Over the last decade the US has gutted its manufacturing and professional services base by shipping them overseas, or as many call it, outsourcing. Since 2008, the Federal Reserve has been printing money at an alarming rate, tripling its balance sheet.
This is now starting to catch up with them and there is something going on behind the scene that has created a dollar protection policy. This is an all out operation to keep the value of the dollar up, make no mistake.
There is a huge supply of US dollars in the market from the printing that has been taking place and a lack of its use that is building. This is a perfect scenario for a collapse. Russia, Brazil, South Africa, and China as well as Australia, and now even perhaps France have all taken steps to eliminate trade in the reserve currency and are now setting up direct trade in the currencies of their own countries. The dollar is being threatened.
Okay, so what's the worry? What is the possible outcome of a devalued dollar?
First, the exchange value drops, followed by the cost of imports rising. Next we move on to domestic inflation. Domestic inflation will result in an environment that does not allow the Fed to keep interests rates low. The Fed is then forced to raise interest rates in an effort to keep inflation at bay. Rising interest rates will signal the end of cheap money and will have an effect on expansion for business, additional costs for consumers who are in debt, and will have an adverse effect on the debt that the government holds. Taking more and more out of revenue streams to service higher debt costs. There are many more consequences, these are just a few.
So how does the Fed combat that?
Starting in April of this year, brokerage houses were told that hedge funds and institutional investors were going to start selling gold and silver. Goldman, then told their clients to take it one step further and to start shorting both metals, with an emphasis on gold. This is more than just selling; this is additional pressure being applied to the downside.
The Fed, as well as other sanctioned entities, are now using "Naked Shorts." Completely illegal, and you and I would go to jail if we did this. You can see by the action in the commodities sector, gold and silver specifically, that this is working. But, why is all this going on?
We are at a point in this money creation cycle that you cannot have any competition to the US dollar. It must remain being seen as a safe haven, and gold and silver are an alternative form of currency. That is a no, no in their eyes. It must be crushed. One thing to keep in mind is all of this is being done with paper gold and silver, not physical.
Bringing down the price of precious metals against the value of the US dollar make it look much stronger and helps to retain its safe haven status.
But, why would you want to scare people out of bullion, and are there unintended consequences?
People, and more importantly countries are backing up the trucks and taking advantage of the opportunity that these lower prices present. Although the paper market maybe taking it on the chin, the physical market is tighter than ever, and supply problems for delivery have been reported over the last month.
If too many people move to gold because they feel that the money printing will have unfavorable long-term consequences, it would surely disrupt or collapse the value of the dollar. The Fed needs confidence in the dollar so that they can continue to print huge amounts of paper money without crashing the price or value.
They are currently creating a situation and structure that will lead to an event in which we will see the collapse of our economy, and they know that. How do we know? One need not look any further than the growing police state that is the US. When we see the Department of Homeland Security buying bullets numbering in the billions that is one thing, suspicious, but explainable if you buy their story. However, preparing and selling ARMORED TANKS to local police forces all around the country. You simply can't explain that away.
When this is all said and done, a new currency, perhaps global, will be necessary to instill confidence in fiat paper again. You may image that precious metals will be a part of that and this may be the reason that countries and central banks are stocking up now while the price continues to drop.