Richard Russell - Expect An Avalanche Of Fiat Money Creation

"Russell:  “In the early days of the US, the dollar was trusted. The reason it was trusted was that the dollar was backed by physical gold. Those were the days when the dollar was considered “good as gold.” The obvious reason was that a person could take his dollars into any bank, and exchange his dollars for gold.

 

This changed in 1933 when Americans were forbidden by law to own gold. As far as Americans were concerned, they were now dealing with paper and could no longer exchange their paper for gold.

 

So in 1933, Americans were no longer on the gold standard. But foreigners who were creditors of the US would settle their accounts in gold. If the US had a debt with a creditor, the creditor could settle his debt by calling in a quantity of gold.

 

This changed in 1971 when, in the face of an outpouring of US gold, President Nixon slammed the gold window shut. This took the US, both domestically and internationally, off the gold standard. The dollar was simply a piece of paper, comparable to Monopoly money. Following the US’ example, the rest of the world abandoned the gold standard.

 

Recently every nation has wanted a cheaper currency to aid in its exports. With almost all world currencies depreciating, money has flowed to the US dollar. This is because the US, alone, appears to have a thriving economy. Of course the strong dollar will retard US exports and make foreign goods appear to be bargains.

 

The strong dollar puts pressure on gold. So far gold has held up remarkably well in the face of world deflationary pressures and the collapsing price of oil. In the face of these global deflationary pressures, the question is – Will the Federal Reserve fight deflation by calling off its tapering and opening its money spigots wide? 

The Fed and the central banks of the world will not tolerate deflation. For this reason I expect a veritable avalanche of fiat currencies to be created. Mario Draghi, head of the European Central Bank, is facing slumping European economies and deflation. But Draghi will not be able to use QE, as the US has, since Germany, the leader of Europe, is terrified of the potential for inflation. Thus the US stands alone in the fight against deflation. Already several members of the Fed have released feelers to the effect that QE should be extended into the future, and interest rates must be kept at zero..."

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