Welcome to the New International

Currency – the Dollar

Blog/Uncategorized
POSTED MAY 13, 2013 BY MARTIN ARMSTRONG

With the dramatic increase in the money supply as illustrated here with the St. Louis
Fed Chart, 99% of the people are simply baffled saying – It’s got to be inflationary! But
this is like the old TV commercials when Burger King used the little old lady who would
look at a competitor’s burger and say – Where’s the beef? Welcome to the new
International Currency – the DOLLAR!
Yes the Fed assumed it was stimulating the domestic economy by purchasing US
government bonds. I have been yelling – hey it ain’t gonna work stupid! The plain reason
is 40% of the debt is held outside the USA. That means you cannot guarantee that the
seller of those bonds will be domestic. Thus, the dramatic rise in the money supply must
be looked at INTERNATIONALLY and not purely domestic. The Fed monetized those
bonds creating dollars but the dollars were exported. Sorry – we live in a new world and
the economic theories and understandings are from our ancient past, notwithstanding
that we moved to a floating exchange rate system in 1971 as Bretton Woods collapsed.

The reason nobody has beaten our computer in 30 years is quite simple. Humans are
incapable of performing multidimensional analysis beyond a few layers without an
appropriate tool. If you set fire to a newspaper, it will ignite and burst into flames. That is
a straight forward relationship – cause and effect. However, it is not 100% true. If the
paper is wet, it will not ignite. We have just introduced another variable – water. If the
paper is dry but that match is wet or the striker pad, you cannot light the match. There
are still other variables such as wind. So yes, in theory if you increase the money supply
it should have been inflationary – stimulated the economy. But it failed because the
money supply is now global in demand, not purely domestic.
I was asked: “Can the dollar and gold rise together?” Yes! However, that variable comes
into play when all other avenues become closed. What happens is much like the bubble
in Japan. The yen was rising and that attracted some foreign capital, causing the Nikkei
to soar and that attracted even more capital. A shares market can also rise with
declining currency value but that relationship is associated with DOMESTIC buying as a
hedge against inflation. Therefore, gold and the dollar can rise together ONLY when it
is international capital flows. That did not materialize 1980-1985 because the gold rally
began because of the declining dollar. This time, we may have more capital fleeing the
rest of the world so that moves into US dollars, US shares, and gold. However, that
scenario precludes gold rising to wild and crazy numbers anyhow and it certainly rules
out the hyperinflation nonsense. The exponential rise in gold will come only after the
dollar peaks and capital then once in US dollars starts to shift from PUBLIC (bonds)
to PRIVATE (assets).
Here is an 1899 Mexican bond issued in British pounds when the pound was the
Financial World Currency given Britain was the Financial Capital of the World.
Consequently, the yen could not reach that level because the Japanese would not allow
the issue of bonds in yen without their approval. It was a restricted currency. The Euro
failed to reach that level and cannot because there is NO single federal government
bond issue. The Euro is indistinguishable from all 50 states in the USA who issue their
debt in dollars (single currency) but also have completely different credit ratings as all
member states in Europe. Nobody in their right mind would assert that all the debt of the
states should be AAA suitable for bank reserves to support the entire financial system.
Why is that so hard for European politicians to understand? What they are defending
with every citizen’s net worth is their failure to comprehend financial economics at the
basic level. They are destroying the entire future of the next generation and placing at
risk the global economy disrupting capital flows all because of their pigheadedness.

China also issued bonds in various currencies to relieve the buyer of currency risk. Here
is a 1921 bond paying 8% in Belgium francs. Today, numerous countries issue debt
denominated in US dollars.
Despite all the ranting, screaming, yelling, prognosticating, and pontificating that the
dollar will collapse – sorry! Where’s the Beef? The dollar is the only game in town
and BECAUSE of this international standard, the Fed cannot control the money supply.
People highlight “reserve banking”as dangerous – but that has been the way banking
function since the 1600s. So what is new? Now add to this the ability of anyone
anywhere to create a contract in dollars and for foreign governments to borrow in dollars
and you further expand the global economic reliance upon the US dollar. And you really
expect to reduce this giant global economy to a single cause and effect? Good luck!!!!
Your not in Kansas any more Dorthy!
People have tried so hard to concoct manipulation theories to explain why they have
been wrong and why gold is not $30,000 an ounce today. The central banks are
the LARGEST holder of gold. They are by no means trying to suppress the price of gold
to hide inflation. ABSURD! It wouldn’t work anyhow. This is up there with the Salem
Witch Trials. When the former communist central banks have been the buyers, why in
hell would they want to keep prices low to benefit them? Come on. Some of these
theories just are so desperate to explain why their one-dimensional thought patterns are
dead wrong right now, they sound like a skit for Saturday Night Live. Whenever gold
rallies, it is always “genuine” but every decline is because of some sinister dark force
from Star Wars.

Welcome to the new ONE WORLD CURRENCY – the DOLLAR! Government and
most analysts are still living in a world that is long past its expiration date and does not
exist since it has evolved while the thinking is frozen in time. The variables and
combinations are incredible. It now takes a global computer monitoring
absolutely EVERYTHING to figure out the relationships and how they will play out this
time.
We have created historical databases to enable the computer to see every possible
combination over centuries and come back with its results. This is why the largest
institutions always lined up at our door and why we had the equivalent of more than
50% of the US National Debt in 1998 under contract – $3.5 trillion. Unlike Bloomberg
News, client portfolios were ALWAYS private. This is about understanding a whole new
global economy – not about personal opinion.