The ongoing train wreck demise of the U.S. dollar as the world's reserve currency.

Great article from the Nestmann Group, ostensibly about Bitcoin, but really much more about the continuing demise of the U.S. dollar: Is Bitcoin Becoming the Anti-Dollar?
 

Future of the U.S. (and the EU)

I received an email yesterday from Q Wealth Report alerting me to a blog post that I think is insightful. They suggested recipients forward their e-mail to "friends who may benefit from this information."

I'm trying to do them one better, yet honor their intentions. I am reproducing here the majority of Peter Macfarlane's post but including the majority of their "sales" text--at least to honor their [marketing] intent even while sharing at no cost the (in my opinion) useful insights:

Yesterday, 30th November 2011, something very significant happened that I would like to inform you about. It was briefly reported in the mainstream media, but was not analyzed correctly.

Lots of people have asked me recently if the Euro was going to collapse. Yesterday the answer to this question became very clear to me. I can now confidently make predictions. Is the Euro going to collapse? The answer is both yes and no. Allow me to explain. . . .

DICTATORSHIPS IN EUROPE, SUSPENSION OF CONSTITUTIONAL RIGHTS IN THE USA

Against my own advice to follow the big picture and avoid being distracted by day-to-day news, I got caught up in following the recent Euro crisis. Granted, it has certainly been quite spectacular. Italy’s and Greece’s democratically elected governments have been replaced by technocrats. The amazing thing is that most people don’t appreciate the severity of two EU governments effectively being replaced by dictatorships controlled from outside those countries. (Spain’s decisive change in government is more positive, the result of a landslide general election, and generally makes me more positive on Spain’s future.)

In the same way, most people don’t seem to appreciate the significance of Senator John McCain introducing an amendment on Tuesday that allows the American army to arrest and intern American citizens forever without the right to trial [I wrote about the subject yesterday here--JAH]. Call me old fashioned, but the mere fact that such a proposal could even be debated in the US Senate shocks me on one level . . . never mind the fact that it could actually pass. When I grew up, this was something we would have expected of the Soviet Union, not the USA. I think it was James Madison, the primary author of the US constitution, who said “If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy.” [Not actually. Or, at least, the statement cannot be confirmed. But Madison said very similar things. For example, "Perhaps it is a universal truth that the loss of liberty at home is to be charged against provisions against danger, real or pretended from abroad" (Letter to Thomas Jefferson (1798-05-13); published in Letters and Other Writings of James Madison (1865), Vol. II, p. 141) or "The means of defence agst. foreign danger, have been always the instruments of tyranny at home" (Speech, Constitutional Convention (1787-06-29), from Max Farrand's Records of the Federal Convention of 1787, vol. I [1] (1911), p. 465). --JAH]

. . . All this theatre distracted me from my own insight. I can now confidently say that the Euro will not appear to collapse. It will continue to exist in some form or another. Why? Because the Federal Reserve will not let the euro collapse. To do so would trigger a dollar collapse. . . .

Here are some selected quotes from Bloomberg and The Street (here and here) published yesterday, that tell the story:

The Federal Reserve, Bank of Japan, European Central Bank, Swiss National Bank, Bank of Canada and Bank of England have joined together to make more dollars available at cheaper prices in an effort to ease liquidity strains in financial markets.

Central banks agreed to establish temporary bilateral currency swap arrangements “so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant,” the Fed said today in a press release, calling the agreement a “contingency measure.”

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., called the bilateral arrangements “a novel step and a curious feature of today’s announcement” that “are apparently being set up as a backup plan in the event of a worsening in global financial conditions.”

So rather than European operations of Citigroup Inc. or Morgan Stanley seeking euros from the ECB, the Fed could contribute to euro liquidity by doling out loans to those institutions in the U.S.

Europe isn’t facing a liquidity crisis. The world is facing a structural solvency crisis in which businesses, governments and individuals have all borrowed money — and made promises — that cannot be repaid unless more money is printed (or, more specifically, until more credit is issued).

This actually strikes me as more than a little ‘curious.’ So now the Fed is going to start bailing out American banks with Euros???!!!

It doesn’t make a lot of sense . . . unless you go back to my original stealth devaluation premise, described in this Q Wealth article from November 2010 as well as earlier articles.

NO, THE EURO WILL NOT COLLAPSE

I take yesterday’s news as a clear signal that the euro is not going away any time soon. It will probably maintain approximately its current exchange rate against the dollar, give or take a few points. It is even likely to gain a bit, since this new multi-currency form of quantitative easing is clearly based on printing more dollars, not euros. So looked at from this point of view, I say the euro is not going to collapse.

One could certainly argue that America is bailing out Europe on one level. But I don’t really buy that either. America desperately needs to devalue the dollar as being the only hope of ever repaying debts. America is not in a better shape than Europe. The European crisis is nothing more than a distraction from a much bigger problem.

YES, THE EURO WILL COLLAPSE

On the other hand, in reality the euro already has collapsed, and it has a lot further to go. Looked at it from this point of view my answer is ‘yes, sure, the Euro will collapse.’ It’s just that the US and Canadian dollars, the yen, the pound sterling and the Swiss Franc are all going down the toilet too, in a co-ordinated global effort, at much the same speed. The central bankers are just hoping that the population won’t notice.

Of course, people are beginning to notice that something is wrong – very wrong. Grass roots citizen movements like the Tea Parties and the the ‘Occupy’ movements effectively share the same goal: to change a system of government that has become thoroughly corrupt, dysfunctional and despotic.

DECISIVELY CLOSER TO ONE GLOBAL CURRENCY

Yesterday we moved decisively closer to one, global currency, with the governments of major western economies all making this concerted move. Let’s look at how the euro came into existence, and consider the parallels with what we are seeing today wit the US, Canada, Japan, Switzerland, UK and the EU… According to Wikipedia:

In 1971, US President Richard Nixon removed the gold backing from the US dollar, causing a collapse in the Bretton Woods system that managed to affect all of the world’s major currencies. The widespread currency floats and devaluations set back aspirations for European monetary union. However in March 1979 the European Monetary System (EMS) was created, fixing exchange rates onto the European Currency Unit (ECU), an accounting currency, in order to stabilise exchange rates and counter inflation. It also created the European Monetary Cooperation Fund (EMCF).

That last organization sounds suspiciously similar to the European Financial Stability Fund (EFSF). Anyway, time passed, and internal bickering in Europe continued. Fast forward to 1999.

The currency was introduced in non-physical form (traveller’s cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999, when the national currencies of participating countries (the Eurozone) ceased to exist independently in that their exchange rates were locked at fixed rates against each other, effectively making them mere non-decimal subdivisions of the euro.

It was not until several years later that the euro as we now know it came into being. Still, a lot of people don’t want to give up the old currencies. As an aside, for example, I found this interesting:

Efforts to secure the return of German coins continue. In 2005, Deutsche Telekom modified 50,000 pay phones to take Deutsche Mark coins, at least on a temporary basis. Callers were allowed to use DM coins, at least initially, with the Mark pegged to equal one euro, almost twice the usual rate.

I suggest you take time to reflect on this precedent. I don’t have all the answers, but we do seem to be getting closer and closer to a situation where the US dollar, the euro, the pound and other currencies become ‘mere non-decimal subdivisions’ of a global currency unit. These things take time and are not immediately obvious. You should, however, be very scared by this prospect.

WHO ARE THESE CENTRAL BANKERS?

And who are these Central Bankers? Are they pawns of the Morgans, the Rothschilds, the Queen, the church, the Obamas, the corporatists, the globalists, creatures from Jekyll Island . . . ?

I really don’t care. If someone tries to mug me on the street, my instinct will be either to defend myself, or to make a pragmatic, fast decision that it’s smarter to comply with the attacker’s demands. But I certainly won’t be worrying about the pedigree of the attacker. The same applies here.

All I can say, is these people clearly have the support of all branches and forms of all major governments. That’s right, those nice people like Senator McCain who want the right to lock you in jail and throw away the key, without having to worry about trifling details like the facts of the case. “Facts,” says McCain, “are stubborn things.”

HOW LONG CAN YOU REMAIN LEGAL?

The time has certainly come – as if you are being mugged – to panic, then quickly and calmly to do whatever is necessary to save yourself and your family. If you can’t physically move yourself directly out of danger fast, the safest course of action is to keep up all appearances of complying with the attacker’s demands. That way you can stealthily move assets and family members out of harm’s way.

Where possible, you should not just maintain the appearance of compliance. You should actually be compliant. That is still possible, just. In The Q Wealth Report, we frequently give you details of compliant offshore banking and investment structures.

However, you should keep in mind that one day soon, the time might come when it is impossible to remain compliant. Hidden currency and exchange controls like FATCA are hastening this day. When that day finally arrives, you will be forced to make possibly the most difficult decision of your life – do you break the law, or do you allow the government to pillage your assets? If you are not very careful, you might end up doing both.

PROTECTING YOURSELF WITH A SECOND CITIZENSHIP

There are ways to protect yourself. Obtaining a second foreign passport for you and your family is one of the best. This will give you the option of renouncing your existing citizenship later. It’s very relevant for US citizens now, but could also be relevant for citizens of other countries that, out of desperation, will try to follow the US lead and tax even their non-resident citizens on worldwide income. FATCA will put the information required to do this at their fingertips.

Look at the example of Uruguay. Uruguay long taxed its residents only on domestic income. But last year, they suddenly announced that forthwith, Uruguayan residents would also be taxed on income from overseas investments. To paraphrase the President, he said the only reason they hadn’t taxed overseas income before was that they didn’t have the means to do so. The signing of a series of tax information exchange agreements, ironically under the pressure of the OECD who considered Uruguay a tax haven, had changed this. [And] now, with these treaties, they did have access to information on the overseas holdings of Uruguayans. So they started taxing.

The UK, Canada, France or Australia could turn around and do the same thing tomorrow – and in the current climate, rich tax exiles would undoubtedly be a politically popular target.

You’ll find more information on second passports here and in almost every issue of The Q Wealth Report.

BUY PHYSICAL GOLD

Gold already shot up yesterday on the news of the new multi-currency QE program. Physical gold stored in a safe, offshore jurisdiction is undoubtedly one safe store of value. As I said in my original stealth devaluation articles, those who look at gold as their base reference currency, rather than as a simple investment, will see the real crash of the euro, the dollar, the pound et al.

Don’t be fooled into buying things like the Gold ETF. Find out why in our Free Gold Report.

OFFSHORE BANK ACCOUNTS TO AVOID THE GLOBAL STEALTH-DEVAULATION CONSPIRACY

As bad as government-issued fiat money is, you’ll probably need to keep some in the short term at least. For this reason, we recommend opening a multi-currency bank account somewhere offshore (that is, outside your home country and its immediate sphere of influence). This way you can keep money out of the big currencies, in the money of nations that are not participating in the global stealth devaluation conspiracy.

This will give you access, for example, to offshore credit and debit cards that work across the board – always provided plastic payment cards continue to be accepted, bearing in mind that emergency currency controls could cut them off at any time.

Further information on the practicalities of how to open an offshore multi-currency bank account, including anonymous numbered accounts (yes – they still exist!) and offshore corporate bank accounts, is available in Q Wealth’s Practical Offshore Banking Guide. The 2011 edition is currently available for download in our Members’ Area, and will be replaced before the end of the year with the drastically updated 2012 edition.

READ Q WEALTH REPORT

There’s a lot more I could say about practical strategies for protecting your assets, but I’ll save that for the articles my colleagues and I write regularly in The Q Wealth Report and our series of exclusive special reports. . . .

If you’re not ready to make a monetary commitment yet, please consider signing up for our free newsletter and/or free sample reports on important topics that are available at this site. Remember there is no obligation, you are free to unsubscribe at any time, and we will not pass your e-mail address to any third parties.

To conclude on a positive note, as I said at the beginning, the crisis we are just entering now will result in huge transfers of wealth, more than we have seen in our lifetimes. Those who keep their savings in fiat money will lose most of it. Those who invest their fiat money smartly and quickly, while it still buys things that are of value, stand to make almost obscene profits.

I don't know how "positive" that last paragraph is. Though it certainly bothers me to think I may be on the "wrong" side of currency devaluation!

I keep reading this kind of stuff. I keep posting. But will I take action? When?

40th Anniversary "Celebration"

I didn't pay attention one week ago today on the actual anniversary.

So let us "celebrate," today, only one in several US government failures to demonstrate good "full faith" on its promises with respect to its financial obligations. (The government speaks of its "full faith and credit.")

Few besides supposed nut-cases like Ron Paul will use the word "default" when it comes to US policies with respect to the dollar. But what do you call it when the US government refuses to honor its promises to pay? Was this historical event not a default?

Nixon Ends Bretton Woods International Monetary Accord

The Bretton Woods system was created towards the end of World War II and involved fixed exchange rates with the U.S. dollar as the key currency - but also a role for gold linked to the dollar at $35/ounce. The system began to falter in the 1960s because of an excess of dollars flowing out of the U.S. which foreign central banks had to absorb. A run on gold in 1968 was stemmed by a patch on Bretton Woods known as the two-tier gold system. All of this was ended unilaterally on August 15, 1971, when President Nixon announced on TV three dramatic changes in economic policy.

• He imposed a wage-price freeze.
   
• He ended the Bretton Woods international monetary system.

And,

• He imposed a temporary surcharge (tariff) on all imports.

It's worth listening to what he said back then . . . and then compare his statements to what has occurred during the intervening 40 years.



. . . A single crisis a year was "big news" back then? --Where are we today?

. . . Is the U.S. dollar stronger than it was back then? More stable? . . .

"Kicking the can"

I thought I would post some of the most recent inputs I've been receiving about our government's failure to address the financial crisis.

From Dr. Gary North (5/17/2011):

The worst crisis from the government's point of view is the national debt crisis. It leads to calls for reduced government spending. For this crisis, the government has this well-orchestrated response:

1. An admission that it is real, but not imminent
    
2. A promise to deal with it later
    
3. A call to spend more now to spend less later
    
4. Kabuki theater [According to Wikipedia: "classical Japanese dance-drama . . . known for the stylization of its drama and for the elaborate make-up worn by some of its performers. . . . (The word) kabuki can be interpreted as "avant-garde" or "bizarre" theatre. The expression kabukimono (歌舞伎者) referred originally to those who were bizarrely dressed and swaggered on a street."]

This week, the issue of the U.S. government's debt ceiling comes up for discussion in Congress. The Secretary of the Treasury has offered a dire forecast. There will be a double-dip recession unless Congress votes to raise the debt ceiling once again. Congress does this every year, but this year there is pressure from new House members not to raise the ceiling. Meanwhile, the government is in the middle of a $1.65 trillion on-budget deficit. Like a tornado, the deficit will hit the political will of Congress. There is no basement storm shelter. There is no safe room.

Congress's will to resist will be flattened, as it is every year. Usually, this vote has been pro forma. The media may mention it, but not as a prime-time story. It is always assumed that Congress will rubber stamp the proposed increase, in order to avoid a partial shutdown of the government -- maybe 10% of operations. For Congress, this is regarded as a level-5 tornado, not a squall.

The debt limit will be reached this week. Geithner says that he can juggle accounts until August, but at that point, the government will have to default -- the big D.

Speaker of the House Boehner has said that there will be a hike in the debt ceiling, but it will be a very special kind of increase. He said on the CBS Sunday morning news show, Face the Nation, that "we're going to do it in a way that addresses America's long-term fiscal challenges." . . .

In a previously recorded segment of the show, President Obama invoked what has become a familiar refrain: the recurrence of the 2008 crisis. If investors ever "thought the full faith and credit of the U.S. was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system. We could have a worse recession than we've already had."

Of course, neither Boehner nor Obama mentioned the possibility of cutting Federal spending in order to balance the budget this year and thereby avoid having to raise the debt ceiling ever again. Such a strategy is too radical. The proposed official solution is to raise the ceiling again, and to promise that this will not always be necessary, because economic growth will raise tax revenues One of These Days, Real Soon Now. The budget will be balanced. The recession will not arrive. They promise.

This year is different. The discussion is front-page, prime-time news. This is because a handful of first-term Congressional Republicans in the House are making noises about cutting spending in order to reduce the size of the increase. They don't have the votes, as we will see. These Congressmen say publicly that they see what is economically necessary, but economics has little influence in Congress. The majority of the members think they can kick the can down the road for another year. In 2012, they will all campaign on responsible spending. The operational definition of "responsible spending" never changes: "kick the can again."

DEFAULT IS COMING

In his interview in front of an audience, President Obama warned about the consequences of a default by the U.S. government. It could unravel the worldwide economic recovery. You can see the video here.

He is correct. If the Federal government ever stops paying interest on its debt, the repercussions in the financial markets would be severe. It would be worse than the crisis in the fall of 2008.

The problem we face is this: with every increase in the Federal debt ceiling, the likelihood of default increases. The politicians' solution to the threat of default is to delay the default.

The government is trapped. It really does face the prospects of default if the debt ceiling is not raised. The alternative is to cut spending drastically before August. But that would be a form of default. Certain groups that have been promised largesse from the Federal government would find that the promises were not binding.

The problem is now selective default. The Congress and the White House always agree to defer any form of default. This is why we can be sure that selective default is inevitable. The deficit numbers do not allow the government to escape the increase in the debt ceiling.

We know from decades of experience that selective defaults are not politically acceptable. So, the deficit keeps growing. The debt ceiling keeps getting raised. This is done in the name of default-avoidance.

The battle over the debt ceiling is a sham. If Congress cannot legislate spending cuts that will balance the budget, then there is no possibility that it will put a cap on total expenditures by means of a debt ceiling. There was no significant reduction in the deficit earlier this year. The deficit in fact rose compared to last year's forecast.

This is why the debate over the deficit is American kabuki theater. It is a way to score debate points for next year's elections. Candidates will be looking for published statements of incumbents' opinion on the debt ceiling. Everyone in Congress wants to position himself or herself as taking the responsible path to national prosperity.

The problem they face is this: to cut the deficit specifically is to alienate voting blocs that are dependent on transfer payments from the Federal government. They refuse to make specific cuts for this reason.

Each political party is more afraid of the alienation of specific voting blocs than it is with the general threat of the debt ceiling as a political issue. So, they do not specify what must be cut. Therefore, nothing will be cut.

An interviewer who wants to sink a candidate asks him to identify what programs he recommends cutting. The candidate mumbles.

Boehner said that everything should be on the table except raising taxes. This plays well to conservative voters. But where is this table? Whenever the debate over the annual budget gets laid on the table, the specific cuts are not made.

Boehner says we must now look at "the big picture." Indeed, we should. But Congress never does. Congressmen look at the small picture: the swing voters in their districts. These voters can usually make or break a re-election campaign. So, the Congressman seeks to retain the swing voters who elected him two years earlier while not losing his core constituency. He does not want voters to defect to his rival. So, he dares not propose specific cuts. Specific cuts alienate specific swing voters.

He said that Congress must not kick the can. But he announced that it must kick the can on the debt ceiling this time. When a politician says that Congress must not kick the can, but then says it must kick the can this time, so that it won't have to kick it next time, he is saying that Congress will kick the can.

And this from Porter Stansberry (I hate his (and so many other internet marketers') videos; they take way too long to "watch"/listen to them. So if you wait till the video starts, then hit the "Close Window" X button, you will be given the opportunity to stay on the page. Click "Cancel" and you will be able to read a full typescript of the video.) Here's just a small portion of Stansberry's longer presentation:

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!

With all of these bad debts piling up, we've had to begin repaying our debts by printing trillions of new dollars. And now, finally, the impact of this is being felt in a big way.

As our creditors continue to figure out what's happening, we're going to have very, very big problems.

I believe our creditors (which includes foreign countries and other investors here and abroad) 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.

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

And I'm confident it will lead to an end of the U.S. dollar standard.

Keep in mind, the U.S. dollar has been the world's reserve currency for decades now... so most Americans don't have a clue about what the repercussions are of losing this status.

And maybe you think it could never happen... but the truth is, this is exactly what happens when countries get too far in debt or when they consume too much or produce too little.

In fact, the exact 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, here's a photo of the garbage that piled up because they didn't have enough money to pay trash collectors a fair wage...



And here's what John Blackburn, from Wetherby, recently told the BBC television channel about his experience during this period...

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!"

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 13% since June 2010. And its rate of decline is accelerating.

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

As Barron's recently reported:

"When the monetary history...is written decades from now...2010 could be a watershed marking the beginning of the end of the dollar-based, Western-centric monetary system."

As the U.S. dollar continues to lose its position as the world's currency, gas, oil, and other commodities will continue to skyrocket. 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.

Everything is getting more expensive...

In fact, each week, The Wall Street Journal has a section called �Cash Prices.' It lists dozens of commodities, everything from wool, zinc, tin and pork... to gold, silver, platinum, and lead.

I recently checked these listings in the paper's March 1st, 2011 edition. And the numbers were mind-boggling...

In short, of the 88 prices quoted ... 85 items are more expensive today than they were just a year ago... many significantly so.

Oil is up more than 50% from a year ago. Silver is up more than 100%–so is cotton, and coffee. Tin is up 90%. Oats are up more than 70%. So is wheat. Butter is up more than 40%. So is sugar.

Again, of the 88 prices quoted, the only three physical commodities that are cheaper today than they were a year ago... natural gas, eggs, and chickens.

Everything is more expensive! In some cases... MUCH more expensive.

And yet the government says there is no inflation? How is that possible?

It's unbelievable to me that they think the American public is going to fall for this.

U.S. businesses have certainly caught on...

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."

And when you look back further than a year, the numbers are even more startling...

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


And the point here is simple: As we print more money, the price of the world's most essential commodities have soared. This is NOT a coincidence.

Around the world, as we print, prices soar... citizens protest... governments get overthrown. And it's only going to get worse...

Because we can NOT stop printing because we can't actually afford our existing debts. No one wants you to know this. No one.

That's why, despite the obvious inflation going on all around the world, the Fed continues to say there's no inflation at all.

And that's the scary part, to me. Just like in a Banana Republic, the government is radically devaluing the dollar and totally lying to everyone about what is really happening.

Whether you realize it or not, there is already a "run" on the dollar. Many of our creditors, like the Chinese, are getting out of the dollar as fast as they can via strategic commodities, like copper. That's partly why commodity prices are soaring.

Unfortunately, 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. Already, just look how quickly rates have moved up in recent months...


Instead of getting a mortgage at today's low rates of 5%, it may soon 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.

As Barron's recently reported:

"The demand for dollars from the rest of the world has been of inestimable benefit to the U.S. economy. It quite simply allows Americans to consume more than they produce and save less than they invest; in other words, to live beyond our means."

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.

The World's Most
Expensive Loaf of Bread
In 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.

The unemployment rate was more than 30%... and the government just kept printing money.

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?

So next the government 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.

[John's comment: "1993 to 1995"? I hadn't heard of this hyperinflation. Maybe Stansberry got his dates mixed up? He's pulling our leg? What's he talking about? . . . I did a Google search on inflation five quadrillion percent.

Oh! A paper by Dr. Watkins popped right up! --Yugoslavia. "The worst episode of hyperinflation in world history," says Dr. Watkins.

So now I can add Yugoslavia to my list of country's of whose hyperinflation I'm aware: Germany, Argentina, Chile, Vietnam, and so many others.

And we in the U.S. think we're going to escape?]

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 another ridiculous government move, the government 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. . . .

And then there is Martin Weiss who asks--and answers in the assertive: Will the U.S. default? Is it really possible?

It's not only possible, it is already happening. They're just hiding it. Kind of.

Take a look.
*******

Okay. So we've got all these screaming "the sky is falling" disaster pundits. What is a nice, sane, reasonable person supposed to do?

I'd say, first of all, you want to get educated about this stuff.

Read Weiss' article. He makes some solid suggestions.

Read the rest of Stansberry's lengthy article. He concludes with several practical suggestions, including an appeal to subscribe to one of his newsletters.

Maybe you would like to read The Hyperinflation Survival Guide published at the behest of Harry E Figgie, Jr, the CEO of Figgie International, Inc., back in the late '80s. --I wrote about it back in November.

Come to think about it, maybe you'd even like to read some of my past posts about hyperinflation here on my John's Corner blog.

Does Bernanke trust his own policies? Should we?

I saw this by Sean Hyman of World Currency Watch:

As you know, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Tim Geithner and Barack Obama now have us on the hook for $14.1 trillion.

That’s a National Debt of $178,413 for every man, woman and child… enough to send every 18-year-old in the WORLD to Harvard University for four years, with nearly $9 trillion left over!

But what most Americans don’t realize is . . .

Ben Bernanke . . . the man who literally controls the United States’ money supply . . . has accumulated $50,000 to $100,000 in Canadian government bonds.

When I first heard of this, I was shocked. But then I thought . . .

Can you honestly blame him?

Under his tenure, the dollar has LOST 16% of its spending power.

So, has Bernanke been quietly abandoning the greenback? That’s what my research indicates.

Hmmmmm.

Gets me thinking more of us really ought to be listening to and supporting Ron Paul in his campaign to audit the Fed . . . and probably place some of our money, too--assuming we have any long-term funds for saving--in other currencies as well . . . or maybe even in precious metals.

The long-term demise of the U.S. dollar

For various reasons (including the fact that I do a fair amount of international travel), I pay attention to the relative value of the dollar and other currencies.

Long before I ever left the United States, I was well aware of the German hyperinflation of 1921 through 1923, and was disturbed by the demise of silver coinage in the United States (1965) and the closing of the gold window by Nixon (1971).

I have been deeply concerned about inflation here in the U.S., and have tried to pay attention to how the dollar shifts in value compared to other currencies.

Recently (in the last couple of weeks), the value of the U.S. dollar has risen compared to the Euro. The reason for this shift? Greece among others (the PIGS they are called all together: Portugal, Italy, Greece and Spain) . . . but Greece, in particular, is running too great a deficit: 12 percent of GDP when the agreement among the Euro countries is that they would not borrow more than 3 percent of their GDP in any year.

A number of pundits have chortled over the European Union's bad practices. "Oh!" they say. "How awful that Greece has placed the Euro in jeopardy."

"See," they seem to suggest, "the U.S. dollar cannot be replaced as the international reserve currency."

I think they are sadly mistaken.

The U.S. may be granted a few more months--maybe even a few years--of reprieve. But our day of reckoning is near, I have no doubts!

I thought this commentary by Ashish Advani of World Currency Watch is particularly cogent and to the point:

Greece (along with Portugal, Italy and Spain) has always been the weaker of the Euro partners. The fact that Greece has a GDP deficit of nearly 12% is not a surprise. And yet, we have seen such panic in the markets that it has surprised most currency investors.

Let’s get some facts straight. The deficits of Illinois, New York, California and Florida, to name a few, is significantly higher than Greece. Their economies are significantly worse than Greece with no immediate end in sight. And while I [question] Greece’s plans to reign in its deficit, I have not heard of any significant plan from our states on their plans to cut their deficits.

The states mentioned above are [at] different stages of preparing to default unless they get re-financed. And with the federal demand (via new Treasury issuances of $2.5 Billion in 2010) growing each year, it is very likely we will see a state default on its debt before Greece defaults on its. . . .

Whither the US dollar?

I just ran across this interview between Martin Weiss and Larry Edelson. I think it is well worth your consideration.

Conducted in late October last year, it is titled "Washington's Secret War on the Dollar"--but it actually begins by noting that the U.S. government is only one among many entities that have declared war on the dollar.

Caveat Emptor! (Buyer[s of dollar] Beware!)

. . . Besides laying out the true risks associated with being invested in dollar-denominated assets, Weiss and Edelson also recommend some general--though relatively specific--guidelines for avoiding problems with dollar-denominated assets.