Today King World News was given exclusive permission to publish an extraordinary piece by former US Treasury Official Dr. Paul Craig Roberts, which warns that the Fed is now acting out of desperation in an attempt to prevent a total collapse of the financial system. Dr. Roberts also discussed the Fed’s continued intervention and shorting in the all-important gold and silver markets.
ROBBER BARONS ARE STEALING PENSIONS, BANK DEPOSITS AND DEMOCRACY
“The real concern about US bank deposits is that they are denominated in US dollars, and the supply of new dollars has been increasing by about $1,000 billion per year for the last several years. The demand for dollars has not been increasing by the same amount. Indeed, as more and more countries implement measures to settle their trade balances in their own currencies, the demand for dollars is falling.
When the supply increases and the demand falls, the price falls. The exchange value of the dollar in terms of other currencies has escaped sharp declines because of the dollar’s traditional role as world reserve currency and safe haven and because the sovereign debt crisis in Europe has caused flight from the euro to the dollar. The Japanese, the Saudis and the oil emirates have large dollar holdings and no interest in destabilizing the dollar.
The Chinese (who also have large holdings) attitude toward the dollar could be adversely affected by Washington’s aggressive “Pivot Asia” policy of surrounding China with military bases.
Nevertheless, the world is watching, and the world sees only feeble efforts by Congress and the White House to balance the $1,000 billion annual operating deficit, a deficit that will rise if the economy turns down. The world sees the monetization of $1,000 billion in Treasury debt and the banks’ mortgage-backed derivatives per year. The question is unavoidable: Who wants to hold dollars and dollar-denominated financial assets when the dollar faces such obvious exchange-rate risk?
The Golden Question
The movement out of dollars has begun. If the trickle becomes a torrent, a sharp drop in the dollar’s exchange value will push up import prices, raising domestic inflation and destroying the Federal Reserve’s control over interest rates. This risk leads to the conclusion that the Federal Reserve has been shorting gold and silver in the paper bullion market in order to protect its policy of Quantitative Easing….
“When gold prices hit $1,917.50 an ounce on August 23, 2011, a gain of more than $500 an ounce in less than 8 months, capping a rise over a decade from $272 at the end of December 2000, the Federal Reserve panicked. With the US dollar losing value so rapidly compared to the world standard for money, the Federal Reserve’s policy of printing $1,000 billion annually in order to support the impaired balance sheets of banks and to finance the federal deficit was placed in danger. The dollar’s exchange rate in relation to other currencies becomes untenable when the dollar collapses in value in relation to gold and silver. As sharply rising bullion prices are a threat to the Fed’s policy, the Fed has shorted the bullion market in order to suppress prices.
As the dollar loses its role as the currency of international payments, the Fed’s debt monetization will collapse the dollar’s exchange value in currency markets. Continued printing would drive the dollar down further, which means domestic inflation would rise higher. The Fed would have to stop printing.