45 Years of Dollar Destruction Climaxes in the Next 46 Days

Posted On Aug 15, 2016 By Dave Gonigam

  • The 5 marks an ignominious anniversary
  • Why Sept. 30, 2016, will be as big a deal as Aug. 15, 1971
  • Stocks soar, manufacturing founders, homebuilders celebrate
  • Business as usual: $6.5 trillion in transactions that can’t be tracked
  • Amateurism, income taxes and Olympic medals
  • Health care as an exception to economic law… snarky email, candid reply… why the “deflationistas” are still wrong… and more!

It was no big deal — just a wholesale breakdown of the international monetary system.

“On Aug. 15, 1971,” wrote our executive publisher Addison Wiggin in his 2005 book The Demise of the Dollar, “the administration of Richard Milhous Nixon did something extraordinary. It slammed the ‘gold window’ shut. Henceforth, foreign governments would not be able redeem their surplus U.S. dollars for gold.”

Only a few individuals recognized it for what it was at the time. Nixon’s advisers were sure their measures would be “temporary” — until they got inflation back under control.

Nixon and his cronies are best remembered for the crime that was Watergate — and not for, as Addison called it, “the biggest heist of all time… They breached the solemn promise of five generations of U.S. Treasury officials and set in motion the worldwide credit bubble of the pax dollarum age.”

Something like 1971 has happened three times over the last century. It’s likely to happen again in another 46 days, says Jim Rickards.

“Is this the monetary apocalypse?” he asks rhetorically. “Not exactly.” Think of it as a milestone on the road to dollar destruction.

That’s how it goes in currency wars, as Jim Rickards has been saying ever since his book of that title in 2011.

The details vary from one currency war to the next… but the trajectory for the U.S. dollar is always the same…

A Century of Dollar Destruction

Yes, the dollar of 1913 — the year the Federal Reserve was formed — is worth a mere 4 cents today.

Of course, that’s using the government’s highly suspect inflation figures.

On the one hand, it seems silly to quibble over a penny or two at this point…

On the other hand, the dollars you hold right now still retain some value. So the drop from here — the final drop — will feel like a lulu.

The plans for this final drop were laid by the International Monetary Fund more than five years ago in a 42-page paper. Jim described it in his 2014 book, The Death of Money, as “multiyear, multistep plan to position the SDR as the leading global reserve asset.”

SDR is short for “special drawing right” — a kind of super money printed by the IMF and circulated among central banks and governments. SDRs have been issued three times since 1969 — each time in response to a crisis. The most recent issuance was after the Panic of 2008.

On Sept. 30 — again, 46 days from now — the composition of the SDR will change in a major way.

The details aren’t important right now. What you need to know is that life on Oct. 1 will look much the same as it did the day before — again, as Jim says, it’s “not exactly” the monetary apocalypse — but it will set off the final stage of dollar destruction.

After only a week, “everything will cost more to pick, ship or stock. Soon you’ll pay a little extra for apples at the fruit stand. At the coffee shop, they’ll tack another quarter on the price of a latte.

“Online prices will go up when you buy anything tech, because all that’s imported. And it costs more to get it out for delivery. On Wall Street, all kinds of ledgers will start to ooze red. The multinationals will get hit first.

“And that’s where the crisis will accelerate: As dollars lose clout, paying an overseas workforce will lose luster… sweetheart import deals will dry up… and so will international tax treaties… until ‘cheap’ goods no longer exist for Americans.”

Want to see what’s next? More important, do you want to learn what you can do to survive and thrive through this final stage of dollar destruction?

Jim shows you right here. There’s no long video to watch. But with only 46 days remaining, there’s not much time to act.

In the meantime, the major U.S. stock indexes are reaching again for all-time highs.

The Dow, the S&P 500, the Nasdaq… all are in record territory as we write. Hot money is leaving Treasuries, the yield on a 10-year note now 1.53%.

As we noted at the conclusion of Friday’s episode, gold gave up most of its early-day gains… but it’s clawing some of them back today, the bid $1,342 at last check. Crude is up 2.5%, pushing a barrel of West Texas Intermediate to $45.62.

This morning, we got two figures that give us an early read on how the economy’s doing so far in August…

  • Empire State Manufacturing Survey: The Fed measure of New York State manufacturing is back in negative territory. It’s been oscillating between weak growth and weak contraction for six straight months
  • Homebuilder sentiment: Rock solid, says the National Association of Home Builders. Its monthly housing market index stands at 60, well above the 50 dividing line between expansion and contraction.

That latter number has less to do with fabulous demand for new construction than the fact that the number of existing homes on the market is relatively low. Blame it on the feds’ “REO-to-rental” scheme of a few years ago, in which the government flipped millions of foreclosures on its books to hedge funds and private equity at fire-sale prices. Those single-family homes are now rentals. Meanwhile, the U.S. homeownership rate is back to 1965 levels.

Heckuva way to prop up the homebuilders, eh?

Your government in action: The Pentagon is no closer to being audit-ready now than it was 20 years ago.

We’ve been chronicling this scandal now and then. Here’s the latest: “A Department of Defense inspector general’s report,” writes Eric Pianin at The Fiscal Times, “offered a jaw-dropping insight into just how bad the military’s auditing system is.”

“The Defense Finance and Accounting Service, the behemoth Indianapolis-based agency that provides finance and accounting services for the Pentagon’s civilian and military members, could not provide adequate documentation for $6.5 trillion worth of year-end adjustments to Army general fund transactions and data.”

Now, that’s not a single-year total: We’re guessing it goes back to 1996, which was the first deadline Congress set for the Pentagon to be audit-ready. But what would the total be once you throw in the Air Force, Navy and Marines? The most recent all-inclusive total we’ve seen was $8.5 trillion, in late 2013.

At that time, the Pentagon had some 2,100 accounting systems spread across its various agencies — few of them able to talk to each other. We’re not holding our breath that the situation will be fixed in time for Congress’ latest deadline of Sept. 30, 2017.

At the risk of banging the “Olympic tax” drum for a second time during these latest Summer Games… we couldn’t help but notice the latest fecal storm stirred up shortly after gymnast Simone Biles bagged the first of her three (so far) gold medals…

John Thune

Not surprisingly, the Twittersphere lit up the senator. “This is not about you, dude,” said one representative entry. “Are you freaking kidding me? This is like an ambulance-chaser ad,” said another.

But that’s not the backlash that caught our attention. Instead, it was this: “While pols try to make taxing Olympic winnings into some sort of shocking scandal, it’s simply subjecting Olympic athletes to the same rules that apply to everyone else,” says Pat Garofalo at U.S. News. Nor is he alone.

Ms. Biles has racked up $75,000 in income, and she’s likely to accumulate another $50,000 before week’s end — seeing as each gold medal earns 25 large, taxed as ordinary income.

Hmmm… Once again, as happened last year, our mind is twisted into a pretzel trying to figure out what’s considered “amateur” anymore…

“While I like your math to determine having a baby should cost $500,” a reader writes after our latest health care rant, “there are a couple of problems:

“1) Mothers (and children) are more likely to survive and be in better health due to more items and expensive items to monitor and take care of them.

“2) Lawyers: If the baby or mother has any problems, even if it had nothing to do with the doctor, hospital or anything else that could medically be done, you can bet lawyers will get involved and will attempt (and probably get) millions.

“Let’s face it, where else in the world can you pour coffee on your lap, sue and get $2.7 million?”

The 5: Please explain what is it about health care that’s so damn special that improvements in technology raise costs instead of lowering them.

We go back to the case of the 24-inch black-and-white tube TV that cost $250 in 1955 — $2,234 in today’s dollars. This morning, with zero effort at comparison shopping, we see Wal-Mart hawking a 55-inch flat panel color TV for $300 in today’s dollars.

What makes health care an exception from the rule — aside from government meddling?

As for litigation, yes, it’s a factor… but a minor one in the scheme of things. The medical industry likes to scream about it so you’re distracted from the industry’s government-protected cartel arrangements that feather its nest so comfortably otherwise.

“Nice call on the DEA changing the regulation level on marijuana,” a reader snarks. “Makes me seriously wonder about your team’s other calls.”

The 5: “Sometimes right, sometimes wrong,” the saying goes, “but never in doubt.”

We give our editors a mandate: Don’t be mealy-mouthed. Put your asses on the line. Make a big and bold call.

That mandate does come with the risk of — gasp! — being wrong now and then. But wishy-washy doesn’t make readers money.

Nor will we hang Ray Blanco out to dry on this call. He made it with the best research and the best intentions. More important, as we pointed out last week, the two recommendations he made did not rely exclusively on marijuana reclassification to deliver long-term profits.

Thus, from his initial recommendation in June, one of the stocks is flat and the other is slightly up — despite the DEA standing pat on pot. “Although both companies have products in development that interact with the cannabinoid receptors in our bodies,” he wrote his readers this morning, “neither of their prospective products is classified as cannabis.”

That’s called protecting the downside… and Ray did a fine job of it.

“A financial researcher/adviser named Harry Dent is forecasting massive deflation and is saying gold is going to plunge to $750 in the next 18 months or so,” a reader writes.

“He goes on to say it will go much lower after that. Jim Rickards and Byron King, as well as many other financial experts I’ve read, have said quite the opposite. Who is right?”

The 5: Heh… Naturally, we’re going to side with our guys.

But clearly, Mr. Dent is touching a nerve, because people keep asking us about it. So again, we’ll pass along what Jim Rickards said earlier this summer. “Deflationistas like Harry Dent and Gary Shilling see deflation getting the upper hand over inflation because of demographics, technology and deleveraging.

“They’re right about deflationary forces, but they underestimate the capacity of governments to force inflation in the end.

“The elites have no choice. Deflation makes the real value of debt go up and destroys tax collections (when prices and wages go down in deflation, government collects less tax). If the value of debt goes up and tax collections go down, the entire house of cards starts to collapse. Governments can’t allow that. They must have inflation, and they will get it.”

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Ponder that line from Jim one more time: “They must have inflation, and they will get it.”

How, you wonder?

Jim reveals their blueprint right here. We urge you to check it out right now, because their action plan takes effect on Sept. 30.


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