Below is a portion of this tremendous piece that KWN was given exclusive rights to publish by Dr. Roberts:


By Dr. Paul Craig Roberts

April 24 (King World News)

“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....

Continue reading the Dr. Paul Craig Roberts piece below...


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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.

Note:  The Fed’s ability to print can have a longer life than one might think.  Recognizing the dollar’s vulnerability from the printing press, Washington has convinced the Japanese government to help protect the dollar by printing yen and is lobbying the ECB to print more euros.  To prevent sharp appreciation in the franc, the Swiss have had to print francs in order to absorb inflows of dollars and euros.  Indeed, the Fed’s debasement of the dollar forces other countries to print also in order to protect their export markets.  When so many countries print money, it takes the pressure off the dollar.  What it means is that so much money is being created that the final blowout will result in a world inflation.  Unless the Chinese join the printing in order to protect their export markets, China will be set to take over the reserve currency role.  (Printing a currency causes it to depreciate relative to other currencies. If all currencies are printed, there is no relative change.)

In that event, what would finance the federal budget deficit?  Now desperate, authorities might seize bank deposits, not in order to bail out bankers but to bail out the federal government.  After bank deposits are pillaged, the remaining source of wealth to be plundered would be private pensions, or what is left of them after rising domestic inflation and interest rates collapse the bond, stock, and real estate markets.

Let us be sure we understand how risks for the once masterful US economy became so great.  The main cause of America’s demise is the offshoring of manufacturing and professional service jobs.  This deprived the US economy of consumer income and state, local, and federal governments of tax base.  When the offshored production comes to the US to be marketed, it drives up the trade deficit.  The result is larger surpluses in the hands of foreigners, who use the dollars to purchase income-earning US assets. Consequently, this income also flows out of American hands into foreign hands.

Drained of consumer purchasing power, the US economy faltered.  The Federal Reserve decided to substitute an increase in consumer debt as a substitute for the missing growth in consumer income in order to keep a consumption-driven economy alive.

Interest rates were lowered to unrealistic levels, igniting a real estate boom.  Rising housing prices produced equity in debt-financed homes.  Homeowners refinanced their mortgages, taking out the equity and spending it, thus keeping the economy alive.

Deregulation was a partner in the rising catastrophe.  Under the Clinton administration, the sensible Glass-Steagall Act, put in place during the Great Depression, was repealed.  This allowed commercial and investment banking to be under one roof and allowed the use of bank deposits for unregulated speculative purposes.

The position limit on speculators was removed, allowing speculators to dominate commodity markets.  Debt leverage was “liberalized,” allowing irresponsible debt leverage ratios.  Greed and ideology (“markets are self-regulating”) mixed with incredible stupidity and incompetence to produce a financial disaster for an economy already weakened by offshoring its GDP to other countries in order to increase capital gains for shareholders and performance bonuses for executives.

When the dollar declines, the Federal Reserve will lose control over interest rates.  When that happens, the cost of entitlements (Social Security and Medicare) will be dwarfed by interest payments on new debt issued to finance the federal budget deficit.  The policy of not letting the “banks too-big-to-fail” fail and the policy of sending American jobs abroad in order to maximize short-run corporate profits could result in the destruction of the American economy.  This possible outcome could be closer at hand than most people realize.

At a certain point, when the Japanese, US and eurozone stimulus pumps have so debased their currencies that further pumping would prove futile, gold, silver, platinum and possibly diamonds will again be regarded as safe haven assets.  Attempts by central banks and high-stakes speculators to manipulate markets may produce temporary violent price fluctuations, but in the long term they will fail to drive down prices or tarnish their safe haven luster.”

IMPORTANT - KWN has released the tremendous audio interview with the top trends forecaster in the world, Gerald Celente, and you can listen to it by CLICKING HERE. 

The audio interviews with Gerald Celente, Andrew Maguire, William Kaye, Rick Rule, Nigel Farage, Dr. Paul Craig Roberts, John Embry, Art Cashin, John Mauldin and Egon von Greyerz are available now.  Also, be sure to hear the other recent KWN interviews which include Eric Sprott, Marc Faber and Felix Zulauf by CLICKING HERE.

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Eric King

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rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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