Dollar Devaluation, Debt Default & Gold

• I have written quite a few posts highlighting the likelihood of a USD devaluation. This will be via Gold. Since it is impractical to devalue against each individual currency worldwide, the easiest way will be to devalue against Gold. A devaluation as you know is inflationary. Just what the doctor ordered for the decimating deflation we are facing.
   
• Diane Francis writes in U.S. dollar devaluation on its way :
    
  Now it is 2009 and what appears to be looming, according to one authoritative press report this weekend, is a massive pre-emptive devaluation of the U.S. dollar as Team Obama readies itself to announce the “Big Bang” – a gigantic bailout of the frozen U.S. economy involving trillions of dollars.
   
  So far, Washington has allocated US$750 billion for banking rescues and another US$825 billion for job creation projects. But that’s nothing.
    ….
  Those are the highlights of what can only be described as a Nuevo Financial System and a currency debasement which will involve the printing of trillions of dollars, Euros and all the others.
   
  Canadian government officials will end up having to do the same: the “bad” bank to bail out the banks which are caught in the contagion of the global meltdown plus job creation stimulus and a broadening of the social safety net.
     
• Keep in mind that the FedRes has so far failed in all its attempts to re-inflate despite printing trillions of dollars out of thin air. The current strong USD is also impacting US export competitiveness greatly. The relative cost of siting a factory in US compared to Asia is still too high. Manufacturing will not return to America unless cost is competitive. A simple devaluation will address the issues above. But a devaluation of the USD is no cure all for the economy. It will destroy all our savings ! And if it goes out of control will lead to Zimbabwe like hyper-inflation. Think : 3 eggs cost a billion dollars! So please take precaution: buy Gold !
   
• Bernanke says repeatedly: FedRes is ready to go into the treasury market to buy bonds. What a noble and highly prepared FedRes right? The reality is somewhat more sombre! James West says in U.S. Debt Default, Dollar Collapse (emphasis mine):
    
  The prospect of the United States defaulting on its debt is not just likely. Its inevitable, and imminent.
   
  The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end – the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.
   
  Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse and be rolled back ten for one or more? There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.
   
  Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market. Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.
   
  Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.
   
  But with yields at 1.82 per cent, five-year notes were met with a demand for 1.98 times the amount offered – the lowest bid-to-cover ratio since September. A sell-off in treasuries began in earnest upon the conclusion of that auction.
   
  The U.S. Federal Reserve suggested last week that it was going to step up its treasury-buying activity, and the mainstream media interprets this as a form of market support. What it actually is evidence of growing anxiety and desperation on the part of the Fed as the realization dawns that demand for treasuries is progressively evaporating.
   
  The increased demand for gold as an investment witnessed throughout the last two weeks that has pushed gold to a 4 month high is further evidence that investors across the board are gravitating more towards gold and away from U.S. debt. 
   
• If you will accept it, all the warnings signs are there for a major, cataclysmic financial event. A devaluation against Gold has been done in the past by FDR (1933-34). Before he devalued, Congress passed a law to confiscate all physical gold from Americans. That is why there has been a lot of talk about gold confiscation.
   
• The basic thinking behind gold confiscation are :
   
  - Uncle Sam needs a lot of money/asset.
  - There are a lot of debts that need to be paid to foreigners.
  - Foreigners will not be inclined to accept USD but will accept Gold.
  - When Americans hoard Gold, the economy will not be able to re-inflate. Gold will then be the default currency as the USD will collapse. Who wants a piece of toilet paper USD? The financial system based on fiat currency will collapse.
   
• Since my earlier posts on the collapse of the bond market in Jan, bond prices have collapsed. But bond yields are still unattractive. Will we see bond yields rise to 10% and above? Unlikely, now that FedRes will go in and buy up these bonds. But when the FedRes does that, it means that the USD will collapse. Because the FedRes will have to print something like US$2T out of thin air. When foreign bond holders see the FedRes buying, I have no doubt that they will dump all their existing bond holdings onto the FedRes. So the money printing can be more than US$2T. Maybe even US$8-10 T. This is madness !
   
• Something has to give! It will be the USD ! What better time to ’force’ a new currency upon the American public! The Amero? What better time to come out with a new Financial World Order ? A new banking system that will control and manage all governments and central banks such that the ‘sinful’ mistakes of the US government will not be repeated. The usual Illuminati: Order out of Chaos crap!
   
• When the USD is devalued massively against Gold, the rest of the world will have to decide next what they are going to do with their fiat currencies. I believe the EU and Japan will follow suit and devalue accordingly. They are beset by similar problems. The rest of the world will by default devalue also. If they don’t they will not be able to compete economically. Gold will thus soar in all currencies. The degree to which it will soar for each currency will be different. But you get the idea: competitive devaluation worldwide!
   
• US government debts of US$10-15T (not including unfunded liability for Social Security and Medicare of about US$45 T), will be inflated away. US$ 10-15T will be worth what is US$1-1.5T in terms of purchasing power. Since US holds the most amount of Gold reserves worldwide, US will be solvent again. As a comparison US has 8100 tonnes of gold while China has only 600 tonnes.
   
• My feeling is that we are very close to the tipping point. Celente and GEAB are probably right in forecasting cataclysmic financial event in March 2009. You have the next few weeks to prepare. Buy as much physical gold as you can and hold it yourself. Don’t be surprise if the US government confiscates all the physical gold in gold ETF funds or in gold vaults that hold them for pension funds!  I doubt the US government have the resources to go house to house and check whether each family has gold. Individuals are really small fries compared to all the gold held in vaults for hedge funds and pension funds.
   
• How much will gold soar to? It is anybody’s guess. Uncle Sam has 8100 tonnes worth about US$250B. To turn US$250B to pay off US$10T of debts, you have to raise gold price by 40x. This is a wild figure! Impossible? Maybe. But keep in mind in the 1980-81 period gold price rocketed 21x to a high of US$870/ounce ! That was during the Iran/Iraq war. Now we are facing a greater crisis: A global monetary meltdown!
   
• See also :
   
  Massive US Dollar Devaluation Against Gold During 2009
  Gold Rush Worldwide!
  Obama, Roosevelt, Gold Confiscation and Dollar Devaluation
  Economic Depression and Gold
  Celente – Code Red ! Economy in Collapse !
  GEAB : Systemic Economic Crisis: The Sequence of Global Insolvency Begins
  Global Financial & Economic Meltdown
  GEAB forecasts Next Financial Tsunami in March 2009
  Global Monetary Meltdown in 2009 ?
  America’s Debt – Ticking Nuclear Bomb!
  American & British Banks are Bankrupt!
  Economic Collapse of 2009 – Greater than Great Depression of 1929
  America is at the Edge of Niagara Falls
  Gerald Celente – Trends 2009
  Can Countries Go Bankrupt ?

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Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals.