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-LT On 11/14/09, g | u | n | a | r | s | o <bussindone...@yahoo.com> wrote: > Scary read, just forward: > > With the weakening of the greenback, investors are more likely to sought > out higher yielding assets in the AsiaPacific region. > > http://pair.offshore.ai/38yearcycle/ > > > Paper Money vs. Gold Money - US 38 year cycle > > (Embedded image moved to file: pic00041.jpg) > > > If history is any guide, the US dollar will be devalued very soon. For > longer than America has been an independent country, an economic cycle > about 38 years long has troubled America. Each time paper money drops in > value and there is an economic/financial collapse while gold increases in > value. This has taken place like clockwork. By this clock the dollar > should be devalued within the next year. > > 1742 > To help pay for debts from The Seven Years War, England issued the British > Resumption Act of 1742 devaluing American paper money and requiring the > colonies to pay taxes to England in gold. This brought in years of > recession and was one of the events leading up to the revolution. > > 1781 = 1742+39 > By the end of The American Revolution hyperinflation made the Continental > Currency worthless. In order to save the new union of American > nation-states from financial collapse, the Bank of North America is > founded by the Congress of the Confederation. The Netherlands and France > loan this new central bank physical gold and silver which was then used to > back a new currency. > > 1819 = 1781+38 > Public debt from the War of 1812, and the Louisiana Purchase meant that > the government was short on gold to pay banks it had borrowed money from. > Since it could not pay the banks in gold, it said the banks did not have > to pay their customers in gold (even when contracts said they did). This > meant banks could print notes without worry about having to back them. > This led to the Canal Craze Bubble and then the Panic of 1819 when it > became clear there was not enough gold to back all the paper. > > 1857 = 1819+38 > The economic bubble of land speculation near new railroad lines and fraud > in major banking institution led to the Panic of 1857 when people lost > confidence in paper money, in part because the SS Central America sank > with 30,000 lbs of government gold. There was a run on physical gold at > banks as notes were handed in for redemption. The stock market crashes, > unemployment soars, manufacturing is at a standstill, and people in the > northern States begin to starve as most banks are shut down for more than > two months. The southern States are less effected due to a high > international trade demand for their crops which foreigners pay for in > gold. > > 1895 = 1857+38 > Paper money led to a speculative bubble in railroads which then burst. In > 1895, in the depths of the Panic of 1893, the government did not really > have enough gold to redeem all the paper money it had printed. President > Grover Cleveland through J.P. Morgan was able to get $65 million in > physical gold and save the U.S.. Treasury. However, in 1896 Cleveland lost > his reelection bid to William McKinley who ran on a gold standard > platform. > > 1933 = 1895+38 > In 1914 the Federal Reserve was created and allowed to print paper money > with only $0.40 backing in gold for every $1 in paper even though claiming > all paper was convertible. As the paper came into circulation there was > the Roaring Twenties and a stock market bubble. When the Fed approached > the limit on the amount of money it could create given the gold it had, it > restricted credit. This led to the Wall Street Crash of 1929 and the The > Great Depression. > > Since there was not enough gold to really back all the paper money, in > 1933 President Roosevelt confiscated private gold and no longer let people > exchange paper money for gold or own gold. When they took people's gold > they paid them $20.67 in paper and then shortly after raised the price to > $35/oz (so they really paid people $0.59 for every $1 worth). Foreign > countries could exchange gold at $35/oz and for awhile after this gold > flowed into the US. > > 1971 = 1933+38 > With the Vietnam War and the Great Society the US had been printing money > again. Other countries were quickly exchanging their paper US dollars for > US gold, as it was clear there was not enough gold to cover all the paper > at the $35/oz price. To keep from running out of gold in 1971 President > Nixon removed the dollar from the gold standard. This violated the US > commitment in the 1946 Bretton Woods System to redeem $35 US dollars for 1 > oz of gold, and a defaulting or bankruptcy really. This, and more > printing, reduced the value of the dollar around the world, leading to the > inflation of the 1970's and the 1973 oil crisis where oil prices went up > by a factor of 4 to compensate for the dollar going down by a factor of 4. > After the price of gold went up several times Fed sales of gold were able > to keep the price from going up further and so support the dollar. At the > new higher price for gold the dollar sort of had a fuzzy backing in gold. > > 2009 = 1971+38 > Usually paper money increases from either war spending or credit for > speculative bubbles, this time we have both. This time we have the > Financial crisis of 2009 with a housing bubble, insolvent banks, collapse > of manufacturing, trillions in derivative contracts, rapidly growing > unemployment. Now official US gold reserves are 8,133 tons which at > current prices is about $260 billion. Some of this gold has been leased > out to companies that can not pay it back, and the Fed has not really been > audited, so we don't really know how much physical gold they actually > have. > > In the last 12 months the US government has spent $2 trillion more than it > took in and printed over $1 trillion. Before this the record deficit was > about $0.5 trillion and most of that was borrowed not printed. With this > much printing, fewer people are willing to lock their wealth in US dollar > debt. When the government can not borrow as much, it will print more. > > In each of the above American economic collapses there has been too much > paper money for the amount of gold and people lost confidence in the > paper. Today the US paper money dwarfs the US gold. In 1895 the government > could be saved with $65 million in gold, today all the US obligations are > more like $65 trillion, a million times higher. > > With nothing to support this huge number of dollars, it seems > hyperinflation will be coming soon. In hyperinflation the currency is > dropping in value, so people don't want to hold it, so they spend it fast. > With less people holding the money, the amount the government prints has a > bigger impact. The government can't sell bonds and so prints more money, > which makes people want it even less. Soon the printing spirals out of > control. > > Those who cannot remember the past are condemned to repeat it. > "Progress, far from consisting in change, depends on retentiveness. When > change is absolute there remains no being to improve and no direction is > set for possible improvement: and when experience is not retained, as > among savages, infancy is perpetual. Those who cannot remember the past > are condemned to repeat it." - George Santayana > > It is interesting that paper money has a long history of failing, not just > in the US. Several failures happened when empires fell. There is no > history of paper working well, paper money has always failed. > > Is 38 years how long it takes for new generations of Americans to forget > the past and trust paper money? > > Dollars Worldwide, Boiling Frogs, and the Inflation Tax > Many central banks around the world hold dollars as a reserve currency. > Under the Bretton Woods System where the US agreed to exchange $35 dollars > for 1 oz of gold, holding dollars was "as good as gold". When the US > removed the gold backing it was like the table cloth trick, inertia meant > that everything stayed the way it was. > > The government and Federal Reserve have been able to keep economist saying > that government printing money makes the economy grow. The truth is the US > economy was more stable and grew faster before the Federal Reserve. By > printing money the government takes wealth from everyone who has dollar > savings, so it helps government grow faster. This is the Inflation Tax. > The US has been able to extract a moderate Inflation Tax from people all > around the world for the last 38 years. > > There is a story that if you slowly heat a pot of water with a frog in he > will not jump out. But if you heat it too fast he will jump. > > Recently the US printing of money has increased to such a rate that the > rest of the world is now worried they are losing value too fast by holding > US dollars. The dollar has lost nearly half its value compared to other > paper currencies in about 10 years and more than 10% in the last few > months. If US bonds are paying 1% per year and the dollar is dropping by > 1% per month, or even 1% per week, then holding US bonds is foolish. When > the US prints another $1 trillion, it is stealing this much value from all > the existing dollar holders. Over time people around the world will > realize the US dollar is in trouble. They will also realize that saving > money in a form where the US can steal as much of it as they want is > foolish. As the world gets rid of their US dollars, the value of US > dollars will drop more. The more it drops the more people will be in a > hurry to dump their dollars. This could result in the dollar falling > faster over the next 10 years or in a sudden panic or crash in the value > of the dollar. > > It would be a mistake to assume that since the Roman dinar, the Spanish > reale, and the British pound each took many years to lose reserve currency > status that the dollar fall will be slow. Back then they did not have > instant worldwide information flow, computers with automatic trading > software, etc. Things are different this time.. If the rumors that oil > countries are going to stop pricing oil in dollars are true, the change > could be very sudden. > > The US ability to quietly take wealth from dollar reserves all around the > world was like the Golden Goose. But now they have pushed too far and that > golden goose is going to die. > > People or countries do not pay any inflation tax on their gold and silver > holdings. This is where the frog is free. > > Related Phenomena > In Henry Petroski's book Success Through Failure he notes that there is a > 30 something year cycle for bridge collapses. It seems that success breeds > hubris and catastrophe nurtures humility and insight. So the longer people > go without a failure the more confident they get, till they fail again. > And other engineering fields like spacecraft and nuclear power plants have > a similar pattern. The patterns of failure go way back. > > Austrian Economists call 3 crashes in a row > 1. Ludwig von Mises was one of the first of the Austrian School > Economists and he published a book in 1928 predicting the 1920s bubble > would end in a crash. So he predicted the start of the great depression. > 2. Harry Browne, another who understood Austrian economics, called > the devaluation and inflation in the 70s in his book How you can profit > from the coming devaluation in 1970. > 3. Peter Schiff, a current Austrian economist, wrote a book called > Crash Proof in 2006, published Feb 2007, that explained in detail both > what was going to happen and how politicians would react to make things > worse. He became particularly famous when a youtube video called "Peter > Schiff was Right" came out. He expects the dollar to crash. > > John Maynard Keynes did not call the great depression and other Keynesian > economists had no idea the current mess was coming. Obama's government and > the Federal Reserve make sure their economists are Keynesians. Keynesians > think printing money is good. The government likes having economists say > it is good to print money since the government gets the money the > government prints. > > How Much Devaluation > It is very hard to guess how much the dollar will be devalued. The 1933 > trouble resulted in about a factor of 2 devaluation. The 1971 trouble > caused about a factor of 4 devaluation. In the 1985 Plaza Accord about $10 > billion was enough to get the dollar to drop by a factor of 2 or 3. Now > the US printed around around $1 trillion in the last 12 months and other > countries have several trillion they probably want to get rid of. My guess > is that international commodity prices, like oil and gold, could go up by > a factor of 8+ over the next few years. The risk of runaway hyperinflation > seems very real. > > History of article > The original version of this article was written by Michael Edward. I, > Vincent Cate, tried to see if other panics during this period had been > ignored. Then I started evolving the article to my current version. Anyone > is welcome to modify this document further, just include credits to > earlier authors and links to earlier versions. > > > > > Powered by bussBerry® > "buss offers a comprehensive & holistic proven business model for > entrepreneurs interested to own a long-term and sustainable distribution > business." > www.bussindonesia.com >
