Death Knells for the US Dollar: Part I

247Bull.com Editor: I have followed Jim’s analysis of global economics and finance since early 2005. His writing is both interesting and insightful, and he consistently manages to bring something new to the debate. Jim has kindly agreed to contribute his commentary to 247bull.com.

The recent decision by the US Federal Reserve to contaminate the financial body until it responds favorably was the last straw in my book. Witness a declaration of permanent QE and hyper monetary inflation of the most virulent strain, unsterilized. The US Fed is essentially admitting failure. The signal serves as the loudest death knell for the US Dollar among many in a sequence. On a similar parallel note, lighter and more humorous, one might be reminded of the pirate swash buckling style of yelling at the swabbies that the beatings will continue until morale improves. The QE bond monetization of US Govt debt has turned viral and entrenched. It is sold as stimulus, when in fact it acts like a giant wet blanket on the US Economy. It is intended as stimulus to businesses, but the effect is felt on the financial speculation and on Asian direct business investment. In the past the emergency lever device had been successful only because it was used on a temporary basis. But now the US Fed high priest assures it is a permanent fixture, a sign of their failure. The public is too ignorant to comprehend the ruin. They can only see the threat to their personal ruin.

The bankers are determined to ruin the entire system in order to retain power, all while dispensing increasingly nonsensical dogma like from heretical high priests about the effectiveness of their solutions. Theirs is heresy built upon alchemy laced with arrogance, with no precedent of success in past history. A definition of insanity comes to mind, offered by a psychologist who works in a clinical practice. Let’s stick with the layman translation. Insanity is defined as repeating the same action but expecting a different result. So the US Fed conducted QE, then QE2, then Operation Twist (a deceptive QE), now is set for QE3. It expects a different result from the rising costs and debasement of the currencies. Somehow by enlisting the cooperation of the Euro Central Bank, the Bank of England, the Bank of Japan, and the Swiss National Bank, together they can pull off QE3 in a veritable ongoing QE to Infinity when all previous efforts have failed to produce a solution or economic recovery. The high priests from the central bank altars do admit that liquidity does not address the insolvency ills, yet they hit the monetary levers and accelerators more quickly. The central bankers are in a panic, and it is beginning to show clearly. Their solutions solve nothing. They will next attempt to rule more formally over the ruins.

Money velocity

Money velocity is going down as quickly as money supply is going up. This report card is a grand contradiction of the US Fed actions for a generation. The American Weimar experiment is turning into a tornado of financial ruin with inadequate recognition. As industry was dispatched and forfeited to Asia, the US Economy lost its base for traction. New money has lost its effect in producing economic activity following a series of asset bubble busts, a spinning of capitalist gears, now stripped gears. New money is devoted to the financial sector in perverse fashion, as a reward for the past destruction of capital itself. The central bankers cannot dictate the speed at which money moves. They can only create it and drop it in the mix, speak their incantations, sprinkle pixie dust, offer some loony fiat prayer to the duped public, and continue with the next paper dump. The Untied States will gradually achieve systemic failure from redoubled efforts, suffer debt default from inability to manage the debt structure, and fall into the Third World. The nation will experience the monsters of high prices and acute shortage without comprehension of its source. It is toxic money.

The growth of the monetary base has been staggeringly high since the financial crisis broke in September 2008 with the collapse of Lehman Brothers. Since the end of August 2008, the monetary base has risen from $877 billion to $2,651 billion as of September 2012. That is a giant 3-fold rise. Witness the American Weimar era, its final chapter. The massive increase in new money has done nothing to foster growth in the US Economy. The main reason is that fiat paper money destroys capital, a concept the hapless corrupted US economists cannot comprehend, either from compromise to their masters or lack of intellect due to years of exposure to the ass backwards preachings. The US Economy is stuck in a powerful recession based in grotesque insolvency and bond fraud. As the US Fed is poised to kick in another round of QE bond monetization, the money supply will ramp sharply up again. Do not expect much of any economic benefit, since the cost structure will rise again, then shrink profit margins. This capital destruction factor is a great blind spot to the hack economists who operate more as marketing harlots for Wall Street and the US Govt than analysts and advisors. The Ponzi Scheme theory dictates that an acceleration in new money is required to keep a constant speed. Expect more wreckage from the stripped gears of the US Economic engine.

The money velocity chart shows a deadly decline since 1980, and a powerful decline since the 2007 outbreak of the absolute bond crisis. The new money is going to the big banks in bond redemption, derivative coverage, and Black Hole (Fannie Mae, AIG) fills under the US Govt supervision. The money is not finding its way into the US Economy for further circulation. The plague is insolvency, soaked by endless applications of tainted money from central bank fire hoses. The velocity of money has been falling for years, in reflection of an economy that is not turning over much at all. Think of a car missing its cylinders, spinning its gears, burning itself out, going nowhere. The above chart serves as pictorial evidence that the root cause of ruined money was the war. In the current decade, the wars are endless.America chose war over industry. A fuller explanation is offered in the September Hat Trick Letter.

Three eras are worth identifying in my view. The Vietnam War era and its aftermath saw huge expansion in money supply, huge nominal income growth, and huge increases in price inflation. The US Fed did not interrupt the expanded US Govt debt from reaching Main Street, simply put. For consecutive years, the Consumer Price Index rose over 10%, which led to big worker pay hikes. The result was that US corporations began to send industry overseas. It started with Intel going to the Pacific Rim. The money velocity fell, as income fell on a real basis. The climax event was China being given the Most Favored Nation status in 1999, which released the gates for foreign direct investment. China made a deal with the Wall Street devils that has yet to gain publicity. The hidden motive was for Wall Street firms to borrow the Chinese gold hoard from the Chairman Mao era, so as to continue the great gold suppression game that has bankrupted the Untied States and betrayed the nation. US and London bankers skimmed and stole the gold.

House of Saud starts to unravel

More loyal Jackass wannabee followers will recall a story (repeated often) that on the Easter Sunday weekend of April 2010, a secret gathering of over 200 Arab billionaires convened in Abu Dhabi. They arrived in unmarked jets. My source was one of only two or three white faces in the crowd, invited by his clients. One result of the meeting was an accord struck between the Persian Gulf oil producers, led by the Saudis, to work toward a pact with Russia and China as protector of the gulf in return for financial cooperation, economic construction, and forward progress. The implicit message was that the Untied States would be phased out in the protectorate. In the balance would lie the Petro-Dollar defacto standard as victim. Events continue to this day in movement toward that end.

However, since the Syrian uprising, a new lethal element has entered the mix. Account will be kept brief, since so volatile and controversial. Just some bare notes. The Assad family in Syria has suffered some assassinations. Apparently, the Saudis had a hand in the killings. HezBollah has vowed retaliation. Their ties to Iran might be longstanding, but perhaps are exaggerated. My view is their home is in Lebanon. In August, Prince Bandar was assassinated. He was the Saudi head of security, and long-time ally to the US Govt. The Saudi regime is concealing his death, with outdated photos and false statements. They are working toward a transition. The House of Saud has been unstable from threats to the south in Yemen. It is unstable from internal threats tied to the fundamentalists. Although cooperation and respect has been shown between Riyadh and Tehran, the Bandar hit has created an entirely new environment. The Saudi regime with high likelihood is in its final months.

More importantly, the Petro-Dollar is losing its all important Saudi leg. Implications are vast. The US public takes the US Dollar for granted, with almost no concept of FOREX exchange rates. If the House of Saud falls, when it falls, the impact crater will include the entire waistline of the US Economy and its financial dog tail that wags it. The US Govt and its banker handlers have relied heavily upon the Petro-Dollar in general, and on the Saudis in particular, ever since Henry Kissinger signed an accord that governs over the grand surplus recycling back in the 1973-1974 era. Watch the Saudis convert US TBonds to Gold, then bug out of the desert to their new mansions in Southern Spain.

China as intermediary against Petro-Dollar

Reports swirl that China is attempting to act as intermediary in global oil transactions, for Yuan currency settlement. The rebellion globally is picking up momentum against the US Dollar. The Petro-Dollar defacto standard is slowly unraveling. The denizens of the Untied States have no idea the ravaging impact of a lost global reserve currency. It will unleash price inflation when the US Fed central bank is letting loose the monetary flood gates. This declaration is an act of financial war directed at the US by China. To fortify the rear flank, Russia has promised to meet all requests for crude oil made by China, with settlement in Yuan and Ruble currencies. Take the pledge as a protection from any sudden US Govt threat or retaliation. The Russia-China Axis is forming more clearly in opposition to the US Dollar, the Syndicate behind it, the many Embassies that offer sanctuary for espionage, and the global rules that enforce its hegemony.

Crude oil payments are the critical core of global trade. The rest of global trade will follow in non-US Dollar payments, all in time. Entire banking systems will gradually make a transition away from the US Treasury Bond in its reserves managements. The banking practices will follow the trade payment structures, as it should be. The profound effect on the US Economy will be clear, as blame is shifted as usual to external factors, even to extremists. In reality the US is up against vengeful Cossacks and the angry Mongol Horde. The entire world is moving against the US Dollar, seen increasingly as a toxic agent within their internal domestic systems. They see the lack of solutions, the spreading bank insolvency, the accelerated debasement of currency, and the corrupted grants of multi-$trillion banker grants. They are taking action in response. They are following the Chinese lead with the Russians acting as a quasi-Rasputin.

Gerald Celente reported in early September, “On September the 6th of 2012, China officially announced that any country in the world that wishes to sell crude oil using its currency the Renminbi instead of the US Dollar can do so. The following day September the 7th, Russia announced that the nation will sell China all the crude oil they need, no limitations whatsoever. They will not use the US Dollar for their trade.” The claim by Celente is far reaching. The US Dollar is dying a slow death. Its antagonists do not wish to speed the death process too rapidly, for fear of quickening the ravage to their own nations. They also do not wish to invoke the wrath of the US Govt, which since 2003 has enforced the US Dollar as global reserve currency via its war machinery.

What China is offering is an intermediary clearing house role to sidestep the Petro-Dollar, where crude oil payments can be made in the Chinese Yuan currency. This offer is a financial act of war against the Untied States currency, where China will backstop all transactions. It is a violent offer to disrupt the US Dollar. Look to see if any Saudi oil sales are settled in Yuan currency as alternative, even the Euro currency as expedient. The superpowers are openly attempting to isolate the US Dollar, the clear victim to be the US Economy, the land of consumption excess. The move is a tacit push of the US into an isolated place where it can very easily slide into the Third World.

Part two of Death Knells for the US Dollar will be published tomorrow.

Jim Willie CB, editor of the HAT TRICK LETTER. Visit: goldenjackass.com

Use the above link to subscribe to Jim’s research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, US Dollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

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