Jun 14, 2007

Richard Russell: I'm an old-timer...

Richard Russell
Dow Theory Letters
Jun 14, 2007

Extracted from the Jun 13, 2007 edition of Richard's Remarks

June 13, 2007 -- On June 7 the national debt of the US was $8.85 trillion. The annual interest on this debt is $406 billion or over one billion dollars each and every day of the year. The debt is increasing at the rate of $1.38 billion a day. Thus, we see the magic of compounding, but unfortunately what we're seeing is compounding in reverse.

With the above in mind, you have to ask yourself, "How in the world is the US going to finance its rising and compounding debt?" And the answer rings loud and clear -- it will be financed through inflation. I've said it for years, and I'll say it again -- it's a case of "inflate or die," and the US has no intention of dying. So we'll inflate, it's simply a matter of how rapidly we inflate and how successful the government and the Fed are in keeping the American people in the dark about what's happening to their money.

I'm an old-timer which means that I have a real-time perspective on what's happening to the purchasing power of the dollar. I remember bread at a dime a loaf, I remember full-course dinners at neighborhood restaurants for 90 cents, I remember new Ford cars for $450, I remember a double-scoop ice cream cone for a nickel. I've watched the purchasing power of the dollar going down the drain all my life. Now the process seems to be accelerating.

More recently, I've watched David M. Walker, our brave Comptroller of the United States, as he tours the nation and evidently will continue to tour until the 2008 elections. Walker is talking to anyone who will listen about the recklessness of borrowing money from foreign lenders to pay for running the US government and about the "demographic tsunami" that will arrive when the baby-boom generation begins to retire.

All the above is why I suggest that my subscribers accumulate gold. Furthermore, I've suggested that subscribers think of their gold holdings in terms of the number of ounces held. As for the price of gold, the price will take care of itself as the dollar slowly (I hope slowly) slides into the dusky realms of fiat-history.

There's no way of gauging how long this whole inflation process will continue or how long the dollar will be able to withstand the pressure of negative compounding. I've said for years that the Achilles Heel of the US is the dollar. Our "prosperity-on-loan" depends on the willingness of our overseas "friends" to accept US dollars. International finance is a cut-throat business. Nations tend to do what's best for them. All nations hold various quantities of dollars, and all dollar-holders must know that the US has no alternative but to continue on the path of systematic inflation.

Furthermore, the major developing nations, and I'm talking about Russia and China, want to be on an economic and political par with the US. To do this, Russia wants a convertible ruble, and China will want a convertible renminbi. As for the euro which is already convertible, it was created in Europe to compete with the dollar.

So far, most of the commerce of the world is done in dollars. But I don't know how long that's going to continue. In due time (when it suits them) Russia will make the ruble convertible and China will make the renminbi convertible -- but as I said, they will do it when they're ready and in their own good time.

I've held all along that the next war will not be a military war. It will not be a matter of the major powers fighting each other. The coming war for power and world leadership will be an economic war. It will be fought with competitive currencies and the movement of gold and the potential threat of nuclear bombs.

As for the bombs, they will only be a threat. World leaders know that no nation today can win a nuclear war. Nuclear bombs are for defense. If you have nuclear capabilities, you own the ultimate instrument of retaliation. Nuclear is the ultimate threat and therefore the ultimate defense. In classic Zen terms, it's "winning without fighting."

A full-page article in the June 12 Financial Times carries the headline, "Dragon Fleet. China aims to end the US Navy's long Pacific dominance." China is building its Navy as it moves to become the dominant power in the Pacific. At the same time, Russia wants to be the dominant power in Europe, and it wants all Europe to depend on Russian oil and gas. Both China and Russia want to "neutralize" the US. The years ahead should be exciting, dramatic and filled with danger.

lots more follows for subscribers...

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