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Date: December 7, 2008
Subject: The New Monetary System


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The New Monetary System


Not surprisingly, there has been a buzz about articles like this one that talk about a new monetary system based on an upward revaluation of the price of gold. Some Think I'm Crazy, or That I've Lost My Mind.

No Problem....

They can think and say whatever they want. Moreover, I have history on my side - Franklin Roosevelt's 1933 confiscation and revaluation of gold and subsequent devaluation of the dollar. Read FDR's speech I found on the FDIC's website about the banking crisis when the devaluation took place (sound familiar...hmm):

http://www.gngassoc.com/pdf/FDR_Speech_Bank_Holiday.pdf

By an Executive Order on April 5, 1933, President Franklin Roosevelt confiscated all gold, which led to a devaluation of the U.S. dollar By an Executive Order on April 5, 1933, President Franklin Roosevelt confiscated all gold, which led to a devaluation of the U.S. dollar..." ... it's also worth noting that there have been times when exchange
rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation.

The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly...the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation." (What's the US interest rate now? Hmm...(1%).

Also consider George Soros' recent proposal for a new monetary system involving the Special Drawing Rights, or SDRs, at the IMF: Currencies would be devalued ... then repegged to each other and to SDRs ... and then SDRs would be circulated as an international currency.

For Soros' proposal to work, though, it's my opinion that gold would have to play some sort of role. Given the importance of all this and the high probability that some
tinkering by the G-20 is already in the works.

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But first, let me cover some main points:

* Point #1: It's simple: If current efforts to prevent a debt-deflationary spiral and depression won't be effective, central banks and governments around the world have the ability to change the rules of the game. Or in other words, "if they can't print money fast enough, they can resort to changing the value of the money (devaluing)."

Again, history is squarely on my side here. I've already explained to you how Roosevelt did it. But now take a look at other historical precedents in the table I have for you below.

It proves, unequivocally, that devaluations work, and that devaluations can occur simultaneously across countries.

How the Gold Standard and Currency Devaluations Affected Different Countries During the Great Depression Countries.

First line - Gold Standard (MM/YY)
Second line - Devalued Currency (MM/YY)
Third Line - Industrial Production Bottomed

Australia
12/29
3/30
1930

New Zealand
9/31
4/30
1930

Austria
4/33
9/31
1931

Finland
10/31
10/31
1931

Japan
12/31
12/31
1931

Canada
10/31
9/31
1932

U.S.
3/33
4/33
1932

Note the countries that either came completely off the gold standard or devalued their currencies by 1933 (via raising the price of gold): All of them came out of the Depression almost immediately.

Australia and New Zealand came out of the slump first, barely one year after the Depression started. The U.S. came out of the Depression much later, largely because it
stubbornly defended the gold standard by keeping and even raising interest rates during the Depression (to prevent loss of gold reserves).

Meanwhile, of those countries that unbendingly clung to the gold standard, refusing to devalue their currencies until much later, as late as 1936 - they all stayed in the Great Depression much longer, an average of 2.33 years longer.

* Point #2: For multiple currencies to be simultaneously devalued to help reflate assets, a benchmark must become part of the system. As you can also see from my table, several countries revalued or left the gold standard simultaneously, devaluing their currencies. That was only possible because there was a benchmark at the heart of the system back then ... GOLD.

To do the same today, some stable benchmark would have to be reintroduced into the system, even if only temporarily to help make the transition. Right now, gold is extremely undervalued, and something you most definately want to own.

* Point #3: Gold, whether it's directly or indirectly part of a new monetary system or not - is extremely undervalued. At its current price of about $735, in today's dollars gold is 67% cheaper than it was in 1980. For gold to reach its 1980 high in today's
dollars, it would have to trade at $2,270 an ounce.

And as I've pointed out before, if there's even the slightest role for gold in a new monetary system, it can trade even higher - I figure as high as $5,100 an ounce, which would be the equivalent of monetizing about 10% of the massive $53 trillion of debts in the U.S.

But don't focus on the ultimate price of gold. Instead all you need to know is that no matter how you look at it, gold is extremely undervalued and something you want to own. Period...

V/R,
Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
877-817-6031 toll-free
866-361-3872 toll free fax
www.gngassociates.net

* Knowledge without wisdom = fruitless, nothing, zero
* Wisdom without knowledge = impossibility
* KNOWLEDGE APPLIED = WISDOM
Ezzrath Shem



LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. Also, please note that due to our commercial relationship with Publc Gold, G&G Associates may receive compensation from a membership purchased at www.publicgold.com/gngpreciousmetals.












 

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