From: Dr. Stanley Monteith’s Radio Liberty Archives – minute 35:30
World Affairs Brief, March 28, 2014 Commentary and Insights on a Troubled World.
Copyright Joel Skousen. Partial quotations with attribution permitted. Cite source as Joel Skousen’s World Affairs Brief (http://www.worldaffairsbrief.com)
THIS WEEK’S ANALYSIS:
Prospects for a Two Region War
Is an Israeli Attack on Iran Imminent?
Analyzing the Promoters of Dollar Collapse
Internet Given Away? Not so Fast
Massive Fraud at EPA—Again
Scalia Waffles on NSA Spying—Among Other Things
Killing the Tomahawk Missile
Hospitals can be Dangerous to Your Health
Military Officers Fed Up with Political Correctness
ANALYZING THE PROMOTERS OF DOLLAR COLLAPSE
The number of voices calling for a collapse of the dollar is reaching a crescendo and I’m compelled to do a detailed analysis to keep my readers from panicking. No, I’m not saying everything is fine. It isn’t, but you have to understand both the power and the intent of the Powers That Be to see why they aren’t intentionally trying to pull the plug on the economy. In fact they show every sign of trying to keep things afloat with continual bailouts, but without causing hyperinflation. I’ll cover three of the most prominent purveyors of the dollar collapse scenarios:
Porter Stansbury: Stansbury runs an investment advisory company and he’s flooding the internet with the claim that one particular bill signed by Congress is going to collapse the dollar. The bill is H.R. 2847, the Hire Incentives to Restore Employment (HIRE) Act, which is a real bill that was signed into law in 2010. But it’s not the hiring incentives that are the threat, he says, but the evil provision that was tacked onto the bill called the “Foreign Account Tax Compliance Act.”
This portion of the bill is a problem and is known as FATCA. It is an extension of the ongoing program of the feds to pressure offshore financial institutions to provide a 1099 form to the Internal Revenue Service for their American customers, hence revealing secret foreign bank accounts and dinging America tax evaders with huge tax bills. The Hill.com gave this summary:
Under FATCA, banks will be forced to submit information on total assets, account balances, transactions, account numbers and other personal identifying information. This intrusion goes way beyond a 1099 and would not be accepted or tolerated by Americans living in United States… Noncompliance will result in huge financial penalties and sanctions to the foreign financial institutions.
Various experts can only guess how much extra revenue will be brought in by exposing undeclared foreign accounts, from between $210B to $800Billion over ten years.
Stansbury is claiming, among other things, that this will cause a run away from the dollar, because the new reporting requirements will cause everyone to pull out their dollars and dump them. Frankly, there aren’t but a small percentage of Americans that have illegal offshore accounts, so I think this is merely a sales gimmick aimed at driving people to his investment company to save them. As the Hill reported,
It is not really known what ramifications this law will have on U.S. residents with funds in foreign banks or if foreign banks will cooperate with the law… US demands on foreign banks to provide client information may violate their own country’s laws and constitutions.
The next is David Morgan, an investment expert in silver, which he promotes. These kinds of advisors do have a financial agenda that may partially skew their ability to see the broader picture, even though they are all more or less in the free-market camp. Morgan is following the lead of others in claiming some “black swan” event (once in a blue moon catastrophe) without providing any details of what would have to happen specifically for the dollar to collapse. Greg Hunter of USAwatchdog.com comments favorably on Morgan’s claims:
Silver expert David Morgan is warning of coming financial changes that may be forced on the U.S. during the next G20 meeting. Morgan says, “The impetus here is the U.S. has had too much financial power backed by the military for far too long, and they (G20) are going to implement change one way or the other.
But Morgan has absolutely no evidence to back up this claim. How are the G20 going to be able to force economic changes upon the US or other member countries? In the 2012 letter to all G20 participants from the Financial Stability Board (FSB), there is clearly no implied force in the recommendations: Ultimately, implementation is the responsibility of your jurisdictions.
Here’s what the globalist Financial Stability Board is suggesting:
1) Ending Too-Big-To Fail (which may involve some shared pain by depositors, as in Cyprus).
2) Strengthening oversight and regulation of shadow banking (good luck shutting down secret banking).
3) Increased regulation of the derivatives markets (very important but difficult to get the big banks to even put up a fraction of the $500T they contract for in derivative contracts). That much money doesn’t even existing in current markets.
4) Increasing the capacity, resources and power of the FSB (more power to the international financial regulator scheme—a predecessor to a Global Government).
Realistically, all other nations have as many problems curtailing deficit spending and speculation as does the US, so this reform can’t be targeting only the US dollar. There simply isn’t the political will to do any of these reforms democratically, so this threat is bogus. However, these kinds of quasi-international reforms are a warm-up exercise for full globalism when it arrives.
The IMF is basically an extension of the United States. Even though it’s called the International Monetary Fund, it is really U.S. based. With what’s been proposed here, the IMF is not going to have the clout that it once did because the G-20 is going to be able to overrule the IMF vote… 19 out of the G20 are saying we are mad as hell and we are not going to take anymore. You get it together or we are going to get it together for you. [There’s absolutely no backing for that statement. Not a single country I know of is saying this because they are ALL in worse shape than the US, except for Switz.].
Even if it had the power to control the IMF, the IMF doesn’t ever vote on anything targeting the US. Rather, it is marching to a globalist agenda to control other countries via loans. Why should that change? The G20, the pro-communist BRICS countries are all in favor of giving more money to other countries.
Morgan goes on to say, “For years and years, decades, the United States has exported their inflation because it’s a reserve currency, and we have the ability to just print at will. [Not really. There are internal restraints on the FED to keep inflation within certain limits.] We have pushed the U.S. dollar overseas, into Japan, into China, into Europe, all over the world, and now these dollars could be repatriated. . . .
The reason we haven’t seen inflation is those dollars have not been spent. [Half right. Perhaps only 50% of the cash is being held out of circulation in mattresses or hiding places. The rest is being circulated.] This would portend ‘I need to get out of the dollar and buy tangible assets.’ [The fact that those dollars are “not being spent” as he claims is absolutely no justification for concluding, “I need to get out of the dollar.” People are hoarding dollars because their own currencies are unstable. The drive to get rid of dollars could only happen if the dollar was being inflated a lot faster than other currencies relative to its base which is currently not the case].
This would be an impetus for these countries that don’t need dollars anymore. [There are very few in this category. China is the main one because they have too many dollars, not because they don’t need some dollars] If I don’t need these dollars and I don’t settle oil in dollars, it’s not the supreme currency. [Yes, but those who have taken themselves out of the dollar markets constitute less than 15% of the international economy—not that big. The US alone is half the dollar economy and that’s not going to go away.]
‘I need to get out of it.’ If that mindset takes hold widespread, [Well, give me a rational reason for how all other countries that want dollars now would suddenly want to get rid of them?] you could see the dollar dive in value against other currencies… If that were to take place, you could see a huge change virtually overnight.”
IF, IF, IF… give me some substance. Only the FED pulling back the money supply in a major way or hyperinflation could do this and we see no sign of either. Morgan thinks the world knows the dollar is in trouble. He contends, “Everyone wants to pretend that everything is OK, but [once] people say I’m out, the dollar is toast. Once that mindset takes place, it could catch fire.. It’s unlikely, but you cannot rule it out [that’s a big change of wording from the previous paragraph where he was claiming it was imminent].. . Something is going to take place this year that will have such an impact. [What, pray tell? Be specific—even a guess would help us judge how you are thinking.]
On silver, Morgan says, “The rush into gold is basically nation states, true, but the rush into silver is basically ‘the people,’ [Not at all, it’s industry much more than people.]… Gold has always been nation state to nation state settlement. . . . What will happen in my view, and this happened in late 1979 and 1980, is that people will catch on quickly. They will see what’s happening in gold and they will say ‘I can’t afford gold at $2,500 an ounce or $3,000,’ and they’ll say ‘I’m going to buy silver.’ [Nothing new here. It’s been that way ever since gold went over $500, and it hasn’t appreciably changed the gold silver price ratio].
There will be a rush into gold and then silver like you have never seen before… You will either have it or you don’t.” What are Morgan’s price targets? Morgan says, “I am on the record that silver will hit $100 an ounce, and that may be conservative [It should go that high, but it won’t while the money powers are still manipulating the silver markets]. I don’t think we need to focus on the paper price but the value of silver relative to the market.
You do need to focus on the paper markets, since that is where the manipulation of the market is happening. No predictions about the upside potential for gold and silver have any validity unless he addresses the downward suppression of Gold and Silver by paper futures contracts that rarely demand delivery. He’s right about fundamental pressures to go up, but please tell us how anyone can predict when the money powers are going to stop manipulating the price through paper contracts. Without that key, his prediction means nothing. I fully expect the pressure on silver and gold to keep going in the upward direction, but the financial powers have still got a lot of monetary muscle to keep it from rising to the level it should.
Another financial author, James Rickards (Currency Wars) has come out with another book expanding on the same theme. It’s called “The Death of Money” and he too is shouting “collapse, collapse, collapse.” It’s too bad the book is marred by this hype about collapse. The book actually has some excellent analysis of the global economy, but he draws the wrong conclusions from true facts, as I will explain shortly.
James Rickards says that the “international monetary system is headed for a collapse…. The international monetary system actually has collapsed three times in the past 100 years. It collapsed in 1914. It collapsed in 1939, and it collapsed in 1971.”
He’s obviously overusing the word collapse. None of those three examples was a true collapse and his dates don’t really correspond to the big financial problems of the era, which do include some limited collapses.
His first two collapse dates (1914 and 1939) were war years and war did destabilize the financial world, but it didn’t cause a collapse. Besides, the entire world system was in a financial funk all during 1929-1940 due to the US stock market crash (caused by the FED), and the hyperinflation of Weimar Germany (where there was a true collapse of the German Mark) but it wasn’t an international collapse. Collapse is far too excessive of a word for what Rickards is describing and I object to it strongly.
In addition, there was no collapse in 1971—simply anger over the US reneging on its promise to redeem dollars in gold. The other nations with large dollar reserves did NOT dump dollars, any more than the Chinese are dumping US bonds today—lest the price drop dramatically before they can unload their stash. They are selling slowly, and the dollar still retains a great deal of value relative to other currencies because all nations have inflated currencies, and the choice between them is only relative—especially now that the absolute value of gold and silver has been somewhat disconnected from the markets through downward manipulation.
In point of fact, economies NEVER collapse to zero because people simply move into survival mode. They never completely give up and stop trying, except during the ravages of war when people get driven out of their homes and businesses. Government money in a few countries has collapsed from hyperinflation, but even that takes a special set of circumstances that is hard to come by in modern Western economies, as I have previously explained in the WAB.
Rickards contends, “What I do for the reader is explain why the collapse is coming and, secondly, describe what this new system might look like. That should be very helpful to investors in preparing to both survive the collapse and be well positioned in terms of wealth preservation under the new system that’s coming.”
In his suggested fix, he talks about IMF special drawing rights with partial gold backing and redeemability in combination with a mix of fiat currencies. That’s not a good fix. Any formula which gives fiat currencies any place at the table with gold redeemable options will ensure that governments will take advantage of the money creation option and avoid gold payouts like the plague.
Rickards, in my opinion, has way too much confidence in government’s willingness to abide by the limits he suggests. He clearly lacks an understanding of corrosive effects of socialism which dominate every nation on earth and which drive political promises.
Neither will they do the right thing based upon sound economics or the “common good.” For this reason, he does recognize that his system of reform won’t satisfy the Austrian School (the true free market theory) of economic thinkers like Mises and Hayek:
Austrian School supporters of a traditional gold standard [100% backing with redeemability in a fixed amount of gold per bill] are unlikely to endorse this new [his] gold standard because it has fractional, even variable gold backing [and allows a mix of fiat currencies to be intermingled with gold backing]. The conspiracy-minded are also unlikely to support it because it is global and has the feel of a New World Order.
That distrust is merited, due to the conspiratorial nature and evil conduct of the globalists who promote the New World Order.
Even the milder critics will point out that this system depends completely on promises by governments, and such promises have consistently been broken in the past. Yet it has the virtue of practicality; it could actually get done.
If it was accepted it would be because those who would agree to it would see that it still contains the allowance for fiat expansion of the money supply without the constraints of 100% commodity backing. But, just because it “works” doesn’t mean it is honest or fair to all.
The reason the gold redeemability standard of the Bretton Woods agreement didn’t hold is that it didn’t really prohibit the FED from printing more currency than the redeemability of the gold clause could supply. It simply relied on the US promise to redeem at a fixed price, with the implied threat of default that would follow any indiscriminate money creation without a concomitant increase in the gold supply. The rest of the world failed to figure on US perfidy and the inevitable future default on their gold obligations which came in 1971.
The promise of gold redeemability is the real thing that promoted the dollar as a reserve currency, not some ethereal or general promise of gold backing by a central bank. Gold backing without redeemability is like loaning money to someone with a collateral guarantee but no provision for foreclosure upon default.
Interestingly enough, the US has only lost about 20% of its international reserve value since reneging on the gold contract in 1971 And that is because no other currency was offering redeemability in gold either. Relative to our current situation Rickards says,
Here we are, again, looking at another collapse… A paper money standard can work, but only if you maintain confidence in the money . . . and you do that by running a good economy and having a good business environment . . . we’re doing the opposite. We are printing a lot of money [so is everyone else]. We have a lousy business environment [so has everyone else]. Taxes are too high [ditto]. Growth is too low [ditto]. So, a lot of things are combining to undermine confidence in the dollar.
In his latest book, he documents similar problems with Russia, China, Brazil, India, Britain, and the EU, so why can’t he see that all these problems don’t point to a dollar collapse, but rather a downward spiral of all economies? Rickards goes on to say,
The last time the system collapsed in 2008, the Fed rescued it. [It didn’t collapse—only the mortgage-backed securities market collapsed and the housing market which dropped about 30%.] How did they do that? Well, we know the Fed printed over $3.5 trillion in new money in the last 5 years. The Fed’s balance sheet went from $800 billion to over $4 trillion [but that inflation of the money supply was less than 2% of US dollars outstanding—hardly hyperinflation].
He missed the biggest thing the FED did to bail out the economy—they bailed out AIG, the largest holder of derivative contracts (guaranteeing those mortgage-backed securities). This alone kept the derivatives bubble from collapsing, which would have taken down not only AIG but Goldman Sachs and JP Morgan Chase. Here’s Rickard’s final warning:
When the next collapse comes, it is going to be bigger than the last one. It’s going to be exponentially bigger. The five biggest banks that were too big to fail in 2008, today they are bigger. They own a larger percentage of the total banking assets [including the FED itself, secretly]… the last crisis was barely enough for the Fed to contain. They have used up all their dry powder. They can’t take the balance sheet any higher. The Fed is insolvent… What are they going to do, take their balance sheet to $8 trillion and leverage 200 to 1? The game is up.
No, the game isn’t up and they haven’t used up all their powder. They can and show every sign of keeping real inflation below the 10% level, and if they do that it won’t turn into a hyperinflation scenario that he and others are touting:
Imagine gas at $20 a gallon and bread at $10. That’s what we’re talking about… When a collapse happens, it will happen quickly. You won’t see it coming. There won’t be time to run out and buy gold, and it probably will not even be available at that stage. You need to prepare now.”
–Not true at all. Inflation starts out slowly and then picks up speed. But before it becomes a rush, something very specific has to happen between government and consumers—income and salary raises have to become automatic and backed by government money.
Without these injection mechanisms from government you only get stagflation, not hyperinflation. If prices rose 50% suddenly as he claims, it would instantly stall the economy. As long as people don’t have a way to increase their income to match that level of inflation, they simply stop buying and the economy stops raising prices due to lack of demand. The only way hyperinflation can take hold is for government and business to start indexing people’s salaries to inflation so they can keep pace. Without it, there’s only stagflation.
In summary, Rickards is absolutely right that US debt is unsustainable and that it won’t ever be solved. But he is wrong about collapse being the only option. He fails to see they can prolong the time to a default for several more years until other events help them avoid the blame:
1) The US and the FED are NOT out of options and if they keep doing what they are doing (keeping inflation below 10%, manipulating the official inflation rate even lower, and artificially suppressing interest rates and the price of gold) they can prolong the inevitable default on US debt for a decade or more. They show every sign of doing just that, which he fails to recognize.
2) Rickards lists all the dire things that can bring down the dollar but he misses the biggest one of all. He fails to see the world war the globalists are preparing to bring down upon the world by inducing a nuclear strike on the US from Russia and China. This gives them not only an excuse to drive the West into a militarized global government and new world financial system, but helps them evade the blame for the inevitable debt collapse.
He writes as if the only threats are economic and I see that as his greatest failing, despite his otherwise erudite analysis—and he’s not alone. Most other “smart people” fail to see the world war that’s looming. But, with both Russia and China beginning to show their aggressive tendencies, you have to be willfully blind not to see this new threat emerging.