By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
There was a tremendous amount of news last week that will have long lasting impact on the lives of Americans and people around the world. Both major US Supreme Court decisions affecting illegal aliens and the 2010 health care law got tremendous press coverage and will doubtless figure prominently in the US November elections.
The so-called “final solution” to Europe’s fiscal crisis is nothing of the sort. The plan has many loopholes and proposes a number of standards that will never be achieved. Already the mainstream media is catching on that the solution isn’t worth the paper on which it was written.
There was another significant development last week that received almost no coverage by the mainstream media that I suspect will have more long-term global impact than the other developments I mentioned.
Last Thursday was the deadline that the US government had set for other nations to cease trading with the Central Bank of Iran. The threat to those countries that did not comply was to be prohibited from using the SWIFT system for settling international financial transactions. The global impact of not being able to use the SWIFT system is significant enough that the government of Iran announced that a ban from using it would constitute an act of war by the US.
The US government’s demand had a relatively modest impact on most European nations, with most choosing to knuckle under to comply with the order.
It was different in Asia. China and India are major trading partners with Iran, They are the two largest importers of Iranian oil, for instance. India quickly looked into the possibility of paying for imports from Iran using other currencies and possibly gold.
China announced that it would launch a competing system for settling international financial transactions that did not use US dollars at all. Such a move by China would make a serious dent in international demand for dollars, which would mean in that instance that billions or maybe trillions would be repatriated to the US for settlement by delivering tangible goods or services. If this were to occur, the US government and economy would be struck a huge blow.
Because the demand specifically prohibits dealing with the Central Bank of Iran, several nations and businesses began using a third party to disguise the transactions.
Still, as the deadline approached, India, China, and Russia, along with some other countries, were obviously not going to meet the demands of the US government.
When the deadline approached, the US government, representing the largest economy on the globe, blinked. Instead of imposing the financial penalty of cutting off nations from the SWIFT international payment system, the federal government announced that it was extending the deadline by six months.
What does this action mean?
It means that the US government’s financial clout is no longer strong enough to automatically force other countries to do as Washington orders them to do. It means that the use of US dollars in settling international financial transactions have declined by so much that some other nations can openly defy the US government without being punished. It means that foreign governments realize that the fiscal mismanagement by the US government will destroy the value of the US dollar and cripple America’s economy.
Six months from now, the US government will have even less financial clout to boss other nations. The politicians in Washington know it as do governments around the world. It is one of the clearest signs that the US dollar is on the way out. The decision by the US government to extend this deadline last Thursday is just the latest warning to protect your wealth by getting out of dollar-denominated paper assets such as stocks, bonds, and cash and convert them into assets that will hold their value. Gold and silver have a track record of holding their values that go back thousands of years. There are also other options. Protect yourself sooner rather than later.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed athttp://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.