Here's what I see for the BIG picture -- I believe that the United States and most of the rest of the nations are heading towards monumental events, events that will shake-loose the entire monetary and economic system of the world as we know then.
Consider this -- the US over the last 30 years has possessed one incredible advantage over every other nation. What is this wonderful advantage? The advantage is that the US possesses the world's reserve currency. This has allowed the US to run up trillions of dollars in debts, and it has given the US the incredible advantage of being able to pay off those debts with irredeemable money that it prints at will and at now cost. In other words, the US has been able to take in the goods and service of the world while paying with these goods and services with paper that the world continues to accept.
And the question is -- why is the world accepting our paper money? The answer is that's it's part of the big game. "We pretend to pay them, and they pretend that they're being paid."
China is now running the single largest surplus with America, and as a result China is building up a massive amounts of Treasury bonds as it ships its goods to the US. And the question is -- why is China willing to take in all this US paper, paper that is sinking in value as the international value of the dollar declines.
The answer is that China is on a tear, a tear to build up its manufacturing facilities and its infrastructure. According to a recent article in the International Herald Tribune, China, over the next 15 years, is planning to build a highway system bigger and more efficient than the entire US's freeway system.
In other words, China is continuing to play the game, because China is playing for time. China is willing to take a loss in its US holdings so that it can continue shipping its products to the US and in so doing -- continue to build up its already huge manufacturing facilities. Time is what China is playing for -- time to build, time to research, time to harness is enormous low-cost manufacturing facilities so that China will become the undisputed economic power in the "new world" that China envisions.
Somewhere ahead a cataclysmic event is fated to occur. This will materialize when nations refuse to accept the US dollar as the reserve currency. As that point, the whole game will fall apart, and the US will sink into a vicious bear market recession. That recession will spread throughout the world, and all paper currency will fall into disrepute. At that time, investors will panic into the only true reservoirs of wealth, gold and probably silver. In my opinion, at that time gold will surge higher than anyone thinks possible, taking silver along with it.
If you hold gold or gold stocks and they head skyward -- please do not think you will have arrived at the promised land. Believe me, if, in a monetary crisis, gold rises to 1000, 2000 or 3000 dollars an ounce, it will be a reflection of terrifying events in the financial markets and in the world economy. Yes, gold will be our main protection, but at that time you'll have a hell of a lot more problems to deal with than you do now.
Richard Russell’s Dow Theory Letters PO Box 1759 La Jolla, CA 92038 17 Letters Per Year - $250 Annually
