Demise of the Dollar story inflation/deflation the US and Treasury Bonds

Weekly Wanderings 12 October 2009

As usual in these weekly musings we present you with interesting items we’ve come across during the week…

Casey Research is one of the most respected research groups studying the precious metals investment arena and more generally, resource stock opportunities in all commodities. The group publishes a number of investment newsletters, and also some that are freely available, including Ed Steer’s Gold and Silver Daily. Ed is a member of GATA, the Gold Anti-Trust Action Committee, and  he is an extremely astute observer of the precious metals market. In his latest missive, we find the following…


A couple of days ago I mentioned in my commentary that you should read what I call “the three most important paragraphs ever written.” They were contained in an essay by British economist Peter Warburton that he wrote way back in April of 2001. In case you never did take the time to read his essay, or the three paragraphs mentioned… I will quote them here. I urge you to print a copy of them and read them every day until you ‘get it.”

“Central banks are engaged in a desperate battle on two fronts”

“What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely-traded market for non-financial assets.”

“It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices.”

“Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.”

The whole point of derivatives, and the lack of position limits in much commodity trading [particularly gold and silver] was precisely to suppress commodity prices and to divert massive monetary inflation into financial assets and away from things that might get measured by consumer price indexes.

Peter Warburton’s article is entitled “The Debasement of World Currency: It Is Inflation, But Not as We Know It”.  The essay was originally posted over at David Tice’s website… but this link is to the copy posted over at… and the link is here.


Max Keiser’s guest this week for his On the Edge show at is Jim Willie, of the Hat Trick Letter investment newsletter. Jim has a Ph.D in Statistics, and a long career working in applications of the discipline. He speaks with authority on the subject, and when he says that economic statistics relating to the unemployment and inflation that are published by the government are complete and utter fiction, it pays to take notice. John Williams of, another information resource we follow closely to ascertain what is really going on, concurs with Jim’s view.

If you want to save some time, we summarize the essential points of the interview below the videos:

  1. The big news this week is the possibility of the Demise of the Dollar. In the UK Independent newspaper, Robert Fisk published an article on the alleged drive by several important nations, including Japan, Russia and France among others, to replace the longstanding requirement to buy oil only in US dollars by an arrangement instead to purchase it in a basket of currencies.   [Note: Check out our thoughts from lastweek on this news item along with some related video footage here in our “Latest Gold News” section.]
  2. Associated with this concept is the idea of a new global currency, which carries with it the requirement of the powers that be that it be backed up by a strong military force. Also just recently the G20 in Pittsburgh endorsed this idea of a global reserve currency constructed from a basket of currencies.
  3. The US is losing influence in the Gulf to Russia and China..
  4. A weakening dollar would lead to a powerful cost tsunami breaking over the US economy.
  5. The inflation/deflation debate hinges on the perception that, although the Fed is pumping huge amounts of money into the system, it is not flowing into the economy at large….. hence no apparent inflation.
  6. However, there is a vast money flow occurring –  into the hidden unregulated OTC derivatives  that accompanied the banking over-leveraging in the first place!
  7. Much of the speculative money flow over the past 20 years has been related to the yen carry trade – borrowing yen at effectively 0% interest, and investing the proceeds in (generally paper) assets that returned a yield.
  8. We are seeing the establishment now instead of a dollar carry trade – whereby weakening dollars are borrowed, again at effectively zero cost. This free money is being used to speculate in other assets – and it looks like gold and oil are among the instruments of choice here.
  9. It is a disaster for the world’s global reserve currency to be used as the funding currency for such a carry trade – it basically sends a message to the world that the US dollar is weak and likely to get weaker.
  10. The COMEX (the exchange where gold futures are traded) is in danger of default.
  11. The recent jobs report is a disaster. On the horizon could be a Treasury bond default. Rapidly rising interest rates coming down the pike??

As a final note, I would like to draw your attention to Jim Puplava’s discussion with Gerald Celente on the economy in the October 10th Financial Sense Newshour. The link is here, and the section begins at 16 minutes and 46 seconds into the broadcast. It’s always worth listening to Gerald Celente, who heads up the Trends Research Institute. The motto of the Institute is “Think for yourself”, and in today’s news world where every item and data point is “spun” for propaganda purposes,  it has never been more necessary to do so.

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