Death Of The Dollar Update - Deflation Then Inflation

In this video, Mike Maloney talks about how the world monetary systems have evolve. He also shows how the world changes rapid its monetary system over time. He also elaborated the Foreign Account Tax Compliance Act (FATCA) statistical representation.


Just a month ago there were 23 countries that set up swap lines to bypass the US dollar. This is the East-West cycle, the maximum spending demographic, the wealth distribution cycle, the household debt to income ratio cycle, the stock market cycle, the Kondratieff wave and world monetary systems and they're all pointing to a massive deflation that should be coming in the future. In Japan, they're trying to beat deflation by just expanding the currency supply and it doesn't work. If you're a Keynesian, you think it'll work. But Japan's been trying it now for two decades and it hasn't worked yet and so now the US is trying. This is starting to fall apart. And it's falling apart at an increasing rate. It's happening faster and faster.

I'm up at the Cambridge House Investment Conference in Vancouver, Canada. And I'm about to go on stage in a few moments. And I'm going to be talking about why I think there's deflation coming and it's coming soon. I'm going to be going over what I call the gold nails in the dollar's coffin. The US dollars' standard as the world's reserve currency days are numbered. Episode number three of "Hidden Secrets of Money" was about, "The Death of the Dollar Standard" and we're getting closer and closer to that day. And it seems like every week now there's another nail in the dollar's coffin. So, this is just an update on that and a progression of it. So, I hope you enjoy this. I hope you get something from it. Come on in and join me.

So now we're going to get to the main presentation here. This one is titled, "Death of The Dollar Update". I've been doing presentations and this has been modified slowly throughout the years. But I started giving this presentation back in 2010. And it's about how the world monetary systems have evolved. And I'll show you that every 30 to 40 years the world has a brand new monetary system. And people really didn't know that we go through and that we go along and pressures build up in a monetary system. It starts to develop stress cracks and implode. There's an emergency meeting of a bunch of finance ministers. And they try and come up with a new world monetary system.

This chart here is from JP Morgan. Anybody that reads Zero Hedge may have seen it. It's been in quite a number of newsletters and what it shows is that reserve currency status. Right now, the US dollar is the world's reserve currency. All countries hold some US dollars to settle international trade. It's a temporary thing. All reserve currency status eventually ends. And what you see is before the US it was Great Britain. The British Pound was the reserve currency and the Bank of England did all of the International Settlements. Before that it wasn't really reserve currencies. So this chart is a bit mislabeled. It was actually just predominant currencies. You didn't have really organized Central Banks that held other currencies in reserve and one currency to settle international trade.

What you had was a currency that happened to be the majority of the currency on the planet. And so, and then the Netherlands, Spain and Portugal. And so, when I was writing my book back in 2005 and 2006 I sort of stumbled across all of this accidentally. I'm a believer in cycles and I took every currency crisis every month, stock market crash, every bad depression we had had. Every Bank run that we had had. Put them all into a spreadsheet just to see if I could find some regularity in a cycle when it comes to the dates of these things. And what I found stuck out at me, just leapt out at me. And I started doing research on it. And I was googling and I mean over a period of weeks I must have spent an entire day trying to figure out changes in world monetary systems. And nobody had written about it to that date. I couldn't find any information on it other than reading about the monetary system. But nobody had had put together yet that every 30 to 40 years there was this shift in world monetary system.

So, these are the world monetary systems. Before World War I we had the classical gold standard. Where a country would issue a gold note that was fully redeemable in an amount of gold. And if there was $20 in circulation in the US that was said it was redeemable in gold, there was a $20 gold piece at the Treasury. So, it was a 100% reserve ratio fully back. And then along comes World War I and countries lit up the printing presses went off of the classical gold standard. And between the wars they patched together something called the gold exchange standard. And there when the Federal Reserve was established they made it legal to commit fraud and lie. And they could put $50 of gold notes in circulation promising to pay gold for every $20 gold piece in the vault. There was a 40% reserve ratio. And the International Settlement was done with a combination. Before World War I, it was British Pounds. After World War I, the world's central banks could hold British Pounds, US dollar British bonds or US bonds as reserves. So, it was a mixture and it was a very poorly designed system. And it started to implode during the latter half of the Great Depression. And then fully imploded during World War II.

So, in 1944, a bunch of the finance ministers from around the world got together and economists at Bretton Woods, New Hampshire and came up with something called the Bretton Woods System. During both wars the US had loaned currency to all of the combatant nations to help them rebuild and loaned currency to the Allies during the war to help fund the war. And so, the world was sort of flooded with US dollars. So, it was decided that at Bretton Woods, New Hampshire that all the world's currencies would be backed by US dollars. And the US dollar would be convertible into gold to foreign central banks only at $35 per ounce. So this is a completely different system than the previous one which was completely different than the one before that. And so, any foreign Central Bank could go to the New York Fed and turn in $35 and get an ounce of gold back.

And then the problem with that is that those countries actually did that. They came and cashed in their dollars and when they cashed in their dollars that meant gold was leaving the vaults of the US and from '59 to '71 the US lost 50% of its gold and the redemptions were increasing. Not decreasing and we were going to run out of gold but we had printed tons of dollars. We only had about $1 worth of gold for every $8 worth of claim checks on gold the base money that with foreign central banks were holding that was outstanding. And so Nixon was forced to end the Bretton Woods system where the dollar was pegged to gold on August 15th, '71 but when he did that he unwittingly unpegged all currencies. All currencies were pegged to gold and backed by gold but through the US dollar. So, when he severed that tie it wasn't just the dollar becoming a fiat currency on August 15th, '71 it was the entire planets currency supply. Every country on the planet was suddenly unpegged from gold. And the reason that we went on the US dollar standard globally is a complete accident. They did have something called the Washington Accord. There were meetings to try and create new monetary system. But the new monetary system had already happened. It was a default. All the world had been flooded with dollars. Because of the wars and then the Bretton Woods System. And when they stopped the redemption rights, we just went on floating exchange rates and we ended up with the US dollar standard. And it is the most poorly designed of all these currency systems.

However, the reason that it's lasted for 43 years is because there's nothing waiting in the wings to take its place. The world being flooded with dollars meant that the dollar standard was sort of waiting in the wings when Bretton Woods imploded. But the result is that Classical Gold Standard 30 to 40 years the Gold Exchange Standard 30 years, Bretton Woods 28 years, the US Dollar Standard 43 years plus and there's something coming. And now we're going to get into what I call the nails of the coffin for the US dollar standard but first what is the US dollar standard? Well, if Canada wants to buy Chinese cars. You don't pay for them with Canadian dollars to China because nobody in China can use the Canadian dollars. They can't pay another business or get on the bus and pay in Canadian dollars. They've got to do it in Yuan. So, what happens is a car dealer here that's buying Japanese cars will convert the Canadian dollars into American dollars and pay the American dollars. And over in China they are converted into yuan because it's such a large and liquid pool of currency that that all the other currencies can be instantly traded back and forth into and out of US dollars. So, you know everybody has their local currency that they use in each region.

But when it comes to international trade, it's all done in US dollars. Every currency is converted into the US dollar. You pay another country they convert that into their currency. Well, what has happened over the past decade this is starting to fall apart and it's falling apart at an increasing rate. It's happening faster and faster. These are the countries that are trying to avoid the US dollar in trade. They are actively putting policies in place and trying to bypass the US dollar. These are the countries where the use of a dollar alternative such as selling oil in Euros or gold triggered war. The countries with the boxing gloves, gold has been introduced as a competing currency. Utah made gold a legal tender money in the state of Utah. And then the countries with the up arrows are the countries that are actively accumulating gold.

The central banks are big buyers of gold these days. The airplanes are repatriation of gold. Venezuela got their gold back from the Bank of England. Germany is getting their gold back from the New York Fed. But the New York Fed doesn't have it. It's going to take seven years to get it back. And then the question marks are probably future gold repatriations. Its citizens demanding of their government that their government repatriate their gold from the New York Fed or the Bank of England. The old entities that used to do the international settlement under those previous monetary systems.

So, this is the timeline of the nails in the coffin for the US dollar standard. And I believe that because there's no other system waiting in the wings to just sort of take over that this is going to be very chaotic and very painful for most people.

In 1971, August 15th, Nixon removed the gold backing and all the world's currencies became fiat floating currencies. And then there was this nice calm before the storm and everything worked just fine. And that's the way it was in all the previous monetary systems. They worked fine for a while and then pressures build up, disequilibrium happens and stress crack start to develop and then it starts to implode. And so that happened until Saddam Hussein started selling oil in Euros. Well, we know that how that worked out for him. Then along comes the 2008 crisis. Then Iran ends oil sales in dollars. We have quantitative easing to and create add another $600 billion to the currency supply in the base money in the United States. Then Muammar Gaddafi announces that he planned to sell oil in other currencies like the Euro and gold and we know how that worked out for him. China and Russia bypassed the dollar. Chinese President says dollar reserves are a product of the past. Utah recognizes silver and gold as money. China and Iran bypassed the dollar. Venezuela repatriates their gold. China and Japan allow currency swaps. India and Japan bypassed the dollar. Russia and Iran trade directly. Iran sells India oil for rupees and commodities. China and Brazil trade directly. African countries banned the dollar.

Now for a while in Zambia you could go to jail for using US dollars. There were a number of countries that we're trying to get off of the -- there's countries around the world that are very dollarized. For instance, in South America there are countries where most of the currency supply is US dollars. They don't use much of their own national currency. I've spoken in Peru and there it's about a 50/50 mix and every cab driver, every grocery store. They all take either currency it doesn't matter and they know what the exchange rate is and they're used to it. And so QE3 print to infinity well they've announced tapering maybe infinity doesn't go forever. However, they're tapering into weakness. The US economy isn't that strong right now. This is a bad time to taper. It would have been better to taper last year.

So, they're tapering into weakness so we'll see how this works out for them but I don't think it's going to work out that well. Iran trades energy for gold. Germany increases the rate of its repatriation of gold from the Federal Reserve from 150 to 300 metric tons. And all of these nails are falling on the dates in this timeline. And you can see how there's more and more and more of them closer and closer together and they're speeding up. Have you heard of Abenomics? How many people have heard of Abenomics? Okay, well, in Japan they're trying to beat deflation by just expanding the currency supply and it doesn't work. If you're a Keynesian, you think it'll work. But Japan's been trying it now for two decades and it hasn't worked yet and so now the US is trying. And every country on the planet is printing to beat hell. China considers gold not the dollar as a Yuan reference.

So right now internationally, you know, when you're trading Yuan your it's always priced in dollars. They're considering trying to peg it to gold somehow. China agrees to a $45 billion swap line with the ECB, the European Central Bank. Well, that means that when Europe buys Japanese cars they now pay in Euros. They don't pay in dollars. So the dollar is no longer required. More than half of all the world's currency is US dollars. More than half of those dollars reside outside the United States. There sloshing around the planet in this international trade and now countries are skipping the US dollar. So, it isn't is as necessary. So, all those dollars will eventually come back home to the US and that's when the US will see a big inflation.

We saw a huge inflation of real estate back in the late 80's as Japan with their big stock market bubble came to the United States and bought up all of the prime real estate like Rockefeller Center and most of downtown Los Angeles, an enormous inflation in real estate. We're going to be seeing the same thing as all of these dollars that are used in international trade come home. Because they no longer need them around the rest of the world.

Korea signs a deal with Indonesia for currency swap agreement with $10 billion. Australia does a currency swap deal with Korea and opens up a trading exchange for Chinese Yuan. New Zealand does a currency deal with China. Just a month ago there were 23 countries that setup swap lines to bypass the US dollar. I believe it was last week or the week before Russia, China and Iran decided to drop the dollar in bilateral trade. So these countries no longer have to settle in US dollars when they're settling between them. And while they were discussing that deal they set up a meeting where China and Russia signed 30 agreements and one of them is a $400 billion-dollar gas deal and in all of these agreements the US dollar is no longer required.

And now today China and Japan launched that direct yen yuan trading exchange that happens today. And now the US government is getting in on the act of hammering golden nails in the dollar's coffin. The Foreign Account Tax Compliance Act goes into effect. As a Canadian, you can move anywhere in the world and if you open a business in Peru or in Japan or somewhere in Europe, you pay tax on your residency. You're not going to pay tax to Canada. You pay tax in the country you live in. You can go to Singapore where tax rates are much lower. Open a business there and or if you're retired draw out and you're going to pay Singapore taxes. The US is one of two countries on the planet. The United States and Eritrea this microscopic country in Africa that's very poor and has no technology to track its own citizens and the US they're the only two countries on the planet that taxed us by our citizenship.

So, if I move to Singapore I pay Singapore taxes. And then I file a return with the US government. And I get to deduct my Singapore taxes and pay the difference to the US. The US has this leash on its citizens that's like an invisible Berlin Wall. We call it the land of the free. But I don't think it's quite as free as it once was. This Foreign Account Tax Compliance Act means and there's 30 countries around the planet that have agreed to this. It means that banks around the world have to inform the US government and the IRS about their account holdings of all American citizens. So, this is a big burden this compliance with the US government and reporting that banks don't want to have and the result is that very few banks on the planet now want to deal with US citizens.

So, if a US citizen can't go and open up a business in Singapore and a bank account to be able to operate that business with. That means that there's going to be less use for US dollars in the future abroad. And so, it's just one more nail in the coffin of the US dollar standard. US citizens are being tracked all over the world. And our government is intent on squeezing its taxes out of them.

It's a few days later now and I thought that this was so important that I should stop the video right here and elaborate on it a little bit. On July 1st, 2014, all foreign banks and financial institutions are supposed to start reporting all Americans with accounts of more than $50,000 to the IRS. Now the foreign banks don't want to do this. But the IRS and the US Treasury are forcing them to do it by threatening to freeze them out of the United States financial market if they don't comply. And so far, 77,000 banks have signed on. You might have heard that this has been postponed until 2016. But actually it's just that the IRS and the US Treasury have given a two-year grace period to foreign financial institutions that fail to comply with this new rule before they beat them into submission. So this is something that is happening. It goes into effect July 1st, 2014.

So, I believe that this is actually the greatest opportunity in history though. There's a convergence happening right now. To see more of this, I'm running out of time now. So, to see more of this visit The third episode is about the nails in the coffin. This was an update because there's been so many more nails in the coffin since that was filmed. And but you'll see how the world monetary system is basically a Ponzi scheme. I believe, our episode four is the first time that the World Monetary System has been explained in a way that the average person can grasp and see how it always requires us working and paying taxes in the future to support the monetary system today and keep it from imploding.

I'm going to be able to continue this presentation and give a whole bunch more data and update some things some other items and let you know where I think things are going in the future. You'll learn things like wealth cycles. This is a wealth cycle between gold and stocks. And a dollar invested in 1871, I know that was a long time ago, would be just under $11 million today using this system. This is the East-West Cycle. The maximum spending demographic the wealth distribution cycle. The household debt to income ratio cycle. The stock market cycle. The Kondratieff wave and World Monetary Systems. And they're all pointing to a massive deflation that should be coming in the future, if you want to know about this come back at two. And this is where the big opportunity comes from. The spread between the value of gold at the Treasury versus the currency in circulation.

And in a Kondratieff winter which we are in revaluations can be overnight. You wake up one morning and the opportunity is gone. This is the Russian Ruble and you'll learn more about that and our own in the United States the currency devaluation that happened in 1933 at 2:00 pm here. Thank you very much.

These things are all deflationary events. And the world's central banks are trying to stave them off with currency creation and it isn't working. No matter what they do. So, I really think what you're going to see sometime before the end of this decade is a huge deflationary crash. And then countries will print their way right into hyperinflation. Because what will happen is they'll print and nothing will happen. And they'll print and nothing will happen. Because as they print people are still scared and they'll save that currency and they won't spend it. And they keep on printing. And in my book, I wrote that like the US government could do helicopter drops they could refund all the tax that you've ever paid in your entire lifetime, eventually there will come a time where people say… (fades off).

Written by Mike Maloney on June 10, 2014.