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Richard Russell:  “In the year 1913, Congress gave the Federal Reserve the right to create and control US money.  The Fed guards this power ferociously.  The Fed prefers inflation, since it can easily control the rate of inflation.  But the Fed is deadly afraid of deflation, since deflation can get out of control of the Fed.


Since 1980, the rate of debt has risen far past the growth in GDP.  At some level, debt exerts a deflationary effect on the economy (GDP).  We are past that point now, and deflationary pressures are bearing down on the US, this despite all the Fed's money creation and manipulation of interest rates.


The question -- How to reinflate the US economy?  There is one method that was used in 1934 by the Roosevelt administration.  That method is to devalue the currency against gold, the standard.  This method was used by the US three times before.  In 1934 the Roosevelt administration overnight re-set the price of gold from $20.67 dollars an ounce to $35 dollars per ounce.


Later, in 1971, the Smithsonian Agreement was reached which devalued the dollar from $35 an ounce to $38 an ounce.  Again, and few people know this, in 1973 the US again unilaterally re-set the price of gold from $38 dollars an ounce to $42.22 dollars an ounce.




I believe that coming up we are going to see a fourth devaluation of the dollar against gold.  By doing this the US Treasury will overnight have a vastly greater supply of wealth compared with its debt, putting its finances in a much healthier state.


How high might the US re-set the official price of gold?  You pick a number -- $5,000, $10,000 or $50,000, but the number should be high enough so that the price of gold won't have to be re-set again in a hurry.


There are two problems with a re-set in the price of gold.  (1) The government may decide to confiscate gold from its people.  (2) There are arguments regarding how much gold the US Treasury actually owns.  There have been no recent audits, and some of our gold may have been loaned out.


Question -- If the dollar is to be devalued against gold, what might we do?


Answer -- Many of the gold mines are now operating with thin margins as the cost of mining gold increases.  If the price of gold is re-set higher, these thin-margin gold mines will explode higher in price.  I doubt if the government would take over stock in the mines.  But Congress could pass a law boosting taxes on mine profits.  


Let me put it this way, I believe the government will re-set the official price of gold, but I don't think there is a sure way, as an investor, to make a killing on a huge boost in the price of gold.  Maybe the best recourse is to hold a small permanent position in position in GDX and GDXJ.  Of course you can hold physical gold and keep it in an "out-of-the-way" place.  Incidentally, I notice that some of the gold mining stocks are creeping higher, even on days when gold is lower.


You can be reasonably sure of one thing -- certain insiders know what is being talked about and what is being planned.  These may be the smart boys who are buying diamonds at $56 million and $125 million and great works of art at record prices.  They are getting ready for a world of sky-high prices and hyperinflation.


… Now if all this could only help what's left of the middle class.  And if only the printers that print food stamps hold up.  Get ready for massive changes in the year 2014 -- And get ready for tremendous pressure to get rid of the Federal Reserve.”


To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.


© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.


The audio interviews with James Turk, Dr. Paul Craig Roberts, Andrew Maguire, Michael Pento, Rick Rule, Gerald Celente, Dr. Marc Faber, Bill Fleckenstein, Eric Sprott, Grant Williams, Egon von Greyerz and David Stockman are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.


Eric King

KingWorldNews.com

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