Is the devaluation of the dollar and inflation inevitable?
*Dow Theory Letters, by Richard Russell, October 5, 2012
”Suppose we decided to stabilize our growing debts through spending cuts alone? We’d have to cut all government spending by 31%.
But suppose we decided to stabilize our growing debts through taxes alone. We’d have to raise taxes by an impossible 46%.
Both of these ‘solutions’ would wreck the nation. Therefore, neither one will be on the table. But a combination of both will probably be tried.
But wait — suppose there is no political or reasonable answer to our growing and compounding deficits and debts — none? Then what? Wait, there is one answer, and it’s the answer that our government will surely try. That answer is to try to print our way out of the debt problem. The government will surely attempt to print our way out of our growing troubles.
The biggest debt problem is connected with our government health program. By the year 2050, health programs will chew up about 14% of the US’s entire gross national product. Cutting back substantially on Medicare is politically impossible.
Thus, the answer to all the above is for the Federal Reserve to turn to printing us out of trouble. How will we know when this is happening? Since wholesale creation of the currency (printing) is inflationary, the answer is to monitor the dollar and to watch the bonds (which dislike inflation).
As the purchasing power of the dollar deteriorates, it will take an increasing number of dollars to buy one ounce of gold. Thus, when we buy an ounce of gold, our purchasing power is stabilized. But at the same time it will require an increasing number of dollars to buy one ounce of gold. It will also require an increasing number of dollars to buy anything else.
As the dollar declines in purchasing power, it will begin to lose its international reserve status. Foreigners will begin to avoid the US dollar. At around that time I believe the dollar will face growing competition from the Chinese yuan. To make matters more difficult, I believe the yuan will ultimately be partly backed by gold. This will be part of China’s plan to take over leadership of the world.
Throughout history, the nation with the reserve currency was also the nation with the most powerful military. This was true of Holland, Spain and most recently, Britain. When Britain lost its power and military (navy) leadership during World War II, the US moved to the fore, and, in turn (Bretton Woods), the US dollar became the world’s reserve currency.
The US’s Pentagon is now worried about the build-up of China’s military, particularly its navy. China knows what it is doing. China knows that if it becomes the world’s leading military power and it possesses the world’s reserve currency, it will be the new leader of the world.
The Chinese communist leaders know that if they can elevate China to world leadership, then the Chinese population of 1.3 billion, which has been starved for recognition, will appreciate and be proud of their nation and its new leadership. In this way the communist party in China will have ensured its power in the world’s most populated nation (China is not worried about India, which is not a military power).
Did you notice that during the debate neither candidate directly addressed the deficit or the growing debt? The reason they didn’t is because neither of them has a plausible answer! There is only one answer, and it’s a temporary answer — printing.”
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.