[Peace-discuss] FW: It Happened Quite Suddenly...

[n.dahlheim at mchsi.com]

http://jeffersoniantoo.wordpress.com/2006/12/28/it-happened-quite-suddenly/

It Happened Quite Suddenly…


…Really, more suddenly than most people thought that it could. Even some of the 
doomsayers were 
caught by surprise. Who would have thought that America could go from 
super-power to third world 
status, in just two short months?


Some blamed the Chinese. Others blamed OPEC. Still others knew that it had been 
building for a long 
time and that all it would take is one or two major currency crisis’ to make 
things go from bad to 
terrible.


In late 2006, the US sent an economic A-team to China. Their stated purpose was 
to cut a deal with 
China on trade and currency issues. But the real purpose was to go with hat in 
hand to their creditor 
and ask for an extension on their credit line. Unfortunately, China had already 
made up its mind that 
there would be no further credit increases and in fact, the US needed to make 
good on its repayment 
promises, …namely Treasury Bonds. Of course, the A-team offered to buy the bonds 
back and even 
offered a premium to sweeten the deal. However, China demanded to be paid for 
the face value of the 
bonds in gold. The US Treasury no longer had any gold. Fort Knox had lain empty 
for many years, as 
the Treasury had sold off gold to keep the price down and make it look like 
monetary inflation wasn’t 
as bad as it really was. If the US began trying to buy gold to pay the Chinese 
off, the additional money 
they would have to create would flood the market making things worse and the 
demand on gold would 
make the price skyrocket, thus exposing the Dollar fraud.


China had the upper hand and they knew it. If they couldn’t get a private deal 
for gold from the US, 
they would have to make deals for machinery, oil, gold and other metals with 
other countries. They 
would have preferred that those be in private also, since once exposed, they 
would create a run on 
Dollars. But such things are hard to keep secret in the world market. Markets 
and currencies talk. They 
are the best forms of communication that ever existed, especially on matters of 
an economic nature.


Even though China had over a Trillion Dollars in their reserves, they also knew 
that they had a tiger by 
the tail. And even though the tiger probably couldn’t devour them, they new it 
could do some major 
damage if they let go without wearing it down a little. They needed to ditch 
their Dollar reserves, but 
they needed to do it in such a way that it didn’t promote a Dollar panic. Such a 
panic would cost them 
in the later stages of their divestment, and that needed to be avoided, if 
possible. At the same time, 
they realized that they needed to start the divestment as quickly as possible. 
If they waited until 
another nervous holder of Dollars started to dump them, they would be hurt even 
worse. They couldn’t 
take that chance. Better to be the one to start the panic than end up on the 
other end with worthless 
paper. They knew they couldn’t get their trillion dollars out the reserves, but 
they figured that if they 
were careful they might be able to retrieve 70 cents on the dollar.


After the A-team’s uninspiring trip, the President went to China to beg, in 
person. This only made the 
Chinese smile. They knew they would not be budged and it amused them, the antics 
that their 
American counterparts were willing to go. They viewed the circumstances as very 
big embarrassment, 
and it was. The US had lost face.


Soon after the president returned, trade sanctions were proposed and passed in 
Congress. 30% tariffs 
were to be levied on all Chinese imports. Apparently, the Congress hadn’t been 
paying much attention 
and didn’t realize that most of the products sold in American stores were made 
in China. The President 
made one last call to the Chinese in a last minute attempt to get some 
additional credit, but the 
Chinese refused to budge. So, the president signed the tariff bill into law.


The immediate effect was that prices in stores went up some 30-40%. That same 
week, China began 
quietly buying as much material and commodities as it could, use their Dollar 
reserves. At first, this was 
barely a blip on the radar. Oh, the dollar index began to fall, to be sure, but 
that had been forecast 
anyway. The treasury department had been going back and forth on a “strong 
Dollar” vs. “weak Dollar” 
policy for several years. No one really knew what they had in mind, but anyone 
who could add and 
subtract realized that wildly expanding money supply could only mean inflation 
and a weak Dollar, so 
no one got real excited that first week.


By the second week, politics were getting very interesting in the United States. 
People who were on 
fixed incomes, and especially people who were on Social Security and government 
pensions, were 
suddenly finding it hard to make ends meet. They had used up half on their 
monthly income in one 
week. They could read the writing’ on the wall and started calling their 
congressional representatives. 
At the same time, Congress was in the process of raising taxes to try to offset 
the loss of bond sales. 
This then hit those who worked. Suddenly, at the same time that things were 
getting more expensive in 
the stores, they had, on average, 20% less money to begin with. It was being 
taken through the 
additional taxes. They also called their congressional representatives.


So the legislators were getting calls from two very vocal groups, one telling 
them to raise benefits and 
the other telling them to cut taxes. With the loss of bond sales they knew they 
couldn’t do both, so they 
did what they had always done…they stalled.


It was about the third week that many more oil producers started requiring 
purchasers to use any 
currency other than Dollars. Venezuela had already done so, as had Iran and the 
UAE. As soon as they 
realized what China was up to, they also began to divest themselves of the 
Dollar. Soon the Dollar 
index was falling like a rock. The Euro and Yuan were gaining rapidly, as they 
were still easier to trade 
than gold and had a lot less debt attached to them. But because they were fiat 
currencies as well, many 
were also trading gold. This made gold “shoot for the moon”. It quickly reached 
its real value to the 
Dollar of $3000/oz and continued to climb. Silver, being the poor man’s gold 
also started climbing at 
an accelerated rate. It grew even faster than gold, for as the demand climbed it 
became apparent that 
there was a lot less silver in the world than was previous thought…. far less. 
Silver quickly attained 
$100/oz, then $200, then and $300 in a matter of days.


The result on the COMEX was complete collapse. Several major trading firms had 
been manipulating the 
price of gold and silver for years. Suddenly their short contracts had to be 
delivered in metals that were 
very expensive. It wiped out the market place and several large corporations 
with it. As the COMEX 
collapsed, the Stock market came under fire. Usually these markets traded off of 
one another. But with 
the collapse of the COMEX and the Bond markets, the Stock market started to look 
like a suckers bet. 
So, investors started to flee in droves.


All the while, the market programs on CNBC, Bloomberg and CNN Financial, 
continued to tout it all as a 
correction that would quickly be over with little harm to anyone. The trouble 
was, no one was watching 
anymore. Most had ditched their cable and satellite when the bills became 
difficult to pay. As the prices 
went up in the stores, businesses had to give their employees a raise in order 
to keep them on. This led 
them to an increase in the price of the domestic products that they sold. So, 
prices all around were 
going up at an alarming rate. Crime exploded, especially in the cities. But 
people weren’t stealing TVs 
or cars; they were stealing food, gas, silver jewelry and flatware, gold (where 
they could find it) and 
currency. Banks were getting robbed two and three times a week as people became 
desperate to find 
currency with which to buy food and gas.


Police were over-worked, like everyone else, over-taxed and suddenly underpaid. 
At the same time, 
they were coming under fire for trying to enforce traffic laws, drug laws and 
gun laws. It never occurred 
to them that these laws were foolish to begin with, that they violated the very 
essence of the 
Constitution and freedom that was supposed to be the “Spirit of America”. But 
suddenly, if an officer 
tried to stop a speeder, he was likely to be fired on by an angry citizen who 
saw no useful purpose to 
his being pulled over for a regulatory infraction that harmed no one. People 
were packing firearms. 
Some concealed, but most not. After a few officers were killed trying to take 
arms away from the 
citizens, they decided to let that go too. Soon, they stopped responding to all 
regulatory functions and 
simply responded to actual crimes…you know…the ones that had actual victims.


It was along about the fifth week that power disruptions began to appear. Many 
of the power 
companies still employed union workers, and like everybody else in America, they 
were finding it hard 
to make ends meet. But they weren’t calling their congressional representatives, 
they were calling their 
union leaders and complaining about unfair wage practices and that the union 
leaders were failing in 
their representation responsibilities. Initially the unions went to the 
employers and tried to work out a 
deal. But, the companies were already in a bind as the price of everything was 
going up faster than they 
could get rate increases from the state regulatory boards. They were already 
operating in the red and 
the banks weren’t being very helpful.


So the unions began work slowdowns, and sabotage of the systems. The North 
American electric grid 
had been in dismal shape for years anyway, and the tampering and work slow downs 
quickly brought it 
to its knees. Rolling blackouts became the norm. Some areas never saw commercial 
power again. The 
power companies were taken over by the government, and the military was sent in 
to the major cities to 
restore the distribution system. In order to conserve power, distribution to 
residential areas was cut off. 
The people there were told to relocate to camps that were set up in all of the 
major cities to provide 
better efficiency in distribution of food and services and to conserve 
electrical power. About half of the 
population went to these camps only to find out that they were then stuck there. 
His or her vehicles 
were confiscated, but it really didn’t matter, no one could afford gas anymore. 
They were given work 
assignments under the guise of “helping America get back on her feet”. But most 
of these jobs 
consisted of maintaining the camps and assisting the military in working on the 
power grid and the 
telephone system. Some worked on water systems, others in shipping areas of the 
remaining 
businesses, which had also been taken over by the government or had to operate 
under heavy 
supervision. Pirating and stealing were rampant.


By the sixth week, most of the interstates were empty. The gas stations had long 
since run out of 
customers. They could still get fuel, but few could afford it. Gasoline was 
running around $35/gal. 
Before the crash, they had used gas prices to entice customers into their store. 
They rarely made more 
than 2-3% on the fuel sales; their real money was made in the food and drinks 
they sold. But they 
couldn’t get supplies anymore. Many of the distributors had gone out of 
business, unable to afford the 
rising costs of their workers and fuel. Some distributors had been taken over by 
the government, but 
these serviced the camps and elite who lived in the big cities. Highway robbery 
was common if one 
were to venture down a lonely highway without a military escort. Farmers would 
come in and trade 
crops and fresh meat for fuel. This kept the stores in business, but it was slow 
and they had to be wary 
of thieves coming in to steal their goods. Everybody took their safety 
seriously, so everyone in the rural 
areas carried firearms. They knew that they were the only ones who could be 
responsible for their 
safety. It really was that way all along, but they had let the government 
convince them that it could 
protect them from all crime. Some chuckled at that thought, but most just 
smacked their head at their 
past foolishness. The folks in the camps weren’t so lucky. They were disarmed 
upon entering the 
camps. So, they became victims of the various camp gangs that ran the 
underground economies.


By the seventh week, government offices were all closed. The Dollar had 
completely collapsed and 
wasn’t accepted for payment on anything. Dollar bills of all denominations blew 
down the semi-empty 
streets of the cities. Many government workers were thrown into the camps or out 
on the street. The 
government could only pay them in goods that it stole from businesses and farms 
that it had taken 
over. Some people revolted directly. This mainly happened in small towns and 
counties where leaders 
had refused to believe that their authoritarian reign was over. Judges and 
lawyers who had cheated 
citizens in court were commonly seen hanging from trees and lamp posts, their 
houses burned to the 
ground. A few sheriffs and deputies went that way too. Tax collectors had long 
been dispatched or had 
gone into hiding.


By the eighth week, the government ran the cities and the country folk ran 
themselves. There were too 
much ground and not enough soldiers to police the whole country. The government 
was able to use its 
forces more efficiently in the higher density areas of the cities, and for the 
most part that is where they 
stayed. Even though convoys were escorted by the military, they often came under 
fire and were 
pirated. Trade sometimes occurred between the country folk and the city folk, 
but it was illegal from 
the government’s position, even if a few of the city leaders and elite were some 
of the major players. 
So, the government turned a blind eye. It had no choice.


In two months, the United States had gone from being the biggest consumer market 
in the world, to a 
country that had nothing to trade and no currency with which to trade. Prices 
worldwide had exploded, 
as foreign central bankers divested themselves of Dollars and had to buy much 
more expensive 
currency to replace it. This required them to do what all central banks do…. 
print more money, which 
continued their own vicious cycle towards worthlessness.