Sunday, October 3, 2010

Richard Russell: Rising gold signals death of USDollar

In 1971 (Vietnam and deficits) when foreign nations (particularly France), demanded that the US settle its deficits with gold (as specified in the Bretton Woods Agreements), Richard Nixon and staff were worried about our disappearing gold reserves. Their answer to settling our debts in gold was a resounding and historic "no." In doing so, they shut the gold window. Thus, the time-honored link between the US dollar and gold was broken. The US would no longer give up its gold to settle its international debts. At that point, the US and the world went completely off the gold standard. The US dollar would then be the world's reserve currency.

Without the discipline of gold, the Bretton Woods agreement fell apart, and central banks were free to create fiat currency out of "thin air," as much of it as they wanted. The ignorant public accepted the intrinsically-worthless fiat money. "Now we're all Keynesians, " said a shaken Nixon.

The phony prosperity since 1971 was built on a Fed-created fantasy currency. Fantasies can only last so long -- until they meet head on with the brick wall of reality.

Thus, I believe that the very fundamentals of this bear market will be an epic clash between a world built on fiat money and a return to the reality of intrinsic wealth.

This bear market will be about the collapse of fiat money. In all history, no fiat currency has ever survived. The fundamental of this bear market will be about the collapse of the world's fiat currency and all the fake prosperity that has been created through fiat currency. In other words, cold reality will prevail. The people of the world will, at last, realize that money by fiat is not reality, it's fantasy money and a dream created by man.

In essence, what we're seeing now is a battle to the death between intrinsic money (gold) and the fiat paper created by the world's central banks.

The magnificent slow motion collapse of the fiat system which you are now witnessing will consume some individuals around you who are not prepared. This time it is global, and when the dust settles you must own real money - gold.

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