This piece on the collapse of the dollar standard may be a bit goofy. For as long as I can remember, a certain type of economic Jeremiah has warned the world: "Buy gold! The end of paper money is coming!" This piece would seem the latest in that dubious genre. But one sentence is worth noting:
"Iran is attempting to create an oil trading exchange that does not transact in dollars."
Wasn't Iraq attempting the same thing? (For more on the coming war with Iran, see below.)
30 comments:
There's been talk about this before. It would be a disaster for the American economy, and a great boon to the oil producing nations.
So, in a sense, it kills two birds with one stone, since all the oil producers hate us, usually for excellent reasons.
However, the U.S. wouldn't relinquish the dollar standard willingly or peacefully.... Which is one reason "we're" in the Iraq at this very moment.
'dubious' genre?
hardly! check out your history; the only way the wealthy scions survived the big 29 crash was by buying up gold beforehand. countries with gold standards always dominate economically; that's why the us became so powerful so quickly. it was nixon who, upon degaulle's threat to cash in us dollars for the gold, who convinced congress to take us off the gold standard. (rumor has it the gold was gone to pay for the war.)
the big crash will come because the value of currency will be reduced to its 'real' value, i.e., paper. gold has always throughout world history been its own currency, mainly because it hold inherant value and is not just a medium of exchange.
there has been a great deal of talk in numerous nations about dropping the dollar standard, namely iraq and iran, as well as china a year ago. south and central american countries have been quietly converting to the gold standard for years, as well. what is happening right now is many many countries are investing in gold. it's not just a gold/dollar game anymore, where their relative values are inversely proportional. recently the value of gold has been rising regardless of what the dollar was doing, even when it went up. this is due to so much buying internationally.
(and of course there is the whole story about the banks artifically depressing the growth of gold value, replete with an anti-trust lawsuit that is in play.)
folks don't trust the dollar anymore, and for increasingly good reason. why would anyone invest in paper that comes so heavily laden with debt?? and is represented by such a fragile economy??
but yeah, the noises iran has been making on this front simply increase the list of reasons to invade them. you have to know iran knows this, and you have to wonder if they're placing a risky bet that the neocons will soon be unable to do anything about invasions of any kind.
my bet is the neocons are so utterly delusional that they'll play this invasion 'newer pearl harbor' wild card in the hopes that they'll buy everlasting power.
of course, no thought to what that power will mean, or what all their gold will buy, in the midst of utter destruction.
ps. forgot to mention something that likely everyone here knows: there is NO gold in Fort Knox. None. Nada. zilch.
the fiat economy is truly fiat, as in pheeeyyaaht! driven purely by hutzpah and 'trust me'.
which have convergently met their 'makers' in the neocon cabal.
Sorry, Ill, but you're not quite right historically.
Anyone who held government bonds in 1929 (or cash stuffed in a mattress), was in fine condition. And, unlike gold, government bonds earned income and appreciated. There was no rush to precious metals before or during the Depression. That mania began in the 1970s, and anyone who bought at or near the peak is still looking at big losses, 30 years later.
Finally, I don't know of any South American nations which have been "quietly" converting to gold, since (except for Venezuela) they have virtually no foreign currency reserves with which to buy it.
In a word, there are no countries today on the gold standard. Everybody's paper is "worthless", in that sense, and the Chinese would hardly be buying dollars in the enormous quantities they do, if they were converting to precious metals.
As a reserve currency, the dollar is doomed (if current economic policies continue), but it could be many painful years before the transition takes place, as the American standard of living slides. Bear in mind, however, that as we go, so does the rest of the world. Very hard to predict what will happen, under these circumstances.
lll is right, as usual. As for Anonymous, yes, it is true that gold hasn't reached the highs it hit at the end of the 70's, but it will--and way beyond there. Few Americans grasp just how fucked up our economy and finances are is still small. lll understands, but Anonymous apparently does not.
Try treading a little more carefully, unirealest, otherwise you give a lot of needless offense.
The "factual" assertions in Ill's post are all wrong. There's no disputing that. He doesn't know history.
You can argue that his predictions are correct, but unless you can see into the future, there's no basis to say whether they're "right" or "wrong".
Note that people were claiming that the sky was falling in the 1970s, and that the U.S. economic system was shot. That's why they were buying gold for $800 an ounce.
Everything collapses eventually, but it's fine art to know when. Because someone else doesn't agree with your timetable is not evidence of stupidity or lack of understanding.
My apologies for careless writing, Anonymous. I'm a bit sick right now, and I wanted to be clearer than I was. No offense intended!
Also, "lll" is a she, I think.
um, feeling the need to weigh in here.
with regard to gold as replacing paper, it's not clear that that will happen; not practical. but as a standard against which the paper is valued, it holds more, er, weight than anything out there.
i did make an error: other countries have been converting to the EURO as their currency of commercial choice. they've all announced as such in recent years, but quietly. right before the election last year, china and russia made such noises about the possiblity of converting to the euro for international oil exchange. but my apologies; in my haste i conflated that point with the fact that NOW, in the past several weeks, there has been a flurry of gold investment from countries all over the world.
and it is a well-established fact that china has been quite diligently building its gold reserves and placing themselves on a gold standard for some time now. very smart move. it contributes in no small measure to agreement in economic circles that china's economy is the most solid on the planet.
and all they have to do is cash in on our debt to them, and poof, we're toast. and their holdings of our debt are only about a third (last i checked) of what we owe japan!! with their economy gaining stability, watch for them to dump us too; these folks just don't need us anymore, and our economy, especially on an individual buying power level, is so far down the crapper, counting on us consumers to make it all nice would be patently stupid.
with regard to the 29 crash, it's not at all clear that those who had bonds did that well, because they were convertible to the us dollar, which was not worth squat. does anyone know if holders were even allowed to cash them in during the depression? and their value did appreciate, after WWII started. not so sure how that benefitted ANY of those holders at the time of need, really.
the practical problem with holding gold during that time was that fdr immediately made it a federal crime to be holding gold. no bank was allowed to open a safety deposit box without a federal agent at hand. so it was only those very wealthy who were able to squirrel away such holdings outside the country, or in their own secured safes. or those who could successfully bury theirs in the backyard. whatever.
ultimately, if we want to wax really philosophical about it, not even gold is really worth much in such a circumstance as federal bans against ownership (black markets would of course be there, but that's a little risky; those deep in the 'dubious genre' are already making paranoid noises). the fact is, if whatever you have can't get you food and water and shelter and warmth, then you're screwed.
and if those things don't even exist in amounts ample enough to support the needy population (which could be almost all of us, the pitiful non-top 1%), then all hell will break loose.
and the gold will mean as little as the paper. except that it shines so pretty and bright.
and unirealist is right; lll is a she.
also, meant to thank unirealist for the kind defense; i'm flattered and honored.
do hope you're feeling better!
Well, Ill (and sorry for referring to you as "he"), there's a lot in your post.
I'm glad that somebody said gold is no indemnity against fate, particularly in the face of a real collapse. And, even if one could manage to hold on to gold in a crisis, what would "surviving" with gold actually mean, when everyone else around is starving or desperate. Unless you can get out on the last plane to that villa just outside Geneva or Stockholm....
As for China's economy, I have to disagree: it's so heavily dependent on American imports that a severe contraction could occur at any time. And the Chinese would starve if we stopped buying. They don't dare pull the plug.
The world economy at this moment is a pyramid scheme. As soon as one party takes the chips off the table, the whole thing collapses.
As for diversification to the Euro, no dispute there. And a smart move, because the economies of Europe, for all their difficulties and unencouraging demographic trends, are still far better run than the U.S. currently is.
As for the dollar during the Depression -- people with cash did very well. It was a period of deflation. Anyone who bought stocks or real estate during this time would have become very, very rich (assuming a long enough life). And things were worse in Europe.
I'm not suggest that will happen again -- U.S. gov. bonds could well be worthless this time around, or junk bond status. But it was better than gold in 1929, and the dollar went far.
I agree, Anonymous. I think all three of us are on the same page here (metaphorically as well as literally).
Tainter, in his book The Collapse of Complex Societies, points out that no nation participant in the economic web can be allowed to collapse. That other, stronger, nations will either take it over (as, e.g., West Germany did to the Eastern half) or prop it up (as the IMF did with Russia, Mexico, Brazil, etc.) Tainter's not a doom-and-gloomer; he's just doing an analysis of how and why complex societies fall. But his theoretic point supports your observation about today's global house of cards. That is, nobody's going down unless everybody goes down.
So, all the players have a vested interest in keeping their cards on the table. Yet countervailing pressures are increasing on some of the players. and they're taking cards off the table, without a lot of fanfare. This I think is lll's point (one of them, at least!)
For example, this year has seen a dramatic drop-off in foreign gov't purchases of our Treasury bonds. And, petroleum exporters are now leaning toward the euro, over the dollar. India and China both have stepped up gold purchases, and cut back on accumulating dollars. (In fact, if fiat currencies collapse, India will rule the world, she has so much gold. lll is correct--the US has probably none.)
I (clearly) am a doom-and-gloomer. Greenspan is about to retire, and is desperately shoring up the crumbling US financial infrastructure in the meanwhile. So that it doesn't implode on his watch. Maybe he'll succeed in that, but I doubt it. Our nation is unravelling so fast and in so many ways that I wouldn't be surprised if we crashed by the end of this year.
It's going to get ugly, yes, but preparing for the worst might give an edge on survival. Good luck to all of us.
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