John Williams Discusses The Reasons For The Upcoming Dollar Dump

Tyler Durden's picture

Lately, anywhere we look, there seems to be a pattern emerging: those economic thinkers who actually construct and run their own macro models (not the glorified powerpoint presenter variety) and actually do independent analysis and tracing of the money flow, instead of relying on Wall Street forecasts that have as much credibility as a Moody's home price hockey stick from 2006, almost inevitably end up having a very dire outlook on the economy. One such person is and has pretty much always been Shadowstats' John Williams, whose "shadow" economic recreation puts the BLS data fudging dilettantes to shame. That said any reader of Zero Hedge who has been with us for more than a few weeks, knows all too well our eagerness to ridicule the increasingly more incoherent lies coming out of the US department of truth, so no surprise there. Yet another aspect over which there is much agreement is that no matter how one slices the data, the outcome for the US currency is a very grim one. Which is why Williams over the past several years has become a major fan of the shiny metal. Below we recreate portions of his latest observations on the upcoming currency collapse, courtesy of King World News.

John Williams today was dispatching information regarding gold, silver, M3, nearby massive selling of dollars and inflation.  Here is a portion from his commentary, “Despite November 9th’s historic high gold price of $1,421.00 per troy ounce (London afternoon fix) and the multi-decade high silver price of $30.50 per troy ounce (London fix) on December 7th, gold and silver prices have yet to approach their historic high levels, adjusted for inflation.”


Real Money Supply M3:  The signal of the still unfolding double-dip recession, based on annual contraction in the real (inflation-adjusted) broad money supply (M3), continues and is graphed (above).  Based on today’s CPI-U report and the latest estimate on the November SGS-Ongoing M3 Estimate, that annual contraction in November 2010 was 4.0%, narrower than October’s 4.5% contraction, and May’s post-World War II record annual decline of 7.9%.

Incidentally, if there is one thing we disagree with John on is that the broadest aggregate (M3 for Williams, Shadow Banking for Zero Hedge) is declining. That said, an expansion in the most critical broad money signal is merely the missing piece of the puzzle that we believe John Williams needs in order to confirm his thesis of upcoming hyperstagflation through (or rather resulting in) currency collapse.

As to how this perceived volatility will impact asset classes, regulars will find nothing surprising in the following:

Currency values and precious metals prices can be volatile, but the long-term weakness in the U.S. dollar and relative purchasing-power-preservation attributes of gold and silver, and the stronger currencies outside the dollar, remain in place.  As with systemic risks in the United States, risks in other areas of the world — such as among the countries using the euro — likely will be addressed by the spending or creation of whatever money is needed (indications of any needed U.S. backing are in place) in order to prevent systemic failure.  Keep in mind that the U.S. remains the proverbial elephant in the bathtub in terms of pending effective sovereign bankruptcies.

The various European crises remain an intermittent foil for the U.S. dollar, pulling market attention away from the unfolding solvency crisis in the United States and a likely move to massive selling against the U.S. currency.  Accordingly, high risk of the early stages of a hyperinflation beginning to unfold by mid-2011 continues.

The full piece can be found at King World News.

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Spitzer's picture

Euro/Freegold bitchez

Shameful's picture

Ah even in Freegold the Euro would take a brutal pounding.  From what I've read over at FOFOA he acknowledges they would take a devaluation only under that scenario they would survive.  So if one believes that Freegold will come then they should hold 100% gold and not touch the Euro.

Spitzer's picture

Anything but dollars.

Even Rainbowtrader gets this, but something tells me that I will do better with my gold and gold stocks then he will with US resturant and retail stocks.

tmosley's picture

Those will do very well once the Yuan is allowed to float.  Assuming they export their inflation back to the US, it might even do better than gold.  As a spike, might even do better than silver.  I won't be risking it though.  Who knows what is going on in the minds of their central bankers?  You don't want to have to bet on the actions of a few people, because they could act illogically.

gloomboomdoom's picture

Do you ever consider the possibility of a "De-Peg" lowering the value of the Yuan?

Cause that is what is going to happen if they allow the "Float"

tmosley's picture

You don't know much of anything, do you?

The Chinese maintain the dollar peg by purchasing every single dollar that comes into thier country at the peg rate, and selling dollars for the same rate on any Yuan leaving the country.  Dropping the peg means that a) they aren't printing Yuan anymore, and b) they don't need thier dollar stockpile any more.

Spitzer's picture

Exactly.

China is the creditor.

Non Passaran's picture

And by extension c) they are not exporting any more. (Not that they wouldn't want to, but the US may not be able to buy as much since China won't want to accept USD.) So how, then, RMB becomes so valuable?

Spitzer's picture

they will consume their own production just like the US did after WW2 when they converted thier production to consumer goods.

eatandtravel's picture

The Chinese will consume their own goods?  Like all the houses? 

China is a lot more fragile than you think. 

tmosley's picture

Because everyone around the world now needs RMB to purchase Chinese manufactured goods.

AmCockerSpaniel's picture
China does not have to do or say anything. Just knowing they are in the same room is enough.
dark pools of soros's picture

which of their 7 billion empty rooms are they in???

eatandtravel's picture

I know.  People are clueless about China.

Ted K's picture

Let me tell you friend, you never know when Chinese bureaucrats will stick their fingers in your pie.  It is a highly highly corrupt nation. Not just the government. Lying and Cheating is in Chinese' Chinese blood (read 99% Chinese nationals will fuck you in the ass while smiling after you just handed them your last winter coat).

Special Addendum: They especially love to fuck "Laowai".  Consider yourself warned


Bolweevil's picture

Teddy K: "That's not my belly button."

Wen: "That's not my finger."

the rookie cynic's picture

Mr. Williams also notes in his article: "The earlier all-time high of $850.00 of January 21, 1980 would be $2,391 per troy ounce, based on November 2010 CPI-U-adjusted dollars, and would be $7,840 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.

In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce has not been hit since, including in terms of inflation-adjusted dollars.  Based on November 2010 CPI-U inflation, the 1980 silver price peak would be $139 per troy ounce and would be $456 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars."

I guess I'm still a buyer until the world gets its shit together.

http://therookiecynic.wordpress.com/


The Hopp's picture

Anytime anyone asks me where I think gold and silver are going?  I look them straight in the eye, put one hand on their shoulder, take a sip of my heineken, and tell them politely "It's going to the f*ckin moon." 

RobotTrader's picture

How about a debate between Nic Lenoir and John Williams??

Nic seems to think that the dollar is going to rally, the Euro is going to crash, and all risk assets are going to go down in a flaming heap....

LOL...

Spitzer's picture

Nic just forgot that the dollar is not backed by gold. 2008 did not change ANY long term trends.

jdrose1985's picture

I'd love to see you go into any bank in the EMU and demand gold for your euros haha you'd be in a padded cell within the hour.

Dollars grant access to oil..you keep your "gold" and ill retain access to oil.

Spitzer's picture

You have allot to learn.

Nobody said anything about a gold backed Euro. The ECB floats the price of gold and its funny you mention oil because that is one of the pillars of Euro/freegold.

When the paper gold system die's, so does the US petro dollar system.

By suppressing the price of gold in the paper markets the parties to the oil-US$ dollar scheme were able to make gold artificially cheap in US dollars. The ME oil producers could then pick up under-priced physical gold in various ways with the US$ profits from their oil sales. This wasn't US Govt gold. It was gold supplied by other parties such as dollar bloc allies (including Australia and Canada) and privately owned gold.

Oil was therefore artificially cheap in terms of US dollars as well for all purchasers of oil who could access US dollars cheaply. Obviously the major beneficiary was the USA.
One of the ways this scheme was disguised was through funding gold miners via gold loans (repayable in gold) and by purchasing the forward sales from gold miners undertaken as part of their hedging programs.

The key element in this scheme was focusing the attention of gold 'buyers' on the paper price of gold. In Western minds this IS the price of gold to this day. In Eastern minds the price and value of physical gold is the real benchmark.
While  foolish Westerners shuffled pieces of paper around thinking that they were becoming rich, wealthy Easterners were accumulating real wealth, real jobs and hard assets.

The ME oil producers will realize the real profits of their oil for gold scheme when the dollar dies and freegold sets in. Then nobody will have the privilege of cheap oil like the US did, that will be history.

 

 

 

 

yakmerchant's picture

You got the PetroDollar thing almost nailed.  You forgot the part when U.S Dollar hedgemony ends,  a false flag event gets set off that is blamed on Saudi Arabia and the U.S then will go in and pilfer their gold.  The U.S will then roll out a the new gold backed Dollar or join in some Euro backed Free Gold system.   Why do you think we have all our military crap over in the middle east still?  Plan A is to ensure the PetroDollar ponzi continues as long as possible, and if that plan fails, to basically steal all the gold in the middle east.    The freegold idea is basically the biggest poker game in the world.   The country with the biggest stack will have a giant advantage. 

MarkS's picture

Except that maybe you both forgot that the value of gold outside of a 'store of value' has virtually no use.  Oil on the hand is needed for transportation, production, and as a commodity for other petroleun based products.  And, we are probably sitting on 100 years of nat gas and their other sources of power generation.

Seriously, do you really think that Europe is better positioned than the US for any of the stuff going given that they are leveraged far more than we are and their demographics mean the end to their political/economic systems...I'll take the $US over Euro.

And China is going to export inflation back to the US?  Really?  How exactly are they going to do that?  Let's see...by making more stuff to stick in warehouses and call it exports?  Why don't you look at IMPORTS globally - they have been flat since Q2 of this year and a weighted basis have actually fallen.  Given the drop in IMPORTS in the US from China it would seem hard for China to export inflation wouldn't it?

I find it surprising the talk of 'false flag' events and false numbers coming out of the US governement without a concurrent belief that other countries aren't capable of the same thing.  Do we have problems?  Of course but, they are no bigger than any other large nation and some are even a lot less problematic.

Plan A - get out of your mother's basement

Plan B - Take off your tinfoil hat and live a little  

 

Spitzer's picture

Except that maybe you both forgot that the value of gold outside of a 'store of value' has virtually no use

If you still don't understand gold then you have no capacity to comment on anything else. ME oil producers would rather just have their oil stay in the ground then exchange it for a stack of paper IOU's.

I'll take the $US over Euro.

I could have guessed that. You don't seem to realize that Europe did not have this oil/gold advantage that the US has had. Europe is already used to paying a real market price for oil, the US is not. That is why gas is more expensive in Europe.

 

 

 

sharkbait's picture

Gas is more expensive in Europe because of taxes.

IQ 145's picture

 That;s correct of course. Spitzer is completely delusional.

Spitzer's picture

 hint hint

The Euro is worth more then the US dollar.

tmosley's picture

How do they export inflation back to the US?  Oh, I don't know, maybe they could use their vast stockpile of dollars and dollar denominated assets to purchase commodities?  What the hell do you think will happen to the commodity complex when a trillion dollars is dumped on top of it?

You don't even understand basic economics.  Why exactly do you think imports from China have dropped?  Because prices are too high, which has pushed down demand.  Push that to the extreme.  Why do you think people starve during hyperinflation?

You think our problems are no big deal just because a bunch of other people have the same problem?  I guess you are fine with getting AIDS, then, since a bunch of other people have that too.  Or Hep C.  Or Ebola.  Take your pick.  

Christ, "live a little"?  What the fuck is wrong with you?

wareco's picture

Gee aren't those dollars supposed to be worthless by then?  Oh, and why have imports dropped from China?  How about consumers have gotten off the credit tit.  They are not buying as much crap since the housing ATM card has been taken away.

XPolemic's picture

Gee aren't those dollars supposed to be worthless by then?  Oh, and why have imports dropped from China?  How about consumers have gotten off the credit tit.  They are not buying as much crap since the housing ATM card has been taken away.

OR ... China is decoupling from the US (slowly), and will dump those dollars in due course. Then you will have to buy your own dollars, with dollars! SOUNDS LIKE A PLAN! A stupid plan to be sure, but a plan none the less.

BTW, the US banking/political/military cartel have already attempted to steal middle eastern gold, IN IRAQ! Unfortunately, Euro says NO!

 

DosZap's picture

Mark S,

"And China is going to export inflation back to the US?  Really?  How exactly are they going to do that? "

They are already doing it, by using Treasuries to buy Hard assets, hand over fist, farmland, and mines(rights to them, making ,forming partnerships ), with every PM's miner that has large reserves.

And using US Treasuries cashed out to do so.

So, when these M3 dollars start making their way home, who's currency will be Hyper Inflated then?.

Sure not China, (they have written us off), they are de facto buying the future of the globe.

BigDuke6's picture

Who's the fat blonde in your avatar?

masterinchancery's picture

Until the coming day when only gold provides access to oil. Of coursek the US might then start exploiting its shale oil.....

blunderdog's picture

It'll be a strange day.

The reason the dollar is the oil-exchange currency is because of the Saudis.

And the reason the Saudis are so gung-ho to take dollars is so they can buy our military equipment.

If there were another country with military technology on-par with the US, we'd have lost that sweet deal a long while back.  The shine's coming off both US military and the Saudi production dominance.

Strange days comin'.

XPolemic's picture

 

The reason the dollar is the oil-exchange currency is because of the Saudis.

And the reason the Saudis are so gung-ho to take dollars is so they can buy our military equipment.

 

Not true, unfortunately. A cold war arrangement between the US and SA was to exchange oil for treasuries. SA was guaranteed military intervention by the US in the event of an invasion from anywhere (and even called that chip in for Kuwait). SA buys very little military equipment for the dollars they hold. The service is not equipment, but protection.

The US then got to bankrupt the Soviet Union by controlling the price of Oil. The side effect of this arrangement was for all Oil to be traded in USD. SA still doesn't want to be invaded, but now has a choice of protectors (if it so wishes).

If the Gulf States decide to form a Gulf wide currency, that is backed by France, Russia, China, then it is all over for the USD.

 

eatandtravel's picture

If the Saudi royal family want to remain in power, the dollar is it.

XPolemic's picture

 

The reason the dollar is the oil-exchange currency is because of the Saudis.

And the reason the Saudis are so gung-ho to take dollars is so they can buy our military equipment.

 

Not true, unfortunately. A cold war arrangement between the US and SA was to exchange oil for treasuries. SA was guaranteed military intervention by the US in the event of an invasion from anywhere (and even called that chip in for Kuwait). SA buys very little military equipment for the dollars they hold. The service is not equipment, but protection.

The US then got to bankrupt the Soviet Union by controlling the price of Oil. The side effect of this arrangement was for all Oil to be traded in USD. SA still doesn't want to be invaded, but now has a choice of protectors (if it so wishes).

If the Gulf States decide to form a Gulf wide currency, that is backed by France, Russia, China, then it is all over for the USD.

 

dark pools of soros's picture

you know a war would break out first...  and who knows.. the dollar could survive while the world burns

blunderdog's picture

A Gulf-wide currency?

Is that a joke?

As Dubya once said, "They look the same to me."

DosZap's picture

Yeah,and the Saudis import 9-11 terrorists to fly Jets into the Twin Towers, what a trade deal.

We have such wunnerful fwends.

Rogerwilco's picture

@robo

What happened during the last (post Lehman) dust up? Did stocks hold up? PMs to the moon? How about that Euro, or the Asian currencies?

No, when TSHTF all the rats ran into Uncle Sam's barn, and some even paid extra (neg yields) to get in. But you're a smart, global-minded, chart readin' trader who knows that this time will be different.

We'll see who has the last lol.

Spitzer's picture

 Post Lehman ?

Gold was up $25 the day of the flash crash. That was pre $1200 gold too.

Rogerwilco's picture

It didn't stay above $1K until 2009. The only reason gold is above $1K is Bernanke's misguided QE. Watch what happens to PMs when the punch bowl is empty.

traderjoe's picture

The minute the punchbowl is taken away the banks collapse. Then confidence is lost and the currency falls apart. Gold rises substantially. Deflation equals collapse through hyper-inflation.

tmosley's picture

Please point out at least one example of a case where money printing was initiated and then stopped prior to destruction of that currency.

Rogerwilco's picture

Sure, the USA, and the year was 1981.

tmosley's picture

They weren't monetizing the debt back then.  As such, they weren't really printing money.  They were increasing the money supply by flooding the world with credit, but that is quite different.

Try again.