By Jay Taylor
27 Feb 2006 at 01:46 PM EST
WOODSIDE, NY (MiningStocks.com) — Some very rapid changes are taking place that threaten the world order as we know it. In addition to Congressman Paul’s speech and discussion of our budget deficits, several headlines caught my attention this past week that illustrate these changes.
For example, we see China Daily reported on Friday that China is seeking to quickly finalize a $100 billion energy deal with Iran before the U.S./U.N. puts sanctions on that country, allegedly related to its uranium enrichment activities.
Then we learn that the Indian central bank was a big buyer of gold this past week.
Meanwhile, Germany, which used to be one of the big gold selling countries during the heydays of gold manipulators up until about 2002, is saying no more central bank gold sales, and apparently Deutsche Bank doesn’t like that much. If you wonder why that would be, all you have to do is go back and read some of what the Gold Anti Trust Action Committee has been saying about Deutsche Bank’s activities as one of the anti-gold bullion banks who were defendants in Reginald Howe’s anti-gold manipulation lawsuit. Deutsche Bank rather likes the fascist economic policy of government bailing out big corporations, at least when it is the big corporation.
There has been rumor after rumor of central banks now buying gold. Remember when Argentina flipped the U.S. and the U.K. and their owned and manipulated institutions, the World Bank and IMF, the bird by taking some of their precious dollars and buying gold rather than paying back dollar-denominated loans?
Another factor that has been buried “on page 100” so to speak in the New York Times is the fact that Iran is planning to establish an Iranian oil market and will settle oil transactions in euros rather than dollars. And so Iran is defying the U.S., as did Saddam Hussein before that act was turned around with a war. As soon as the U.S. took over Iraq, that promptly reestablished the U.S. dollar in place of the euro. Dr. Krassimir Petrov makes the point in a paper he wrote on January 20, 2006: “The American Empire depends on the U.S. dollar. The proposed Iranian Oil Bourse will accelerate the fall of the U.S. dollar and hence the fall of the American Empire.”
I have had some communications with Dr. Petrov and hope to interview him for an upcoming issue of both our gold and energy newsletters. But his view is one I have held for quite some time. What gives the U.S. dollar value is increasingly suspect and non-existent, given our huge and growing trade deficits. The manipulation of the gold price downward helped provide an illusion of a strong dollar during the Clinton years. And to Clinton’s credit, he was much more responsible than our current President is proving to be on the fiscal front. But make no mistake, a huge reason why the dollar retains its value is that something like 80% of all international trade is settled in dollars. Think about the billions of dollars daily in oil and other commodities, not to mention financial transactions around the world. Were it not for the dollar being the world’s reserve currency, it would have collapsed long ago.
With the fundamental underpinnings of the dollar becoming increasingly suspect, we see more and more countries seeking to “diversify” their foreign currency holdings not only into euros and yen, but quietly and surely into gold. Some countries like China are doing all they can to encourage their citizens to buy gold, even as Wall Street stupidly and ignorantly looks at the yellow metal as a barbaric relic. That’s because Wall Street can reallocate wealth from the rest of the world much more rapidly through the systemic theft of fiat money than it can through honest, hard work. Our corrupt fiat money system is serving to damn our nation by bidding the best and brightest talent in America away from Main Street, where they used to work creating and building products that enrich lives rather than engaging in speculative activities that falsely promise we can get rich without working.
As the world begins to shun the dollar, how will policy makers react? We need nearly 3 billion per day to keep our economy from deflating. Until now, foreigners have been willing to lend us that money, but there are signs that may be coming to an end. What will Bernanke do then? Will he raise interest rates (decrease the money supply) to keep foreigners sending their capital to us? Or will he try to print more money so there is enough “liquidity” to keep the U.S. economy going? Neither choice is very appealing. If “Helicopter Ben” prints more and more money, we face the prospects of a flight from the dollar and skyrocketing interest rates that will require faster and faster printing with the risk of some sort of hyperinflation. On the other hand, if he tightens the money supply (increases rates) with Americans much more heavily indebted now than we were before the 1929 crash, we face the prospects of the K-winter.
Ultimately, we get the K-winter. Of that I have no more doubt than I ever had. The question we need to face now is whether we have several more “good” years of inflation, during which time to join the inflation party, which allows those who see what is coming to allocate wealth from the naive, who do not see what is going on. Or, will Helicopter Ben’s printing presses not perform as he has promised, in which event we bite the dust in a deflationary collapse? Which way we go makes all the difference in terms of what kind of things we want in our Model Portfolio and is why I continue to pay so much attention to our Inflation/Deflation Watch.
I don’t know which way this increasingly vulnerable economy will tip in the shorter term, but what I do sense is that the establishment may very well be losing control of the situation and that we could have some earth shattering geopolitical changes in the not-too-distant future that could send Americans into poverty at a very rapid rate.
(c) J. Taylor’s Gold & Technology Stocks 2006
J.Taylor’s Gold & Technology Stocks is published monthly as a copyright publication of Taylor Hard Money Advisors, Inc. THMA provides investment advice solely on a paid subscription basis. Companies are selected for presentation in this publication strictly on the merits of the company. No fee is charged to the company for inclusion.
(c) 2006 resourceinvestor.com
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