The Global Monetary Architecture: Change is on the Horizon

There is no better way to descibe the international monetary system today than through the statement made in 1971 by U.S. Treasury Secretary, John Connally. He said to his counterparts during a Rome G-10 meeting in November 1971, shortly after the Nixon administration ended the dollar’s convertibility into gold and shifted the international monetary system into a global floating exchange rate regime that, “The dollar is our currency, but your problem.” This remains the U.S. policy towards the international community even today. On several occasions both the past and present chairpersons of the Fed, Ben Bernanke and Janet Yellen, have indicated it still is the U.S. policy as it concerns the dollar.

 

vyingTwo empires vying for supremacy?

 

Is China saying to the world, but more particularly to the U.S., “The yuan is our currency but your problem”? China’s move to weaken the Yuan against the US dollar is in fact a huge response to America’s resistance to reforming the international monetary framework. It’s telling American policy makers that the longer they delay acting on reforming the international monetary system, the harder and longer they are going to make it for the U.S. to climb out of their trade deficit and depreciate their currency to where they need it to be.

China has been preparing for this moment for several years by accumulating gold through its central bank but also by using banks/corporations and individuals. It has in recent years signed several international agreements to bypass the US dollar in international trade and use preferably the Yuan. It has created an alternative World Bank (Asian Infrastructure Investment Bank) and a gold fund to invest in gold mining in more than 60 countries. The project is being overseen by the Shanghai Gold Exchange (SGE) and it is likely that the newly mined gold will be either traded on the SGE or be sold directly to the PBoC and other central banks. It has also bought a large amount of gold and kept the exact amount as secret as possible.

The international monetary system is in crisis and ready to collapse. It has been since at least 1971 but it seems we are very close to the end (within five years). The International Monetary Fund (IMF) is working discreetly to have Special Drawing Rights (SDR) replace the US dollar as the international standard. Since the delinking of the dollar from gold in 1971, the US dollar has been the de facto international standard. The IMF itself makes no bones about its ambition to establish the SDR as the global reserve currency.

In a 2009 essay, Governor Xiaochuan of the People’s Bank of China (the Chinese central bank) also called for a new worldwide reserve currency system. He explained that the interests of the U.S. and those of other countries should be “aligned”, which is not the case in the current dollar system. Xiaochuan suggested developing SDRs into a “super-sovereign reserve currency disconnected from individual nations and able to remain stable in the long run”. What does he mean by “disconnected from individual nations”? The present SDR is a mathematical formula of the price of its composing currencies of “individual countries” with no backing whatsoever. Does he imply some kind of link to gold? That would explain many other statements in favor of gold by China’s officials and their aggressive encouragement of Chinese institutions and individuals to buy gold.

 

xiaochuan_4Zhou Xiaochuan, PBoC governor since 2002 – wants the renminbi to join the “SDR club”.

Photo via peoples.ru

 

Julian D. W. Phillips, of Gold Forecaster, says, “What has become clear in the actions of the Chinese government and the central bank is that they are determined to accelerate the Yuan’s passage to a reserve currency, hopefully with the cooperation of the IMF, but if not, they will walk their own road.” However, this is not the final objective of China. Its target is to eliminate the “exorbitant privilege” of the dollar, not just to join the “club”. China doesn’t want to destroy the dollar, only to eliminate its “exorbitant privilege”.

With a different approach, but also very aggressively and more so since the U.S.-EU sanctions that amplified the new cold war, Russia has also accelerated its gold buying. Russia and China have also started a new payment system to avoid the U.S. dominated and controlled international payment system. Elvira Nabiullina, Chairwoman of the Russian Central Bank, said, “Recent experiences forced us to reconsider some of our ideas about sufficient and comfortable levels of gold reserves.”

Also in a recent CNBC interview, Ms. Nabiullina remarked on Russia’s increasing gold reserves, saying, “We base ourselves upon the principles of diversification of our international reserves and we bought gold not only last year but during the previous years. Our gold mining industry is very well developed and it is ready to supply gold.” Dmitry Tulin, who manages monetary policy at the Central Bank of Russia, said, “The price of gold swings, but on the other hand it is a 100% guarantee from legal and political risks.” Russia is boosting gold holdings as defense against “political risks”.

 

elviraRussia’s central bank governor Elvira Nabiullina – fond of gold as a hedge against political and strategic risk.

Photo credit: Alexander Zemlianichenko Jr / Bloomberg

 

A Lack of Monetary Discipline

In 1997 Robert Mundell, winner of the Nobel prize in economics, wrote in an article, “The problem with the pure dollar standard is that it works only if the reserve country can keep its monetary discipline.” Aristotle said something similar 2,500 years ago: “In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” It is evident that since at least the collapse of Bretton Woods the U.S. has not kept its monetary discipline and has no intention to do it.

 

1-us-debt-limit-gold-1The federal “debt limit” and the gold price – click to enlarge.

 

Dr. Mundell, in the same article, said, “The United States would not talk about international monetary reform … because a superpower never pushes international monetary reform unless it sees reform as a chance to break up a threat to its own hegemony … The United States is never going to suggest an alternative to its present system because it is already a system where the United States maximizes its seigniorage … the United States would be the last country to ever agree to an international monetary reform that would eliminate this free lunch (exorbitant privilege of the dollar)”. He seems to have been right. The U.S. is dragging its feet. The U.S. has not yet ratified the IMF reforms agreed even by the U.S. government in 2010. I doubt it will pass before the U.S. election at the end of 2016. This has upset not only China and Russia, but also the European Union and most of the international community.

During the 2008 crisis that almost succeeded in bringing down the current international monetary system, gold made a stunning comeback into the system. During the crisis, gold became the only accepted guarantee in order to get liquidity. What was significant was that after having been ignored for decades, gold was coming back into the international monetary system via settlements of the Bank for International Settlements (BIS). These transactions themselves confirmed that gold was coming back into the system. They revealed the poor state of the financial system before the crisis and showed how gold has indirectly been mobilized to support the commercial banks. Gold’s old emergency usefulness has resurfaced, albeit behind closed doors at BIS in Basel, Switzerland. Since the 2008 crisis both China and Russia have accelerated their purchases and accumulation of gold by any means possible as it can be observed in the chart below.

 

2-china-demand-goldMajor emerging market gold buyers – click to enlarge.

 

Currency Wars

Since 2010 we have been in a G-0 world (no dominating power), in currency and gold wars and a new cold war. The world desperately needs a new world order and a new international monetary system. Will it happen after a major collapse and possibly war or through collaboration and consensus avoiding a war? It is evident to me that, as Dr. Mundell said in 1997, “Gold is going to be a part of the structure of the international monetary system for the 21st century, but not in the way it has been in the past.” What form will it take? It’s hard to say now. In this adversarial environment of a cold war and currency/gold wars I can hardly see a fiat monetary system succeeding (fiat SDR). That requires trust and consensus at the international level between countries. A détente, disarmament and collaborative environment was there between 1990 (end of cold war) and 2008 (start of new cold war and currency wars), but no more.

In the conflict-prone environment we are now in, it looks more and more to me as if gold will impose itself as the de facto money. Jim Rickards, in Currencies after the Crash, edited by Sara Eisen, said, “When all else fails, possibly including a new SDR plan, gold is always waiting in the wings as a stable, widely accepted store of value and universal money. In the end, a global struggle between gold and SDRs for supremacy as “money” may be the next great shock added to the long list of historic shocks to the international monetary system.” Any fiat SDR international settlement currency will only be postponing the inevitable “big reset” to some form of gold standard.

 

gold pileGold – waiting in the wings for the “day after”.

Photo via sodahead.com

 

Charts by: Sharelynx

 

This article appeared originally at Goldbroker.com and is reprinted with permission.

 

 

 

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22 Responses to “Exorbitant Privilege: “The Dollar is Our Currency but Your Problem””

  • therooster:

    VB … You’re too late ! I have already transacted for the trading of goods, directly, by moving debt free mass. I sent bullion title (the currency), account-to-account, directly from the BitGold platform for some health supplements to another member. There are no fees for this when you are ON THE PLATFORM. You owe me an apology.

    There are fees somewhere, of course. There has to be for the model to survive. Those fees are only applied when coming onto the platform (buying bullion) or leaving the platform, by going into fiat cash. It’s a simple traversing from the dark to the light and visa-versa. The “bridge” is the real-time floating tool of USD/oz.

    Look a little more closely at the “Fees” link.
    http://BitGold.com/r/0UZxqF

    Send or Receive Gold Payments – Free
    BitGold PrepaidCard – Free

    Leaving the platform includes the loading of the BitGold debit card (MC), which I mentioned that I now have. I have also used the USD debit card, as of yesterday, to make an online purchase with an internet merchant, just as I might with any debit card or credit card. The loading of the card (leaving the platform) has a 1% fee.

    The more formalized merchant marketing tools have yet to be rolled out. The features will be many. I look forward to that because I am an online merchant, myself. I pay more in merchant fees than what BitGold will be offering.

    The BitGold model is an integrated philosophy that embraces the yin & the yang, something the polarized mind can struggle with. The left hemisphere actually has to be integrated with the right. :-)

    I’ll make you an offer. There’s no cost. Hook up, get your free bullion (good will) and I will buy your bullion from you and pay you via PayPal. Fair ? We can only do this, at this moment, on the basis that you are NOT in the USA because BitGold is a “buy & hold” model, only, in the USA at this time. There is no account-to-account transferring ability there at this moment. We are still waiting for the “right blessing” on the opening of this feature for our neighbors to the south. I am in Canada.

    My debit card transaction (USD’s) was with a USA company , BTW. The transferring restriction for the USA accounts is only on the direct transfer of bullion mass, where the fees are zero and we can all enjoy the benefits of great velocity and “21st century fishes & loaves”

    I’ll make the same offer to anyone who you may know anywhere in the world if you are in the USA and can’t send your gold to another account. Just be sure to pass along my link and you can let me know their email address once they have registered. The account addressing has email addressing, just like PayPal.
    http://BitGold.com/r/0UZxqF

  • therooster:

    Well thank-you for that admission of being a cynic. It’s hardly strong evidence, let alone proof of anything that your imagination is conjuring.

    I’ve been transacting on the BitGold platform, BTW, transfers of mass-to-mass, on a direct account-to-account basis. NO FEES. I just loaded my BitGold MasterCard debit card with USD’s , transferred from my gold account and should likely transact with that soon. That fee was 1% for loading.

    I’ve spoken directly to 2 VP’s about any limitations in regards to the loading of the debit card. I’m free to laod the full amount of my account and/or call for the full amount of my bullion holdings that are in the Brinks vaults.

    Brinks could not possibly let a paper gold scam go without clearing their involvement. They’re clearly at risk of a reputation that dates back to 1859. I can’t imagine them remaining silent if this was a scam. They’d know and they would distance themselves very quickly, IMO. On top of that, we have a real-time audit system managed by PW which is a breeze to manage and design because the only thing that needs auditing is based on mass (grams) in comparing the BitGold accounting books/user interface with the physical holdings at Brinks. The relationship is 1-to-1. A child could do the audit….. that includes you. :-)

    • VB:

      Account-to-account fee-less gold transfers at your scam outfit are similar to the account-to-account fee-less fiat money transfers at many banks. Few people do them and NOT for the purpose of payment. If you claim that you have performed such a transfer for the purpose of payment, I am calling you a liar, because no seller accepts weights of gold as payment.

      The transaction fee is not just 1% – there is another 1% when you buy the gold. So, it is a 2% transaction fee for essentially buying goods for fiat dollars.

      As I said, even if the gold is actually there, it’s still a scam. It’s a scam designed to liberate the gold bugs from their money via transaction fees. The fools are thinking “gee, I’m transacting in gold!” – while in fact they are still transacting in fiat money and paying 2% for the privilege each time. The gold, if it exists, is only used as a store of value between the transactions.

  • therooster:

    My, you are a cynical one ! Is this all based on your imagination speaking its mind or do you actually have any evidence of the these claims that you are making ?

    Bitgold is gold backed , 100%, gram for gram , when comparing the digital currency on the books with the stored and reserved gold bullion that is held , independently, by Brinks and audited by Price Waterhouse.

    Add to this that BitGold is publicaly traded and has some notable investors such as Soros and the infamous Eric Sprott, who is one of the most astute dealers & investors in the gold game on this planet.

    Am I to think that the TSX, Brinks, Price Waterhouse and all the large pre-IPO investors, including Eric Sprott are “in on the scam” ??? C’mon , VB, you can’t be that tainted by life, can you ?

    Enron sold fraudulent energy contracts but that does NOT make all companies who market energy derivatives scammers.

    I feel badly for you. We have a beautiful baby here that holds some promise in the debt-free circulation of a debt-free currency with integrated market discipline (weight) , something the world truly needs so that debt can be slowly retired and better managed , yet you feel a need to bear this false witness and yet you offer nothing other than wild and silly speculation on the basis of your paranoid imagination. Rest assured, God forgives and you have time.

    https://www.bitgold.com/transparency#/

    • VB:

      Which particular claims are you referring to? I’ve made several. The 168,000 number of users comes from one of the reports. It is unlikely to be faked and, even if it is, it is faked to the upside. That is, the real number is NO MORE THAN THAT (i.e., a very small number).

      The other scam outfit I mentioned, Goldbits, also claims to be audited, etc., and have all the “backing” gold in storage – they even have a webcam pointed at the two gold bars they currently (allegedly) keep in storage. Even if the gold is really there, that doesn’t make them less of a scam outfit, of course. And the same is true about your scam outfit.

      The claim that their current model is not sustainable and will eventually result in various forms of failure? Well, according to their latest quarterly report, they managed to lose one and a half million bucks (and that’s after various “adjustments”) or 8 cents per share. A back-of-the-napkin estimate shows that at this rate, they will run out of money in about 4.5 years.

      http://www.businesswire.com/news/home/20150831006270/en/Goldmoney-Reports-Quarter-Financial-Results-Announces-Special

      Basically, the company is designed to liberate gold bugs from their money via transaction fees. “Gold-backed crypto-currency”, “debt-free liquidity”, “gold as currency” and the other buzzwords are just smoke and mirrors. The fools who believe it still transact in dollars or whatever other fiat they buy goods for; they are just paying your outfit for the privilege and the belief that their money is held in gold between the transactions. In other words, they still use the gold (assuming that it is actually there) as a store of value and not as a currency.

      But, if your goal is to use gold as a store of value, it is much simpler to store it at a reputable storage facility and pay 1% per year, instead of per transaction.

      Regarding Eric Sprott, originally my opinion was that he’s just a brilliant marketeer. (Since he managed to sell his physical silver fund at something like 11-15% over spot. P.T. Barnum was right – a sucker really is born every minute.) But since I recently learned that he’s associated himself with Porter Stansberry (a.k.a. “Porker Scamsberry”, a convicted fraudster), my opinion of Sprott has fallen significantly lower.

      And, yes, I’m a cynic.

  • therooster:

    Cyber currencies are virtually unlimited in their supply capacity. BitCoin may limit the number of “digital tulips” that grow in their “garden” but have no way of limiting the number of gardens. You end up with a tulip craze, eventually. Nothing new.

    You may want to delve into BitGold a little deeper. Each account holder owns their own gold, personally, denominated by mass and held by Brinks as an independent service. Any account transfers from account to account are done as mass. There is no fiat involved in the settlement. That’s not to say BitGold is limiting this as being the only transaction that will be available or tolerated. It’s a robust system with several more features to be rolled out. They don’t expect to change people’s habits overnight so gold to fiat and fiat to gold is part of the overall e-comm capability but it is mass (weight) transfers on the gold platform (P2P) that will likely gain great popularity, given that there are no fees in that transferring context.

    We should be happy , including you. Circulating debt-free liquidity serves to push debt out of circulation. What the hell is wrong with you ? Are you a “debt dealer” ?

    • VB:

      Oh, yes. Bitcoin has a capped supply – but crypto-currencies in general do not. But exactly the same is true for the scam coin your scam outfit is using. It is not the only – or even the first! – to issue a gold-backed crypto-currency. I can think of at least another one, called Goldbits (gee, these idiots have no imagination). Like yours, it is a pre-mine with the scammers who invented it holding most of it and releasing small quantities to the public as they see fit. But it is based on Litecoin, so at least some proof-of-work is involved. Of course, since all the “miners” are computers controlled by the company, that point is moot.

      Account-to-account transfers is side-stepping the issue. Many banks allow free of charge account-to-account transfers of fiat money, too, so there is no difference. The real issue is what is used as a currency – i.e., as a medium of exchange when trading goods. And it is not gold – it is fiat money. People are getting their salaries in fiat money. The sellers of the goods they buy accept only fiat money. Fiat money is the currency – i.e., the medium of exchange. Even if you store your fiat money as gold between the time you get paid a salary and the time you want to spend some of your salary to buy a good, that doesn’t make gold a medium of exchange. It makes it only a store of value.

      Regarding the popularity part, don’t make me laugh. Your scam outfit has only about of 168,000 users. That’s less than a small village, and it includes everybody who has ever created an account – not necessarily people who are actually using your “services”, or have purchased gold through you.

      The “no fees” part is misleading. There is a 1% fee every time you buy gold (and you can’t just transfer some gold you already own) and ANOTHER 1% free every time you “spend” some of this gold (i.e., sell it for fiat money in order to buy something from sellers who only accept, you know, fiat money).

      The funny thing is that this cannot last. The transaction fees and the lack of storage fees stimulate people to hoard without spending – which reduces the outfit’s revenues without decreasing their expenses for storage. Once they burn through the VC money, the number of options is limited: introduce fees on storage, jack up the transaction fees even further, go bankrupt or perform an exit scam. My money’s on the exit scam.

      There is no “circulating debt-free liquidity”. First of all, liquidity can’t “circulate”; you clearly do not understand what the term means. Second, what is actually circulating is fiat money which, as we all know, is anything but debt-free.

      I am all for the re-monetization of gold and using it as a currency and as a unit of account instead of just as a store of value. However, it simply won’t be allowed to happen for as long as the current system exists – and that system won’t go away voluntarily; it will take a major world war and/or world economic collapse to see the end of it. Your scam outfit isn’t helping; it is just scamming people out of their money via transaction fees.

  • therooster:

    You may want to define “NOBODY uses precious metals as a medium of exchange” ???

    I can assure you are greatly mistaken. It may be because you have no access to the right information.
    The numbers grow daily …. daily !

    BitCoin went through this same kind of disbelief too ….. and they have an inferior “coin” to BitGold’s coin !
    Bitcoin is intellectual capital (so called “mining”) , something that is virtually limitless, while BitGold is backed by gold mass …. 100%

    Never forget the gift of the Magi, VB. If you manage to miss the beginning of that fateful story, you’re bound to be friggin lost at the end. If what you are seeing from me offends you, my apologies. Regrind your lenses.

    • VB:

      Something is used as a “medium of exchange” when you sell your goods for that thing because you know that the seller of the goods you want to buy will accept the same thing as payment, too. Gold will be a medium of exchange when your salary is paid in gold and you use that gold to buy groceries. (And that’s gold by WEIGHT, not just some fiat coins that happen to be made of gold.) NOBODY does this presently. A couple of years ago they transacted in gold for big-ticket items (like homes and cars) in VietNam – e.g., you could sell your house for gold and use part of it to buy a car – but their government quickly put a stop to that. (VietNam has a rampant inflation, BTW.) During the Zimbabwean hyper-inflation, people sometimes used tiny bits of gold (Zimbabwe is very rich on various ores, including gold) as a medium of exchange. But, presently, NOBODY uses gold as a medium of exchange.

      The scam outfit you keep pushing here doesn’t do it, either. The fools who use it still get paid in fiat money and the sellers of the goods they buy accept only fiat money for payment – so, the medium of exchange is fiat money, not gold. The only place where gold enters the equation is the time between the transactions – i.e., it is used as savings, not as a medium of exchange. (Assuming, of course, that the gold is actually there.)

      Bitcoin is a scam on its own (and mostly used for scams, too) – but by far not such a big scam as your outfit. “Mining” is not “intellectual capital”; it is the process through which the bitcoin miners validate the bitcoin transactions on the blockchain. For their effort they are rewarded with newly created bitcoins and these bitcoins are said to be “mined”. Their amount is not “virtually limitless”, you ignorant moron, it is capped at slightly above 21 million and the size of the reward the miners get keeps decreasing. There will never be more than 21 million bitcoins (less, actually, because many are lost irretrievably by various people). Of course, Bitcoin will die much before that limit is reached.

      Anyway, the point is, Bitcoin is at least based on proof-of-work. That is, an amount of computational work has been provably done in order to create every bitcoin amount in existence. The scam coin your scam outfit is using is based on proof-of-stake – i.e., all of it is already pre-mined by the two scammers running the outfit and they can release as many of their coins as they want. Even the rabid bitcoiners who tend to fall for all kinds of scams generally hold the opinion that proof-of-stake crypto-currencies are all scams.

  • therooster:

    Your concern is a premise. Did you even consider this ? You may have thought the FED is very sneaky and cunning without realizing just how right you may have been …. ;-)

    The “script” has “necessary evils”. You may wish to follow it. They obviously did.

    Who set up the real-time pricing for gold on the basis of Bretton Woods and its closing ?

    Is the USD hegemony a function of USD dominance or something more ? Would we not expect this exact same course of action in protection of a developing yin-yang where the “dark side” had to preserved ?

    Your have dark side perceptions where the dollar plays a role of currency, only. You have NOT raised the issue of the dollar’s role as a real-time transnational measure in the support of debt-free trades by using precious metals as the medium of exchange. They happen daily …. and they are growing.

    • VB:

      The US hegemony is the result of its economy not being destroyed by two world wars (as opposed to the economies of the rest of the world) and of selling stuff (mostly weapons) to the rest of the world during these wars. The USD dominance is both the result of this hegemony (without it, it wouldn’t have been able to dethrone the British pound) and a support for it (allowing the USA to acquire other countries products for essentially nothing).

      The USD is mostly a currency and, to a few countries, a unit of account – nothing more.

      And, again, NOBODY uses precious metals as a medium of exchange, despite your idiotic claims to the contrary.

  • therooster:

    CrysAngle … you asked a question about central bank hoarding of bullion as if to say that the gold might act as a backing or a hedge. Bullion now goes beyond this older application, based on current capabilities. There is no need to centralize bullion and as an added feature, gold can now be digitized (via mass as unit of account) in order to add much needed liquidity that was missing in the past. We now decentralize right down to the individual….. mostly because we can ! It’s always been the right thing to do, IMO.

    The free floating relationship of fiat-to-mass (weight) is the real key. The end of the fixed dollar peg to gold was a watershed moment, even if it was only to set the stage by theory.

    CB’s will be able to sell all of their bullion, in time, and focus on the support of debt-free payments by continuing to create debt-currency from thin air. Destroy nothing ! Don’t end the FED or any CB. You are hearing this from a gold bug but a 21st century gold bug who places great emphasis on debt-free medium , market driven supply discipline and instant global liquidity in real-time.

    Add to what has already been in process much like “light coming out of darkness”. Sounds like a contradiction, I’m sure. This is simply a matter of understanding the structure of a symbiotic yin-yang that embraces the circulation of debt based and asset based currency within common jurisdictions. In short , the rules change.

    Free floating fiat currency is what has made gold liquidity possible , on the basis of servicing debt more effectively , because we measure pricing (and liquidity) in fiat currency, regardless of how we settle the debt with a particular settlement medium, whether it be debt based or asset based settlement. Fiat currency now supports transactions by weighing value between bullion and a widget to trade the gold (or PM) for. Bullion is the currency.

    The fiat currency had to gain market traction and acceptability before the above application (of a measuring tool) could ever become credible to the market. If one thinks that the process of real-economy is a real-time event, the real-time reflection of any currency system tends to dove-tail a great deal easier for the sake of understanding and acceptance. It takes time, which is likely a good think because we certainly don’t want an unjust “rush to judgement” on the dollar of fiat currency system. This may be what USD/fiat hegemony is all about.

    Gold at $1000/oz can support much more fiat priced economy than gold priced at $35/oz. Compare prices. Settle with weight.

  • therooster:

    From the article : “Dr. Mundell, in the same article, said, “The United States would not talk about international monetary reform … because a superpower never pushes international monetary reform unless it sees reform as a chance to break up a threat to its own hegemony”

    The above assumes a polarization and an intention of hegemony, almost as if is a mission statement. This is what happens when people assume the intention of others. It’s a process of rationalization for the sake of trying to make sense of a situation. We all do it.

    When I can, I prefer to go with facts and the fact is that in the pursuit of a balanced system of circulating debts and assets, there is a capability axiom that must be considered. We can only do what we can do at any given time on the basis of what resources we have on hand.

    I don’t see any way of adding on a good workable yang to an existing yin until the right real-time conditions and capabilities came about. Even in theory, we had to get past Bretton Woods for the sake of the USD/oz float. It was then that the dollar could begin to do its “stop gap apprenticeship”.

    In the process of creation, is it not light that comes out of darkness ? Nothing new.

    The process of “reform” should be thought of as a completion process. The reality is that process is quite stealth, by way of the organic workings of the market ….. almost invisible. We’re kicking off the second half.

    Hierarchy sucks but we got stuck with it and have been supply driven throughout all of modern history. An apex is like a light to moths in terms of what it can attract. We are creating what I can loosely define as a “rounder world” … likely holographic, in time.

    https://pixabay.com/static/uploads/photo/2013/07/13/13/40/taijitu-161352_640.png

    • Crysangle:

      Viewed as a pure function of monetary activity, I would agree that a dollar hedgemony does not actually exist. This is a kind view, a buffer to the machinations of state, and an enlightened perspective which offers an exit from the morrass to the moderate.
      In reality the position the dollar holds in global trade and finance is a part product of the historical and current use, or ability of use, of force. It is a result of synchronized policy, often installed as a de facto alignment of political ambition. It is a part result of conquest, and there are interested parties with vested personal and national, corporate, millitary and political stakes , who are not willing to relinquish the point of reference the dollar and its finance holds. I don’t say this in judgement, I say this as neutral fact – that is part of the nature of flow between national and international society and its various competitions to success, and sometimes dominance. In fact this sort of hedgemony would go to any successful and organized nation, proof being that individual nations practice full hedgemony within their own borders, by law and force.

      VB, the reason gold lacks the depth of treasuries is a function of its use as a store or representation of value. If everyone transferred their wealth into gold as they do cash, well a few billion in new purchase of gold would be close to nothing, not least because the value of the dollar would not be there – gold would hold the position of reference, dollar would just be a local reference to a bureaucratic and political might, one based on extraction from productivity, not necessarily productivity itself. In the real world, the dollar and its finance does serve to advance trade and productivity, though many would argue this is to greater part as a result of that activity adapting to the dollar than due to the dollar bringing any great advance beyond a homogeneity, something gold may do now, and without political or corporate attachment or seignorage.
      Gold is not used as currency ? Then why is it central banks hoard gold? I don’t think they are speculating, unless that speculation is on the true worth of their own currency in international trade, and hence the need for a truer backing to it than exists in fiat.

      • VB:

        Crysangle, that’s circular reasoning. You are basically saying that IF gold was a world reserve currency, the liquidity would be there. Which is true, but the reason why it ISN’T a world reserve currency is because the liquidity is NOT there.

        US teasurys did not gain their status overnight. But they have it now and the only way for this to change is either a massive loss of faith in them, or a massive gain of faith in something else. Both of which would mean a catastrophic crisis, of the order of a world war. There is no way it could happen “naturally” and gradually.

        The reason why central banks hold gold is not speculation, of course – it is as a store of value and as a diversifier for the other assets they are holding. But the percentage of assets they keep in gold is minuscule. They don’t park their money in gold; they park their money in US treasurys.

        • therooster:

          VB … Your reference to faith, as it may affect change is well placed, IMO. True faith is not a dictator. It is not something that is formalized , nor is it something that people embrace by fiat. This is the spirit of gold acting as a market currency. It is not by fiat, nor should it be.

          A fiat currency has a process of legal creation and application by fiat.
          A market currency has a process of creation and application by way of the market.
          A market currency follows organic law, such as the law of honest weights and measures.
          We have congruence in this manner.

          Render unto Caesar that which is Caesar’s.

          As creatures of habit , we tend to default to the perceiving of monetary issues as being a process by fiat because that’s been our experience. Much of this has been because of the capability/incapability axiom. We can only do what we are capable of doing.

          The marketing issues of real-time gold-as-currency (floating trade values) must be graduated in order to temper any abrupt changes to avert any so called “catastrophic changes” as you put it. When the market governs change, organically, almost at a rate of “one-person-at-a-time” , your concern can be side-stepped. The changes are current and ongoing and the acceleration is toward the yang, certainly not the other way. It’s simply a matter of market osmosis when the rank and file participate by adding debt-free liquidity into the market.

          We must be as wise as serpents, yet as gentle as doves.

          • VB:

            Gold isn’t used as a medium of exchange, therefore it is not a currency – and, therefore, it is certainly not a market currency.

            Market currencies tend to be rare and relatively short-lived anyway. Even when gold coins were used as a currency, they were accepted because they had the official endorsement of the government (king or whatever) – not just because of their gold contents.

            My concern cannot be “side-stepped”. The USA will fight tooth and nail to preserve its hegemonic role in the world – and a large part of it is supported by its currency being the reserve currency of the world and its bond market being the deepest and most liquid market in the world. You won’t see these two things change until a catastrophic (world war or a world economic crisis) disturbance makes the USA unable to fight for the preservation of its hegemony.

            The rest of what you wrote is just nonsense that it is not worth the time addressing.

  • therooster:

    VB …

    Thank-you ! You are defining a marketing challenge, not a problem with systemic design.
    The number of people using gold as a medium of exchange is growing each and everyday, I assure you.
    Smile !

    The stage is set and I’m quite excited.

    We each have a choice as to whether we wish to be “debt dealers” or whether we wish to deal with debt-free liquidity. We can even mix it up. Different strokes ….. that’s what the yin-yang outcome supports. Choice is a great thing in my world.

    Your reference to treasuries, versus gold comes across as an event. Gold-as-currency is not an event. It’s a an organic process. No hurry.

    It’s not an issue of “until things change” in so much as “in the process of things changing” which is right “in the now”. You may simply be a little more results oriented than I am. I’m very process oriented and have a great affinity for the “road back to providence” and the patience that it involves.

    The raising of totalitarianism was foretold. It’s simply part of “the script” and a changing landscape in the formation of the liquidity yin-yang. Birth pains, you might say. People do things on the basis of the carrot or the stick. The stick is part of “the script” and a “necessary evil” and one that has been quite effective in driving people toward bullion, regardless of what the price is. I’m referring to the physical market, of course.

    Would I be correct in making a small assumption that your perceptions of monetary policy have historically been top-down from the apex of government and/or banking power ? Fiat currency (debt based) must have that particular structural feature. The relationship between debt creation and its management has that codependent need because debt currency requires that style of management in view of no debt-free sovereign value at the aggregate level for the currency. The value, for whatever it’s worth, is in the “full set of books”

    A fiat currency requires a fiat process.

    A market currency requires a market process. In the case of the BitGold model (or the older e-gold model), there was a requirement for certain tools and abilities that revolve around real-time pricing and the tools of the information age that support this. Without these developments, real-time gold-as-currency with fully scaleable market liquidity would not be with us as it is today.

    You cannot pour new wine int old wineskins.

    You can argue that the yin is much larger than the yang right now …. but isn’t that the whole point ?

    • VB:

      Bullshit. NOBODY is using gold as a medium of exchange – not even that scam outfit of yours. Gold is not a currency, because it is not used as a medium of exchange. Nobody sells their goods for gold with the purpose to use that gold to acquire other goods. They use fiat currencies for this. Even the few people stupid enough to use your scam outfit transact in fiat currencies – the gold (if it exists) is used as savings, as a store of value.

      You haven’t seen real totalitarianism yet. I’ve lived almost 3 decades of my life under a totalitarian regime. Trust me, when we really get there, idiocies like the one practiced by your scam outfit aren’t going to save you. They will be taxed out of existence, if not made outright illegal and accused of “money laundering”, “financing of terrorism” and other stuff like that. Yes, the comparison with e-gold is apt, although that was at least a honest enterprise. Remember what happened with them?

      As for “scalable”, don’t make me laugh. Not a single one of the crypto currencies deserves this adjective. They can’t compare even with the ability of Visa to perform transactions, let alone with the needs of international finance.

  • No6:

    I hope the dollar price of Gold falls further so that I can get more Gold for my useless paper.

  • therooster:

    The “problem” is not a problem if you are looking at bullion as a currency and , thus, seeing the dollar in its “graduated role” of a real-time measure in support of gold based liquidity.

    Old habits die hard, huh ?

    • VB:

      You can’t look at something as a currency if it isn’t a medium of exchange for a significantly large group of people – and, to the best of my knowledge, presently NOBODY uses gold as a medium of exchange.

      Also, US treasurys are immensely more liquid than gold. Try parking a few billions worth of money in gold without moving the market.

      Until these things change (and it would take a really major crisis to change them), gold has absolutely zero chance of becoming a reserve currency. In fact, in the next few years it is likely to be even more difficult to own (let alone buy and sell) gold – with all this “war on terrorism”, “money laundering”, “tax evasion” and other such nonsense and the raising totalitarianism around the world.

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