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The Dollar Vigilante's Outlook for 2012

Stock-Markets / Global Debt Crisis 2012 Jan 04, 2012 - 06:10 AM GMT

By: Jeff_Berwick


Best Financial Markets Analysis Article“When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft then by work, and your laws no longer protect you against them but protect them against may know that your society is doomed” Ayn Rand

It’s been 54 full revolutions since Ayn Rand wrote Atlas Shrugged – from whence the above quote comes.  And, the evils that she felt were responsible for society’s downfall in the 1950s have only grown stronger.  In fact, the military industrial complex was only gaining critical mass at the time.  It had not yet become the murderous behemoth that has grown into a parasitic bureaucracy.  Even the dollar was still linked to a makeshift gold standard under Bretton Woods – a system under which the US government pretended its currency was still gold redeemable, even though it had been a quarter of a century since American tax slaves (citizens) were last allowed to use gold as money. Atlas Shrugged may have been a fictional account of what Rand saw in the real world around her through the lens of objectivism but the evils were real enough.  We talk about those evils regularly here at The Dollar Vigilante (TDV) and will do so more below.

Before that, being a new calendar year it always seems like a good time to reflect on the year past and question and test your world outlook based on what you've learned and what has occurred in the last twelve months.  And so we will do just that.

Our theme has remained the same for years, even though the TDV newsletter was only launched a little less than two years ago.  TDV Senior Analyst, Ed Bugos, has been recommending gold and gold stocks since 2000 based on our theme and I've been buying gold and gold stocks since I discovered Austrian economics in 2004.


Here is the overarching theme that we follow at TDV.

All government involvement in the economy has been shown to be detrimental to progress.  The calculation problem defined by Ludwig von Mises over six decades ago and the pretense of knowledge problem cited by Hayek in his 1974 Nobel Prize winning speech aptly demonstrate that central planners cannot calculate; and that they do cannot possibly appreciate all the information contained in the price of a single good.  The central planners are thus unaccountable, alienated from the feedback of a marketplace, and can’t calculate - not to mention the outright violence and theft involved in taxation and wealth redistribution.

Even Karl Marx knew interventionism would undermine free market capitalism, and that interventionism was, as Ludwig von Mises wrote, “a method for the transformation of capitalism into socialism by a series of successive steps.”  Ludwig von Mises of course saw the “essence” of interventionism as but a self-defeating policy where the “individual measures that it applies do not achieve the results sought”, and can only take “from one group to give to another.”

And as Robert Higgs has described in the “ratchet effect,” interventionism begets more interventionism.

Today this interventionism is driven by neo-liberal progressives and justified by the democratic ideal.

The United States' problems began in the progressive era with the abandonment of classical liberalism and its laissez faire economic policy in the late 19th century, and that its fate was sealed in the revolution of 1913 with the advent of the Federal Reserve System, the Income Tax Act and other ambitious goals of the progressive era leaders…including the 17th amendment which increased the scope of the central government further, and it emboldened the “democratic principle”.

These were all anti-liberal policies (in the classical sense), and they ultimately led to the marriage of the welfare and warfare states under the adoption of a fascist economic policy in the 1920s and especially the 1930s.  But the centralization of banking was the biggest coup.    Central banking is an anti-capitalist, artificial system of coercive regulation and intervention in monetary affairs used to control the cost of money (interest rates) and sustain monetary inflations that destroy savings, wealth and capital; which punish the wealth creators, reward the looters, and create the great depressions that those who control this evil edifice go to great lengths blaming on the free market.

Thus, on August 15, 1971, when the Federal Reserve Note (commonly referred to as the US dollar) was formally detached from the remnants of its gold backing, and the last of the checks against the unmitigated expansion of the money supply abandoned, statists of both the left and right rejoiced in a final victory over the market system.  As all currencies in the world were tied to the gold-backed US dollar, this event put the world on a de facto fiat currency system.  Combined with a social democratic form of government where the liberals promote welfare (via the “political means”) for both the rich and poor, it has meant a massively rising level of government debt, mostly in the western world where this system has been embraced.

And here we come to the heart of the driving force behind the bull market in gold prices and its corollary, the collapse of the dollar as an international preferred reserve currency.

The independence of central bankers is a sham when the government has control over the object and value of the medium, and dictates the policy guidelines of the banking system.  With politicians of both suasions over the decades, since the inception of this system, leaning on this system of hidden taxation (the printing press) to buy votes, democratically, public debts have ballooned to levels that cannot be sustained if ever the market should reassert its control over interest rates.

Herein lies the problem.  If savings are ever to be rebuilt this is a most necessary event without which the real capital of the economy will continue to hollow out.  The system almost completely collapsed in the late 1970s.  But, since total government debt at that time had only had ten years to accumulate the inflation could be stemmed by allowing interest rates to go to their natural rate, resulting in a rate above 15%.  Ironically, today the Republican PR machine is trying to paint Newt Gingrich as a Reagan type candidate; assuming that in order to restore confidence, since that is what those people think is the problem, all they have to do is to pretend that they are going to cut back government expenditures like Reagan did.  Only Reagan’s program failed.  The market will not buy it.

Indeed, governments have continued to accumulate debt and now most western governments have debts that would result in complete insolvency if interest rates rose much above 10%.  On December 21st, the US officially passed the 100% debt to GDP ratio.  But, that is only a small part of the real story.  When calculated under Generally Accepted Accounting Principles (GAAP), the total deficit (not debt, deficit) for the year 2011 likely came in at $5-$7 trillion.  There is no exact way to know because it has been more than a decade since an official audit of the US Government has ever been completed, but those are reasonable estimates based on the total spent on Social Security and Medicaid that is paid out of current revenues.  To put that in perspective, the total amount of gold ever thought to be mined is 5 billion ounces.  That would be a current value of approximately $7.5 trillion - for all the gold in the world.  The US Government spends the equivalent of all the gold in the world every year MORE than the amount of tax theft revenue they steal.

How do other western countries compare?  To the right is a chart showing the total amount of debt/GDP versus the total amount of gold as a percentage of GDP.  They are all debt rich and gold poor.  Even China.

Therefore, with such unassailable amounts of government debt there is no way to stop the inflation genie this time without liquidating government wholesale.  It could be delayed if governments reduced deficits but the US Government has increased its deficits by nearly 10-fold in the last decade.  As such, the only way to keep the current system alive for any period of time is to continue to inflate... a situation that will result in either a complete collapse of the warfare-welfare states, or in hyperinflation and complete collapse of all unbacked fiat currencies; or both.

In either case it will be a complete overturning of everything that most people have known for the last four decades.  Most of what has occurred since 1971 has been built on debt.  In other words, it was not real.  And so, this decade, and as soon as this year if the correct set of events occur, the world will change dramatically.  The good news is that if the people of the world can resist creating new, even more tyrannical governments - a possibility thanks to the internet - the new world will be a much better, more peaceful and prosperous place.  After all, it's no coincidence that just months after the founding of the Federal Reserve, World War I occurred, and a century of brutal global war ensued... it would not be possible without the money printers.

But, the transition is where the devil in the details lies.  No global system of empire and finance dies easily and it will try to take you and your assets down with it.

To both protect ourselves and profit we have nearly completely removed ourselves from the current financial system.  In other words, as per the definition of a dollar vigilante, we have sold our dollars and other fiat currencies.  In return for our dollars, we hold mostly hard assets or claims (stocks) on hard assets.  And even the mining shares we hold will be individually registered to guard against the collapse of the brokerages where we hold shares (this Special Report, called Bulletproof Shares, on share registration coming out in the next few days).

While it hasn't worked out this way for the last few years, we hold gold and silver bullion mostly for safety and we hold the mining shares to profit off of continued inflation.  As well, we attempt to geopolitically diversify all of our holdings to guard against the rapacious tentacles of governments who will take claim to private assets in a desperate bid to stay alive.  Furthermore, we have more than one passport and recommend living outside of the western world for the next few years, at minimum, if possible.  For those unable to leave we recommend living away from population centers, storing a minimum of six months worth of food and having armaments for defense and being as self-sufficient as possible, including growing your own food and having generators or other means of generating power.

That, in a nutshell, is our worldview at TDV and explains the generalities of how and why we are positioned going into 2012.

Subscribe to TDV today (90 day moneyback guarantee) to access our Special Report on How to Own Gold as well as get complete access to our newsletter and portfolio selections.

The Dollar Vigilante is a free-market financial newsletter focused on covering all aspects of the ongoing financial collapse. The newsletter has news, information and analysis on investments for safety and for profit during the collapse including investments in gold, silver, energy and agriculture commodities and publicly traded stocks. As well, the newsletter covers other aspects including expatriation, both financially and physically and news and info on health, safety and other ways to survive the coming collapse of the US Dollar safely and comfortably. The Dollar Vigilante offers a free newsletter at

© 2011 Copyright Jeff Berwick - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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