctions against the people and state.”

Again… I know what you are thinking… “just because it happened in Europe doesn’t it mean it can happen here, right”?

Well guess what…

The same thing that happened in this European country – Yugoslavia – also just happened in Iceland and Greece, but on a less dramatic scale. Of course, the only reason the situations in Greece and Iceland weren’t worse is because of giant foreign bailouts. Yes… that’s right… more debt to solve the problem of already existing, insurmountable debts.

It’s all going to come to a head soon. Much sooner than most people think.

Remember too that in roughly the past 100 years this type of debt crisis has reared its ugly head in Germany, Russia, Austria, Poland, Argentina, Brazil, Chile, Poland, the Ukraine, Japan, and China.

And I believe it will soon happen right here in the United States.

Don’t believe me?

Well, the truth is that it’s already happening at the local and state levels. Take a look…

According to the Center on Budget and Policy Priorities, a Washington, D.C.-based think-tank, at least 46 states face huge budget shortfalls for 2011, on top of the deficits they still haven’t completely figured out for 2010.

The center reports that the total state budget shortfall could reach $160 billion.

And although many states got federal help over the past year, that aid is now gone.

So what are these desperate governments trying to do?

You probably won’t believe their proposals…

* SELL EVERYTHING: The state of Arizona, for example, announced earlier this year that it is selling $735 million worth of government-owned buildings, but will still occupy them by paying a 20-year lease. The government is selling the legislative buildings, the House and Senate, the State Capitol Executive Tower, the state fairgrounds, even prisons.

* RELEASE PRISONERS: In California, the state has taken the radical step of opening its prison doors and releasing thousands of inmates. About 11% of the state budget ($8 billion) goes to the penal system (more than they spend on higher education).

So California is slashing the number of inmates by 6,500 next year. In other words, they are cutting loose about 4% of the prison population.

Incredibly, other states, including New York, may soon do the same thing.

* LIFE INSURANCE: In Georgia, the government is proposing taking out “dead peasant” policies on state employees. When these folks die, the money won’t go to the dead person’s family… but to the state coffers, to help pay for more programs, insurance, and pension liabilities!

It’s simply incredible, isn’t it?

State and municipal governments are so broke, and so desperate, that they are taking unprecedented steps to at least temporarily avoid bankruptcy. Nearly every state in the union is talking about legalizing some form of gambling, to boost tax revenue. California still wants to legalize marijuana, even though it was defeated in the recent election.

Of course, none of these ridiculous steps will work on the long run.

And the truly amazing thing is that the U.S. Federal government is in even worse shape than the local governments! The only reason we haven’t seen the full brunt of this crisis yet on the federal level is because we’ve just continued to pile on more and more debt.

The states can’t print money… but the Federal government can (at least for now). And for the moment, this is all that is preventing a currency collapse of unprecedented proportions.

And this is the important point: What most people don’t realize is that the U.S. government can only continue printing dollars… as long as the U.S. dollar remains the world’s reserve currency.

In other words, this is all going to fall apart much sooner than people think. In fact, it’s already happening…

The first steps are already well underway. It is happening right now… before our very eyes.

I can’t stress this enough: You need to act now in order to protect your assets, and grow your savings in the next few years. In the next few minutes, I’m going to show you exactly how I’m protecting my own money, and what I recommend doing with your own.

But first, let me show you what exactly is going on right now…

“America… must be very worried”
Like I said, most Americans don’t believe the U.S. dollar could ever lose its spot as the world’s reserve currency.

But I am here to tell you… this process is already well underway.

For example, although it went almost completely unreported in the U.S. press, last fall, a group of the world’s most powerful countries, including China, Japan, Russia, and France, got together for a secret meeting – WITHOUT the United States being present or even knowing about the meeting.

Veteran Middle East report Robert Fisk reported on this even in the Britain’s Independent newspaper:

“In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese Yen, Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.”

Fisk also interviewed a Chinese banker who said:

“These plans will change the face of international financial transactions. America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.”

And sure enough, after Fisk published the details of this secret meeting, U.S. officials and central bankers from around the globe denied these plans.

But as the old central banking adage goes… how do you know exactly when a currency will be devalued?

The answer: Right AFTER the head of the central bank goes on television to adamantly deny that any such transaction will occur. (And guess who just went public in recent weeks with a statement about how the U.S. will “not devalue its currency”? Yes, you guessed it… U.S. Treasury Secretary Tim Geithner.)

You see, the last thing a central banker wants to do in the midst of a devaluation is to give people a warning BEFORE he can devalue. So they have to deny, deny, deny. After the announcement is made, it’s too late for citizens and investors to get out.

Like I said, what’s incredible is that this story of a secret meeting among most of the major powers besides the U.S. was greatly under reported in the American press.

But you know what… the way I see it, it’s much more telling to look at actions rather than government press releases.

For example, here is what is happening, right now in the real world.

When you read these facts, I think you’ll agree with me that the U.S. dollar’s days are numbered, as far as remaining the world’s reserve currency.

China is getting out

Cheng Siwei, a former vice-chairman of the Standing Committee, said that China is going to stop putting so much money into U.S. dollars, and will instead look to the Japanese Yen and the Euro.

China holds more U.S. dollars than anyone else on the planet. But China is getting out of the U.S. dollar as fast as they can without crashing their own economy.

Look at this chart…

It shows that China’s holdings of U.S. dollars peaked in 2009, but China is unloading as many dollars as they can, as quickly as possible.

And this is just one sign of the end of the U.S. dollar standard.

There are many more…

The dollar is no longer good here

As I am sure you are aware, for years the U.S. dollar has been accepted almost universally around the globe.

Heck, many times when I’ve traveled, I never even bothered to convert to the local currency, because I knew everyone would take my dollars.

Well, that’s simply not the case anymore…

HSBC, one of the largest banks in Mexico, no longer allows you to deposit U.S. dollars into their banks. They’ve done this on the heels of money-laundering allegations, but we suspect they also simply don’t want to be stuck with tons of U.S. dollars, as the currency continues to decline.

This move would have been unfathomable 10 years ago… that a big bank in Mexico would no longer accept U.S. dollars for deposit. But today it is the harsh reality.

And Mexico is not the only place this is occurring…

Reuters reports that the same thing has happened in 2008 in one of Europe’s most popular tourist spots…

Currency exchange outlets in Amsterdam have been reportedly turning away customers who want to exchange their U.S. dollars for Euros.

As one traveling American told the Reuters news agency: “Our dollar is worth maybe zero over here,” said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. “It’s hard to find a place to exchange. We have to go downtown, to the central station or post office.”

In India, the country’s tourism minister said in 2008 that U.S. dollars will no longer be accepted at the country’s heritage tourist sites, like the Taj Mahal. And the U.S. dollar is no longer good anywhere in Cuba.

The New York Times reports that: “now, many shops in China no longer accept dollar-based credit cards issued by foreign banks… and foreigners cannot convert American dollars into renminbi beyond a given quota.”

Iran, of course, has already moved all of its reserves out of U.S. dollars, and Kuwait de-pegged it’s currency from the dollar a few years ago:

Bloomberg News recently reported that China and Russia plan to start trading in each other’s currencies to diminish the dollar’s role in global trade. “Given the risk to the dollar and U.S. assets from their fiscal position, they want to reduce their dependence on the dollar as an invoicing currency,” said Bhanu Baweja, of UBS bank.

It’s even happening here in the USA

Most Americans don’t know that some states in the Mid-West are already using “alternative currencies”…

An NBC News affiliate in Michigan reports that

“new types of money are popping up across Mid-Michigan and supporters say, it’s not counterfeit, but rather a competing currency. Right now, for example, you can buy a meal or visit a chiropractor without using actual U.S. legal tender.”

What most Americans don’t realize is that this is all totally legal.

The U.S. Treasury Dept web site says that, according to Coinage Act of 1965: “There is… no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.”

I saw one report that says there are now 150 of these alternative local U.S. currencies being accepted around the country!

USA Today reports that the largest of these local currencies is a currency called “Berkshares,” which are being used in the Berkshires region of western Massachusetts.

According to the paper:

“Since its start in 2006, the system, the largest of its kind in the country, has circulated $2.3 million worth of BerkShares.”

And even in places that do not yet have local currencies, store owners may now actually prefer foreign currencies rather than U.S. dollars…

In Washington, DC, just 25 miles from my office, some stores have begun accepting euros. Of course, the euro isn’t much more stable than the dollar right now. But my point is that most people don’t understand there is NO FEDERAL REQUIREMENT in the United States for a private store to accept dollars for non-debt transactions.

You see, no matter what the government decides, stores and businesses will accept whatever they believe is a strong currency.

As Texas Representative Ron Paul wrote recently:

“If you walk into a 7-11 to buy a soda, the clerk doesn’t have to accept your dollars, he could demand euros, silver, or copper. But because legal tender laws backing the dollar have caused the dollar to drive other currencies out of circulation, [right now] it is easier for stores to accept dollars.”

Well, all that is quickly changing…

Many places in Texas now accept Mexican pesos for payment. “Euros Accepted” signs are popping up in of all places: Manhattan. And not only Manhattan, but in New York’s favorite summer playground… the Hamptons.

There, an art gallery assistant was quoted by The Real Deal: “I wouldn’t want to discourage a sale in any way because of a currency issue.”

And it’s not just small stores that are accepting other methods of payment besides U.S. dollars.

The Chicago mercantile exchange the world’s largest futures and commodities exchange board), now accepts gold to settle futures contracts. Until recently, the exchange typically accepted only U.S. treasuries and bonds as payment.

These guys obviously see the writing on the wall.

This would have all been completely unthinkable 10 years ago, but today it’s a reality. And this trend is going to keep moving incredibly fast.

That is why…

The smartest investors are taking action…

Bill Gross, who probably knows as much about currencies and debt as anyone in the world, runs the world’s biggest bond fund. He was quoted by Bloomberg:

“We’ve told all of our clients that if you only had one idea, one investment, it would be to buy an investment in a non-dollar currency. That should be on top of the list.”

Jim Rogers, one of the world’s most successful multi-millionaire investors writes:

“The dollar is not just in decline; it’s a mess. If something isn’t done soon, I believe the dollar could lose its status as the world’s reserve currency and medium of exchange, something that would lead to a huge decline in the standard of living for U.S. citizens like nothing we’ve seen in nearly a century.”

I know… you probably still don’t believe it can happen here in the United States. But think about it…

Are we as Americans really immune to the laws of economics and finance?

I don’t think so.

And every circumstance I know of, in which a government has tried to inflate its debts away, has ended in disaster. It will happen here too.

As Jim Rogers says:

“History teaches us that such imprudent monetary and fiscal behavior has always led to economic disaster.”

This is why World Bank president, Robert B. Zoellick, in a speech at the School for Advanced International Studies at Johns Hopkins University, recently said: “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly be other options to the dollar.”

And this is why the International Monetary Fund (IMF) recently published a paper calling for a new global world currency.

A paper entitled “Reserve Accumulation and International Monetary Stability,” written by the Strategy, Policy and Review Department of the IMF, recommends that the world adopt a global currency called the “Bancor” with a global central bank to administer the currency.

The report is dated April 13, 2010… and no, unfortunately this is not just a bad rumor.

This is a deadly serious proposal in an official document from one of most powerful institutions in the world.

Do you see where this is all heading?

As Brazilian economist and strategist Ricardo C. Amaral wrote recently:

“The US dollar served its purpose since the end of WW II and became the major foreign exchange reserve currency… [but] the days of the US dollar playing that special role… has reached the end of the line, since today that system is very sick and it is dying a slow death…

Mr. Amaral added that we will soon see: “the major collapse of the US dollar creating the biggest international monetary crisis the world has ever seen…”

This is why gold and silver prices are soaring:

It’s not a matter of “if” the U.S. dollar will lose its status as the world’s reserve currency… it’s simply a matter of “when.”

Investors know there are serious, serious problems with the U.S. dollar, so they are fleeing to precious metals, which have historically been very reliable when a country has major currency problems.

In short: It’s not hard to see why people are no longer accepting U.S. dollars… and why many foreign countries are pushing for a new world reserve currency.

The good news is, no matter what happens, I’ve found several ways for you to protect your savings – and you could even make 3- to 5-times your money over the next few years.

I’ll show you exactly what to do in a moment. But first let me explain why the collapse of the dollar as the world’s reserve currency could happen much sooner than most people expect…

The REAL State
of the U.S. Economy
I know many of my friends, colleagues, and family members are still in serious denial.

In the world of psychology, they call this the “normalcy bias.”

You see, the normalcy bias actually refers to our natural reactions when facing a crisis.

The normalcy bias causes smart people to underestimate the possibility of a disaster and its effects. In short: People believe that since something has never happened before… it never will. We are all guilty of it… it’s just human nature.

The normalcy bias also makes people unable to deal with a disaster, once it has occurred. Basically… people have a really hard time preparing for and dealing with something they have never experienced.

The normalcy bias often results in unnecessary deaths in disaster situations. For example, think about the Jewish populations of World War II…

As Barton Biggs reports in his book, Wealth, War, and Wisdom:

“By the end of 1935, 100,000 Jews had left Germany, but 450,000 still [remained]. Wealthy Jewish families… kept thinking and hoping that the worst was over…

Many of the German Jews, brilliant, cultured, and cosmopolitan as they were, were too complacent. They had been in Germany so long and were so well established, they simply couldn’t believe there was going to be a crisis that would endanger them. They were too comfortable. They believed the Nazi’s anti-Semitism was an episodic event and that Hitler’s bark was worse than his bite. [They] reacted sluggishly to the rise of Hitler for completely understandable but tragically erroneous reasons. Events moved much faster than they could imagine.”

This is one of the most tragic examples of the devastating effects of the “normalcy bias” the world has ever seen.

Just think about what was going on at the time. Jews were arrested, beaten, taxed, robbed, and jailed for no reason other than the fact that they practiced a particular religion. As a result, they were shipped off to concentration camps. Their houses and businesses were seized.

Yet most Jews STILL didn’t leave Nazi Germany, because they simply couldn’t believe that things would get as bad as they did. That’s the normalcy bias… with devastating results.

We saw the same thing happen during Hurricane Katrina…

Even as it became clear that the levee system was not going to work, tens of thousands of people stayed in their homes, directly in the line of the oncoming waves of water.

People had never seen things get this bad before… so they simply didn’t believe it could happen. As a result, nearly 2,000 residents died.

Again… it’s the “normalcy bias.”

We simply refuse to see the evidence that’s right in front of our face, because it is unlike anything we have experienced before.

The normalcy bias kicks in… and we continue to go about our lives as if nothing is unusual or out of the ordinary.

Well, we’re seeing the same thing happen in the United States right now.

We have been the world’s most powerful country for nearly 100 years. The U.S. dollar has reigned supreme as the world’s reserve currency for more than 50 years.

Most of us in America simply cannot fathom these things changing. But I promise you this: Things are changing… and faster than most people realize.

For a moment, just look at a tiny fraction of the evidence around us….

** 13% OF POPULATION ON FOODSTAMPS

Did you know that there are now nearly 42 million Americans on food stamps? That’s nearly 13% of the entire population. Those numbers are up 17.5% from last year… and the number of Americans on food stamps has gone up every month for 19 months.

Can a country really be in good shape when 13% of the population can’t even afford to buy food?

Or how about this…

** SHANTY TOWNS COMING TO YOUR NEIGHBORHOOD

Although it’s gone almost completely unreported in the mainstream press, in a dozen or so cities across the nation (like Fresno, Sacramento, and Nashville), there are hundreds of people living in modern-day, Depression-era shanty towns.

The Fresno shanty town has received the most publicity, after a visit by Oprah Winfrey. There, about 2,000 residents are homeless. They even have a security desk at the shelter, because the encampment has gotten so large. City officials say they have three major encampments near downtown, and smaller settlements along two local highways.

Also…

** 43% OF AMERICAN FAMILIES ARE ESSENTIALLY BROKE

According to a recent article on MSN Money, about 43% of the American families spend more than they earn each year.

Look at this chart… it’s unbelievable..

The average household carries $8,000 in credit card debt… and personal bankruptcies have doubled in the past decade.

How in the world can we possibly spend our way out of the current crisis?

We certainly can’t do it with savings… the only answer is to print more money, which will hasten the fall of the U.S. dollar as the world’s reserve currency.

** THE MYSTERY OF DISAPPEARING JOBS

There’s simply no one better at bending statistics than the U.S. government. Take the unemployment rate, for example. Back in the 1930s, anyone without a job but not retired was considered “unemployed.”

Today, however, the government calculates unemployment mainly by counting the number of people receiving unemployment benefits. So when people’s benefits expire, they are no longer counted… and the unemployment rate actually falls! Ridiculous… I know.

But the reality is, the true unemployment rate is much, much higher than what the government is reporting.

If you don’t believe me, look at two recent job postings I read about last week..

In Long Island City, an estimated 2,000 people waited in line at the local employment office – some for as long as four days! – to apply for 100 elevator mechanic apprenticeship positions.

And in Massillon, Ohio, 700 people recently applied for a single janitorial job… paying $16 an hour, plus benefits!

The point is, our country is not growing jobs, because the government makes it harder and harder for businesses. With current regulations in place, our country will never experience the type of growth necessary to dig our government out of the hole they’ve put themselves in.

I’m sure you think I’m exaggerating, but just look at what the CEO of one of America’s most important companies said just a few weeks ago..

Intel CEO Paul Otellini said in a recent speech: “I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States”

He said that 90% of the additional costs are not from higher labor rates… but from higher taxes and regulatory charges, which other nations simply don’t impose.

Cypress Semiconductor CEO T.J. Rodgers agreed that the problem is not higher U.S. wages, but anti-business laws. He was quoted in an interview with CNET News: “The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn’t want you there and demonstrates it in thousands of ways.”

Few Americans today realize that we have the second highest corporate tax rate in the world. And since Japan’s new prime minister just announced that he plans to reduce the country’s corporate tax rate by 15%… the U.S. will soon have THE highest corporate tax rate in the world.

Why would anyone want to start a business here, when they can do it for less money…and keep more of the money they make… by locating elsewhere?

It’s just another good reason to avoid the U.S. dollar…

So is this:

** DEBT-RIDDEN U.S. COMPANIES

Did you know that in 1979, there were 61 American companies that earned a top-level AAA credit rating from Moody’s?

Today, there are only four: Automatic Data Processing, Exxon, Johnson & Johnson, and Microsoft

Does this sound like an economic recovery to you… when only four companies in the entire country are stable enough to earn a triple-A credit rating?

Me neither. But it’s nothing compared to what’s going on in the housing sector…

** A CRAZY LAS VEGAS ECONOMICS STORY

You want to know how crazy things are in the U.S. right now…

Consider the bizarre state of the Las Vegas housing market, where The New York Times reports that building is booming again in a city where nearly 10,000 new houses are empty, thousands are in foreclosure, thousands of regular people have simply stopped paying their mortgages and average prices are down more than 60% since 2006.

What could possibly be driving this building mania?

Well, it turns are that buyers don’t want homes that were built during the boom, because they sit in neighborhoods that look like ghost towns, and because many of these never-occupied houses are filled with cockroaches and other critters.

So local builders are doing the worst possible thing they could be doing in Las Vegas right now… building more homes! Similar scenarios are taking shape in Phoenix and other U.S. cities.

Of course, this might look good for economic numbers, but all it does is make the situation much, much worse in the long run.

Want to see another crazy trick some businesses are using to artificially boost their earnings numbers?

This is just incredible to me…

** OUR HOPE FOR THE FUTURE: NEW JERSEY’S HOMELESS

If you’ve been reading my work at all over the past few years, you know that I am extremely bearish on the “for profit” education sector, such as University of Phoenix.

What could possibly be wrong with these institutions that offer inexpensive education to tens of thousands of students across the country?

Well, to me it’s just another symptom of how distorted and crazy our economy and country has become. Here’s what I mean…

One of the crazy practices institutions employ is to actually enroll homeless people into their programs.

You probably think I’m making this up… but even Business Week recently ran a report on this practice.

Why would they do this?

Well, because these folks qualify for federal grants and loans used to pay for college tuition fees. According to reports I read, the University of Phoenix, for instance, relies on federal funds for more than 85% of its revenues.

At another for-profit school, Drake College of Business, almost 5% of the student body at its Newark, N.J., campus is homeless, Business Week recently reported.

Of course, the majority of these students will never be able to repay their loans. But the colleges certainly don’t care… that’s the government’s problem… not theirs.

Once again, it’s the taxpayers like you and me who will be left holding the bag.

And here’s another good reason why investors are afraid of holding dollars right now…

** IN THE STOCK MARKET, IT’S 1937 ALL OVER AGAIN

One of the most worrisome problems in the stock market right now is that we are basically repeating the exact same situation that occurred from 1937 to 1942.

Most Americans think we’ve had this amazing stock market recovery since the financial crisis of 2008… and we have to a certain extent.

But we are by no means out of the woods.

In fact, during America’s last real economic collapse, in the 1930s and 1940s, we saw a similar drop and recovery… before the markets crashed all over again.

In fact, the situation is eerily similar.

Look at this chart… it’s one of the scariest I’ve seen in a long time. It shows an overlay of what happened in the stock market in 1937 compared to 2008.

In both situations, we saw big crashes, of about the exact same magnitude… then a big recovery, again of about the same size.

But what will happen next?

Well, if history is any guide, we could well have another big leg down in the stock market. That’s exactly what happened 70 years ago.

And with all of the problems left unresolved in our economy today, it could certainly happen again, especially if the U.S. dollar loses its reserve status.

As The Wall Street Journal reported:

“Over the last year the stock market has followed a path eerily similar to 1937. First, a strong, rapid run to a recovery high – same pace, same magnitude. Then a correction – again, the same. Will we continue on the path that led the correction of 1937 into a collapse in 1938?

The point is, the cards are seriously stacked against us.

This looming currency crisis is inevitable.

Almost every state in the country is on the verge of bankruptcy. We have borrowed an impossible amount of money, which we’ll never be able to pay back.

Our economy is an absolute mess. Taxes are sky high already… and will certainly go much higher over the next few years. And nearly all of the world’s major financial players are preparing for an alternative to the U.S. dollar as the world’s reserve currency.

Read the entire article HERE.

By Su Qiang and Li Xiaokun
China Daily
Updated: 2010-11-24 08:02

St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.

The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.

Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China’s Tianwan nuclear power plant, the most advanced nuclear power complex in China.

Putin has called for boosting sales of natural resources – Russia’s main export – to China, but price has proven to be a sticking point.

Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia’s energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.

Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.

Wen’s trip follows Russian President Dmitry Medvedev’s three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world’s biggest energy producer with the largest energy consumer.

Wen said at the press conference that the partnership between Beijing and Moscow has “reached an unprecedented level” and pledged the two countries will “never become each other’s enemy”.

Over the past year, “our strategic cooperative partnership endured strenuous tests and reached an unprecedented level,” Wen said, adding the two nations are now more confident and determined to defend their mutual interests.

“China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power,” he said.

“The modernization of China will not affect other countries’ interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries.”

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.

Read the entire article HERE.

By Giordano Bruno

Neithercorp Press – 08/09/2010

Normally when I cover subjects in the economy, I try to take a “macro” approach, giving an overall view of various financial elements around the world and how they are clearly connected to one another in a greater synchronous social force. That is to say, in Chinese domestic consumption, or European debt obligations, or Russian gold reserves, and in many other factors, is encoded the very future of our own American economy. Showing others how to decipher that code is my primary mission.

In this instance, however, I would like to focus chiefly on the U.S. Dollar, the private Federal Reserve currency which is now the basis for our entire financial system, not to mention a substantial basis for trade around the globe. For decades, the dollar (and by extension U.S. Treasury bonds) has been the standard by which foreign nations safeguard capital reserves, denominate debt, and in some cases have even pegged their own currency to maintain advantageous trade deficits. In the past, the Greenback has been treated as good as gold. Though many see this as a windfall for Americans, it is actually a very unfortunate circumstance.

The “world reserve” status of our currency created a demand for dollars, but through this, it also created a glut of Treasury bond holdings in foreign central banks, and an unserviceable national debt here at home. The combination of removing the dollar from the gold standard in tandem with gaining world reserve advantage allowed our government along with central bankers to create the most precarious illusory fiat currency in history. Could this process continue indefinitely? Its possible, but only if the demand for dollars continues to rise annually. As long as people want dollars in greater and greater amounts, we could continue to expand our debt into infinity. But what happens if demand for the dollar falls, or disappears entirely? The massive liabilities we have already accrued will no longer have the crutch of perpetual Treasury investment. We no longer would receive the busloads of foreign capital we need to continue functioning. The system we have staked the future of our culture on would disintegrate.

Anyone who uses common sense would easily conclude that it is highly unreasonable if not outlandish to expect that other countries will continue to pump more and more money every year into our very unstable system. Even if Treasury bond investment simply plateaued, remaining steady for years, we would still be crushed under the weight of our debt obligations. As our government expands, and our wars expand, so do our costs, and our interest payments. Eventually, every undisciplined debtor hits a state of critical mass; a point at which he runs out of options in extending his ability to outrun bankruptcy. We are seeing this right now in the U.S., most prominently in municipal debt in states such as California and Illinois. These are not just “local problems”. The growing insolvency in states is a direct reflection of the growing insolvency in the Federal Government.

Many people have at one time or another been caught up in their own debt race, trying to dodge bills and pay off one credit card with another credit card. They understand well that this terrible circle ends in ruin. This is the situation we are in as a nation.

Strangely though, some mainstream economists and analysts still contend that America will never face consequences for its fiscal debauchery. Why do they believe this despite all the evidence to the contrary? Because of a magical machine called a “printing press”.

“If foreign investment in our debt ceases”, they say, “The Federal Reserve can just PRINT the money our government needs to function out of thin air.” That is to say, these economists (which include men like Ben Bernanke) either truly believe that capital can be created out of nothing with no sacrifice attached, or, they KNOW there is a serious sacrifice attached, but intend to keep this fact from the American public. Regardless, the end result is the same; massive liquidity injections which continually monetize debt as it defaults, and Federal Reserve purchases of our own T-bonds. We are buying stock in our own dollar just to prop up its value and keep our country afloat!

The inflation vs. deflation debate has been raging for nearly three years, but I suspect that when all is said and done, we will find that both sides in a sense were correct. The people who consistently miss the mark on what is truly going on in the economy are those who blindly insist that this is an either/or situation. The fact is, we are seeing symptoms of BOTH deflation and inflation simultaneously. Deflation in jobs, stocks, real estate, and wages. Inflation in energy, food, and commodities. At bottom, we are seeing the worst of both worlds colliding to make a financial mutation, an aberration of the natural processes of supply and demand. Our economy has become a frothing rampaging Frankenstein’s monster bent on the destruction of its former benefactors; the American citizenry. Anyone who alleges otherwise is either a liar, or a fool.

At the very heart of this nightmare, we find the U.S. Greenback; perhaps the number one reason the economic meltdown was engineered by global banks in the first place (yes, I said ‘engineered’). The sovereign ideology of the U.S. is the only thing left standing in the way of complete centralized economic control, and by extension, political control, by the top 2% wealthiest people in the world, who now hold around 50% of all the world’s assets. The dollar, though a fraudulent fiat currency, is still a representation of that sovereign drive, at least in terms of finance. Its position as the foremost traded currency on the planet affords us great leeway in our ability to spend without fear. It is the glue holding absolutely everything together. With most of our industry shipped overseas, and our communities completely reliant on a 70% service based system, the Dollar is the only homemade “product” America has left to lean on.

Unfortunately, the strength of our currency is waning, and nearing outright collapse. It is something we have been talking about for the past two years at least, which has drawn some into a false sense of security. The signs have been muddled in the MSM fog, but now the picture is becoming clear. Will the dollar crash tomorrow? That’s hard to say. What I do know, is that all the elements necessary for a catastrophic dollar devaluation have moved into place, especially in the past month. That is to say, there is now nothing preventing a steady and precipitous fall in the Greenback over the next six months or more. Below are many signals which indicate such an event is near:

Dollar Index Plummeting: Interestingly, there has been very little coverage in the mainstream news of the dollar’s continuous 9 week decline, the longest straight weekly decline since 2004. One would think this is something that might concern the general public, and not just investors:

Read the entire article HERE.