Due to the vast size of US dollar debt, the only course of action presently is to inflate our way out of much of the debt. This is what we are experiencing currently with the ballooning M3 money supply (no longer reported by the gv’mnt). But the dollar can’t be allowed to devalue too far, get out of control, and a Weimar Republic situation evolve. As noted in Point # 3, the game is to make money (profits) in paper, then to convert to hard assets before fiat money collapses.

The mechanism that will eventually halt the continued devaluation of the dollar will be what Jim calls the Gold Certificate Ratio. If I understand this correctly, once this financial mechanism is instituted, it will be a ratio relationship between US gold holdings verses the amount of US dollar debt held by overseas entities. (Jim was asked how anyone knows just how much gold the US actually holds, and his answer was that it will be whatever we say we still own, as it has not been audited in years, and will never will be, but this will be accepted.) The ratio will not be tied to interest rates as in the past, but to the money supply. While the amount of debt may not be fully transparent, Jim seems to feel that it can be estimated accurately enough, and that a contract will trade on global exchanges that is based on the gold/debt ratio. This financial vehicle will arrest the decline of the dollar, as the price/value of gold will change to reflect changes in debt levels.  He believes that the price of gold will remain reasonably close to whatever price it is trading at when this new policy is instituted. The price may range from $50 to $200 an ounce, either way, which is potentially a range of $400/ounce, but at a projected price of $1650.00/ounce when this happens (or higher) this is still a pretty high gold price. The main point being that this mechanism insures that the price of gold doesn’t drop off a cliff as it did in the 1980s. It will remain reasonably stable and quite high.

Jim states that it is in the interest of the people who hold vast sums of dollar denominated debt, with no practical means of unloading it all, to eventually stop the dollar’s decline and to resussitate the dollar to improve the value of their dollar holdings. His target for the institution of the gold certificate ratio is around .52 on the USDX index, and he believes that the dollar will eventually trade back to around the 72 to 82 level.

As a personal aside, I have read the works of Another and Friend of Another, aka FOA, in the past, and these individuals had many ideas of how the gold markets would evolve, and how price movements of gold and oil were interrelated. Many of these concepts have played out, but some have not. One of the scenarios put forth that did NOT occur was: Entities like Barrick with huge hedge positions that were “under-water” as the price of gold increased (somewhere between $350 and $400/ounce), would “blow-up.” At that point it would be discovered that most of the gold traded today is only “paper gold” contracts, not backed by actual gold, like fractional banking where there is very little cash actually backing the debt/money created into existance. When this became evident, the Comex would seize up and stop trading, and gold would be revalued upward in the many thousands of dollars. The problem I always had with grasping this scenario, is that I found it hard to believe that ”smart money” would allow themselves to be trapped like rats on the wrong side of the rising gold price trend and lose everything. It seemed to me that they would find some way to offset the hedge risk, or push the risk off onto someone else, and manuever themselves into a place where they could get rich off the rising gold price rather than be destroyed by it.  In Jim’s scenario, they have done exactly that. The smart money are actually the people on the other side of Barrick’s hedges. They will end up being the owners of the mine and its future production and they will benefit from high gold prices.

Something else I find interesting is that Another and FOA spoke with a voice of authority as if they had inside knowledge of the inner workings of the gold and oil markets. To some degree, I believe they did, because so much of what they outlined has come to pass. On a few points, however, FOA warned that what he laid out was not all carved-in-stone fact, and that no one knew exactly what would happen. In looking at Jim’s message, we see the same confidence and voice of authority, as if he has inside knowledge. To some degree, his message is speculation based on huge amounts of research, which he has written up on his website recently in the series of articles “Connect the Dots.” So how much is speculation, and how much is fact?

One of the most interesting things Jim said during this segment of his speech was that he has talked to many people in high positions in business and in the economy that agree that what he has outlined for us is going to happen. He went so far as to say that a few individuals have sanctioned his speaking on these subjects, saying “go ahead and talk about it, it’s coming.”

I am not fully confident that what Jim says is carved-in-stone fact, and of course each of us will assign to his message a diferent degree of credibility. It does make sense, though, to me. Whether we accept his view of how this will all play out will affect other choices we make, so it is an important issue. I believe he has said previously that he does not believe personal gold holdings would be confiscated. He does not believe the dollar will crumble and society degenerate into a Mad Max world. I share that particular view. I have always felt that if facing economic chaos the US would hyperinflate the dollar and hand out financial aide countrywide rather than allow starvation or social chaos. I don’t spend time worrying about hungry people showing up at my door demanding my garden produce. I don’t believe society will collapse and we will need to live in fortified compounds, although I do believe things could get rather ugly. Just not THAT bad. Along that same theme, Jim believes that firm, decisive police action will be taken if there are any financial/societal uprisings, and yes it might not be pretty. My impression is that Jim doesn’t think the action will be aimed at the “haves” such as those of us who have prepared, but at the “have nots” who would create any uprising and break laws. This topic and concern has been discussed recently here at the tent, and it is a valid concern, as none of us can be certain what we face in the future, and the most we can do is watch how things unfold and assign probabilities to future events accordingly.