Please note the date at the top of this article.
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NO WAY OUT: A 50% DOLLAR DEVALUATION
by Robert McHugh, Ph.D.
January 14, 2007
Artificial Economics, the brainchild of the Master Planners, has
focused on building an economy where debt — not income — pays for
goods and services. The emphasis upon debt instead of income via
hyper-inflating the money supply in stealth fashion, has destroyed the
dreams of millions of Americans. Artificial Economics is a silent
economic disease. A coming significant devaluation of the dollar is a
likely and necessary consequence.
The use of hyper-inflated money supply to postpone a recession over
recent years has served to create an imbalance between income and
assets. Debt covered the gap for a while, but now debt is extreme,
with a limited useful life. With high paying jobs being exported, and
a limit to what is essentially slave labor from illegal immigrants,
future productivity gains which translate into income are almost
entirely technology dependent. If technology fails us, then the
debt-to-income imbalance, then the asset-to-income imbalance must be
reckoned with. Undoubtedly, that reckoning will either be a nasty
recession/depression — where asset values drop below debt levels,
leaving us with an imbalance between both assets and debt, and income
and debt — or a significant and sudden devaluation of the dollar.
What is accomplished by a significant and sudden dollar devaluation?
It is a way to pay off debt with suddenly-more-available dollars;
cheaper dollars. We have been witnessing a slow meticulous devaluation
of the dollar over the past two decades, with an acceleration over the
past decade. This has come from an increase in the money supply via
the credit creation route — debt. But that has served to replace
income, and postpone a recession, at the great cost of hyperinflation
of real estate, related taxes, and just about everything you buy. The
result is debt. Once the debt creation train stops, then there will be
no way to pay for things; no way to pay off that debt. There will soon
be a point of no return, with an inevitable sudden and significant
dollar devaluation as the only solution. It would require the Treasury
printing an amount of money equal to the current entire money supply,
more than 11 trillion dollars, and literally handing it out to each
household so that the broadest spectrum of people have the ability to
payoff their debt. Debt does not rise in value as the dollar devalues.
It is a contracted amount in former-dollar-value, notional terms.
Thus, if we suddenly hand several hundred thousand dollars to each and
every household, a dollar will become worth 50 cents in real terms,
but in debt terms, it will still be worth a dollar, and folks will
have more of them.
Dollar devaluation would require mandated cost-of-living wage
increases, but also would require issuance of a brand new currency.
Call it the liberty instead of the dollar. If you tied the liberty to
gold, the U.S. currency could keep its world reserve status and
survive the dollar devaluation tsunami. It would require a liberty to
be worth the equivalent of two dollars, where there was only one
dollar in circulation before the fifty percent devaluation event. A
gold-backed liberty would stabilize inflation, and bring monetary
stabilization back, but in a new economic order where debt is
substantially reduced, both private and government. Government debt
would be reduced as folks are required to pay taxes on the
dollar-devaluing household-handout. Of course, this means Gold would
have a bright future. I don't see any other way out. Thank Artificial
Economics for this — the economics practiced for the past decade in
this nation that wasn't mentioned in your child's college economics
textbook.
The Fed is sending out hints that it isn't planning to drop interest
rates any time soon. Chicago Fed chief Michael Moskow stated this week
that inflation risks were his major worry. He oughtta know, the Fed is
causing inflation, which is why it hid M-3. Fed Vice Chair Donald Kohn
said, "There is no guarantee that core inflation will continue to
ease." Chairman Bernanke felt the need this week to address the Fed's
role in crises, citing the benefits of the Fed's regulatory
supervisory role. They know the problem, are likely in denial, but
inevitably, the "buck stops here" decision must be made — devalue the
dollar in half. We believe that decision, if it hasn't been made
already, will be.
M-3 remains hidden by the Fed, so that We the People can't know what
the Federal Reserve is up to. Where's the transparency Ben? Check out
this monster in the chart above — It tells you all you need to know
about what the Fed has been doing with M-3.
First of all, let's examine the pattern. It is a Head and Shoulders
top. These patterns are highly reliable. It is not yet a "confirmed"
pattern, meaning until prices drop below the neckline decisively, say
below 80.00 to 77.00 or so, the probability of the minimum target of
40.00ish being hit is not as great. However, should we see the Dollar
drop down to 77.00ish, we are in a high risk situation of a
devaluation of the dollar all the way down to 40.00. Not all at once,
but over the course of several years. Perhaps all at once, should the
government elect to flat-out issue an edict that a dollar is now worth
50 cents. Would they? Maybe. Why? Again, it is a way to repudiate half
of all the debt in the United States. Why would they want to do that?
Perhaps if a recession became a depression, or the risk thereof.
Perhaps if housing was to absolutely dive into the tank. It would be a
way to relieve mortgage holders of a huge chunk of their obligations
in lieu of mass foreclosures.
The pattern is ominous as far as its size, its timeframe, and as far
as its downside implications. This pattern is textbook. No flaws. In
fact it carries a rare added textbook feature of a weaker right
shoulder than left. That is not good. This is right in line with the
Fed's decision to hide M-3, enabling them to hyper-inflate the economy
with too much money for secret purposes (The Working Group's minutes
are secret, their market buying intervention activities are secret,
the quantity of M-3 being created is secret). Any auditor worth his
salt will tell you that secrecy breeds mischief, often with dire
consequences. The founding fathers established accountability in our
constitution, and the Federal Reserve and the Working Group (a.k.a.
Plunge Protection Team) are managing M-3 in violation of that spirit.
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