Thread: WARNING.... U.S. Dollar Exchange Article of Interest

Originally Posted by danny51

It is also interesting to note that when disasters like Katrina befall the USA, nobody offers any type of assistance. It is a one way street and I am sick of it. We should cut anyone who hates us off from the free money nipple. We still send millions to Palestine each year which is beyond me as they hate our guts and would gladly kill us all in a heartbeat. As long as we have homeless and hungry and sick people in the USA, we should take care of them first and the heck with everyone else. Isolationism suits me just fine.

Perhaps it's because you're so gracious! FYI, many countries offered assistance and were told to stay away. You did accept some help from us (Canada) but not much. You wanted to handle it yourselves (or GW did).

Interesting,

For what it is worth, as I have been saying for the past year, don't jump into U.S. real estate the moment the dinar or dong revalues, there will be a ton of bargains all over the U.S. up to 43% less than current market values, so be patient, like we were not already conditioned for patience. (g)



Shocking Prediction:
Why Your House Could be Worth
43% Less by 2011 ...continued
Proof That Builders See a
Mega-Bust on the Horizon
Even bigger than houses that won't sell now is the fact that huge numbers of U.S. builders don't see houses selling all too well down the road, either. Take Doug McGraw.
McGraw heads up a Florida construction company, near Fort Lauderdale. Just recently, he was ready to build a 205-unit condo near Fort Lauderdale. Now, he's not. Why?
"[Spending on houses] hasn't just slowed down a little bit," says McGraw, "it's slowed down a lot... anybody who did not already have a shovel in the dirt has chosen to wait until the market settles."
And it might be a long wait.
Take a look at this chart...

If you're a builder, about to sink millions into a new development, what's the first thing you do? You make sure you can get a permit to start developing the land. That's why experts consider the rate of housing permit applications such a good hidden indicator of the future economy.
When it's going up, the economy will likely go up. Because the property industry drives a huge chunk of the job market. But also because when applications are soaring, it means that a boom is exactly what builders -- who live and breath by predicting the future economy -- are betting on.
What does it say when building permit applications start to plummet?
It means builders see plunging home sales, a tight economy, and even a recession on the horizon. Pay attention. Because this is exactly the signal I'm showing you in the chart above. Early last year, the total new number of housing permit applications fell off a cliff.



"A little over a year ago, buyers couldn't wait to sign contracts to purchase homes. Now, many can't wait to get out of them... buyers are backing away from deals in droves."

- The Wall Street Journal

It's plunged ever since.
This is like looking at a crystal ball, telling you what the property developing pros foresee for the broad economy -- not just for 2007, but for 2008, 2009, and even further out. And what the current breaking point above tells us is, in a word, outright ugly.
Given that a mind-blowing 43.15% of all the new jobs in America since 2001 have come from the housing market... this should be terrifying news, even if you don't own a home.
Because, see, when nearly half the new jobs in the U.S. are in jeopardy... when major building companies, the banks that back them, and the other businesses that depend on a housing boom see income vaporize... that can't help but spell bad things for the broad economy, even well outside the housing market.
How ominous is the current signal? By the tail end of last year, overall applications for building permits were down 31.3% from the year prior... and at their lowest permit total since December 1997.
Says Tim Eller, the CEO of the third largest homebuilder in the U.S., Centex, ``We are navigating through one of the most challenging housing environments in the past 25 years,''
Buyers are even canceling sales contracts. Developers are dumping inventory. And still, builders are wracking up losses. Centex, for instance, just wrote off $510 million worth of value on property they both owned and had options to buy. And they're about to let another $450 million in land and options go up in smoke.
No wonder even Bill Gates is dumping shares...
Yep. During the boom, Gates got caught up in the mania and added seven different home building stocks to the portfolio of the famous multi-billion dollar charity trust he runs with his wife.
This past December, he dumped them. Stocks like Centex Corp., KB Home, Pulte Homes Inc., Lennar Corp., Beazer Homes USA Inc, Ryland Group Inc. and WCI Communities Inc. all got kicked out of his fund.
Bruce Karatz, head of KB Homes, says this is the worst he's ever seen... including the collapsing market of the early 1990s. And Gary Gordon, head of the mortgage investment firm Annaly Capital, says falling construction alone could shear 2% of the U.S. GDP.
That's more than $250 billion -- gone in a puff of smoke!
Bigger Than the Dot-com Bomb or S&L Bust...
And Twice as Devastating for Your Wealth
Most catastrophes have a ripple effect.
Maybe you remember, for instance, when the Savings & Loan crisis came to a head in 1989. Over 1,000 small banks made big, bad loans that nearly put them out of business forever.
Dubya's daddy, George Bush Sr., engineered a $125 billion bailout. Wall Street seized up like a Plymouth in January... the U.S. deficits soared... and the U.S. economy slipped into a two-year recession.
Or how about when the Dotcom Bomb finally fell out of the sky?



"For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half... but those who took the bait are in for a nasty surprise: payments are about to skyrocket."

- Business Week

Millions lost billions, so-called government "surpluses" vaporized, and again we got a recession. Even Wall Street didn't recover for another three years. Some stocks never recovered at all, disappearing from the ticker entirely.
Here's the thing...
In the 1989 crisis, fewer people owned real estate. In the 2000 Tech Bust, not everybody owned tech stocks. But in both cases, the impact was far reaching. What does that mean now, when most Americans own property AND a mortgage, alongside their stock portfolios? What does it mean when so many of the new jobs in America -- as much as 43%, remember -- came from the housing industry?
In the tidal wave of falling property prices ahead, it means tighter spending. Lost jobs. Troubles for retail, restaurants, car dealers, advertising companies, jewelers, remodeling contractors, furniture manufacturers, banks, electronic retailers, and more.
Foreign investors pull their cash out of the U.S. market too. It's like a virus -- it can't help but spread.

This will be sweet if the timing on this works out a decent RV wait a few years then start buying property. Definitely one to watch in the future Thanks

Originally Posted by Offshore-Wealth.com

Interesting,

For what it is worth, as I have been saying for the past year, don't jump into U.S. real estate the moment the dinar or dong revalues, there will be a ton of bargains all over the U.S. up to 43% less than current market values, so be patient, like we were not already conditioned for patience. (g)

Thanks, for the Reminder.

Originally Posted by Offshore-Wealth.com

Interesting,

For what it is worth, as I have been saying for the past year, don't jump into U.S. real estate the moment the dinar or dong revalues, there will be a ton of bargains all over the U.S. up to 43% less than current market values, so be patient, like we were not already conditioned for patience. (g)



Shocking Prediction:
Why Your House Could be Worth
43% Less by 2011 ...continued
Proof That Builders See a
Mega-Bust on the Horizon
Even bigger than houses that won't sell now is the fact that huge numbers of U.S. builders don't see houses selling all too well down the road, either. Take Doug McGraw.
McGraw heads up a Florida construction company, near Fort Lauderdale. Just recently, he was ready to build a 205-unit condo near Fort Lauderdale. Now, he's not. Why?
"[Spending on houses] hasn't just slowed down a little bit," says McGraw, "it's slowed down a lot... anybody who did not already have a shovel in the dirt has chosen to wait until the market settles."
And it might be a long wait.
Take a look at this chart...

If you're a builder, about to sink millions into a new development, what's the first thing you do? You make sure you can get a permit to start developing the land. That's why experts consider the rate of housing permit applications such a good hidden indicator of the future economy.
When it's going up, the economy will likely go up. Because the property industry drives a huge chunk of the job market. But also because when applications are soaring, it means that a boom is exactly what builders -- who live and breath by predicting the future economy -- are betting on.
What does it say when building permit applications start to plummet?
It means builders see plunging home sales, a tight economy, and even a recession on the horizon. Pay attention. Because this is exactly the signal I'm showing you in the chart above. Early last year, the total new number of housing permit applications fell off a cliff.



"A little over a year ago, buyers couldn't wait to sign contracts to purchase homes. Now, many can't wait to get out of them... buyers are backing away from deals in droves."

- The Wall Street Journal

It's plunged ever since.
This is like looking at a crystal ball, telling you what the property developing pros foresee for the broad economy -- not just for 2007, but for 2008, 2009, and even further out. And what the current breaking point above tells us is, in a word, outright ugly.
Given that a mind-blowing 43.15% of all the new jobs in America since 2001 have come from the housing market... this should be terrifying news, even if you don't own a home.
Because, see, when nearly half the new jobs in the U.S. are in jeopardy... when major building companies, the banks that back them, and the other businesses that depend on a housing boom see income vaporize... that can't help but spell bad things for the broad economy, even well outside the housing market.
How ominous is the current signal? By the tail end of last year, overall applications for building permits were down 31.3% from the year prior... and at their lowest permit total since December 1997.
Says Tim Eller, the CEO of the third largest homebuilder in the U.S., Centex, ``We are navigating through one of the most challenging housing environments in the past 25 years,''
Buyers are even canceling sales contracts. Developers are dumping inventory. And still, builders are wracking up losses. Centex, for instance, just wrote off $510 million worth of value on property they both owned and had options to buy. And they're about to let another $450 million in land and options go up in smoke.
No wonder even Bill Gates is dumping shares...
Yep. During the boom, Gates got caught up in the mania and added seven different home building stocks to the portfolio of the famous multi-billion dollar charity trust he runs with his wife.
This past December, he dumped them. Stocks like Centex Corp., KB Home, Pulte Homes Inc., Lennar Corp., Beazer Homes USA Inc, Ryland Group Inc. and WCI Communities Inc. all got kicked out of his fund.
Bruce Karatz, head of KB Homes, says this is the worst he's ever seen... including the collapsing market of the early 1990s. And Gary Gordon, head of the mortgage investment firm Annaly Capital, says falling construction alone could shear 2% of the U.S. GDP.
That's more than $250 billion -- gone in a puff of smoke!
Bigger Than the Dot-com Bomb or S&L Bust...
And Twice as Devastating for Your Wealth
Most catastrophes have a ripple effect.
Maybe you remember, for instance, when the Savings & Loan crisis came to a head in 1989. Over 1,000 small banks made big, bad loans that nearly put them out of business forever.
Dubya's daddy, George Bush Sr., engineered a $125 billion bailout. Wall Street seized up like a Plymouth in January... the U.S. deficits soared... and the U.S. economy slipped into a two-year recession.
Or how about when the Dotcom Bomb finally fell out of the sky?



"For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half... but those who took the bait are in for a nasty surprise: payments are about to skyrocket."

- Business Week

Millions lost billions, so-called government "surpluses" vaporized, and again we got a recession. Even Wall Street didn't recover for another three years. Some stocks never recovered at all, disappearing from the ticker entirely.
Here's the thing...
In the 1989 crisis, fewer people owned real estate. In the 2000 Tech Bust, not everybody owned tech stocks. But in both cases, the impact was far reaching. What does that mean now, when most Americans own property AND a mortgage, alongside their stock portfolios? What does it mean when so many of the new jobs in America -- as much as 43%, remember -- came from the housing industry?
In the tidal wave of falling property prices ahead, it means tighter spending. Lost jobs. Troubles for retail, restaurants, car dealers, advertising companies, jewelers, remodeling contractors, furniture manufacturers, banks, electronic retailers, and more.
Foreign investors pull their cash out of the U.S. market too. It's like a virus -- it can't help but spread.

sounds hauntingly like we are about to experience a new world order, so to speak.

Anybody notice on that chart's Y axis -
150
150
150
150
150
150

lol

Originally Posted by MediaHound

Anybody notice on that chart's Y axis -
150
150
150
150
150
150

lol

Verrrrrry Interesting. Yes indeed.

US home sales fall as property glut hits record high
5/27/2007

WASHINGTON, May 26 (AFP): US home sales fell in April to their lowest depths in almost four years as the glut of unsold properties swamping the market ballooned to a record high, an industry report showed yesterday.
The monthly snapshot by the National Association of Realtors (NAR) dashed hopes that the ailing housing market could be on the cusp of a rebound.
The NAR said existing home sales dropped 2.6 per cent to an annualized pace of 5.99 million last month, marking the second straight monthly decline in sales. Sales are now at their lowest ebb since June 2003.
April's weaker sales pace defied the forecasts of most economists who had predicted a turnover of 6.13 million homes and apartments.
The group blamed the slump largely on tighter mortgage lending standards amid mounting home foreclosures.
"The fact that sales fell once again ... indicates that the meltdown in the mortgage market is having a huge impact on home sales," said Patrick Newport, an economist at Global Insight.

ALAS, THE DEMISE OF THE DOLLAR
by Addison Wiggin

The global economy is changing, and the U.S. dollar is on the front lines
of change. When we take a look at history, we see how past events have
affected everything. The Black Death created a devastating labor shortage
throughout Europe for decades. Christopher Columbus' voyages turned trade
upside down for hundreds of years.

The Industrial Revolution moved economic power in ways that continue to
affect economic balances to this day. And now we face another great shift,
away from the U.S. dominance of world markets and toward new leaders -
China and India.

The economic reality - a type of geography - is changing. As a
consequence, real estate speculation in New York, Chicago, and Los Angeles
may be replaced with more global interest in the new real estate markets -
in Beijing, Shanghai, and Bombay. Who knows? We can only anticipate how
changes will occur based on what we observe today. Does this mean the age
of America is ending? No, it simply means that economic muscle will be
flexed by someone else in the future. This is a trend. And like all
trends, they are more easily viewed in historical perspective but harder
to judge from their midst.

When we look at trends in dollar values, we can observe that incomes have
not declined. That's great. But we also see that prices have risen faster
than incomes. So with decreased buying power (caused by this disparity) we
have seen a decline in income in terms of what really counts. It takes
more dollars to buy the same thing (in other words, prices are higher) but
incomes have not risen to meet that price inflation. That's what happens
when the value of the dollar declines.

Economic history is a history of bubbles - and of bursts. The great
disservice being done to Americans by the financial media is that they are
not being offered the opportunity to learn from what is going on. They are
losing buying power, but apart from a few painful spikes at the gas pumps,
it's invisible.

In the Great Dollar Standard Era, the problem is global. While there is,
of course, more to it than just the value of the U.S. dollar, here is how
it works:

1. The dollar's value falls due to Fed policy, liberal credit, and
artificially low interest rates.

2. Eventually, we cannot afford to buy as many foreign goods.

3. Foreign manufacturers, unable to sell at previous levels, have excess
inventory, which causes an inflationary outcome.

4. Foreign governments, in an effort to counteract this inflation, blame
the fallen dollar for the problem and begin moving out of U.S.
instruments.

5. As debt returns to the United States, our system is unable to absorb
it. This creates more severe recession at home.

The whole thing is connected. This is similar to what happened worldwide
at the end of the 1920s.The worldwide depression had numerous aspects, but
most notable among them were two things: a huge transfer of funds from
World War I reparations, and far too much credit that went beyond the
borrowers' ability to repay. All of that credit - essentially, funny money
- also creates a fake demand.

We see the effects of this policy in housing as severely as anywhere. The
whole mess is traced back to the origin - a Fed policy encouraging debt
spending as a means to artificially create the appearance of productivity.
This Fed policy has included four aspects:

1. The Fed has lent money below inflation. Fed lending rates have been far
below inflation (even as measured by the consumer price index, not to
mention any real inflationary measurements). In a very real sense, the Fed
has lost money on these loans. When inflation is higher than the lending
rate, it is a loss. Just as a business cannot stay open when it sells
goods below cost, the Fed cannot continue to hold the view that it isn't
real money. The point is, the money lent out at bargain rates is real
credit, and that is corrupted when it is given away cheaply.

2. The low interest rates have created the mortgage bubble without any
corresponding investment. It is basic: if you borrow money to invest in
productivity (new plants and equipment, for example) it is a profitable
use of money. But those low interest rates have gone, instead, into cheap
long-term mortgages. Current homeowners have refinanced, and many
first-time buyers have gotten into the market because low rates make
housing affordable.

3. The mortgage bubble has inflated the housing market in an exaggerated
fashion, creating the illusion of equity. All of that cheap money has
created two troubling changes in housing. First is higher demand for
owner-occupied housing based on the low cost of borrowed money rather than
on any real market forces. Second is the resulting equity buildup from
rapid expansion of market value in residential property. But it is as fake
as the low interest rates. Like all pyramid schemes, the whole thing will
eventually crumble under its own weight. We do not have an endless supply
of new home ownership demand; quite the contrary. The baby boomers mostly
own homes already, and a smaller population of people coming into home
ownership age will ultimately result in an oversupply of housing stock.
Once the mortgage bubble bursts, we can expect to see several
consequences:

• Defaults on existing loans. As rates on variable mortgages begin to rise
right up to their cap rates, we'll see many of those marginal loans go
into default. Many Americans are barely able to afford the mortgage
payments they are making based on low interest qualification. But as the
Fed finally faces reality and allows interest rates to rise, those
variable increases will kick in as well. Many existing loans will be
defaulted as a result.

• Reduced market value from oversupply of housing. The oversupply in
building will become obvious, but suddenly. At some point, when the bubble
bursts, everyone will realize that too many homes were built too quickly,
and the anticipated demand simply isn't there. The result: those
skyrocketing market values will disappear.

• Abandonment of no-equity properties. The reduced market value in homes
is not going to be limited to a simple supply and demand cyclical change.
For investors, reduced demand and flat or falling prices may be viewed as
a cyclical and natural effect. But when the supply-and-demand cycle has
been manipulated through interest rate policy, we have to expect a more
wrenching effect. For those who enter into the housing market when prices
are inflated, the day arrives when they realize that real equity is below
zero.

There remains no incentive to continue making payments, notably when
lenders are raising rates and when the dollar's buying power is tumbling.
In such a severe condition, marginal buyers are going to simply walk away
from their properties. Why stay when there is no equity - or worse, minus
equity?

• Secondary market fallout from these changes. Where does all of that
mortgage debt end up? It isn't held by your local bank or savings and
loan. It all gets sold to Ginnie Mae, Freddie Mac, and other mortgage
pools, who then package it up and sell it on to investors, many of them
from Europe and Asia. Imagine how those pools will perform when the
foreclosure rate rises and when - at the same time - market values fall.A
high rate of foreclosures in an overbuilt market spells disaster in the
housing sector.

While a normal supply and demand cycle may last three to five years on
average, this downturn could be severe, going much longer into the
future.The actual length of the housing recession would depend on how
decisively the Fed will be willing to act and to fix the problem.

4. The lack of investment and a flat manufacturing trend are damaging the
U.S. competitive position in the world market. Imagine an economic
situation in which enterprising homeowners refinanced their homes when
rates fell, invested the money in small business expansion, and created an
internationally competitive economic climate.

Well, this is the rosy picture the Fed hopes will eventually emerge from
its monetary policies. By artificially lowering interest rates and
enabling homeowners to get at their equity, the idea is that on a broad
range of economic trends (housing, business investment, savings, etc.)
there will be a strong growth spurt, an economic recovery that will return
the United States to its leading position. But the lack of investment is
doing great damage. The whole thing is credit-based, starting with the Fed
losing on below-inflation loans and ending up with credit based spending
but no real productivity.

It appears that Fed policy has been premised on the idea that lower
interest rates bring down inflation. Yet there is no evidence of that in
economic history. It has always been an effective policy to raise rates to
slow down inflation, just as lead rods are moved into the radioactive core
of a reactor to cool down the chain reaction.

Higher rates put a damper on spending. This has been recognized widely, so
the Fed policy - based on the idea that lower rates are "good for the
economy" - is baseless. In fact, it is damaging. The housing market and
its mortgage bubble are most likely to be the first victims of this
policy, and the most visible.

Interesting,

At least one presidential candidate knows what the score is on the dollars decline, so who would you like as President? Someone who knows how to balance the books, or someone who knows how to burn them? lol

At last, someone who is running for office who actually knows how to run the office. (g) This is one of the best reads on U.S. economics I have read in many many years. Refreshing to hear any U.S. Senator say it like it is with all the rest sugar coating these issues while using Iraq disatisfaction as their platform, makes me sick.


THE END OF DOLLAR HEGEMONY, PART I
by Hon. Ron Paul of Texas

A hundred years ago it was called “dollar diplomacy.” After World War II,
and especially after the fall of the Soviet Union in 1989, that policy
evolved into “dollar hegemony.” But after all these many years of great
success, our dollar dominance is coming to an end.

It has been said, rightly, that he who holds the gold makes the rules. In
earlier times it was readily accepted that fair and honest trade required
an exchange for something of real value.

First it was simply barter of goods. Then it was discovered that gold held
a universal attraction, and was a convenient substitute for more
cumbersome barter transactions. Not only did gold facilitate exchange of
goods and services, it served as a store of value for those who wanted to
save for a rainy day.

Though money developed naturally in the marketplace, as governments grew
in power they assumed monopoly control over money. Sometimes governments
succeeded in guaranteeing the quality and purity of gold, but in time
governments learned to outspend their revenues. New or higher taxes always
incurred the disapproval of the people, so it wasn’t long before Kings and
Caesars learned how to inflate their currencies by reducing the amount of
gold in each coin - always hoping their subjects wouldn’t discover the
fraud. But the people always did, and they strenuously objected.

This helped pressure leaders to seek more gold by conquering other
nations. The people became accustomed to living beyond their means, and
enjoyed the circuses and bread. Financing extravagances by conquering
foreign lands seemed a logical alternative to working harder and producing
more. Besides, conquering nations not only brought home gold, they brought
home slaves as well. Taxing the people in conquered territories also
provided an incentive to build empires. This system of government worked
well for a while, but the moral decline of the people led to an
unwillingness to produce for themselves. There was a limit to the number
of countries that could be sacked for their wealth, and this always
brought empires to an end. When gold no longer could be obtained, their
military might crumbled. In those days those who held the gold truly wrote
the rules and lived well.

That general rule has held fast throughout the ages. When gold was used,
and the rules protected honest commerce, productive nations thrived.
Whenever wealthy nations - those with powerful armies and gold - strived
only for empire and easy fortunes to support welfare at home, those
nations failed.

Today the principles are the same, but the process is quite different.
Gold no longer is the currency of the realm; paper is. The truth now is:
“He who prints the money makes the rules” - at least for the time being.
Although gold is not used, the goals are the same: compel foreign
countries to produce and subsidize the country with military superiority
and control over the monetary printing presses.

Since printing paper money is nothing short of counterfeiting, the issuer
of the international currency must always be the country with the military
might to guarantee control over the system. This magnificent scheme seems
the perfect system for obtaining perpetual wealth for the country that
issues the de facto world currency. The one problem, however, is that such
a system destroys the character of the counterfeiting nation’s people -
just as was the case when gold was the currency and it was obtained by
conquering other nations. And this destroys the incentive to save and
produce, while encouraging debt and runaway welfare.

The pressure at home to inflate the currency comes from the corporate
welfare recipients, as well as those who demand handouts as compensation
for their needs and perceived injuries by others. In both cases personal
responsibility for one’s actions is rejected.

When paper money is rejected, or when gold runs out, wealth and political
stability are lost. The country then must go from living beyond its means
to living beneath its means, until the economic and political systems
adjust to the new rules - rules no longer written by those who ran the now
defunct printing press.

“Dollar Diplomacy,” a policy instituted by William Howard Taft and his
Secretary of State Philander C. Knox, was designed to enhance U.S.
commercial investments in Latin America and the Far East. McKinley
concocted a war against Spain in 1898, and (Teddy) Roosevelt’s corollary
to the Monroe Doctrine preceded Taft’s aggressive approach to using the
U.S. dollar and diplomatic influence to secure U.S. investments abroad.
This earned the popular title of “Dollar Diplomacy.” The significance of
Roosevelt’s change was that our intervention now could be justified by the
mere “appearance” that a country of interest to us was politically or
fiscally vulnerable to European control. Not only did we claim a right,
but even an official U.S. government “obligation” to protect our
commercial interests from Europeans.

This new policy came on the heels of the “gunboat” diplomacy of the late
19th century, and it meant we could buy influence before resorting to the
threat of force. By the time the “dollar diplomacy” of William Howard Taft
was clearly articulated, the seeds of American empire were planted. And
they were destined to grow in the fertile political soil of a country that
lost its love and respect for the republic bequeathed to us by the authors
of the Constitution. And indeed they did. It wasn’t too long before dollar
“diplomacy” became dollar “hegemony” in the second half of the 20th
century.

This transition only could have occurred with a dramatic change in
monetary policy and the nature of the dollar itself.

Congress created the Federal Reserve System in 1913. Between then and 1971
the principle of sound money was systematically undermined. Between 1913
and 1971, the Federal Reserve found it much easier to expand the money
supply at will for financing war or manipulating the economy with little
resistance from Congress - while benefiting the special interests that
influence government.

Dollar dominance got a huge boost after World War II. We were spared the
destruction that so many other nations suffered, and our coffers were
filled with the world’s gold. But the world chose not to return to the
discipline of the gold standard, and the politicians applauded. Printing
money to pay the bills was a lot more popular than taxing or restraining
unnecessary spending. In spite of the short-term benefits, imbalances were
institutionalized for decades to come.

The 1944 Bretton Woods agreement solidified the dollar as the preeminent
world reserve currency, replacing the British pound. Due to our political
and military muscle, and because we had a huge amount of physical gold,
the world readily accepted our dollar (defined as 1/35th of an ounce of
gold) as the world’s reserve currency. The dollar was said to be “as good
as gold,” and convertible to all foreign central banks at that rate. For
American citizens, however, it remained illegal to own. This was a
gold-exchange standard that from inception was doomed to fail.

The U.S. did exactly what many predicted she would do. She printed more
dollars for which there was no gold backing. But the world was content to
accept those dollars for more than 25 years with little question - until
the French and others in the late 1960s demanded we fulfill our promise to
pay one ounce of gold for each $35 they delivered to the U.S. Treasury.
This resulted in a huge gold drain that brought an end to a very poorly
devised pseudo-gold standard.

It all ended on August 15, 1971, when Nixon closed the gold window and
refused to pay out any of our remaining 280 million ounces of gold. In
essence, we declared our insolvency and everyone recognized some other
monetary system had to be devised in order to bring stability to the
markets.

Amazingly, a new system was devised which allowed the U.S. to operate the
printing presses for the world reserve currency with no restraints placed
on it - not even a pretense of gold convertibility, none whatsoever!
Though the new policy was even more deeply flawed, it nevertheless opened
the door for dollar hegemony to spread.

Realizing the world was embarking on something new and mind boggling,
elite money managers, with especially strong support from U.S.
authorities, struck an agreement with OPEC to price oil in U.S. dollars
exclusively for all worldwide transactions. This gave the dollar a special
place among world currencies and in essence “backed” the dollar with oil.
In return, the U.S. promised to protect the various oil-rich kingdoms in
the Persian Gulf against threat of invasion or domestic coup. This
arrangement helped ignite the radical Islamic movement among those who
resented our influence in the region. The arrangement gave the dollar
artificial strength, with tremendous financial benefits for the United
States. It allowed us to export our monetary inflation by buying oil and
other goods at a great discount as dollar influence flourished.

This post-Bretton Woods system was much more fragile than the system that
existed between 1945 and 1971. Though the dollar/oil arrangement was
helpful, it was not nearly as stable as the pseudo gold standard under
Bretton Woods. It certainly was less stable than the gold standard of the
late 19th century.

During the 1970s the dollar nearly collapsed, as oil prices surged and
gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were
required to rescue the system. The pressure on the dollar in the 1970s, in
spite of the benefits accrued to it, reflected reckless budget deficits
and monetary inflation during the 1960s. The markets were not fooled by
LBJ’s claim that we could afford both “guns and butter.”

Once again the dollar was rescued, and this ushered in the age of true
dollar hegemony lasting from the early 1980s to the present. With
tremendous cooperation coming from the central banks and international
commercial banks, the dollar was accepted as if it were gold.

Fed Chair Alan Greenspan, on several occasions before the House Banking
Committee, answered my challenges to him about his previously held
favorable views on gold by claiming that he and other central bankers had
gotten paper money - i.e. the dollar system - to respond as if it were
gold. Each time I strongly disagreed, and pointed out that if they had
achieved such a feat they would have defied centuries of economic history
regarding the need for money to be something of real value. He smugly and
confidently concurred with this.

In recent years central banks and various financial institutions, all with
vested interests in maintaining a workable fiat dollar standard, were not
secretive about selling and loaning large amounts of gold to the market
even while decreasing gold prices raised serious questions about the
wisdom of such a policy. They never admitted to gold price fixing, but the
evidence is abundant that they believed if the gold price fell it would
convey a sense of confidence to the market, confidence that they indeed
had achieved amazing success in turning paper into gold.

Increasing gold prices historically are viewed as an indicator of distrust
in paper currency. This recent effort was not a whole lot different than
the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt
to convince the world the dollar was sound and as good as gold. Even
during the Depression, one of Roosevelt’s first acts was to remove free
market gold pricing as an indication of a flawed monetary system by making
it illegal for American citizens to own gold. Economic law eventually
limited that effort, as it did in the early 1970s when our Treasury and
the IMF tried to fix the price of gold by dumping tons into the market to
dampen the enthusiasm of those seeking a safe haven for a falling dollar
after gold ownership was re-legalized.

Once again the effort between 1980 and 2000 to fool the market as to the
true value of the dollar proved unsuccessful. In the past 5 years the
dollar has been devalued in terms of gold by more than 50%. You just can’t
fool all the people all the time, even with the power of the mighty
printing press and money creating system of the Federal Reserve.

Even with all the shortcomings of the fiat monetary system, dollar
influence thrived. The results seemed beneficial, but gross distortions
built into the system remained. And true to form, Washington politicians
are only too anxious to solve the problems cropping up with window
dressing, while failing to understand and deal with the underlying flawed
policy. Protectionism, fixing exchange rates, punitive tariffs,
politically motivated sanctions, corporate subsidies, international trade
management, price controls, interest rate and wage controls,
super-nationalist sentiments, threats of force, and even war are resorted
to-all to solve the problems artificially created by deeply flawed
monetary and economic systems.

Regards,

Congressman Ron Paul