Stock Analyst Richard Russell on the "death knell" for the dollar
When Richard Russell speaks, there is very little to be said after wards. He is the author of the Dow Theory Letter – therefore, he is a stock analyst. In my mind, he is one of the best ever. This time, he is talking about physical gold. A good history lesson (like this), needs no commentary on my behalf. Here’s Richard on 10/1/10:
“At the very foundation of the US economy is the fiat dollar. If the dollar goes, the economy goes with it. Rising gold signals the death knell for the dollar.
I always try to uncover the fundamentals. I've searched for the fundamentals of the current market (bear market), and here they are.
In 1971 (Vietnam and deficits) when foreign nations (particularly France), demanded that the US settle its deficits with gold (as specified in the Bretton Woods Agreements), Richard Nixon and staff were worried about our disappearing gold reserves. Their answer to settling our debts in gold was a resounding and historic "no." In doing so, they shut the gold window. Thus, the time-honored link between the US dollar and gold was broken. The US would no longer give up its gold to settle its international debts. At that point, the US and the world went completely off the gold standard. The US dollar would then be the world's reserve currency.
Without the discipline of gold, the Bretton Woods agreement fell apart, and central banks were free to create fiat currency out of "thin air," as much of it as they wanted. The ignorant public accepted the intrinsically worthless fiat money. "Now we're all Keynesians," said a shaken Nixon.
The collapse of the gold agreement was known as the "Nixon shock." After that, the US created prosperity and good times through leveraging and inflation rather than manufacturing goods to sell the world. Without the discipline of gold, the Fed could embark on a process of systematic inflation. The US enjoyed years of "good times" based on a system of ever-larger quantities of fiat money. The dollar, which prior to 1971, had been backed by gold, was no longer backed by anything. The dollar became a promise to pay you "nothing," Behind the dollar was only the "full faith and credit" of the US.
The phony prosperity since 1971 was built on a Fed-created fantasy currency. Fantasies can only last so long -- until they meet head on with the brick wall of reality.
But here in the year 2010 the fantasy of fiat or fake money has hit the wall of reality. The US prosperity and the phenomenon ever-rising prices was a product and a creation of a fantasy currency.
Thus, I believe that the very fundamentals of this bear market will be an epic clash between a world built on fiat money and a return to the reality of intrinsic wealth. T
his bear market will be about the collapse of fiat money. In all history, no fiat currency has ever survived. The fundamental of this bear market will be about the collapse of the world's fiat currency and all the fake prosperity that has been created through fiat currency. In other words, cold reality will prevail. The people of the world will, at last, realize that money by fiat is not reality, it's fantasy money and a dream created by man.
In essence, what we're seeing now is a battle to the death between intrinsic money (gold) and the fiat paper created by the world's central banks.
For centuries, the alchemist attempted to turn base metals into gold. They failed. But the central banks had a better trick. They've succeeded in turning their own product, fiat paper, into gold. In this, they succeeded for decades (with the help of a dumb-downed public that had been thoroughly brain-washed).
But now reality has set in --. the fantasy of paper money is losing its illusionary power. An increasing number of people are looking at fiat money and saying, "The paper money emperor has no clothes. In its essence, what's a dollar really worth?" Turn in a dollar, and what do you get? Instead of gold you get another dollar.”
Agreed. Wow! Any questions, call us today at Lear Capital.