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I want to talk about one problem...

Richard Russell snippet
Dow Theory Letters
January 6, 2005

Extracted from the January 5th, 2005 edition of Richard's Remarks

The questions are now coming from all directions. What would happen if the country sinks into deflation? What about the dollar? What if inflation heats up? Should I hold foreign paper currencies? Isn't inflation still the real danger? On and on, and the sad fact is that NOBODY EVEN KNOWS THE RIGHT QUESTIONS.

I want to talk about one possibility -- or let's call it one problem. For the sake of argument, let's say that the Fed fails in its frantic attempt to keep the nation on the inflation path. Let's say that the unthinkable happens -- the nation sinks into deflation.

During the early '30s the ideal place to be was in dollars. At that time the dollar was widely believed to be "as good as gold." The only problem was that nobody had any dollars. I was there, and I can tell you -- during the 1930s dollars were very damn scarce. You'd work your fannie off on a job (assuming you could find one) for fifteen to twenty of those scarce dollars a week (and as a teenager, that's exactly what I did). In the 1930s if a man could make five-thousand bucks a year he was one satisfied citizen, believe me, he was.

But as I said, back in the '30s there were absolutely no doubts about the dollar itself. The dollar was as solid as a bar of gold.

Now let's take it to today. If we get deflation in the months or years ahead, there are going to be grave doubts about today's paper, fiat dollar. Heck, there are already doubts about the dollar and trouble hasn't even hit yet. Can you imagine what the sentiment towards the dollar might be if this country starts sinking into deflation -- this country with its total of $32 trillion in debt of all kinds and varieties?

If deflation does enter the picture, I believe we would see an absolute panic for real money -- gold. With everything around us going bankrupt because of unsustainable debt, gold would shine like, well, like gold.

Anyway, there is one point I want to clear up. The dollar today is an entirely different dollar than the dollar of the 1930s. The 1930s dollar was a solid, gold-backed dollar. Today's "dollar" is a piece of paper worth nothing but the Treasury's edict that the dollar will serve, by fiat, to pay off all debts.

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Richard Russell
Dow Theory Letters

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