// Seeking Truth In A World Of Lies and Deception //

by Ron Brown, North American Investment Services

We live in a world of confusion and contradiction. Though we seem to be living in a period of unequaled and unending prosperity, it somehow seems hollow and artificial, as if it could all end tomorrow. The booming stock

market has gone beyond insanity yet people still think it will never end.

Whenever I have trouble making sense of the distorted and obviously conflicting information presented to us daily by government and the media, I remember what President Roosevelt said...nothing in politics happens by accident. I believe that is true today. In fact, I believe every report or statement from the government is measured and designed to forward some orchestrated agenda.

Recently, two topics in particular seem to be the source of more than usual confusion, lies, and deceptions...

// Y2k and the Gold Market //

There has been an obviously orchestrated propaganda blitz since March 1999 regarding Y2k and the gold market. Below I offer nine observations and some conclusions on this most intriguing situation.

OBSERVATION #1: Y2k has become a Propaganda War.

Jim Lord is one of the more respected Y2k experts in the world. In a recent issue of his Y2K REALITY WATCH newsletter, Jim Lord identifies two of the most important points I believe are missed in the Y2k debate.

First, the battleground of Y2k is not about solving the problem, but about winning the propaganda war for public opinion. Second, Mr. Lord correctly points out that the greatest threat of Y2k is the impact it will have on the banking system.

Both points recognize it’s not the "problem" but the "perception of the problem" that creates the crisis and thus it’s own reality. Y2k or not, the financial system of the world is a gigantic bubble looking for a pin. The only thing holding it together is consumer confidence. Regardless of its magnitude, Y2k is a sharp pin that threatens to prick that veil of confidence.

OBSERVATION #2: The gold market appears to be a rigged game.

In a news release dated 4/22/99, the GOLD ANTI-TRUST ACTION COMMITTEE (GATA), announced that noted anti-trust and securities law firm specialist, Berger & Montague of Philadelphia has been retained to assist in its investigation into the alleged manipulation of the gold market. GATA states "the price and supply of gold are being controlled by a cartel of Wall Street investment houses and bullion banks with the possible encouragement of the Federal Reserve and the US Treasury." This confirms what many of us have suspected for years.

Anyone who has reviewed some of the EXECUTIVE ORDERS inacted by current and past Presidents of the United States of America should be aware that the events of today are really part of a much bigger plan. The crisis we are headed for is not the result of bumbling idiots in high places. These executive orders did not get on the law books by accident. They represent a highly organized agenda to undermine our freedoms and national sovereignty. Any plan of action must not ignore this frightening but stark reality.

OBSERVATION #3: The world economy is collapsing.

Actually, the system began to unravel two years ago in the Pacific Rim where the combination of stock market collapse and currency devaluation destroyed as much as 80% of the wealth in Korea, Indonesia, Thailand, etc. Despite IMF efforts to defuse the problem, the crisis quickly spread to Russia--which is an economic basket case--slowing the economies of Europe. The "Asian Flu" then proceeded on to South America where Brazil now teeters on the brink of disaster. If Brazil goes, all of South America goes.

I could elaborate, but I think you get the picture. The world financial boom of the last 18 years is trying to collapse while the international bankers who created this Ponzi scheme are trying desperately to hold it together...at least until they can blame it on Y2k.

OBSERVATION #4: The United States is the "Buyer of Last Resort."

When you analyze it, the only thriving economy in the world is the United States. Furthermore, I am convinced monetary authorities are using the US to prop up the whole world. Think about it. The dollar is strong not from it’s own strength, but because the currencies of other nations are weaker. Flight capital from failing economies throughout the world, seeking refuge in the US, continues to fuel our financial markets. The rich get richer.

In our prosperity, the United States has gone on a buying binge, importing goods from all over the globe at distressed prices. Our trade deficit now exceeds a record $20 billion per month and grows larger every month.

It’s our imports that keep the world economy afloat, so the United States economy must be kept strong, at least until the world recovers. Unfortunately, distressed prices from abroad have deluded most Americans into thinking there is no inflation. So, before we go further, let’s briefly discuss the subject of inflation, because it’s our misunderstanding of inflation that is at the root of our looming financial crisis.

OBSERVATION #5: Most people don't really understand inflation.

We are programmed daily to believe inflation is "rising prices." It is critical to understand that "rising prices" are *not* what inflation *really* is. Inflation is the increase in the supply of money and credit--period. Since everything we call money is really debt, inflation is the increase in credit.

While it is true that the normal result of expanding credit is a rise in prices, it is incorrect to equate the two. It’s kind of like analyzing rain. If you start with the assumption that wet streets cause rain, you’ll never come to a logical conclusion. In the same way, if you assume inflation is higher prices, you’ll never understand the true cause of it.

Politicians and bankers will continue to point their fingers and blame everyone and everything for inflation except the true culprit--themselves. It is the unconstitutional Federal Reserve System and fractional reserve banking that magically creates credit, also known as debt, out of thin air. The problem is that a system built on a foundation of debt can only exist as long as the people maintain confidence. If confidence waivers the debt bubble collapses causing the opposite condition--deflation.

By understanding what inflation *really* is we see that inflation has never slowed down in spite of the spin promoted by the mainstream media. The enormous growth in our debt structure and the value of equity markets is proof that the supply of "money" has expanded dramatically. The only thing that has been contained is the perception of inflation.

Secondly, because of the massive debt structure in the world, deflation must be avoided at all cost. Remember that in a monetary system based on debt, everyone’s assets are really someone else’s IOUs. In a depression no one can pay off his IOUs. But, deflation is exactly what’s happening as world markets decline! To offset the deflation overseas the US markets are being inflated massively to keep the world solvent.

OBSERVATION #6: The FED is continually avoiding near disaster.

In July-September of 1998, the US stock market almost fell off its pedestal as stocks dropped 25 to 30 percent across the board. To prevent a further panic the FED and its "plunge protection team" rushed in. They opened the money spigot full blast to prop up failing markets. Of course after the recovery the media establishment bragged about how resilient the markets are, further entrenching the arrogance and complacency of a market frothing with greed. It’s as if nothing has changed. But something has changed!

OBSERVATION #7: You eventually have to pay the piper!

Inflation fear is once again rearing its ugly head. The bankers cannot run the printing presses nonstop without rekindling the perception of inflation. As we discussed earlier, perception creates it’s own reality. Once the fear of inflation is ignited the whole credit bubble comes under attack and confidence is undermined.

OBSERVATION #8: Inflation fear drives interest rates up, bond prices down.

The natural result of rising inflationary fear is higher interest rates and thus lower bond values. Let me explain. Who’s going to lend money at 5 percent if they perceive price inflation is 8 percent? Likewise, if long-term rates rise to 8 percent, who’s going to buy your bond paying 6 percent--unless you sell it at a discount. In other words, if long-term interest rates rise from 5 to 6 percent, that’s an increase of 20 percent which would have a corresponding drop in the value of bonds. To summarize, as interest rates rise the bond market comes under extreme pressure.

OBSERVATION #9: Bonds are the foundation for our house of cards.

Finally, the point I want to make is our entire monetary and financial system is built on a foundation of debt. The world debt structure has grown well in excess of $100 trillion, and that doesn’t even include derivatives.

All debt instruments have a maturity date in which they must either be repaid or renewed. Literally trillions of dollars of debt instruments mature each year and must be rolled over. As interest rates rise and bond values decline this becomes more and more difficult. The foundation for our gigantic house of cards begins to crumble. If not stopped immediately the process will quickly veer out of control; thus, shutting down economic growth, collapsing the stock market bubble, and triggering a panic stampede out of all paper assets. Obviously, an UNACCEPTABLE CONCLUSION.

CONCLUSIONS:

Make no mistake; the unraveling process has already begun in earnest. Inflationary fears have driven long-term rates above 6 percent and the bond price index has dropped to the lowest level since Oct 97. Monetary authorities are now faced with the challenge of restoring confidence before it wrecks the whole system. Inflationary fears must be calmed immediately! Anything that undermines confidence must be attacked, and it must be attacked immediately and with a vengeance. That is the answer to our initial questions and explains the propaganda blitz to calm Y2k fears and depress gold prices. They both represent an immediate threat to confidence and therefore had to be dealt with severely.

// Y2K A Threat To Bank Solvency //

As Jim Lord explains, banks have only $3 for every $250 on deposit. Cash withdrawals in preparation for a possible Y2k meltdown pose an immediate threat to bank solvency. So in typical bureaucratic fashion, the truth has to be compromised to protect people from themselves. So, the lies and cover-ups spew forth as the establishment media acts to convince people that Y2k is no longer a threat. My advice--don’t buy into it.

If anything, the problem is greater than most people think simply because, regardless of the magnitude of the problem technically, Y2k is a very sharp pin that will prick the veil of confidence that holds a fragile banking system together.

// Gold Is A Threat to the Financial System //

While a bank run on cash threatens solvency in the banking system, gold threatens the system itself. Remember, gold is the only "real money" that historically has provided the backing for all legitimate currencies. It was only in the last 75 years or so that international bankers, led by the Rothschilds, infiltrated western governments to remove the gold backing to all currencies.

Despite all attempts to eradicate gold as the monetary standard, gold is and always will be the money of last resort. Whenever confidence waivers people will stampede out of paper assets and seek the refuge of gold, silver and other tangible assets.

// The War On Gold Accelerates //

Because gold tends to rise as monetary fears increase, the perpetrators of this fraudulent system are very sensitive to the price of gold. They will do whatever is necessary to artificially hold the price down. The larger the credit system gets the more critical the problem, since it takes a smaller and smaller fraction of flight to cripple the system and trigger a panic.

For example, in today’s world if just 1 percent of the money in the system tried to run for the exits, it would translate into well over a trillion dollars. Do you think there is a trillion dollars worth of gold anywhere in the world to meet such a potential demand? Well, there isn't!

In fact, one man by the name of Warren Buffett purchased 20 percent of the world’s annual silver production with less than $1 billion, and drove the price of silver from $4.60/oz to over $7/oz in the process. What would happen if a $1000 billion...a trillion...tried to enter the tangible asset market? I think you see their predicament. They must do whatever is necessary to make sure gold never gains any upward momentum.

// The Gold Lease Time Bomb //

International bankers have been struggling for years to hold gold & silver

prices down and have created their own monster in the process. Years ago, in the early 80’s, the central banks initiated a program where they leased gold to large institutions who in turn sold it into the open market to raise capital.

Mining companies used this technique to sell forward future productions, but the greatest abuse of this practice was by giant mutual funds that would use the proceeds to invest in financial markets. Do you see the problem? The sale of borrowed gold has suppressed gold prices temporarily, but it has created a short position that eventually must be repaid.

It is now estimated the short position may exceed 14 thousand tons – over 5 years annual production! This amount of gold is not available. I hope you can see that the bankers must manipulate the price of gold in every conceivable way to put off the day of reckoning. Any rise in gold prices will trigger a massive short squeeze!

// Gold Auctions--an Act of Desperation //

You’ve no doubt heard of the threatened gold sales by the IMF and the Bank of Switzerland (possibly 1300 tons) plus auctions by the Bank of England (415 tons). The last time this happened was Nov 78 when Jimmy Carter announced gold auctions just prior to gold prices exploding to over $870/oz. The threat of auctions was mostly hype then, and it’s mostly hype now. It didn’t stop the panic then and it certainly won't stop it now.

[Editor Note: One house of the Swiss government recently voted NOT to sell their central bank gold which reduced this concern temporarily.]

My Advice: Don’t let the hype intimidate you. That’s exactly what they are trying to do. Continue to accumulate the position you need during this lull while prices are low and metals are readily available. When the monetary meltdown accelerates, prices will expand and supply will dry up overnight.

// THE BIGGER PICTURE //

The international bankers who created the Ponzi scheme we call a monetary system know better than you and I that it’s about to collapse. In fact, it’s part of their long-term plan to force the world to accept a "World Central Bank." As David Rockefeller said, "given the right crisis the world will accept our New World Order." But the timing must be right.

Rising interest rates or a panic flight out of paper cannot be allowed to be the perceived cause of the crisis. That would expose their fraud. I believe the "right crisis" they need is Y2k. What a perfect cover for their coup! After all, they can exclaim, "Every thing was wonderful until the awful Y2k crisis came along."

// A FINAL THOUGHT //

The deeper you explore the coming crisis the more overwhelming it seems. The natural tendency is to stick your head in the sand and pretend the problem will go away. That’s why so many people believe the propaganda. It’s the old "tickle my ears" syndrome. As good stewards we are called to seek the truth and do our best to prepare for ourselves and for our families.

As we attempt to do so, we eventually come to a very important conclusion: We can’t do this in our own understanding. Our only hope is to turn to the "saving grace" of Jesus Christ and in doing that we will find the peace we are searching for.

Amen to that...

-- Andy (2000EOD@prodigy.net), November 06, 1999

Answers

The lies are sickening. What corruption.

I was thinking back to when I was a kid. We had what we needed-- clothes, food, books, education, whatever people need to live comfortably. Yet in all the decades following so much has been invented, so many toys, so many conveniences. Do I feel better off now than I did then? I enjoy the technology, but no, I feel essentially no different in the way I have my needs met. My life is still (thank God) internal to me, not based on having a computer or a wireless telephone. I would happily give back all the advances today, but without seeing the suffering that their being abruptly taken from us will cause.

-- Mara (MaraWayne@aol.com), November 06, 1999.

---hey, really liked this post. My concern is that the new world odor has already shown that they will commit mass genocide to further their aims, so i think that they wouldn't balk at "outlawing" private ownership of gold and silver--i.e. you have 30 days to turn in your coins and gold in exchange for(fill in whatever you want) "newbux". henceforth all transactions must be in newbux or the electronic equivalent. anyone bartering or using older currency or coins or bullion will be guilty of a felony, penalties to be..(fill in even more stoopid stuff). anywho, that's what i think will happen. no way are "they" going to allow anyone not in their loop to have real wealth for too long, just that phony debt-wealth-electron stuff. p.s. sorry about my little finger never working on the caps shift key very well....broken karate hands a long time ago zog

-- zog (zzoggy@yahoo.com), November 06, 1999.

So what do you recommend? Purchasing gold bullion (with worthless digital or paper money from someone who doesn't think that the digital or paper money is worthless) and then taking physical possesion of this gold?

What would you do with this physical gold? Under the bed; the freezer; buried? Please be specific.

Related issue: Fractional Reserve Banking. Bad, right? Downright evil, right? A Ponzi scheme, right. Yet 99% of us have corrowed from banks to buy homes, cars, college educations. Fractional Reserve Banking is GOOD as long as it works (Catch 22). It is bad when we all simultaneosly want "our money" back from the bank. Guess what, it's not there. It never was--it was always on loan to other people (OPM) who often loaned it out to even more people, and on and on. Hence the "creation of money". Hence the illusion of wealth.

-- Lars (lars@indy.net), November 06, 1999.

lars lars lars!!!!!!!

you KNOW what needs to be done, deep down :)

DO IT

-- Andy (2000EOD@prodigy.net), November 06, 1999.

Lars,

The general idea seems to be that you should buy physical gold from the gold dealers whose web sites are loaded with goldbug hype, but who are nevertheless anxious to sell you as much of their gold as you are willing to buy in exchange for those geenbacks which the goldbug hype suggests are about to become worthless. One could get the impression that they don't believe their own hype. Hmmmm.

Jerry

-- Jerry B (skeptic76@erols.com), November 06, 1999.

Andy,

Is this post your way of making excuses for the price of gold? You were wrong, so everyone else is a crook.... hmmmmmm?

-- (cannotGive@this.time), November 06, 1999.

Andy,

There is an excellent article at the link provided at this thread:

A Perilous Dollar Standard and Y2K

If you haven't read it yet, take a look, you'll like it. The guy really knows what he's talking about.

-- Hawk (flyin@high.again), November 06, 1999.

Mara, you make an intriguing point. It seemed that say 50 or 75 years ago, people more or less lived reasonably comfortable lives. What has driven all the social/technical "upgrades" since then ? I think it is the following factors:

1. population increase. People's basic needs may still be the same, but there are many more people (due to prior agricultural and medical advances). So even to keep living standards the same, with a larger population, novel methods needed to be introduced, such as computers, etc.

2. rising expectations. Though people of 50 or 75 years ago might have been contented, economists view human desire as unlimited. Certainly today's over-abundance of gadgets and pleasures is a complicated combination of "supply driven" (advertising creates desires out of thin air) and "demand driven" (frankly, people really do readily come to want new conveniences and comforts, sometimes not realizing that there is no free lunch)

3. Fear. Things weren't really so perfect back then. Polio was still rampant as late as the 1940's and early 50's. If you aren't affected by a disease you won't care, but the people who experienced such things, or who feared for their children, supported advanced medical research, which implies expansion of all other kinds of technological advance as well. Fear also of the cold war enemy, which fueled funding to research and higher education, the by-products of which we see around us as "useless" gadgets (the internet ?) today.

-- Count Vronsky (vronsky@anna.lit), November 06, 1999.

Andy, Andy, Andy,

Deep down I don't know squat. "Deep down"; is that a cryptic message? As in "bury the gold deep down". I don't think so.

-- Lars (lars@indy.net), November 06, 1999.

Ever research past economic predictions by renowned economists? One thing becomes perfectly clear if you do - the vast majority of them haven't the faintest clue about what is about to happen. Gold prices through the roof? Gold prices dropping below the price of beef? The only ones you can be sure of are the ones that admit they don't know.

I can't picture a world where my greenbacks are worthless yet gold maintains any value. That doesn't mean it's impossible, could be a mental defect on my part - I'm just laid off construction worker at the moment.

I've lived without gold my whole life and I'll live the rest without it too. If other people want to buy it or trade for it that is fine. If paper money and electronic money lose all their value I still won't die from starvation.

#1. Be prepared for life without money. #2. Be prepared for life with money. #3. Be prepared for life where gold is money? Should this come about I'll stick with #1.

-- Gus (y2kk@usa.net), November 06, 1999.

Psychologists refer to this phenomenon as cognitive dissonance,which pertains to the denial of the warning signs, the rationalization of risky decisions, and inaction. We do not want to see, we do not want to know; we rationalize and justify the unjustifiable. Overconfidence, excessive optimism, and euphoria lead to overindebtedness, unwise investments, carelessness, fragility, and a final collapse. When euphoria changes into pessimism and fear, this indebtedness, previously justified by optimism and confidence, will be perceived as dangerous. Creditors, initially apprehensive, later in panic, will try to recover their funds, eliminating credit renewals, thus forcing foreclosures and bankruptcies, and deepening the crisis. This is how it has been, and how it shall be. When euphoria ends, debt liquidation begins. This collapse will anticipate, as the 1929 crash did, a severe contraction and depression in the world economy. If you have gold or cash.in the end it matters not.The system itself is in jeopardy,this is not 1929.Our situation in 1999 is far worse than 1929,where there was a chance for recovery,now because of extraordinary excessess we may not recover for a very long time.GOLD IMVHO only has value if the system survives.Therefore,better to spend worthless paper on tangibles,like food,water,tools etc...Gold in the ground will not feed you when hungry nor quench you're thirst.Believing that gold will protect you're wealth is as foolish as believing that paper will protect you're wealth.Gold will pop into the stratosphere,there is no doubt bout that.If you believe " the powers that be" will let you cash in.Good Luck.

-- MyTwoCents (s@t.v), November 06, 1999.

"Jim Lord is one of the more respected Y2k experts in the world."

Having read this response in the past, I thought it expressive, but not direct. However, I can think of no better expression of my response to the statement quoted above:

BWAAAAAAAAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAAAAAAAAAAAAAHAHA HAHAHAHAHAHAHAHAHAHAHAHAHAHA!

;)

Very Amused Regards,
Andy Ray

-- Andy Ray (andyman633@hotmail.com), November 06, 1999.

MY TWO CENTS: You are correct that the NEXT depression will be worse. It cannot help but be.

Take the simple fact that in 1929, the USA was just emerging as an industrial power.... a large % of people lived on small family farms, which were basically self-sufficient. So they could hunker down and survive through very bad times for quite long periods. Note I am not talking about the Dust Bowl areas, written about by John Steinbeck, which were still a SMALL % of the total US cultivated area.

Today, one farmer feeds 750 people, so only 3% lives on farms! The US population is just over twice what it was in 1929, too.

Next, consider the debt levels. There is nothing in capitalist history to compare to the excesses built up over the past 25 years.

Next, consider that all this "prosperity" has been bought with short-term artifacts constructed by humans. A good example is the tremendous US agricultural production since WWII. The ONLY REASON THAT SO MUCH PRODUCE IS ABLE TO BE GROWN IS AT THE EXPENSE OF DRAWING DOWN THE AQUIFERS(OGALALLA, etc), which is a NON-REVERSIBLE EVENT!

Why do you think we see those pictures of sinkholes swallowing houses in Florida? The demand for water is RAPIDLY depleting the underground water, and the porous rock is caving in under the weight of the development that sits on top!

For a perfect example of idiocy, just look at LAS VEGAS.It's an island of prosperity surrounded by desert. EVERYTHING has to be imported to sustain this unsustainable city. Power, water, food, etc. And don't you think that the ultimate definition of crass is the watering of all those golf courses that surround the city?

I could go on and on, but suffice to say that no matter how you analyze this mania, IT WILL END, AND the following Depression will be WORSE than any previous one.

Perhaps, in the near future, there will be a great American writer, who, like Steinbeck, will document the mass migration of people destitute and searching for a living in some far-off state. Except, in this case, they will not be Okies, but Las Vegans!

-- profit of doom (doom@helltopay.ca), November 06, 1999.

Andy Ray-O-Vac,

You misspelled BWAAAAAAAAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAAAAAAAAAAAAAHAHA HAHAHAHAHAHAHAHAHAHAHAHAHAHA!

Ha ha

-- (happyface@not.not), November 06, 1999.

Gawd, it must be the weekend! Ole Andy, our little red-assed tooth fairy from across the pond has got his cut and paste juices flowing. Right behind him (no pun intended) comes his butt-buddy Hawk to further pimp his foolishness. And to top er off, who should appear out of nowhere but the all-time village idiot, Al-d. What a triple- header these three make. Still touting gold you little fruit?

-- Andy (is@not.dandy), November 06, 1999.

"...LAS VEGAS... an island of prosperity surrounded by desert. EVERYTHING has to be imported to sustain this unsustainable city. Power, water, food, etc."

Vegas sits atop a vast underground lake. Hoover Dam, just a few miles away, provides more power & fresh water than the city needs. Short-term, Vegas is as sustainable as most cities in the U.S.

Long-term doesn't matter, does it...?

-- standing (on@seven.teen), November 06, 1999.

Thanks Hawk - I'll check it out.

Lars? What's your question? Do you not trust your intuition? That was my point. You have more than enough information to go on by now - what you do with it is up to you.

Good luck whatever y'all do.

-- Andy (2000EOD@prodigy.net), November 06, 1999.

A Perilous Dollar Standard

Hardly a year passes without a financial crisis. In 1998 the virtual collapse of the Russian economy led to serious losses on markets in Asia and Latin America. And the spectacular crack- up of a prestigious investment fund, Long-term Capital Management of Greenwich, CT, shook U.S. markets. The Federal Reserve felt compelled to move three times to stimulate economic activity by easing credit conditions to keep the U.S. economy from falling into a recession. The world monetary order which rests on the U.S. dollar as the most prominent reserve currency seems to be no stronger than the weakest link.

Last year's crisis passed, but the situation in many respects is more fragile today. There have been no fundamental reforms. The emerging countries are returning to their old free- spending ways and the United States, which for the last few years has been single-handedly sustaining the global system, may prove to be a shaky support. The downward pressure on the dollar  stemming from the fact that U.S. asset prices no longer are rising and capital inflows are drying up  highlights the fragility of the U.S. financial system and the vulnerability of the world economy. The dollar exchange rate is a barometer that may give early notice of the crises to come.

For more than half a century the U.S. dollar has been the primary reserve currency in the world of finance. It gained this eminent position as the most reliable currency among many, giving access to the world's largest economy with open capital and money markets. It emerged gradually with the decline of the British pound sterling during and after World War I. At the end of World War II it excelled and outweighed all other currencies with some 60 percent of the world's monetary gold as its backing in Fort Knox. This illustrious position of the dollar, however, provided an irresistable temptation for U.S. monetary authorities to inflate and expand credit in Keynesian fashion. During the 1950s and 1960s they expanded at various rates, which inevitably led to the loss of gold and to the first dollar crisis in 1971. Unable to make international gold payments of some $70 billion with just $11 billion of gold left in Fort Knox, President Nixon felt it necessary to default. The world has been on a dollar standardever since.

It is a fiat standard, not backed by gold or silver, and not redeemable in anything but government paper. It was born in default and crisis and, to this day, has suffered five major international crises, which inflicted much economic hardship and brought social upheaval and political turmoil to many developing countries. The next financial crisis is clearly visible on the horizon: the Y2K computer crisis. According to some analysts, it may be the worst of all, leading to deep recession and financial disruption. It may prove to be the knell of the dollar standard.

The history of the dollar standard since 1971 has been an exciting chapter of several ups and downs and makes and breaks. By 1978, with double-digit inflation at home and flooded dollar markets throughout the world, the U.S. dollar faced its first major crisis as foreign financial institutions began to liquidate their dollar holdings. Thirteen months later, raging inflation and a world-wide flight from the dollar forced the Federal Reserve to raise its discount rate to 13 percent with a three percent surrate for banks in New York and Chicago. The rate boost brought a halt to the credit expansion and saved the dollar standard, but cast the American economy and jointly the world economy into deep recession. By 1981 and 1982 the U.S. crisis became an international crisis with a number of foreign countries unable to make interest and principal payment on their debt. Mexico, Argentina, Venezuela, and some 40 smaller Latin-American and African Countries were forced to reschedule their foreign indebtedness to governments and banks. Even countries that were not facing severe liquidity problems, such as Brazil and South Korea, suffered painful economic effects. There was widespread fear that the crisis would lead to a chain reaction of financial failures with serious effects on the U.S. banking system.

During the 1980s the United States government embarked upon unprecedented deficit spending which was financed primarily out of domestic and foreign savings. Attracted by relatively high interest rates, the influx of foreign capital helped to cover both the budget and foreign account deficits. As long as a sufficient flow of funds from abroad was maintained, it proved to be possible to run large deficits and, at the same time, assure an appreciation of the U.S. dollar. But by 1987, the stock market crash of October 19, which spread to securities exchanges in other major countries, shook the financial structure to the core. The international value of the dollar fell precipitously while the currencies of Japan and Germany rose significantly.

The 1980s also saw Japan emerge as the world's largest creditor nation. Its high rates of saving together with massive credit creation facilitated and encouraged Japanese investments all over the globe. When in 1989 and 1990 the Bank of Japan finally raised its rate five times to deflate "the bubble of speculation" the Japan miracle began to fade. A crisis gripped the financial markets with the Nikkei stock average dropping precipitously and the banking system developing serious problems as a result of growing numbers of loan defaults due to declining property values and stock prices. The banking crisis ushered in economic decline and recession which numerous "stimulus packages" by several successive administrations managed to aggravate and prolong. The stimulus packages in the form of mammoth fiscal deficits and painful tax boosts fashioned ` la John Maynard Keynes kept the economy in turmoil throughout most of the 1990s. Uncertain about Japanese economic conditions and facing minuscule interest returns, many Japanese investors looked upon the United States as a safe harbor and dependable source of revenue; they helped to stoke a Wall Street boom.

The recent weakness of the U.S. dollar versus the Japanese yen reflects a new confidence of Japanese as well as international investors in the Japanese economy. Output finally is expanding again in contrast to last year when it was contracting. Corporate stock prices have risen by more than one third in recent months. Japanese investors are restructuring their portfolios as are foreign investment funds that had been avoiding yen assets. Since the yen strength and the dollar weakness are driven by fundamental considerations, it is likely that the yen will remain rather strong.

The 1990s brought two major financial crises. The "Christmas crisis" of 1994 was triggered by the collapse of the Mexican pesos which transmitted shock waves throughout the Western hemisphere. The Mexican economy contracted painfully; goods prices rose more than 50 percent. Tens of thousands of small-and medium-sized businesses collapsed, and some one million workers lost their jobs. When the U.S. Congress refused to approve the Clinton rescue plan, the President worked with the U.S. Treasury, the International Monetary Fund, and European governments to devise a bailout estimated at nearly $50 billion. While American and European taxpayer funds were pouring into Mexico to keep the crisis from spreading, private capital sought refuge in American financial markets. U.S. stock and bond markets saw "the largest increase in market wealth in history."

In 1997, finally, the world was caught in the grip of the most serious financial crisis since the 1978 and 1979 flight from the dollar. Starting in Thailand and spreading quickly to Indonesia, Malaysia, and the Phillippines as well as affecting South Korea, Hong Kong, and Singapore, it posed a direct threat to U.S. finance and the world dollar standard. By the end of 1997 the Asian currency depreciation averaged 50 percent against the U.S. dollar, contributing to Japan's slide into deep recession and causing the yen to plummet. A deep depression settled over parts of Asia, causing severe economic hardship and leading to social unrest and political upheavals.

The new Asian crises augured the bursting of various financial bubbles  just as the Japanese bubble had broken eight years earlier. It revealed huge malinvestments in industrial capacity and property and caused massive wealth destruction through the collapse of asset prices, creating mountains of bad loans and leaving behind an illiquid and vulnerable banking system. The crises affected other countries around the globe as liquid capital sought to escape the troubled areas and find safe havens in Europe and the United States. The influx of frightened foreign funds added more fuel to the U.S. bubble.

Since the beginning of this year (1999) the bubble has come under new pressure which is bound to increase in the future. Annoyed by the hegemony of the U.S. dollar in world markets and fearful of its precarious base of debts and deficits, many Europeans would like to withdraw from the world dollar standard by creating a currency system of their own. Eleven European countries launched a common currency, the euro, to replace their national currencies. In time it may create a continent-wide economy very much like that of the United States, and challenge the dollar as the world's primary currency. The Euroland of eleven is as large as the United States, conducting more trade with the rest of the world than the U.S., has larger foreign exchange reserves, and enjoys a much stronger foreign trade and finance position than the U.S. Europeans may soon finance their trade in euros rather than U.S. dollars, which may result in a huge shift from dollars to euros around the world. It would signal a shift from dollar hegemony or dollar standard to a bipolar monetary world. The transition may depress the exchange rate of the dollar, boost the prices of all imports, and generate an upward pressure on inflation and interest rates. It could trigger a dollar crisis, burst the Wall Street bubble, and usher in a deep recession.

The situation is not likely to change for the better given the global electronic infrastructure which will be at severe risk of collapse in the coming year. Commonly called The year 2000 (Y2K) Problem, it threatens most financial institutions especially on the international level. The computer omission of the century digits from dates has erected computational ambiguities that corrupt individual computer systems and then multiply to endanger inter-related systems. It is quite certain that many millions of computer systems around the globe will fail at the beginning of the new millenium, which will have a serious impact on the ability to conduct business. It is likely to deflate all financial bubbles.

Some Y2K analysts are convinced that hundreds of American communities with many millions of people will be without public utilities in January. They are warning that New York City, for instance, may experience major utility failures, which would play havoc with economic activity. The New York Stock Exchange surely would close and the banks would declare "holidays," just as they did in crisis situations in the past. There could be a financial panic leading to runs on the banks, which would quickly spread to other countries. It is equally possible that the bank runs may not begin in New York; they may start in Manila, Kuala Lampur, or Rio de Janeiro and spread to New York City. After all, the capital markets of the world are interdependent.

The American bubble is at extreme risk; it is the mainstay and supporter of all others. As the dominant reserve currency of the the world, the U.S. dollar is in world-wide demand, which has given the dollar authorities the ability and power to inflate and create credit at astonishing rates. The demand allows the U.S. to suffer huge trade deficits and export some of its excesses in the form of dollar loans to business and governments around the globe. The U.S. dollars held abroad then serve as an ever expanding basis on which foreign governments and central banks build their own bubbles. They are resting their credit pyramids on a dollar base which itself is a giant pyramid of leveraged credit and debt.

The visible marks of the U.S. bubble are not just egregious malinvestments, especially in the telecommunication and media industries, but also a great stock market boom. Taking advantage of the stock euphoria, investment bankers underwrite new stock and bond issues nearly every day. Corporate mergers and acquisitions proceed unabated, facilitated by lofty stock prices and easy credit. Feverish issuance of mortgage-backed and asset-backed securities bolsters a residential housing boom. Fannie Mae, the publicly owned and government-sponsored banking corporation, alone holds more than one trillion dollars of new mortgages. Syndicated bank lending exceeds even this amount. Outstanding credit card debt is growing at double-digit rates, while personal savings are declining. There is leverage upon leverage as never before, as securitization is vying with banking as the primary source of credit. Countless trillions of dollars worth of derivatives are supposed to sustain the lofty pyramid. Global outstanding interest rate swaps, currency swaps, and interest rate options alone now exceed $100 trillion. According to Alan Greenspan, the derivatives market carries some $80 trillion of most short-term debt, world- wide, with U.S. banks holding $33 trillion of this debt.

If some of the debtors should ever default because of an unexpected decline in financial markets or Y2K failures, the banks will be holding worthless IOUs, which would cast doubt on their solvency. Surely, the Federal Reserve will want to come to their rescue, but it is inconceivable that it can create trillion-dollar credits or print trillion-dollar notes. Any such attempt would seriously damage the U.S. dollar, lead to rampant price inflation, and irreparably ruin the world dollar standard. It is more likely instead that the federal government will declare bank holidays and impose a myriad of controls on the people. The controls in turn will generate a financial underground which will develop standards of its own.

The Federal Reserve still wields great power because part of the stock of money consists of bank deposits; and banks are forced to keep reserves at the central bank. But this Fed power may prove to be rather hollow because the evolution of electronic means of payment in recent years deprives the Fed as well as the member banks of all leverage. The proliferation of non-bank credit reduces the power of central banks because bank credit is steadily contracting as a proportion of total credit. Moreover, even where commercial banks still issue loans, these may be "securitized," which means that they are sold to non-bank investors who are not subject to reserve requirements. In short, the demand for bank money is eroding as is the Fed power to manipulate the people's money and credit.

In these waning days of the dollar standard and the exciting new world of electronic means of payment, it is difficult to foresee the shape and color of the coming financial order. We cannot say what the rate of inflation will be, nor can we know whether national authorities will find new ways of controlling the people's money. Most economists are convinced that we will have to return to the financial systems of the past. Surely, the monetary authorities of the world will want to reassert their position through new controls over their subjects and new international agreements and treaties. But it is difficult to see how political machinations can redirect the electronic national and international monetary flows.

In the end the standard of value in which international prices are quoted and contracts denominated will be neither the U.S. dollar nor the euro. It will not be measured in terms of a unit of account defined in terms of a basket of goods because the international authorities will never agree on the content of the basket. We are convinced that the future standard of value will be gold again, as it has been for more than 2,000 years throughout the Western world. The political authorities will fight it unrelentingly and mercilessly, but gold undoubtedly will prevail in the end.

* * * *

At this time a gold standard has few friends and advocates. It limits the power of politicians and officials to manage and manipulate the stock of money. It denies them the means to "stimulate" economic activity and renders deficit spending rather difficult. The remarkable stability of gold serving as money lends stability to economic life, which made it the monetary standard throughout the ages. In fact, gold has been wealth and money since the dawn of civilization. Most of the gold won from the earth during the last 5,000 years can still be accounted for in man's possession today. There is no shortage of gold.

The world monetary system is about to change again. It is difficult to foresee the form and structure of the coming order. Clinging to their powers, the monetary authorities of the world will want to repair the old order with restrictions and regulations. But their failure to prevent the numerous crises, which put nearly all countries in serious jeopardy, is casting serious doubt on their credibility and ability. The precarious condition of the very dollar base and chronic foreign account deficits of the United States at the expense of all creditor countries are discrediting the dollar authorities. This explains why governments and central banks throughout the world are becoming ever more reluctant to grant the U.S. government a permanent monopolistic position in matters of world money. In crisis and despair the world may choose gold.

Hans F. Sennholz 10/28/99

-- Hawk (flyin@high.again), November 06, 1999.