Since two people have asked me about Larry Edelson's "The G-20's Secret Debt Solution" (a coordinated worldwide currency devaluation to fight deflation), I decided to take a second to mention it and discuss why it will never occur.

The G-20’s Secret Debt Solution
by Larry Edelson 11-13-08

If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.

Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.

I’ve been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I’m about to tell you now is not on the G-20 table this weekend.

Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.

First, the G-20’s motive for a new monetary system: It’s driven by and based upon this very simple proposition …

“If we can’t print money fast enough to fend off another deflationary Great Depression, then let’s change the value of the money.”

I call it …

“The G-20’s Secret Debt Solution”

It would be a strategy designed to ease the burden of ALL debts — by simultaneously devaluing ALL currencies … and re-inflating ALL asset prices.

That’s what central banks and governments around the world are going to start talking about this weekend — a new financial order that includes new monetary units that helps to wipe clean the world’s debt ledgers.

It won’t be an easy deal to broker, since the U.S. is the world’s largest debtor. But remember: Debts are now going bad all over the world. So everyone would benefit.

Fed Chairman Ben Bernanke … Treasury Secretary Paulson … President Bush … President-elect Obama … former Fed Chairman Paul Volcker … Warren Buffett … and central bankers and politicians all over the world agree a new monetary system is needed.

So they’ll start hashing out the details to get the new financial architecture deployed as quickly as possible.

If you think I’m crazy or propagating some kind of conspiracy theory, then consider the historical precedent …

To end the Great Depression in 1933 Franklin Roosevelt devalued the dollar via Executive Order #6102, confiscating gold and raising its price 69.3%, effectively kick starting asset reflation.

Only this time, it won’t be just the U.S. that devalues its currency. The world is too interconnected. Instead, the world’s leading countries will propose a simultaneous and universal currency devaluation.

This time, they will NOT confiscate gold. There would be riots all over the globe if they even mentioned the “C” word.

But they don’t have to confiscate gold. Here’s one scenario …

They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce — to a price that monetizes a large enough portion of the world’s outstanding debts.

That way, just like in 1933, the debts become a fraction of re-inflated asset prices (led higher by the gold price).

…

By offering to pay over $10,000 an ounce for gold, central banks can effectively accomplish the same end goal — monetizing and reducing the burden of debts, via inflating asset prices in fiat money terms.

Read the whole article here

My reaction: While Larry's idea is interesting, it can't happen and wouldn't work. Here are a few of my reactions:

1) The fed doesn't need to intervene to get gold up to $10,000: it will happen all by itself in a year or two.

2) Larry Edelson's solution would benefits debtors (US consumer and nations like America) at the expense of the creditors (wealthy investors worldwide and nations like China). This means two problem for Larry's plan:

A) Politician will never support a plan that is universally opposed by the rich and powerful.
B) Creditor nations will refuse to debase their currency to bail out debtor nations, and if the US went along with Larry's plan unilaterally anyway, the dollar would crash.

3) Gold at $10,000 means gas at $30 a gallon.

4) Even if Larry Edelson's plan is carried out exactly as he lays it out, the US is still screwed because none of our fundamental problems are solved. We have a financial industry that has grown oversized by selling securitized debt which no one wants to buy anymore. Our automakers sell cars that no one can afford to drive without foreigners propping up the dollar. We have outsourced all our high paying manufacturing jobs, and our government, like US consumers and businesses, is drowning in debt. Larry Edelson's plan solves none of these problems.

5) When the dollar loses 90% of its value, what will we do with all our pennies?


The chances of a coordinated worldwide currency devaluation are zero. While many currencies like the US dollar will collapse, governments will fight it every step of the way.