The coming currency devaluation

After repeated warnings from currency analysts and market advisors (including yours truly) that the U.S. currency system is on the verge of becoming a blocked, two-tier system we now have confirmation that the country is one step closer to realizing this. When fully implemented, the new U.S. dollar will mean a "banana republic" type currency and across-the-board devaluation.

According to a CNN/Money news wire report of Oct. 7, the new U.S. $20 bills will be released this week at banks across the country. Meanwhile, the Fed and its Bureau of Engraving and Printing (BEP) will hold a nationwide series of publicity events as part of a $33 million campaign to let the world know of the new bills and to acclimate the public to their strange new appearance.

The new $20s are peach-toned with the presence of blue ink, making it the first time in almost 100 years that a mass-circulation U.S. note has prominently contained a color besides green and black. They also contain an embedded vertical plastic strip and color-shifting ink, whose appearance changes from copper to green as the bill is tilted against the light. Below is what the front of the new $20 bill looks like (from the BEP website).

So what is the significance of this change of color in the U.S. $20 note? Well according to the Feds it is designed as a deterrent to stop counterfeiters. But accordingly to currency analyst Lawrence Patterson, who authored the 1994 monograph titled "Currency Recall", which accurately forecast the new multi-colored notes, the new colored money is part of a two-tiered currency system that will have drastic implications for investors and non-investors alike here in the U.S.

Patterson calls the new notes "crayola currency" and claims they will circulate domestically while the normal green currency that we've grown accustomed to will circulate offshore all over the globe. According to commentator Terry Savage, "Two-thirds of the U.S. paper currency is circulating in foreign countries." With the coming two-tiered currency system, foreigners will continue to be allowed to use the greenback while U.S. citizens will be stuck with the "crayola currency" which cannot be exchanged.

Patterson forecasts the coming use of foreign exchange controls for the U.S. dollar domestically, which would prohibit Americans from transferring capital to any other world currency. Again, this is discussed in Patterson's now-classic monograph "Currency Recall" (which I've read and highly recommend to students of currency policy and investors seeking to retain the value of their investments).

Patterson states, "I want every one...to think carefully about this...because we are coming very, very close to the end of the freely convertible domestic dollar. They cut in value could be as much as 50%...I believe those holding gold bullion bars offshore and bullion coins domestically will be very surprised to find that special regulations will prohibit them from profiting."

He further maintains that coin dealers are under a strict Treasury regulation and must report your sales of some coins but not others. The rule is as follows: Coins with a premium above 15% do not have to be reported. In addition to the 1099 report, filed by the coin dealer, you have to declare any capital gains as well."

He continues, "The existence of this rule, I believe, indicates an intent to outlaw the ownership of bullion coins altogether! However, the rule will not remain at 15% necessarily and could be changed to a higher percentage, which is unknown at this time. Obviously, you do not want to own any investment coins with a premium of 15% or less and better stay at the 25% or 30% level to be safe." Patterson points out that complications for the government would clearly arise should numismatic collectibles be forcibly confiscated since the bullion coins' value can be determined by the London gold fix, but not so for collectibles. "The price of the collectible coin may or may not be easily determined as numismatic valuables are routinely auctioned off at prices of not only tens of thousands of dollars, but hundreds of thousands of dollars per item," he observes. "It is difficult to imagine just how this would all be sorted out by the bureaucracy to come up with a calculation of compensation that would relate to the market value." He advises staying in the "safe zone" and exchanging bullion coins not needed for emergencies (such as food or gasoline shortages, et al) for numismatic coins with higher premiums.

Obviously, the introduction of the new peach-colored $20 bill is a test on the American public to see how they respond to the drastic new changes. The CNN/Money article states that the BEP has launched a multi-million dollar promotional campaign aimed at gaining public acceptance of the new currency. For example, the twenties are being featured on game shows, including "Wheel of Fortune" and "Jeopardy," sporting events, like ESPN's college football telecasts. The bills are also part of some consumer product tie-ins, according to CNN/Money, and pictures of the bills will be on the side of bags of Pepperidge Farm Goldfish. If the government succeeds in getting the American public to accept the bills, the other remaining denominations will obviously follow and plans will proceed for the blocked domestic dollar.

Thanks for the heads up.

Haynes writes:

Again according to Droke, Patterson asserts that the new bills will circulate domestically while greenbacks will circulate offshore all over the globe. "With the coming two-tiered currency system," Droke writes, "foreigners will continue to be allowed [sic] to use the greenbacks while U.S. citizens will be stuck with the 'crayola currency' which cannot be exchanged."

But Haynes has mis-attributed the quote. Droke cited 'commentator Terry Savage' on the issue of non-exchangability, not Patterson, though I quibble.

Some of Haynes points (like the reasonableness of advertising peachbacks) seem like straw-man arguments. Others, just seem to lack precision in their target?

Droke:
Patterson states, "I want every one...to think carefully about this...because we are coming very, very close to the end of the freely convertible domestic dollar. They cut in value could be as much as 50%...I believe those holding gold bullion bars offshore and bullion coins domestically will be very surprised to find that special regulations will prohibit them from profiting."
Haynes:
Supposedly, Patterson sees the value of the new dollar being cut as much as 50%, when convertibility to the old greenbacks is suspended. While I agree that the dollar will probably suffer horribly over the next few years, the loss will more likely come from the Fed's excessive printing and our FedGov's reckless spending. Everyone holding dollars, Americans and foreigners, will share the loss.

Neither writes very clearly, but I think Droke was saying that easy greenback convertibility to/from bullion would end and that bullion profitibility would lose 50% of it's value. Not that the Peachback would lose 50% as Haynes criticized.

I can't evaluate Haynes' dissection of Droke's quoting Patterson's patently inaccurate statements about reporting requirements on gold coin sales, FWIW.

Haynes does point out the $20 peachbacks are already being introduced into circulation now (actually a couple weeks ago) without fanfare or restrictions - verified with a google search. I wonder what will happen when these bills show up in Panama or internationally and how prepared are other exchanges and merchants to accept the peachbacks?

Regardless, neither Haynes nor Droke has added much information or insight.

In hindsight, this thread has been more informative.

This is crap from the types of folks who are still pissed that we went off the gold standard.

Our currency value is quietly being allowed to drop so that exports can increase and the economy rebound strongly.

The Fed does this all the time, but denies it.

So do other countries that have trade imbalances.(Not China)

We have been begging China to stop propping up it's currency and allow it to float so that we do not have to do this stuff, as I understand.

They have thus far refused.

Yes I would assume so. The existing mechanisms for recognizing worn out greenbacks would remain in force as well as be applied to the peachbacks. Exchange would simply be in accord with what is the 'allowed' currency based on domestic or international location. The treasury would retain responsibility for printing both currencies and dispensing new bills to (and collecting old bills from) banks domestic and international as they do now.

So let me see if I've got this straight: They're replaceing the "greenback" with "peachbacks" dometically while retaining the "greenback" overseas beacuse of countefeiting measures, even though greenbacks are probably counterfieted oveseas more than here?

This does not make sense.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.