The Beginning of the End of Paper Money

As someone who I frequently read and visit, I've asked John Rubino from DollarCollapse.com to come and give us his insight on the current state of the economy...and a BOLD prediction for 2015. Read on and comment on the prediction!

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Today the Fed announced another rate cut, which is both a foregone conclusion and a big yawn. Short term interest rates are already at zero or thereabouts, so that policy tool is pretty much a spent force. The real excitement came when Ben Bernanke explained that short term interest rates are just one of the levers he can pull, and nowhere near the most powerful one. Going forward, the Fed will engage in what is known as “quantitative easing,” an obscure term for something both simple and terrifying: The Fed will create dollars--maybe trillions of them--and buy up other assets.

At first it will buy mostly longer-dated Treasuries, in order to push down rates at the distant end of the yield curve. But because long-term Treasury rates are already at record lows, that strategy has a limited value. Pushing the 30-year yield from today’s 2.93% to, say, 2% won’t have a noticeable impact on the world’s frozen credit markets. Because the problems are with corporate bonds and asset backed securities, the Fed will have to buy increasing amounts of them.

This will have the desired effect of reliquefying the banking system--for a while. But the global financial markets aren’t stupid (okay, they are. But they do learn eventually, after being smacked in the face with enough monetary two-by-fours). This flood of dollars will send the value of the dollar down versus other currencies, and push up interest rates on the very long-term bonds that the Fed is buying with newly printed currency.

The result? The mother of all currency crises, in which a falling dollar causes other countries to devalue their own currencies in order to keep their export industries from imploding, which causes everyone to avoid bonds (which pay interest in depreciating currencies), which causes long-term rates to rise world-wide, which causes central banks to print even more currency in a futile attempt to repeal the law of supply and demand.

It’s going to get very, very ugly, and--after a series of failed experiments with capital-and-price controls--will lead to the realization that the whole concept of fiat (i.e. government controlled) currency is fatally-flawed. Along the way, older forms of money like gold and silver, which can’t be created in infinite quantities by panicked governments, will soar in value. I’ll go out on a limb and predict $5,000 gold and $100 silver by 2015.

John Rubino

DollarCollapse.com

16 thoughts on “The Beginning of the End of Paper Money

  1. By 2015 inflation is at least 8 to 10% and interest rates for mortgages are 10 to 12%. Value of homes plummets to about 30% of what they are worth now. Its over folks, the 60s generation screwed it up. They had some utopian dream we could all live like kings forever. They forgot to add up the cost of this "dream". It is unattainable and cannot be paid for. We owe trillions because the baby boomers gave themselves insane pensions, insane salaries during their working years and allowed corporations to pay minimal taxes. Its all coming to a head by 2015 and North America will become a third world state.

  2. The significant event which does give strong backing to the idea of "the end of paper money" was the recent shift which saw gold in backwardation, which is very unusual for the precious metals, normally in contango.

    This means that gold held today fetches a higher price than gold for delivery in February and future months.

    This action tells us that gold is being valued as money, with paper money fast losing its value relative to the yellow metal.

  3. "During the next decade, the American people will become poorer & less free. While they become more dependent on the government for economic security."
    "Price inflation, with a major economic downturn, will decimate U.S. Federal Government finances, with exploding deficits and uncontrolled spending."
    "The Congress and the President will shift radically toward expanding the size and scope of the Federal Government. This will satisfy both the liberals and the conservatives."
    "Major moves will be made by China, India, Russia and Pakistan in Central Asia to take advantage of the Chaos for the purpose of grabbing land, resources and strategic advantages sought after for years."
    "Policy changes could prevent all of the previous predictions from occurring. Unfortunately, that will not occur. In due course, the Constitution will continue to be steadily undermined and the american republic further weakened" Ron Paul (April 26th 2002)

  4. Save the Constitution... once that goes nothing else matters.
    Saving the Constitution will... End the Fed.
    Make americans self reliant.
    Stop Corporatism.
    Stabilize our currency.
    Save people wealth for themselves and children.
    don't have room for everything else but...
    the most important is our liberties which
    will be lost unless we save them.

  5. Jeremy, what's this about "Stop the Fed?"

    You may be "all screwed," but that may be because of focusing on "stopping the Fed" when you could be adjusting prudently to the economic shift underway (not merely the financial shift).

  6. The Feb has been illegally and criminally "creating" money for years! That's why the Feb cut off releasing M3 figures since 2006. They DO NOT DARE to let the world know how much currency has been created out of nowwhere and that huge amount of easy money was sent floating around the world, creating massive asset bubbles and inflation until the scheme ended up in a big bust... Now it's going all over again, and ever more brazen and shameless..

  7. A search of EBAY reveals that the Confederate dollar is valued at about 15 fednotes. Since the South cannot print any more money, and the rest of the world can, wouldn't Confederate dollars be a safer haven than the euro or the yen?

  8. Most of these comments are just plain absurd. I'll keep the insight to myself and let you babble over your self-proclaimed doomsday scenarios about the US dollar and US government. What I will say, soon the last men standing with be those with USD and GBP. Seems counterintuitive given the extreme weakness but examine it a little closer and notice the wisdom in these two monetary policies.

  9. The end result is in the title of the post "the end of paper money". The PRIVATE Fed controls the money and soon enough will have it all digitized.
    When that happens, we're all screwed. I hope the people can wake up before then, but it wouldn't be American if they did.
    Stop the Fed before its too late.

  10. Government - supposedly controlled by "the people"
    Federal Reserve - controlled by private banks.

    The US Constitution says Congress is supposed to control the currency. Somehow, we hired the Federal Reserve to take over this job. Instead of printing our own money, we hire the Fed to have the money printed. Then, we borrow the money from the Fed and pay them interest.

    Now that the Fed is in power, the government does not control it. It is controlled by the private banks.

  11. how can i measure USD and EURO in the daily basis

    For quotes on this and other cross-rates check out MarketClub.com or INO.com.

    Thanks
    Adam

  12. if this goes as predicted here - and Bernanke apparently intends going it all the way - there will be a currency 'reform' which traditionally goes with a rebranding of the concerned currency (New Dollar, Dollar of the Americas?) as we in chronical (but unrightly so) 'solidity suspect' Germany had - oh let me count (Reichsmark, Rentenmark, Mark, Deutsche Mark, Mark (East), Euro - ok different reasons here each time, inflationary impact of war expenses, inflationary impact of Government overspending and financing of non-competitive economy ... uh ... however: I count 6 currencies in one century, all ending with 'reforms'). Your path looks damn familiar from here but there is something good in it: Before the reform comes everybody will have had a million Dollars in his or her pocket for once at least - or a billion. Or a phantastillion. 5.000 US / gold ounce will not be 2015. That will be 2010 more likely then. Anyone left kicking a break over there? Currency functioning is all about trust. You hurt your economy. It would now hurt you back. But you all stay in a state of denial. So what will happen: It will hurt you back anyway + trust will be ruined + savings will vanish punishing pensioneers and anyone with money in the bank. Don't you expect the rich to get hurt too. You can watch them running already. Just look at the currency exchange rates.

    Michael,

    If thank you so much for taking the time to really address a very serious subject one that tends to get glibbed over here in the US. I think you're a analysis of the media and various quote, unquote reforms are right on the money.

    I think most people here are still in denial and have not accepted the fact that things are probably going to get worse before they get better.

    Adam and

  13. Agreed the hyper inflation cat is out of the bag. W.D. Gann made a prediction on silver for I think 2020 if I'm not mistaken.
    Doest any one remember the value he said silver would hit?? I can't remember but it would metals bulls very happy.

  14. I already heard the prediction like this, but about the real estate which always goes up in price... I wonder now, why we've got a reason of the joke: "What does not fit into the logical chain: syphilis, herpes, AIDS, condominium in Miami? Answer: syphilis - you can get rid of him"

  15. The first sign of the collapse of the USD will be in the 10 yr. note. Can the US roll over it's debt this Jan. when $330 billion in treasury auctions occur plus the usual $100 billion. Will the 10 yr. note over subscribe, or will the Feds have to raise rates to satisfy the market. Will foreign countries purchase US debt when they have probelms of their own? Will the US financials purchase this much debt when they are in serious trouble, and will the American public be in the mood to save America from a bond failure?America your fate awaits.

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