WHEN THE DOLLAR TANKS

The Bernanke Shock

http://finance.townhall.com/columnists/peterschiff/2013/02/05/the-bernanke-shock-n1505144/page/full/

Townhall – Peter Schiff – 2/5/2013

The financial world was shocked this month by a demand from Germany's Bundesbank to repatriate a large portion of its gold reserves held abroad. By 2020, Germany wants 50% of its total gold reserves back in Frankfurt - including 300 tons from the Federal Reserve. The Bundesbank's announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany's behalf. One cannot help but wonder if the refusal triggered the demand.

The popular explanation is that the Fed has already rehypothecated all of its gold holdings in the name of other countries. That is, the same mound of bullion is earmarked as collateral for a host of different lenders. Since the Fed depends on a fractional-reserve banking system for its very existence, it would not come as a surprise that it has become a fractional-reserve bank itself. If so, then perhaps Germany politely asked for a seven-year timeline in order to allow the Fed to save face, and to prevent other depositors from clamoring for their own gold back - a 'run' on the Fed.

Now, the Fed can always print more dollars and buy gold on the open market to make up for any shortfall, but such a move could substantially increase the price of gold. The last thing the Fed needs is another gold price spike reminding the world of the dollar's decline.

US investors should be as shocked as the Bundesbank about the Fed's deception. While we cannot redeem our dollars for gold with the Fed, we can still buy gold with them in the open market. As more investors and governments choose to save in precious metals, the dollar's value will go into steeper and steeper decline - thereby driving more investors into metals. That's when the virtuous circle upon which the dollar has coasted for a generation will quickly turn vicious.

Bernanke confesses to Economic Doping  (Video)

http://blog.europacmetals.com/2013/01/bernanke-confesses-to-economic-doping-video/

This is a cartoon interview – 12 minutes

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