-- Posted Wednesday, 19 August 2009 | | Source: GoldSeek.com

By: Trace Mayer, J.D.

In America, a land of plenty, the economy is in the gutter, incontinent government spending is coupled with out of control budget deficits resulting in ballooning debt, bankrupt States, skyrocketing unemployment with benefits ending is compounded with manic-depressive politics while commercial real estate is imploding, earnings of publicly traded companies are cratering, the remaining liquidity in the financial markets is illusory from the likes of program trading via Goldman Sachs and there is a new weekly event called ‘bank failure Friday’ with the FDIC now bankrupt and would be insolvent but for its line of credit with the Treasury.

The solution from Wall Street and Washington appears to be quantitative easing which is doomed to failure as they intentionally exacerbate the greater depression.  Consequently, for good reason the general sentiment for the Federal Reserve Note Dollar (FRN$) appears to be particularly bearish.

FUNDAMENTALS

The FRN$ is doomed.  It is intrinsically worthless and like all other fiat currencies will be relegated to the annals of history.  But the FRN$, a mere figment of people’s imagination, is still a strong hallucination.  It is this misplaced trust, confidence and reliance that leaves it with a bid.

Perhaps it is the pragmatic irrationality based on the human action of billions of individuals that leads to a valuation for this worthless illusion.  So while the ultimate consequence is predictable, complete worthlessness, the timing is unpredictable.

This is like the Heisenberg Uncertainty Principle from quantum mechanics which states that certain pairs of physical properties, like position and momentum, cannot both be known to arbitrary precision. That is, the more precisely one property is known, the less precisely the other can be known. It is impossible to measure simultaneously both position and velocity of a microscopic particle with any degree of accuracy or certainty.

The merger of State and corporate powers is fascism.  In the blink of an eye the remaining remants of free market capitalism was eviscerated and at the stroke of a pen on the bailout bills the democratic Republic was replaced with rule by an oligarchy.  But fascism desires unity as even the symbolism of the fasces suggests strength through unity: a single rod is easily broken, while the bundle is difficult to break.  Currency controls are used to force ‘unity’ and in the modern age the creation of new FRN$ illusions is done by punching buttons on a computer and they have no basis in reality.

TECHNICALS

If China were to diversify away from the FRN$ or significantly reduce their holdings then it would be, in the eyes of America, tantamount to declaring financial war.  While China may be rising economically, as its monstrous increase in official gold reserves shows, it still has a long way before it catches the United States militarily.  The massive FRN$ holdings by China and Japan gives them tremendous leverage in the market.

But the United States is the world’s sole superpower and as explained in John Perkins’ Confessions Of An Economic Hitman its resolve to respond to financial, geo-strategic or political threats, either overtly or covertly, is extremely strong.  Perhaps the greatest threat to the American Empire is the central bank gold price suppression scheme.

The USD Index, which is composed of about 60% of the Euro and another 20% from the UK, Sweden and Switzerland, has undergone a tremendous decline this decade.  Europe and the UK, with the Bank of England engaged in quantitative easing, are in worse condition than the United States.  The critical 70 level was even briefly breached in early 2008.

The massive Sichuan earthquake was the 19th most deadly in history leaving about 70,000 dead, 18,000 missing and about 375,000 injured.  Shortly afterward the USD Index had a significant bear market rally.

But in June 2009 the 50dma and 200dma crossed and the 200dma has now turned negative which has led to much of the bearish chatter.  But I doubt the Chinese either want to see the value of their reserves decline further or start a financial war by dumping their FRN$ reserves.

As the New York Times reports:

China’s main complex for making nuclear warhead fuel, codenamed Plant 821, is beside a river in a hilly, forested part of the earthquake zone. It is some 15 miles northwest of Guangyuan in Sichuan Province. The vast site holds China’s largest production reactor and factories that mine its spent fuel for plutonium — the main ingredient for modern nuclear arms. …

North in an even more rugged and inaccessible region, nuclear experts said, China maintains a hidden complex of large tunnels in the side of a mountain where it stores nuclear arms.

“It’s very close to the epicenter,” said one specialist, who spoke on the condition of anonymity because, to the best of his knowledge, the exact location of the secret complex had never been publicly disclosed.

But surely this massive 8.0 earthquake, the effect on China’s nuclear program and the subsequent rise in the FRN$ were merely coincidences and not the result of the HAARP program as asserted by Benjamin Fulford, Asia-Pacific Bureau Chief for Forbes Magazine from 1998-2005.  But such a tale would make a great script for a fictional movie like The International or GI:  Joe.

After all, the United States wears the fascist white hat to spread democracy and would never intentionally murder hundreds of thousands of innocent civilians in an effort to defend their fiat currency and banking oligarchs.  The FRN$ appears to be reaching some critical technical points where a severe breakdown could happen.  But when there are key technical levels rest assured that the American Empire will likely move heaven and earth in an attempt to perpetuate their power.

GOLD

Until about 2005 the price correlation between gold and the FRN$ was extremely strong with an r-square value around 90%.  As the currency collapse has continued the r-squared value has declined.  While the FRN$ and USD Index may rally gold will not necessarily decline.  Gold, silver and platinum are money and extremely safe and liquid assets in which to store capital.  These are prime characteristics sought by investors during The Great Credit Contraction.

Nevertheless, this will be played out over years and there will be undulations as there are periodic periods of bullishness accompanied by risk taking by those who mistakenly act upon the green shoots diagnosis.  What is important is to keep the key ratios in mind and use them to make purchases after the coming market crash.

CONCLUSION

The American Empire is still the sole world superpower.  Its economy is withering, banks are failing, currency is collapsing and banking oligarchs are looting with reckless abandon and bankrupting for profit.  The dissipated rule of law does not even provide an unintelligible answer to What Is A Dollar?  Gold and other monetary metals stand as the bulwark for capital preservation despite the often empty rhetoric about inflation versus deflation.

While the fundamentals for the FRN$ are terrible the technicals seem to suggest there may be a bear market rally coming.  If that occurs then there may be a decline in the FRN$ price of the monetary metals.  But taking the risk by moving up the liquidity pyramid into less safe and less risky assets in the hopes of profiting may be a fool’s errand and preparations for survivalism in the suburb and learning how to vanish may be a wiser allocation of capital.  America is ground zero for this currency collapse, which has only just begun, and if you think she is a rogue elephant on the world stage now just wait until she is truly panicked.

DISCLOSURES: Long physical gold, silver and platinum with no position in the problematic GLD or SLV ETFs.

Trace Mayer, J.D.

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http://www.RunToGold.com

-- Posted Wednesday, 19 August 2009 | Digg This Article | Source: GoldSeek.com

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