The World
versus the Dollar
Dennis Wheeler
March 10, 2004
So far, the
bull market in gold has been most pronounced in terms of the
U.S. dollar. That is to say, the dollar has fallen more against
an ounce of gold than the other major world currencies.
In my last article for 321Gold (February 19), I talked about
the burgeoning U.S. debt and how it is hurting the dollar and
helping the gold price. Today, I want to talk briefly about another
facet of the dollar's decline the past 12 months: Global
Collusion to Bring the Dollar's Value Down With the Specific
Purpose of Curtailing U.S. Military Aggression and Political
Influence.
I realize this looks like the title of an 18th century tome on
philosophy, but it will do for our purposes.
Shortly after the U.S. military had blistered the Iraqi military
last year, calls began coming from important people in many parts
of the world, saying the world needed to unite against the dollar
to reign in U.S. military adventurism. I believe a significant
part of last year's dollar swoon was because of this new attitude
of many in the world concerning the United States.
To wit: In Russia, a politician named Sergei Glazyev proposed
that Russia "meet Europe half way," by shifting from
the dollar into euros and rubles. He said that Russia's trade
with Europe, at least, didn't need to be denominated in dollars.
He added that Russia could agree with other countries around
the world to denominate their trade in their national currencies,
instead of dollars. He pointed out that if the ruble were used,
it could translate into more than $20 billion for Russia. And
in Russia, $20 billion is a lot of money.
An editorial writer for The Guardian, a British newspaper,
a Mr. George Monbiot, said he considers himself to be a member
of the global justice movement. (From his comments I take
this movement to be concerned with stopping unchecked American
military power.) He said he realized no one can take on America
militarily, but that subterfuge of the dollar would be a very
effective tactic.
Monbiot stated: "Nations need to start trading oil in euros."
He sees that once the EU integrates the new ten members, it will
be big enough and stable enough that its currency can handle
the job of global reserve currency.
Besides this, Bloomberg ran an article on April 17, 2003 entitled
Indonesia May Dump Dollar, Rest of Asia Too? The writer
William Pesek, Jr. stated: "Pertamina, Indonesia's state
oil company, dropped a bombshell recently. It's considering dropping
the U.S. dollar for the euro in its oil and gas trades.... Other
Asian countries may not be far behind any move in Indonesia to
dump the dollar. The reasons for this are economic and political,
and they could trigger a realignment that undermines U.S. bond
and stock markets over time."
According to Pesek, Indonesia's reasons for wanting to dump the
dollar were economic, that it would help the country earn more
money. But you can bet that underneath this facade, is a desire
to hurt the U.S. economically.
Back in May 2003, in my newsletter Gold Stock Report,
I covered this emerging story: "Many in the world see the
present system, in which the dollar is supreme, as an unfair
system that benefits the United States to their detriment. But
with the dollar falling along with U.S. markets, and with the
global political order now on the verge of collapse, it won't
surprise me if more of them take bold steps to throw off what
they see as the dollar's yoke of oppression. Gold should be the
big beneficiary from the upcoming upheaval."
For the record, at the time this story appeared in Gold
Stock Report, the price of gold was $315 and the
price of the U.S. dollar index was 97, currently 87. The way
the Bush Administration handled the runup to Operation Iraqi
Freedom angered and embittered many around the world. They are
now looking for any way they can to hurt the United States. And
a country with as large a debt as we have needs all the friends
it can get.
We have to play the hand that's dealt, though, and with no one
willing to help preserve the global political and economic system
the United States overthrew when it invaded Iraq, there's no
need for the outside world to help rescue America.
As I stated in the last article, other countries are just draining
the wealth out of America, via the trade deficit, while there's
still some wealth to drain.
The High Dollar
As James D. Davidson showed in The Great Reckoning, the
country with the greatest military gets a high premium attached
to its currency. This has been true historically and it's no
different now with the USA and its dollar.
All countries need dollars, to purchase oil with if for no other
reason. But since the Iraq war, economic and political power
blocs around the world have undertaken subterfuge of the dollar
as a political goal. I believe this will continue.
If the dollar loses its premium as the global currency
that all nations must have, then it will have to stand on its
own merits. Its value will be determined by normal operations
of supply and demand. I suspect demand will be substantially
less than it is now because of the deteriorating financial condition
of the Washington government. And that brings us back to the
debt, which now stands at $7.1 trillion and rising.
Gasoline prices are demonstrating the inflation caused by a falling
dollar. Gold and silver are doing the same. Other assets, though,
that have benefitted greatly from the artificially strong dollar,
are destined to fall and fall hard. Top-ranked among these assets
are common stocks and real estate.
The wake for the dollar is just getting started. Washington is
powerless to stop it for two reasons, if not more. First, to
raise interest rates would immediately raise the deficit which
is already reaching a breaking point. I say this because higher
interest rates mean Washington has to pay more for its borrowed
money. And, brother, it is borrowing an awful lot of money.
Second, to cut spending substantially would throw the U.S. economy
into recession, severely cutting tax receipts, and sending the
deficit soaring despite the cuts.
Soft landing, my eye! Washington can primp and pose, but it can't
stop the consequences of the mess it has created.
Conclusion
When the United States defied the United Nations and the global
political order by invading Iraq, the stage was set for the destruction
of that global order. To service its stupendous debt and dangerous
budget deficits, Washington needs the assistance of large portions
of the developed world. Since the Iraq invasion, it is getting
less and less of this assistance.
And because of this, the dollar can only move one way: DOWN!
There is really only one sane economic response for Americans
at this point. And that is to buy physical gold and silver bullion
and keep your stash of these items growing. Use Washington's
money to get some of your own money. Get money Washington can't
devalue and destroy. Turn green into gold and become independently
wealthy in the truest sense of the word.
We can certainly help you with some great gold and silver stocks
in our monthly newsletter, Gold Stock Report.
The subscribers have made a tremendous amount of money the past
few years and this year looks like another great one.
All the best
to you.
Dennis Wheeler
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Dennis Wheeler
is the editor of Gold Stock Report, now in its 12th year.
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