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Inevitable Demise of the Debt Based US Dollar

Economics / US Dollar Dec 07, 2007 - 06:01 PM GMT

By: The_Big_Fisherman

Economics From Fear to Horror - With the bi-polar behavior of the financial markets these past few months, it is sometimes best to remember back to when the unfolding of current events was seen only by the heretics. It is at this point in time where they had the least biased view of the history now being made. These mavens were few, and the ramifications of their insight were but distant theory. And perhaps only they properly recognize the extent of the horror now confronting those trapped inside the nanny-state bubble. Cooing pundits and those that soften the hard edges are not to be trusted.

The attempt over the past few months to herd the sheep into a coral of mortgages by the three amigos heading the Fed, the Treasury, and Fannie Mae is pathetic. It is hard to imagine that I once thought that the monetization of mortgages would hold the line on the empire of the dollar for several years. Perhaps I expected the monetary authorities would have more control than it now appears. But the dollar and housing will stabilize at much lower levels to the debtor's continued detriment and to the public's growing dismay.

Already there is much more bleating than I anticipated as the most fearful words a government can utter have been proclaimed: “We are here to help you.” As the housing cover clause is exercised new challenges to personal sovereignty emerge. The competitive advantage given to those who succumb will gnaw away at those who do not. If the credit unwinding is orderly and goes according to plan, a few years of monetization would be sufficient to cause mortal damage to private property ownership. But this great last hope of the neo-Keynesian's, the housing backed dollar, will fail. Until then this hope is what makes the Keynesians such easy marks.

At the church of Keynes , the Harvard endowment fund got clipped for a few billion. Being no dummy the manager just followed the money. Sir Goldman of Sachs has made a fortune front running the credit deflation, along with the usual inside game on treasuries. The most astute in this camp now understand that historically and fundamentally the financial sector may well contract by an order of magnitude. Most of our financial institutions would go away or be dramatically remade. Goldman intends to stay. They have advised us all to sell our gold because it will go down in price. Fewer listen every day.

Domestically, the libertarian plank for honest money is a concept that is spreading exponentially, well beyond the Ron Paul phenomenon. The confiscatory raid on the Liberty dollar shows institutional fear that foreshadows continued expansion of the domestic market for precious metals as money. The constitutional perspective on lawful money is fast spreading. Will this movement incite withering fire from swelling ranks of hard money investors as the statists are met with contempt and defiance? Or will greater forces abroad take the lead.

Internationally the fiat dollar has become recognized for what it is, and more importantly for what it is not. There may well be an overt global financial assault on the dollar as the US monetary policy of reflate and default has become widely recognized and will be refuted as a matter of necessity. At the very least the dollar will continue to be increasingly shunned. At the worst it will be the focus of historic financial scorn and ridicule, seared into the world's collective memory for centuries .

So I still expect the demise of the debt based dollar to be inevitable, and while those mavens who saw this coming in detail expect it to have begun in earnest, they also expect it to take an agonizing few years. The dislocations caused by excess credit as money will take some time to unwind even at the intensity exhibited of late. It will be over when demand for dollar debt ends. Hard asset based mediums of exchange will prevail in one of the largest transfers of wealth in history. The savvy libertarian minded around the world will continue to be the primary recipients of this life changing wealth and their ranks will swell as the monetary wisdom of the ages prevails. To the framers of our constitution this was common knowledge. As the cycle of man now requires, it will be so again.

By Rodney C. Cook, Ph.D.

Copyright c 2007. Rodney C Cook. All rights reserved.

Dr. Cook manages Bull Trout Capital, a boutique investment company specializing in precious metals and strategic materials. For the past five years he has authored the private newsletter the FishWrapper on Austrian and long cycle investment strategies where he has demonstrated well over a 65% annualized return on his personal investments in the public share markets. Subscription inquiries may be sent to .

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