Wednesday, September 22, 2010


It's been my position for a while that Bernanke's monetary policy would eventually create a currency crisis in the world’s reserve currency.

I warned that crisis would begin as soon as it became apparent the dollar was caught in the grip of the 3 year cycle decline.

I had three conditions that had to be met before I was willing to call the beginning of the end.  The first condition was for the dollar to move below `82.  That was the warning shot that problems were developing.

The second and third conditions were a move below long term support (80) and a failed intermediate cycle.

The drop below 80 this morning has now completed the final two conditions.

I've marked the last three intermediate cycles with the blue arrows.  The move below the last intermediate cycle low this morning initiates a failed intermediate cycle.  This is also an extremely left translated cycle.  Left translated cycles tend to produce the worst losses as they have a long time to move down. The ongoing cycle shouldn't bottom until it puts in a larger degree yearly cycle low in November or December.  I expect that low to test the `08 bottom at 71.

Finally we should see a full on mini crisis by the time the dollar drops into the major 3 year cycle low next spring or early summer.

I've been pointing out for months that deflation just isn't a possibility in a purely fiat monetary system. A determined government can create inflation any time it wants as long as they are willing to sacrifice the currency. I think it's safe to say the United States has no compunction against destroying the dollar.

We are now heading into an inflationary storm that will expose deflation theory as the pure nonsense that it is.


  1. If you are right, which i hope, gold could blast to 1500 by year end. What do you think?

  2. Hi Toby,

    I am following the blog since January this year and your predictions were 99% true. I bought dips in late July and early August.
    Now I have tricky question, maybe u can help me :
    I am from Europe so Gold is traded in Europe in EURO-currency.Can i still win big if the dollar keeps getting weaker? As Gold keeps going up because of the Dollar, the price in Euro if i sell keeps going down, even though Gold is at historical hights.
    Thank you.
    Have a nice day


  3. You might want to focus on silver and miners as they will give you bigger percentage gains and stay ahead of the currency better than gold.

  4. Hi Toby,Iam a regular follower of your blog and ihave become an old turkey riding the gold bull.i find your commentaries the best.could you throw some light on the gold silver ratio sometime.

  5. Thx Toby, probably i'll wait for a small dip in silver and buy then. I am only into physical commodities so miners are out of question.
    My biggest fear is that you are right then the dollar keeps going down =====> Euro will reach 1,45-1,55 USD and then goldprices in Euro will be way down opposite to the historical highs in the dollar.


  6. Not to worry Paul, as this C-wave really gets going it will leave the Euro in the dust no matter what the dollar does.

  7. dollar is now below 79.70-is this going to be alomost a straight move down like falling off a cliff -with mini bounces as you see it- or will the dollar most likely rise up to retest the break of .80&200dma?
    happy trading

  8. P,
    You can post a link to your blog.

  9. Ok, thanks,

    I wouldn't want to be seen as promoting my cause at your expense

    this where I blog

  10. If the USD keeps dropping like you said, how will this effect other currencies aside from being stronger compared to the USD. Can we expect similar drops in other currencies as time goes on? (specifically: CAD, Euro)

  11. While I have no doubt that we will eventually indeed have a bona fide currency crisis and true inflation/hyperinflation, the idea that we cannot have deflation in a fiat monetary system is itself nonsense, and has already been proven false by Japan, who have done everything we are now doing (bailouts, stimulus, currency manipulation, QE, etc.).

    What many people who dismiss the deflation issue fail to recognize is that deflation, unlike inflation, is not just a monetary phenomenon. It is also a psychological one. Again, Japan is the prime example. People become conditioned to expect lower prices, so they wait to spend or borrow money, creating a downward spiral and self fulfilling prophecy.

    Add to that the fact that the money supply is not just physical currency, but credit as well, and it is easy to see why we have not had true inflation yet despite the Fed's best attempts, because the destruction of debt and credit has swamped the creation of new money by the Fed. This will continue, as there is still a massive overhang of bad debt and credit that has yet to be defaulted on, written down, and losses taken on.

    These reasons are why the Fed is pushing on a string right now. So no, I'm afraid deflation is very much a factor still.

  12. Pure nonsense. In a purely fiat monetary system there is nothing stopping a government form printing money a mailing checks out to the population.

    We have something similiar happening right now. Only the free money is being given to the fnancial system. It why we are seeing the inflation show up in asset prices.

    If the consumer was given first use of the money then we would see the infaltion show up in Iphones, flat screen TV's auto's and real estate.

  13. What is this "inflation of asset prices"?

    Houses are still getting cheaper.

    Stocks have had a mean reverting rally, but we're still where we were at 10 years ago basically.

    Not to say there isn't inflation out in the real world, but $2 Taco Bell meals, there's inflation and deflation in prices.

    Just as the Fed can print and let prices rise, they can do nothing as the economy burns.

  14. There is no question the Fed has engineered asset inflation since the 09 bottom. Not in houses as there is a severe over supply problem but certainly in stocks, bonds and most commodities.

    Where inflation shows up is directly related to who gets first use of the money.

    This go round the liquidity was forced into the financial sector who put it to work in asset markets.

    If the money had been mailed to the general population then we would be seeing the price of Iphones, flat screen TV's, automobiles and yes real estate going through the roof.

  15. with the collapse of the US dollar, how do yo think the commodity currencies will do- canadian dollar, australian doilar?

  16. with the collapse of the US dollar, how do yo think the commodity currencies will do- canadian dollar, australian doilar?

  17. Hello Sir, and thank you for your time. I think someone has already asked this question, but I didn't quite understand.. 1. What will happen to the Euro, if the Dollar collapses, and gold and silver shoot up? Did you say it will fall as well, and that likewise the EU will see an economic collapse?

    Question 2. Collapse of the Dollar must also involve the collapse of the international industrial system: import exports stop: I cannot buy, and if I cannot buy that means the next guy cannot sell; transporting goods to and from places ie. supermarkets will cease; businesses are forced to temporarily close their doors until someone figures out how gov't will proceed.. Are you saying the same thing that will happen in the U.S. will likewise happen in Europe.. and ca you explain why. That is my question for you, and thanks very much for your time.

  18. I just wanted to state one more thing and if you could comment on it, that would be great; I am here in europe right now, and to be honest with you, there is virtually no talk about the U.S. financial woes and currency problems, on the radio in a couple of countries, I here nothing about Gold and Silver interests either... everything is censored and the newsstories they normally annonce tend normally to be mostly national news stories, without indulging an international news perspective, there's an awful lot of censoring, and that alone is frightening. People in places like say France or Spain have no idea of what's going on in the U.S. I don't know, it just seems kind of telling..

  19. I have heard that the Chinese gov't has already announced to their citizens that they should invest in gold and silver to protect their wealth..

    Russia is seems to do an awful lot also to inform and education their citizens concerning the future and of the problems we'll be heading into..

  20. 30 year treasury in ahuge bubble

    facebook Harbor Waves

    the dollar in decline

  21. Hey Toby,

    With all the talk about inflation versus deflation I have not heard the dreaded condition know as stagflation arise in the general media. By definition... stagflation contains both of the above plus high rates of unemployment. Yes... I agree that Mr. Ben will flood the system to try and reflate this sinking ship and usher in possible hyperinflation but wouldn't the debt markets put a squeeze on this type of activity... rates would rise and full fledged deflation take hold in the long run? Your comments are greatly appreciated... Randy

  22. Well Ben is attempting to hold rates down by printing and buying bonds. However the trade off is that the dollar is weakening.

    Ultimately high inflation eventually leads to deflation as it eventually pushes the economy back into recession. That's what happened when inflationary pressures drove oil to $147 in 08.

    That collapsed discretionary spending and the economy collapsed into a deflationary spiral.

  23. a chart of silver is rediculously overbought, but since august 23 it has only had 1 or 2 down days here & there. today a new high again and dollar a new low.

    For now does that qualify as a runaway move on Silver since its in no mans land?
    Gold touched 1301 so it'll either run away too or correct as called.

  24. In case it isn't clear, when the USD goes down the Euro goes up. It's a direct inverse relationship. 95% of the time they trade in opposite directions. Watch the Swiss Franc which usually trades close to the Euro. Right now it is much stronger than the Euro even though both have been rising. Aussie dollar very strong with surge in commodity prices too. If you are in Europe do you have access to the American stock market somehow? You can buy GLD for gold. And just buy ETFs that support other currencies than the USD

  25. Good work.thanks for sharing this blog!Bullionist


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