6/7/2010 – 20 Questions with Robert Prechter: Devaluation Won’t Work

Jim Puplava: In 1933 at the bottom of the crisis,
the Roosevelt administration comes in. In its first week they
declare a bank holiday, they reopen the banks with the FDIC,
they sever gold, they come in with massive fiscal stimulus and
they devalue the dollar substantially. The result was from 1933
to1937 we have positive CPI, economic growth, a robust stock
market. If fiscal and monetary measures fail to revive the economy
and the market, could the government try devaluation to change
the deflationary outcome the way they did 1933?

RP: Well, you have to have a benchmark in order
to devalue a currency. Our currency isn’t pegged to anything,
so I don’t understand even what the term devaluation would mean.
What would they do to do create a devaluation?

Editor’s Note: The article you are reading is just
one small excerpt from Elliott Wave International’s FREE
report, 20
Questions With Deflationist Robert Prechter. The full 20-page
report includes even more of Prechter’s insightful analysis
on fiat currency, gold, the Fed, the Great Depression, financial
bubbles, and government intervention. You’ll learn how
to protect your money — and even profit — in today’s environment.
Read ALL of Prechter’s candid answers for FREE now. Access
the free 20-page report here.

JP: Maybe they come out with a formal saying:
the dollar is now worth a half a euro, X amount of yen or it’s
a formal statement. They just declare it formally.

RP: Yeah, but everybody already knows what
it’s worth, because it’s floating freely against these other
currencies. And they certainly couldn’t fix it to a lesser
currency like the euro. And then the managers of this other
currency would simply make another decree and negate it. That’s
not going to work.

Let’s take your example, because it’s very important. The
whole idea of the government being ahead of the curve is bogus.
You know the collapse was from September 1929 down to July
1932, right? The government did not act until it was over.
They waited for the bottom of the collapse—of course—and then
they finally decided they’re going to do something about it.
So, months after the low in 1932, they finally shut the banks
and pass laws such as Glass-Steagall, which created the FDIC,
and the Securities and Exchange Act, and that sort of thing,
to bring confidence back into the banking system. I think the
same thing is going to happen here. They’re going to try the
same old stuff, more and more lending, more and more borrowing—which
is the problem, not the solution—until everything collapses,
and then they’ll go, “Oh maybe we should try something
else,” and by that time we’ll already be at the deflationary
nadir, and it’ll be time to look for an inflationary outcome.

My whole thesis is exactly along those lines. We want to stay
prepared for a deflationary crash, and when it’s over,
we’re going to convert whatever money we have to stocks, and
raw land, and gold, and whatever else we want to buy. That’s
when—if the government makes a political decision to inflate
through currency printing—it would make the decision.
They’re not going to make it before the bottom. The government
has never acted before the bottom, never acted in a new way.
Right now these bailouts and other schemes are simply pressing
the accelerator harder on what we’ve been doing since 1913. 

Editor’s Note: The article you are reading is just
one small excerpt from Elliott Wave International’s FREE
report, 20
Questions With Deflationist Robert Prechter. The full 20-page
report includes even more of Prechter’s insightful analysis
on fiat currency, gold, the Fed, the Great Depression, financial
bubbles, and government intervention. You’ll learn how
to protect your money — and even profit — in today’s environment.
Read ALL of Prechter’s candid answers for FREE now. Access
the free 20-page report here.