...as anonymously received and published by the legendary Richard Russell of http://DowTheoryLetters.com/ via http://ragingbull.quote.com/mboard/boards.cgi?board=CLB01229&read=23712
On the December 28 site, I put forth my theory regarding what the Fed (and probably the administration) plan to do about our insane multi-trillion dollar debt. I want to start with three assumptions:
(1) The people at the Fed are not stupid, they are as intelligent as you or I. True, they are operating outside of the US Constitution, but who cares about the Constitution today (well, maybe Ron Paul does)?
(2) The multi-trillion dollar debt of the US is so fantastical, so insane, that it can never, ever, be paid off, either by raising taxes or by borrowing. Furthermore, the interest on the US debt is rising and compounding at a dangerous and relentless pace.
(3) I believe Obama and probably Bernanke have been greatly influenced by the policies of the Roosevelt administration during the Great Depression of the 1930s. I’ve felt all along that Obama has followed Roosevelt’s strategies. In 1931 Roosevelt, to offset deflation, raised the price of gold from 20.67 to 35 dollars an ounce.
A few days ago I received a paper, signed anonymous, that expanded my December 28 piece. The paper was written so clearly and so well, that I want to reproduce some of it, courtesy of the anonymous author. What I thought so interesting is that this idea is starting to spread around and maybe gain widespread credence. The article follows, edited a bit by Russell.
“Out of respect for the proven maxim ‘do not underestimate your adversary’, we assume that the deus-ex machina power elite of the political and financial system in the US is highly intelligent and completely informed in every respect. We assume that they have in hand or have already begun to implement a carefully thought-out plan prepared years ago.
“We use the following facts in our hypothesis;
“The US Federal Reserve Banking system was put into effect in 1913, (i.e, 96 years ago).
“The US dollar has declined in purchasing power during that time by approximately 95%.
“Youngsters (under the age of 50) don’t recognize the collapse in the purchasing power of the dollar. Old timers like Richard Russell do. I remember when a pack of gum was a nickel, I remember when a new Buick sold for $1800, I remember when a subway trip around Manhattan was a nickel.
“The debt obligation of the US government has become an unpayable sum, amounting to multi-trillions of dollars. That is, the US could not collect enough in taxes, reduce its expenses enough, nor produce enough material wealth with its degraded manufacturing infrastructure and work force to pay off this debt in the foreseeable future. It’s a debt that is the largest ever incurred by any society in world history.
“The US dollar is the world’s reserve currency and is held as a monetary reserve in central banks worldwide. China, for example, holds approximately 2 trillion dollars of US Treasury securities in its reserves.
“The US Treasury has a declared hoard of 261.5 million ounces of gold.
“According to the US Dept. of Treasury (as of 2008) the value of US currency and coin in circulation is 85.2 billion dollars with 70% of this being located outside of the US. John Williams of “’shadow stats” places this figure at 923 billion with 50% overseas.
“The US government now has in place a domestic policy of massive credit expansion, extremely low interest rates, and the takeover of private corporations.
“Assuming the power elite seeks to maintain the status of the US as a world power and not plunge the world into an economic meltdown, there are only two ways to pay off its otherwise unpayable debt. That is, by default or by wiping it out with inflated dollars. It seems that the latter choice has been decided upon. This may be accomplished by a continuing massive expansion of credit that will have the effect of decreasing the value of the dollar, increasingly allowing cheap dollars to be used to amortize existing debt previously incurred with expensive dollars. The holders of dollars are trapped into this situation, just as they were in 1931, but at the least, they would like an orderly decline of the dollar. They would like to rid themselves quickly of these failing fiat dollars but understand that a panic run out of the dollar, prompted by dollar-dumping would result in a severe collapse in the value of their dollar reserves. They need time to use these dollars while they still have an exchange value to acquire other real assets. They also will continue to trade with the US to support their home economies while they continue to divest themselves of dollars and build their internal markets and alternate markets. These captive dollar holders are between ‘a rock and a hard place.’
“The fiat money game is destined to end because domestic and international confidence in the dollar will fail as the world realizes that the dollar, regardless of proclamation of the US government to the contrary, is a path towards worthlessness. However, the US will try to keep the confidence game going as long as possible to gain time to reduced its debt obligations by payment with cheap dollars.
“About the time a currency collapse appears imminent, the US will have reduced its debt to hopefully manageable proportions or amortizes it completely with inflated dollars. The price of gold will have soared to new highs. Currently, if the US Treasury were to back the total of US dollars in circulation worldwide with its 261.5 million ounces of gold, that gold would be priced at 3530 dollars an ounce. However, if gold were to reach 5000 dollar an ounce, and with circulating currency at 923 billion (shadow stats), that would seem a propitious time to announce a new monetary policy. At $5000 gold the Treasury’s gold would be valued at more the 1.4 times the existing dollars in circulation. The US could then proclaim that it would redeem these dollars at the market price of gold, whatever that might be. That would still leave the Treasury with approximately 384 billion dollars in gold if the market price were $5000 an ounce.
“This strategy, if brought to a successful conclusion, would leave the US solvent, debt free, and on a solid gold standard monetary system. With America once again standing behind the dollar as ‘good as gold,’ a renaissance of recovery would come roaring back in the US and throughout the world.
“Would the power elite actually chose such a strategy? They might, thinking that within a couple of generations, they could once again reintroduce the concept of a privately owned central bank with a monopoly power to issue fiat currency. In the meantime, they would have the massive booty of 96 years reaped from a central bank fiat money system to sustain them in the lap of luxury.”
Russell Comment — We must never again allow a sinister group of individuals to seize control of our money system. The Founding Fathers foresaw the danger of paper money issued with no connection to gold. Moreover, it’s imperative that the discipline of gold be taught to all Americans so that the immoral concept of a Federal Reserve can never again be sneaked or thrust upon the American people.
All Congressmen and Senators must be taught a class in money, fiat money, gold and the Constitution. The course must be mandatory. President Obama is said to have taught Constitutional law. As Obama surveys the Fed, and the results of fiat money in the US today, what in God’s name is he thinking?