This past weekend, I had the pleasure of accompanying my wife to LSU-Baton Rouge to visit my daughter, who just this week, was initiated into her sorority. We pulled our small Airstream trailer four hours South and enjoyed a delightful weekend visiting our daughter and just relaxing in the perfect November weather of South Louisiana (clear blue sky, 68 degrees, sun and a slight breeze). I even managed to finish Pat Buchanan's new book "Where the Right Went Wrong."
In Mr. Buchanan's book, he explains the U.S.'s Post-World War II foreign policy. It all starts out with Harry Dexter White's Plan at Bretton Woods. White was a Soviet Spy working under Treasury Secretary Morgenthau. The White Plan consisted of the U.S. dollar as the World's Reserve Currency and that dollar being backed by gold at $35 an ounce. All other currencies would be valued against the U.S. dollar. The International Monetary Fund was then set up and funded with 104 million ounces of U.S. gold and billions of dollars of U.S. cash. Other countries contributed money and were granted voting rights in proportion to their contributions. The IMF was set up to provide loans to countries facing a run on their currencies. The International Bank for Reconstruction and Development was also created to provide loans to rebuild countries that suffered destruction during the war. The IBR&D would later become known as the World Bank.
After WWII, peacetime America sold the rest of the world twice as much as it imported. Since under the Bretton Woods' Plan, the U.S.A. was supposed to provide the liquidity for the rest of the world, the trade surplus would have to be worked around. Too much of the world's money was piling up inside the U.S.A.. Some way would have to be found to help send U.S. dollars throughout the world. The U.S. stationed troops around the world and built bases, which helped export dollars. Foreign aid, as well as loans from U.S. banks, sent even more money overseas. U.S. markets were opened to foreign goods without import tariffs. Foreign currency was devalued to make their goods more attractive in U.S. markets to allow foreign countries to earn cash to pay back their loans.
Pretty soon the flow of money going out of the U.S. got out of hand. Nixon and Treasury Secretary Connally severed the gold link in 1971 to stop the subsequent gold redemptions. The IMF then changed its mission. They loaned money to any country that found itself unable to pay back its loans if that country would pledge to follow IMF rules concerning their monetary policy. With the Reagan tax cuts and economic boom, as well as the defense cuts at the end of the Cold War, the U.S. was able to rescue Mexico, Thailand, Indonesia, South Korea, Russia, Argentina and Brazil from currency collapse. The IMF and the World Bank poured money into these countries to allow them to continue to service their foreign debts. The IMF insisted that these countries devalue their currency, so they could export their way out of the crisis, by flooding the U.S. market with cheap goods to earn U.S. dollars to service their loans. The U.S. agreed to keep its markets wide open. ALL THIS WAS DONE AT THE EXPENSE OF THE U.S. MARKET.
With our trade deficit at $600 billion + dollars, the U.S. is in trouble. U.S. dollars are piling up overseas. Unless the U.S. can substantially increase its exports (not possible), then the U.S. dollar MUST FALL. In the long run, a devalued U.S. dollar will help us export goods and correct our trade imbalance. In the short run, there will be much pain. There will also be pain for anyone foolish enough to be holding U.S. dollars. Eventually, U.S. industry will reassert itself, but it will take a decade or more. Our standard of living will drop. For now, we must import many essential items because we no longer make them in this country and when the dollar devalues, we will have to pay a much higher price for them, until we can produce them again.
Make no mistake - the dollar must devalue. Politically, a devaluing dollar will play havoc with our empire. Just study the United Kingdom and see how well they were able to run their empire on a declining currency. Perhaps, some good will come out of all this if we are forced to bring home our troops and quit meddling in the affairs of others. (Vote against all incumbents and both political parties whenever possible, since they got us into this mess. Small government and sound money are the only things that can save us, and no one in Washington wants either. OK, Congressman Ron Paul can stay, but everyone else needs to go).
In the meantime, foreigners are buying U.S. assets such as treasury securities and U.S. businesses. Our great U.S. companies are slowly being sold. Our country is being de-industrialized, while we sit and watch.
Will there be a trigger that precipitates a dollar crisis? Will the system blow up? Will the Middle Eastern oil countries suddenly decide to sell their oil for Euros only? Will the Dinar upset the U.S. dollar? Or will we, the dollar, die the death of a thousand cuts, where it slowly but steadily devalues? When the dollar devalues, gold naturally goes up (unless it's held down by artificial means). Over the past few years, the U.S. dollar has dropped around 35% against the Euro and gold is up almost 70%. Maybe it is ALREADY HAPPENING before our eyes.
Live life and enjoy today because it is the only life we have - but be aware of what is happening all around us and take financial precautions.
Got gold?
Larry LaBorde
Silver Trading Company
9 Jan 2004
