Dollar, Fiat Currency & 40-Year Cycle

08-27-14 – W.D Gann – whose work from the first half of the 1900’s has had a profound influence on my study and understanding of cycles – is often associated with a Bible passage from Ecclesiastes that summarizes the general nature of cycles.  The gist of it is described in the following quote:

Ecclesiastes 1: 1, 4-6, 9-11 (NIV Translation)

“The words of the Teacher, son of David, king in Jerusalem:…Generations come and generations go, but the earth remains forever.  The sun rises and the sun sets, and hurries back to where it rises. The wind blows to the south and turns to the north; round and round it goes, ever returning on its course…

What has been will be again, what has been done will be done again; there is nothing new under the sun.  Is there anything of which one can say, “Look! This is something new”?  It was here already, long ago; it was here before our time.  No one remembers the former generations, and even those yet to come will not be remembered by those who follow them .”

If that is true – and if what has been done previously will inevitably be repeated – are there not some expectations that can be developed? 

I plan on devoting the next several months to elaborating on each of the phases of the 40-Year Cycle– that has governed the US currency since America’s inception – and highlighting many of the unique and uncanny similarities, as well as differences, between each phase.  Let’s dive right in…

Phase I – 1773–1781

There are three parts to each (40-year) phase.  One is the initial/trigger year (1773), the second is the 3–5 year period of turmoil (1773–1776) – a kind of initial reaction – and the third is the overall 7–9 year period when a more complete and definitive (but still initial) result/reaction was usually seen (1773–1781).

With respect to America, 1773 was the starting pistol being fired.  The stage had long been set and the curtain just needed to be raised (sorry if I am mixing metaphors).  Along came the Tea Act of 1773

At the time, it probably didn’t seem as momentous as it would ultimately prove to be.  But, tensions had been mounting and a tug-of-war for control of the Colonies had been going on for some time…the Tea Act was – in effect – a means of devaluing the currency, as any tax does.  And, the colonists responded in dramatic fashion.  However, one does not have to accept this connection between taxes and currency since the’Continental’ provides all the illustration (and analogy for the future) that anyone needs to see.

In a pattern that would be repeated at regular, 40-year intervals, the U.S. currency went through a dramatic period from 1775 until 1781.  That set the pattern for the ensuing 240 years…

In 1775, the Continental Congress issued a paper currency that came to be known as the ‘Continental’. In an uncanny affirmation of Solomon’s observation that there is ’nothing new under the sun’ (despite what Ben Bernanke & Co. might have thought about QE and its sequels), too many Continentals were printed and their value quickly plummeted throughout the Revolutionary War.

Of course, the British also played a key role in the overabundance of Continentals, since they were busy waging financial warfare – counterfeiting & circulating Continentals in the States.  Their value plummeted and in a mere three years (1778), they only retained about 15-20% of their original value.

In 1780, 5 years from their issuance, a Continental was worth about 2.5% of its original value – losing 97.5% of its worth in that brief period of time.

In May 1781, Continentals were taken out of circulation – concluding the first national attempt at a paper currency in America.

However, as in each of the 40-Year Cycle phases, that initial 7–9 year period paves the way for a new reality (or, in some cases, a significantly ‘tweaked’ one) during the remaining 31–33 years of that cycle – the classic 80/20 or 20/80 rule in effect.  In this case, it led to the creation of the ‘Bank of North America’ in 1782and ultimately to the First Bank of the United States in 1791(–1811).  And that brought the first 40-Year Cycle to its culmination – in 1812 – and ushered in the second phase in 1813.

America’s painful experience with massive inflation spurred the inclusion of Article 1, Section 10, Clause 1 in the US Constitution: “No State shall…make any thing but gold and silver coin a tender in payment of debts…”

America learned her lesson!  No longer would she fall for the siren’s song of fiat, paper currency backed by little more than an edict or proclamation.  Luckily, this lesson was learned early in her history.  Had she followed that seductive path of baseless currency – to its natural extreme – she might be a slave to nations that would otherwise want to see her demise (“There is a way that appears to be right, but in the end it leads to death/debt.”  Prov. 14:12).

Or did she?  Well, we all know the answer to that one.  In fact, in an uncanny parallel to Israel’s ancient pattern described in the book of Judges, America has repeated her mistakes on a 40-year basis… over and over again!   In fact, the 1770’s were not the first encounter with that dangerous deception… 80 years before the 1770’s – in the 1690’s – the Province of Massachusetts Bay issued the first paper currency.

…The intriguing thing is that 80-Year Cycle – from the 1690’s–1770’s – initiated its own cycle that also recurs in the 2010’s (1690’s–1770’s–1850’s–1930’s–2010’s).

The overall period of 1773–1781 had a major impact on the US Currency… as did the ensuing period of 1813–1821.

The September 2014 INSIIDE Track provides more details to this unique phase of the 40-Year Cycleand also pinpoints when Stock Indices should peak – in line with MANY indicators & cycles as well as the 40-Year Cycle – and when a dangerous period, intimately linked to many of the most momentous conflicts and battles of the last 3 centuries, arrives.  To quote from that discussion in the September 2014 INSIIDE Track:

“Of all the primary, major, multi-year cycles I follow (11-Year, 17-Year, 40-Year, 70-Year and even a 200- & 240-Year Cycle) – and which have proven themselves accurate and consistent for centuries – ALL of them converge in xxxx, with respect to war and peace.”

That date could usher in a dramatic acceleration of (certain) events… and a stunning shift in the financial markets as a result.   8/27/14