Doomerang!

By: Alex Wallenwein | Mon, Jan 5, 2004
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Of course you know what a boomerang is: it's one of those neat Australian Aborigine contraptions that, when hurled in just the right way, will describe a graceful arch in the air and return to the hands of its thrower - if he's good enough to catch it without having his hands shredded.

It seems like the US government and the money powers of the world have taken this concept and unwittingly replicated it in the world of monetary machinations.

Since 1945, the US has hurled unprecedented amounts of paper-money at the world. At first the money was still backed by gold for central bank settlement purposes, but since 1971, this paper-hurling has started to become serious business.

The world (deprived of any alternative by the mere fact that dollar creation had already gone past sustainable limits even while the gold exchange standard was still alive) no longer had any real choice - or so it thought. It was thought then that gold could no longer be used as a currency - or the world would hit a severe recession due to the fact that gold reserves were limited and the demand for "money" was unlimited.

So the nations of the world took the US powers' promise to make and keep the dollar "as good as gold" at face value - and gobbled down whatever the US Fed dished up for them. Naturally, they knew they were deceiving themselves; it's just that short-term pain avoidance always outweighs more prudent long-term considerations. I know that from my own decision-making processes.

The birth of the US/IMF version of this aboriginal hunting tool dates back to 1945. Then, the world decided at Bretton Woods, USA, that the dollar, still backed by gold internationally, would replace the British pound sterling as the world's reserve currency.

At first, there was an under-supply of the new monetary reserve. Demand for new money was great, and the US was only too happy to print it all into existence - considering it could buy itself a free lunch that way anytime it wanted.

Or so it thought.

By 1971, this under-supply of dollars had changed into a world-wide glut. Not that the world didn't want any more of that green paper stuff. It did. But, as usual, there was now so much of it around that there was no way in hell that the US could afford to exchange very single one of those paper bits and accounting entries into gold at the rate of $42.222 per ounce. The gold reserves were being depleted at a maximum rate - thanks not least of all to our good allies, the French.

So, when push came to shove, then-Prez Dickie Nixon decided, true to American style, to default on the US' gold obligations for a second time.

From that day forward, the mighty dollar became the proverbial illusion built on a lie wrapped in a deception - and right along with it did the entire world economy. For, despite the utter devaluation of the dollar in principle, the world did what it always does best: "go with the flow, Bro!" Opt for convenience and short-term gain instead of sound, long-lasting policy.

With the stroke of a pen, the United States rid itself of the last semblance of anything that might impose caution and monetary restraint upon it. It was now free to print any amount of currency it deemed necessary in order to pay for its import needs.

Of course, that's an oversimplification. The majority of international trade doesn't really happen between governments. It's individuals, companies, and corporations of one country that trade with their counterparts in other countries. Nevertheless, while individuals and companies still have to work to earn paper-money with which to buy stuff form foreign companies, the US government/Fed conglomerate was now no longer required to produce or give-up anything of tangible value when paying for its needs. It could simply print whatever amount it needed.

Good for them.

Money now could be - and was - created at will. An enormous, never-ending flood of essentially worthless fiat money was being sent abroad to circulate among the nations.

"Doomerang" had been launched.

It was a sight to behold. Like a magical creature, it sprinkled its fairy dust of fictitious economic prosperity all over the globe as it embarked on its circular path. Nations, and citizens of nations, could not seem to get enough of it, marveling at the magical object like humans marvel at the flight of Superman.

"It's a bird! It's a plane! It's Superdollar!" The American fiat monstrosity was hoarded by individuals and central banks alike. By individuals as the "hard money" core of their rainy-day savings, by central banks as their "reserves" upon which they built their own, precarious, inverted pyramid currency-structures.

And thus, pervasive, never-ending inflation became the order of the day. It became part of everyday reality. In time, no one questioned why it was there anymore - and no one "in the know" who was asked ever bothered to explain.

In public and private publications, in school and university curricula, in financial commentary, on TV and on the radio, "inflation" became a tacit addition to the well-known list of things that can't be avoided in life, i.e.: death and taxes.

And we all ate it up. We spent, and we borrowed, and spent some more. In the midst of all that personal spending and borrowing, who cared that governments did the same thing? Who cared that the government also taxed - at ever higher and higher rates? 't was unavoidable, wasn't it? So why bother to complain?

And the world economy grew fat and "prosperous." A world-wide "economy on crack" evolved.

Ever increasing injections of the ever-plentiful paper-drug were needed to keep the economic "high" going - and those injections were readily supplied by the US, the money-machine of the world. Now the world economy is so huge, the US worldwide debt is so enormous, the politicians' profligacy is of such legendary character, and the common sense of the people is in such short supply that "going cold turkey" (i.e., putting the world economy back on a secure, gold and silver-based footing), is widely considered nothing short of "insane."

Look who's running the asylum.

Meanwhile Doomerang has been circling the globe, pursuing its elliptical path, completing it's course, and is now about to return to its wielder.

The problem is: the "wielder" (the US and its population) has turned the other way, mesmerized by the "prosperity" he deludes himself as having created. We all forgot that this thing we launched in 1971 came with a built-in two-way ticket. We thought is was like the solar-system probe we call "Galileo" that flew away and will never return.

But Doomerang is going to hit us upside the head nevertheless. The deluge of fiat we have sent around the world is already lapping over US shores. Prices are going up as a result, no matter what government statisitcs and accounting tricks are trying to make us believe.

Check out your food bills. Some prices are already up some ten or even twenty percent from what they were only a few months ago. Oh, sorry, I forgot. Food prices are considered "volatile" and so are excluded from "core" CPI figures. But cheaper and cheaper Chinese imports are included, pushing the whole average down. Guess all we need to do is find a way to digest electronics and power tools.

Certain laws of gravity (and monetary "aerodynamics") are just not as easily manipulated as the contraptions of the "gods of the marketplace" are. Once set in motion, they will have their effect. Undeniably.

So while we are watching "Survivor MXXXXXL" and are making sure that our spouses don't find out about our little indiscretions, another cycle of monetary history is drawing to a close.

With heads fully turned, and eyes firmly shut, we are dreaming of a bright future where stock valuations never come down, where mortars and bunker busters clear the way for "democracy", and where our sins will never have to be paid.

The impact will hurt all of us. But some of us, those who dared to peek and who saw that the emperor has no clothes - and is about to strip us naked as well, those of us who bought gold and made provisions for some serious hard times, will at least survive.

But for the rest of this magnificent American body-politic, it's simply "lights out" when Doomerang hits.

Got gold?


 

Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

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