How Low Can the Dollar Go?

How high can the price of gold go? Seems like the most obvious question to ask when you buy gold or gold shares. But actually, it’s the wrong question to ask because it is based on the presumption that the U.S. dollar unit of currency and measure don’t change and that gold on the other hand is the variable. In fact, in reality it is gold that is the stable unit of measure and the dollar that is highly volatile. Studies have shown that an ounce of gold has retained its purchasing power all the way back to the Roman Empire, while a dollar has retained only 3% or 4% of its 1913 purchasing power when the Federal Reserve was forced into law against the American people. I bring this topic to your attention now not only because Michael Oliver’s very dependable work shows the dollar is starting a new significant bear market, but also because of geopolitical pressures that may do the dollar serious harm. Let me explain.

August 1971 – The Golden dollar becomes the Petro dollar – Realize that before Nixon removed gold from the international monetary system on August 15, 1971, the dollar was in fact as good as gold, at least for foreign countries. They could send dollars they earned from trade or received from the Marshall Plan back to the U.S. Treasury and receive one ounce of gold for every $35 they returned to the U.S.  This fixed-rate monetary system forced a discipline on governments around the world that deterred the exercise of irresponsible Keynesian economics; this has led the world to the brink of economic and financial disaster, which almost took place with the 2008-09 financial crisis.

When Nixon said the U.S. would no longer back the dollar with gold, have you ever asked yourself why it has retained any value at all? After all, there is nothing of a tangible nature behind the dollar to give it value. The answer lies with American foreign policy backed by the Military Industrial Complex that President Eisenhower warned us about as he was leaving the Presidency and that President Kennedy died in an attempt to curtail. After August 15, 1917, Secretary of State Henry Kissinger arranged a deal with Saudi Arabia, who led the world in oil production and was in control of the OPEC oil cartel, to demand dollars for the sale of oil, thus putting a bid under the dollar that has given it value. Any foreign leader such as Saddam Hussein or Omar Kaddafi, who dared to demand payment in currencies other than the dollar, found themselves on the short end of America’s Military Industrial Complex. 

China, Russia, and other nations have had enough! As China has grown to become the second-largest economy in the world, it has argued that it should have a larger say in global governance at the IMF and other governing bodies. One issue China and other countries not on the inside of the Anglo-American Empire have is the existing petrodollar global currency regime because it gives the U.S. an unfair advantage of being able to create money out of thin air to not only buy up the world’s resources but to also outspend all other countries combined on its military industrial complex and then use it to threaten nation after nation to submit to control of the Anglo-American Empire. And as we have seen, nations that do not agree to use dollars for trade are deemed rogue nations. Then the American propaganda begins and they become targets of force by America and NATO.

We never hear about the peaceful endeavors undertaken by China to expand its economic well being nor are we told that the Anglo-American Empire does not want China to have any control over its own sea lanes in the South China Sea. All we are told is that China is building islands and is threatening good, peaceful countries in Asia. But in fact, China is doing what any self-respecting country does. It seeks to protect its own borders so that when America sends warships into and around China, China seeks to defend its own interests. Building islands is most certainly a part of that strategy.

In the U.S., our media seldom if ever talks about the One Bridge, One Road (“OBOR”) project that China has initiated, aimed at providing trade infrastructure over land and sea to link resource-rich regions of the world like Russia and East Africa with highly populated countries of China and India and various other Asian nations. The strategy even seeks to link Western Europe to into OBOR.

Even less is heard in America about the banking and technology infrastructure that is being set up by the BRICS and other nations seeking to protect themselves from the murderous Anglo-American Military Industrial Complex. You may recall that the Obama Administration threatened Russia to cut it out of the SWIFT international payments system. So what did Russia do? They and the other BRICS began to devise their own “SWIFT-like system.” 

That was a few years ago now, so I’m guessing they and the other BRICS have undoubtedly orchestrated a system that is geared for just that threat, which is why I was so surprised this past week to learn that U.S. Treasury Secretary Steven Mnuchin threatened to cut Beijing’s access to  the “international dollar system” if China violates the North Korea sanctions that were put in place last week at the U.N.  Not only have the countries refusing to bow to the Anglo-American Empire begun building up their own SWIFT trading system, which is outside of the U.S. dollar system, but over the past couple of weeks China has made it known that it will begin paying for oil imports not in dollars but in RMB. And if countries do not feel secure about accepting RMB for their oil, they can exchange RMB for gold. In other words, at least for oil exporters, China will make the RMB stronger than the U.S. dollar because it will indeed be backed by gold! 

In other words, China is challenging the U.S. by paying for their oil not in a phony currency that is backed only by military force and has no intrinsic value with a currency that is far superior to the dollar because it will be backed by gold. 

It’s hard to understand why Mnuchin thinks he has leverage over the Chinese to force them to treat North Korea as the U.S. wants them to, by threatening to kick China out of the international dollar system when it’s clear that is actually what they want and have been working toward with other countries strong and independent enough to fight for the retention of their own national sovereignty. A check of the countries where China buys its oil is shown on your left. Some of those countries, like Russia, Iran, Brazil, Venezuela, and possibly Angola, are not on good terms with the U.S. and would naturally be inclined to go along with Beijing’s RMB gold-backed oil system. But some of the Middle Eastern countries, including Saudi Arabia and Kuwait, may also be tempted to accept a gold-backed RMB, especially as the U.S. financial system continues to grow ever shakier. Two major hurricanes plus endless wars that consume trillions of dollars may be financeable as long as the Chinese and other net creditor nations are willing to buy U.S. Treasuries. But once that stops, it will be “game over” for the U.S. economy and the U.S. dollar. 

It has been my theory that one of the reasons interest rates have been rising is because of the withdrawal of China and other “rogue” nations from Treasury ownership. The global marketplace is telling the Fed through its actions that it is tired of owning dollars that are worthless. It is telling the U.S. that it is tired of financing a military industrial complex that is now threatening its sovereignty. China has been amassing huge amounts of gold—far more gold in fact than what we have been led to believe the U.S. Government and its citizens own. And it has been doing so, I believe, to defend itself against the Anglo-American Empire that seeks to remove national sovereignty from China, Russia, and other nations that get in its way. 

For many years the U.S. has gotten away with living way beyond its means because foreign nations have been willing to buy U.S. Treasuries or, in an increasing number of cases, are being forced to buy Treasuries through military action by the Anglo-American Empire. It seems to me that those days are drawing to a close and when not only the leaders of Russia and China realize that the emperor is wearing no clothes, but also Wall Street stops drinking the Military Industrial Complex Kool-Aid and starts to realize that fact, it will be game over for the dollar. 

As with virtually every market I have seen Michael Oliver call, he has been spot on with his call for the start of a very significant bear market for the dollar. Michael sees the first stop for the dollar index at around 0.86. But that will be only a temporary resting point. During the 2008 financial crisis when the U.S began printing money like mad, the dollar fell to a whisker above 0.70. If the next financial crisis is worse than that of 2008-09, which I fully anticipate, and if at that time the largest creditor nations in the world withdraw from the dollar, I have a couple of questions for you to ponder:

  1. How high will interest rates need to rise to get Americans to buy U.S. Treasuries to finance wars overseas and socialism here at home?
  2. If rates have to rise to even moderate levels of the past, say 5% to 6%, how deep will the next depression be?

Can you imagine a scenario where the Fed won’t try to eat its cake and have it too? It will be forced to raise rates to get a bid for U.S. Treasuries. On the other hand, it will be pressured to keep rates from rising too fast in an attempt to try to keep the economy from imploding. The results, I believe, will be ever-rising commodity prices (as the dollar drops against other currencies) that rise faster than interest rates, leading to growing negative rates of interest. Declining real rates of interest are the leading stimulus for a rising price of gold.

So the real question to ask is not how high will gold go but rather how low and how soon will the dollar fall toward the eternal resting place of all fiat currencies—namely, the dust bin of history. I don’t have an answer to the timing but with America’s economy built on war, now that the easy nations to conquer are out of the way, in order to retain the value of the dollar, its task is becoming much harder. With the BRICS setting up their own competitive economies with selective portions of it backed by gold, how easy will it be for the Military Industrial Complex to control major nations like Russia and China as well as other countries related in trade to those nations? 

In my radio show next week, you will hear famous speeches by Presidents Eisenhower and Kennedy in which they warned of the Military Industrial Complex and secret societies that were threatening American democracy. Those threats are now an obvious reality to anyone willing to look objectively to evidence that President Trump and all Presidents since Kennedy have not actually been “the President.” You should also listen to the comments of former defense attorney Jacob Hornberger, who explained that Kennedy was most certainly taken out not by Oswald but by the CIA when he tried to stop the CIA from covert operations around the world. 

When an injured animal is cornered, it becomes much more dangerous because it is forced to fight for its life. My belief is that the Anglo-American Empire, enabled by the Military Industrial Complex, is very much an injured animal and fighting for its life. The only way it can survive is if the dollar is forced upon the world as its currency. But the dollar has become an increasingly unattractive currency to the rest of the world, given Keynesian economic policies of low interest rates and mal investment. So nations are threatening to remove this lifeblood of the Anglo-American Empire. With the savers of the world leaving the dollar, especially at these low interest rates, there is no way to predict how low the dollar will trend toward its true worth, which is zero. In terms of the dollar, gold will continue to retain its purchasing power as it has over the centuries, which is why you want to do what China and other “rogue” nations are doing now. Exchange dollars for real money—for gold, and of course for companies that can pull the yellow metal out of the ground for a profit.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.