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XMFSinchiruna (26.57)

The Big Bang: U.S. Dollar Devaluation on its Way



February 04, 2009 – Comments (15)

I don't know how I missed this article, Fools. It's a biggie. Although this is an editorial, she cites press reports from over the weekend suggesting that the Obama administration might be preparing a financial intervention that would absolutely dwarf in scale everything that has been done to date. Read for yourself... if this report is accurate, then we are talking about a key strategic turning point for the U.S. and a major impetus for foreign debtors to move out of USD assets as their primary reserves. An announcement like this would send gold straight above $1,200 at the very least IMO, and begin the march up to $2,000.

Whereas every effort of the State thus far has seemed intended to forestall the inevitable, a pre-emptive dollar devaluation before a multi-trillion dollar "Big Bang" would hasten the inevitable. For those who see that the long-term trend for the USD remains, unfortunately, clearly downward in trajectory, and therefore believe gold will ultimately move much higher, this is no time to be quiveling with beliefs that better entry points will be found if one pulls out of gold at these levels. In this environment, all it takes is one press conference to change to face of global finance forever. If you heed the advice of those recommending gold shorts or moving out of gold at these levels to play some short-term channels that some might perceive as being in play, I truly feel you are placing your financial security at risk. I issue this admonition solely because I have exerted considerable effort over the past couple of years to educate Fools about the structural deficiencies in the dollar and the resulting bull market for precious metals, and after participating in the preamble portion of the trend, it would be tragic in my opinion for my fellow Fools to miss out on the "Big Bang" stage of the bull run.

If you make an extra buck or two on some mini-correction in dollar-gold back to $850 or even $800, congratulations, but that's not what I'm in gold for.

I'm in gold for protection from the now-inevitable devaluation of the USD, and no one but the elite central bankers in their closed-door sessions knows when nor how quickly that will progress from here. One thing I know for sure: by the time all is said and done the $50-$100 daily moves in gold we've seen to date will be seen to represent the less volatile times, as multi-hundred-$ moves in gold will become commonplace. We have barely tasted the volatility to come. I do not advocate attempts to predict near-term movements in gold at this point, and even though the technicals on gold right now are squarely bullish, I must say that technical analysis will likewise continue to dwindle in significance as events of this magnitude play out. Fools must constantly remind themselves to step back and take in the comprehensive macro-economic picture, and if they do, I believe each Fool will determine for themselves that some exposure to gold is a fiscal necessity, and that moving out of gold in search of compounding near-term profit is sheer folly.

Keep reading everything you can get your hands on regarding the U.S. dollar, as the currency events presently unfolding trump everything else in terms of potential impact upon your investments.

What goes through YOUR mind when you read an article like the one below and ponder an intervention many times the scale of those already in play?

Diane Francis - Financial Post - February 2, 2009

In 1992, I was given what became my favorite hotel bill keepsake when I stayed in Mexico City and was charged one million for a brief business stay.

It wasn’t a mistake. That was one million pesos and the Mexican peso was becoming worthless. By 1993, then-President Carlos Salinas de Gortari stripped three zeros from the currency and renamed it the Nuevo (or New) Peso.

The transition from worthless to one Nuevo Peso to one U.S. dollar was done in three years from January 1, 1993 to January 1, 1996. The word "nuevo" was removed from the currency and it returned to be called "peso".

Now it is 2009 and what appears to be looming, according to one authoritative press report this weekend, is a massive pre-emptive devaluation of the U.S. dollar as Team Obama readies itself to announce the “Big Bang” – a gigantic bailout of the frozen U.S. economy involving trillions of dollars.
So far, Washington has allocated US$750 billion for banking rescues and another US$825 billion for job creation projects. But that’s nothing.

Here comes the wall of woe

The venerable Financial Times of London described this “Big Bang”. My guess is that it was part-speculation and part-trial ballooning by an embattled White House.
Here’s what the FT said the “Big Bang” could involve:

New rules for banks and TARP (the bank bailout fund) which will impose new discipline and rules by disallowing bonuses, large compensation and other perquisites. In essence, the American government will be converting its busted banking and brokerage sectors from a money pit for greedy players into the regulated, moderate salaries handed out by publicly-owned utilities.

A series of “Bad” banks will be created in virtually all countries, led by the U.S. and Germany, to mop up and hold all the bad debts now held by financial institutions. These assets may never amount to much, but taking them off the bankers’ books should eliminate their fears about meeting capital ratios as their debts devalue and their customers go under. This is designed to unfreeze credit again.

Washington is going to bail out all homeowners in the United States. The U.S. government will guarantee all residential mortgages involving owner-occupants, including mortgages which are dramatically higher than the value of the underlying property.

In return for removing mortgage loan credit risk, Washington will require banks to stretch out principal repayments to owner-occupants so that they do not exceed, on a monthly basis, more than 38% of family or owner incomes. When values or incomes go up, presumably, adjustments will be made. This will provide a floor to property values, a form of welfare to the unemployed and another unfreezing of bank credit.

Preventing the revolution in the streets

Those are the highlights of what can only be described as a Nuevo Financial System and a currency debasement which will involve the printing of trillions of dollars, Euros and all the others.
Canadian government officials will end up having to do the same: the “bad” bank to bail out the banks which are caught in the contagion of the global meltdown plus job creation stimulus and a broadening of the social safety net.

House values in Canada have fallen much less than south of the border and hopefully that will remain the case.

It’s ironic that the “Big Bang” was used to describe this comprehensive re-regulation and restructuring of a broken financial system worldwide. The first “Big Bang” in the late 1980s started in the UK and led to a massive deregulation and restructuring of financial markets that probably led to the bad practices that are now being dealt with.

15 Comments – Post Your Own

#1) On February 04, 2009 at 11:32 AM, kstarich (28.97) wrote:


THank you for the heads up! 

 AbitarePerfect had a Jan. blog( I don't know how to post it here) titled "A bearish view: Gerald Celente 27 Jan 09, where he mentions that Obama would enact some draconian measure in February 09.  Maybe this is it.

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#2) On February 04, 2009 at 11:53 AM, GNUBEE (< 20) wrote:


As long it does not include another federal confiscation of gold

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#3) On February 04, 2009 at 12:02 PM, XMFSinchiruna (26.57) wrote:


Here's a link to the blog post you referred to.


They could try, but having duped the citizenry once, I think they'd have far less success a second time around.

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#4) On February 04, 2009 at 1:09 PM, 34thdegree (< 20) wrote:

America has already been duped. It's not gold this time around; It's Land. Government is about to sieze all the "toxic mortgage loans/property" for pennies on the doomed dollar. Wake up.

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#5) On February 04, 2009 at 1:15 PM, jesusfreakinco (28.37) wrote:

I read the article last night and wasn't quite sure how the big bang would take place - how could a free market currency be de-valued?  The immediate reaction would be a significant revaluation of the bonds as well, wouldn't it?  Wouldn't that send bonds soaring and put another nail in the HBs coffin.  Unless, of course, the Fed intends to essential nationalize the entire mortgage market to control rates.

I do see some significant changes in how the financials will be rescued.  See my blog on this today.  I don't the Obama admin allowing any value for shareholders of financials and the big bang possibly wiping out shareholder value.

Any more thoughts on what the big bang would look like?

If we could put some scenarios together on how this might look, perhaps we could go long/short the right sectors to take advantage of it... 


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#6) On February 04, 2009 at 1:53 PM, oversea (< 20) wrote:

Before the Euro devaluetions were not that uncommon in Europe. There were occasional devaluetions (e.g.French Francs) or what I'd call serial devaluetions (e.g. Italian Liras). They were made to make ones products more competitive on the international markets and for sheer speculations on minor currencies. I believe that there hasn't ever been a single country in Europe (bar for Switzerland, but this is another story) which did not resort to this trick. Effects? Well at first none is felt from the common people, then prices of imported goods will increase and travelling abroad will turn more expensive. Then you get a higher inflation rate and everything goes back to its starting point, only that your currency isn't as good as it was before. The problem being that devaluetion fixes the problem just over a short period of time and this cure turns out to be worse than the actual illness. Then there is a worse psycological effect, if you devaluete even only once (as it happened with the GB pound) then people will think that your currency can be devalueted and speculative actions set in. Remember also that devaluetions are real  pork barrels for many industries which import large stocks of goods before the devaluetion, then they sell them after the devaluation making real fortunes. These people are all for devaluetions and they bet even against their own country's currency.



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#7) On February 04, 2009 at 2:04 PM, djemonk (< 20) wrote:

Bailing out bad bets by banks and stupid transactions by home buyers basically tells me that the US needs to fail.

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#8) On February 04, 2009 at 2:11 PM, ByrneShill (83.01) wrote:

The financial post isn't really a newspaper, it's the financial section of the national post, which is merely a propaganda paper for the conservative party of canada. Diane Francis is probably the less credible "reporter" of that paper. You shouldn't give any more credibility to anything she writes than you would an anonymous poster on a yahoo board.

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#9) On February 04, 2009 at 2:56 PM, XMFSinchiruna (26.57) wrote:


Thanks for the caveat... I was not familiar with the publication specifically. Duly noted. Can anyone find independent confirmation of the press releases referenced in that commentary?

Speaking of the press... here's one that's hot of it...

President Obama warns of "catastrophe" if stimulus vote is delayed. Good thing people voted for change so we wouldn't have more of these scare tactics to rush ineffectual world-changing expenditures through Congress.


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#10) On February 04, 2009 at 2:59 PM, Gingerbreadman55 (26.70) wrote:

-----America has already been duped. It's not gold this time around; It's Land. Government is about to sieze all the "toxic mortgage loans/property" for pennies on the doomed dollar. Wake up.-----

This ^


Good find Chris. The dam is about to burst...

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#11) On February 04, 2009 at 3:48 PM, kstarich (28.97) wrote:

And there you have it.  GOVERNMENT HOUSING!

More reason to pay off your mortgage.

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#12) On February 04, 2009 at 3:57 PM, Jhana9 (20.99) wrote:

I hold gold. I read Sinch's blogs regularly. And I have profited off of Sinch's take on things.

However, I remain, extemely skeptical that all homeowners will be bailed out.

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#13) On February 04, 2009 at 5:40 PM, XMFSinchiruna (26.57) wrote:


It certainly wouldn't be a very popular move among all the millions of renters who voted for him. :)

Maybe ByrneShill is right about the author of the subject commentary being highly questionable... but one thing did strike me late last week... in previews of the Senate's deliberations, a CNN reporter (I believe it was CNN) said many Senators were looking for more targeted help for homeowners, but Obama administration officials had asserted that should be targeted in a seperate package.  So we already have indication that Obama is looking beyond both TARP Part2 and the non-stimulus and mulling yet another federal package to address the housing sector. Just food for thought.

I'm very happy to hear that I've brought you good financial tidings. :)

Fool on!

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#14) On February 07, 2009 at 4:21 PM, norm246 (89.59) wrote:

#5 Shouldn't printing money be bad for the bond market?  Currently the bond market seems to be insulated from the effects of this crisis. People are losing jobs, stock and house prices are falling, and the bond market seems to be sailing along as if everything was just dandy. How long can this last?



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#15) On February 07, 2009 at 4:23 PM, norm246 (89.59) wrote:

#5  The big bang will be when the bond market collapses?

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