Market analyst Jim Rickards believes that the Federal Reserve should have starting raising interest rates six months ago, but has not done so because it is deliberately devaluing the dollar. He says that their goal is to cut its value in half over the coming years. While this cheapens existing debt it also undermines national security because it limits the future lending ability of the US central bank in a time of crisis and may even cause the dollar to fold under an international currency such as the IMF’s Special Drawing Rights.
Other market researchers also believe that the central bank will continue to weaken the US Dollar by keeping interest rates artificially low.
"The reversal in the dollar and gold indicates the markets believe the Fed and Treasury will keep a weak-dollar policy to stimulate the economy," said Brian Kelly, chief executive of Kanundrum Research, a commodities and macroeconomic research firm.
"This opens the door to the potential for competitive currency devaluations," he said, adding that in such a scenario, "the natural beneficiary is gold."
Swiss economist Marc Faber is convinced the expansion in the money supply will flow into speculation, not capital investment. This is the reason for the so-called ‘jobless recovery’.
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said money printing flows into the system and goes into speculation in commodities, equities, art and consumption, but it doesn't go into capital spending.
"You can boost any kind of asset by printing money. What then happens, you can print money whether physically with a printing press or electronically, what you don`t really control are the long term consequences of the money printing, Faber told Bloomberg.
The significance of what Faber is saying is fundamental: Money printing goes into speculation and consumption not into capital spending of new factories, or into the acquisition of equipment and machinery or R&D.
He believes that the weak dollar policy is leading towards a collapse of the financial system.
“You cannot postpone the hour of truth forever,” said the Swiss national, who now lives in Thailand. “The next stage is for total breakdown of the financial system and for an economic and financial crisis that will bankrupt governments.”
A problem that the Federal Reserve is facing by inflating currency is that the price of commodities such as gold rise in proportion to the increase in the money supply. It attempts to cover this up by entering into swap arrangements with foreign banks which artificially suppress its price.
Jake Towne, a candidate for Congress in Pennsylvania's 15th district, has written that Larry Summers, the director of the Obama’s National Economic Council engaged in manipulation of the gold price through foreign swaps modeled after covert collusion between central banks during the Kennedy presidency in the 1960's.
In October of 1960, gold trading on the London gold exchange reached $40/ounce, which was $5 higher then the central bank's target price. Rampant speculation that a Kennedy presidency would lead to more inflation, along with the building of the Berlin Wall and the U-2 spy plane incident, triggered fears about economic stability.
To curtail these fears, President Kennedy pledged in February 1961 that America would maintain the official price to our foreign creditors, and the price of gold fell to $35/ounce. Fearing a relapse, the international bankers of the BIS and the FED-US Treasury secretly formed the London Gold Pool. Each member of the Pool would pledge some of their gold to keep the London market suppressed. The Bank of England would dump their gold on the London market whenever necessary, and at the end of each month the other members would reimburse the BoE in accordance with the percentage of the pool they owned. The members were:
- 50% - United States of America with $135 million, or 120 metric tons
- 11% - Germany with $30 million, or 27 metric tons
- 9% - England with $25 million, or 22 metric tons
- 9% - Italy with $25 million, or 22 metric tons
- 9% - France with $25 million, or 22 metric tons
- 4% - Switzerland with $10 million, or 9 metric tons
- 4% - Netherlands with $10 million, or 9 metric tons
- 4% - Belgium with $10 million, or 9 metric tons
My message is … bankruptcy is imminent in the coming years as I first clearly denoted in this series. Similar to the closing of the gold window in 1971 being preceded by the demise of the London Gold Pool, this bankruptcy has been preceded by former Treasury Secretary and current Director of the National Economic Council Larry Summer's gold price suppression plan enacted in the 1990s.
The "Summers Suppression Plan" has been bolder, more clever and more clandestine than the London Gold Pool, but may well be on its last legs.
A Presentation on the Financial Crisis by Jake Towne