The monetary policy of the US is way too tight! How could that be if the interest rates are the lowest in the history of the US?  Interest rates alone do not determine fiscal tightness…

The dollar has been the reserve currency of the world since 1944 when it was crowned emperor at Bretton-Woods. It is the official currency of the world. Most trade is done in dollars,but less so every day. Most of the debt of the world is denominated in dollars,but less so every day.That is of eminent concern to the US. If the dollar loses its reserve status, the game is over.

In my article, “Gold and the Dollar in mortal combat”, I stated that gold does not need the dollar or any other currency, but the dollar needs gold. How so? Simple! Dollar currency can only be valued in terms of gold. By suppressing the intrinsic value of gold, the economic activity of the world is suppressed. When economic activity decreases,the need for raw materials decreases, but the debt burden of natural resource countries increases. Remember,most of the debt, ninety percent in fact, is denominated in dollars. Commodity prices go into collapse mode. What is the motive behind this? Is it to destroy the economy of China and Russia? Very likely. Of course, no one will  admit that. But there is a collateral damage or side effects to such a policy. Stock markets, bond markets,and debt in general rise to unsustainable heights. As there is less and less energy to keep the game going, the system goes into collapse mode.

The currencies of such countries as Brazil, Argentina, Venezuela are collapsing. Possibly, these are welcome results, because the governments of these and other countries are in the works to be “changed” because they are too independent. The negative side effects are also affecting friendlies such as Canada, Australia, New Zealand, and Norway.Their currencies are also collapsing. The boomerang of this policy is hitting the US itself. The velocity of money is collapsing. People have no money. The Baltic dry index is down. Labour force participation is way down, below sixty three percent. Infrastructure is deteriorating. The living standard of ninety percent of US citizens is decreasing rapidly. Socioeconomic unrest is increasing…

And,now, the coup de grace: China is devaluing the yuan. This is sending panic. China is being accused of currency manipulation. Why? Because the only way  China can devalue its currency is to de-peg the yuan from the dollar and start selling US treasuries. Other countries who hold treasuries such as Japan will follow.  This is the nightmare scenario. By suppressing the price of gold, the monetary policy is way too tight. The proper policy would have been to let gold reach and stay at its equilibrium value, whatever that may have been. Now, the US cannot let go. Gold will break out. Now, gold can be bought at around eleven hundred dollars an ounce. When gold breaks out it will be unavailable in any currency at any price. Only time will tell.