ARE GOLD-RESERVES THE ONLY WAY OUT?
A very simple case can be
made to show that world central
banks will soon be forced to return to a pure gold-reserve
If they want to save even a smidgeon of their former power,
they really have no choice - unless they prefer that the whole
ship go down before they change course.
Right now, international dollar reserves constitute
the proverbial hot potato. Nobody really wants them, but no
one can afford to drop them, either.
Best way to demonstrate the truth of this: a
look at Asian central banks, especially those of China, Japan,
They are awash in dollars, and they know that
dollars are falling and will continue to fall. They also know
1. If they simply keep them, their value will rapidly decrease
2. If they sell them, their value will decrease
3. If they buy more to keep the dollar and their
export-based (rather illusory) profits from collapsing, they
will only delay the inevitable and build themselves an even
There can be no greater argument than this to return to a
system where gold is held in reserve instead of fiats - or
any other country's financial obligations (government and
agency debt, etc.).
Staying on a fiat-based reserve system simply
is not an option. The more time is "bought" by these
countries continuing to buy dollars to keep their own currencies
low and the dollar system from imploding, the bigger the problem
gets. All of the participants know very well that, eventually,
a point of no return will be reached.
Right now, they are still waiting, hoping -
against all better knowledge. But that will stop at some point
in time, because it will become impossible to maintain.
The only hope they have right now is that, somehow,
their tactics will enable another credit-fueled "boom"
of the world economy - but they really know better. They know
exactly that credit-fueled "booms" are what brought
us all to this juncture in the first place. Any more of this,
and this pressure cooker will simply explode. That's not the
kind of "boom" they want.
The only viable alternative is the one thing
they have collectively tried to abandon and have worked so
hard to forever lay to rest. It will take some time to sink
in, but sink in it will. Namely, only by exchanging dollars
for physical gold reserves can they truly save their countries
from this mess. Here is why:
The very same reason why the Asians can't sell
dollars right now (their dollar-holdings' value would dramatically
decrease, so they end up with huge losses) will eventually
force them to abandon all pretenses at being able to run a
world-wide monetary regime apart from gold, and it will force
them to start buying gold with their dollars.
If they sell dollars for other currencies or
productive assets, each time they spend dollars to buy these
their remaining dollars will decrease in value and buy less,
while any real assets they could buy with the proceeds will
increase in price as the dollar sucks all currencies down
that old competitive-devaluation sinkhole.
The same will be true of they buy gold with
their dollars' of course. But there is one decisive difference.
If they buy gold for their dollars, then yes,
the value of the dollar will decease just as rapidly - but
the accompanying rise in the price of gold will more than
compensate them for this loss. Why is that so? Because the
"performance" of the gold they buy does not depend
on the performance of any underlying economy where other real
assets they might diversify into may be located.
As each additional dollar spent buys less and
less, each additional ton of gold becomes more and more "expensive"
in terms of dollars. As this process continues, their balance
sheets will on balance be, well ... balanced.
Whatever downward pressure their fiat-sales
will exert on the dollar, gold will make it up in a commensurate
price-jump. Eventually, they will come to the realization
that the dollar-price of gold (or whatever other currency
price of gold) is nothing but a red herring, a ruse.
The real value lies in the gold, not in the dollar.
Instead of looking at the "price of gold", they
will eventually begin to look at the price of fiat, and they
will realize that its price - due to fiat's inherent worthlessness
- is always too high. It doesn't matter which way you look
at it. If you have any grasp on economic reality at all, you
know that the cost of fiat is always too high.
Once this process starts, how much fiat do you
think they will demand for their gold? How much fiat will
they be willing to give for gold?
Eventually, other central banks will catch on
to that, and will join in on the game, driving the price of
gold ever higher and the value of the dollar ever lower.
Obviously, the central bank that begins this
process first will get the most bang for its buck. (Take a
good look at China.) The bank that joins last will lose out
big - but such is life. It's called ‘reality' - and
reality, of course, cannot be ignored forever.
As each central bank buys gold with its surplus
dollars, the price of gold will increase exponentially, but
at least this way they end up with an asset that has proven
its value - and especially its store-of-value function, throughout
human history. Fiat, on the other hand, is now proving its
ultimate uselessness and unreliability just once more.
The point: However much or little gold they
are able to buy with their dollars, they end up with something
they can rely on, while even currencies, government debt,
or even productive assets of other nations or economic unions
are shaky at best (because the underlying economies are shaky
and fiat-dependent) and will eventually lead to the exact
Look at the euro. If they buy those, euros will
become super-expensive because the entire concept behind the
euro is "price stability" - which in effect means
limited printing. To counter that effect, the ECB would have
to seriously dilute its currency by either printing more or
lowering its interest rates, direct intervention buying other
currencies, or all of the above.
The foundations of the EU are already cracking
under the weight of its expensive currency. Talk of abandoning
the price-stability mandate abounds in the constitutional
debates. For how long do you think they can continue to operate
on virtual recessions and deficits while supporting the international
reserve role of the euro? For how long do you think the nations
making up the union will go along with that? Once they break
away - where is the euro?
Even if a basket of currencies centered around
the euro is used as a currency reserve, the effect on the
euro will be quantitatively less severe but still too much
for the struggling euro zone to digest. They are complaining
even now - while the euro hasn't come anywhere near the heights
it will soar to when the dollar collapses.
Of course, most central banks will fight tooth
and nail before admitting that they have screwed up with their
little fiat paper experiment, but the day will come.
Let's say they will try to institute another
basket-case policy and adopt a currency "basket"
that contains gold among other currencies. Can you see purely
unbacked fiat paper successfully competing with gold once
gold has been officially elevated to "currency"
status again by the IMF, the World Bank, and all other international
Ha! I can't wait for the day.
Watch their little experiment go up in smoke
and see the high and mighty central bankers sit around their
conference tables with soot from the explosion all over their
faces like little kids who failed to heed the instructions
on their first chemistry kit.
But, seriously, try as they might, gold is what
will become the number one reserve asset again - one way or
The problem is: where does that leave the US
as the dollar's issuer? What effects will it have on the US
economy if the all world sells dollars for gold? Will the
Fed and Treasury join the gold-buying rush and in the process
annihilate their own currency?
Or will some smartypants politicians (like past
and current White-House occupants) step forward and tell us
that, "for the sake of national security, and to prevent
the clandestine financing of terrorism, blah, blah, blah ..."
we all need to forget about cash-money and gold altogether
and accept a convenient little tracking device under our skin
that can function as authorization to use a new cybercurrency
to buy and sell what we need?
This cybercurrency will of course exist purely
in the imagination and on the computer screens of certain
programmers. It will need neither currency reserves, nor central
banks, nor commercial banks, nor wallets, nor safes, and that
quality will be trumpeted as the salvation of the world economy.
All it needs is one single, humongous computer database into
which your entire life's record will have to be fed including
mental health records and your innermost wants, dreams, and
aspirations - only for you own protection, of course.
Which way will the world proceed? Judging from
past (and current) experience, I'm willing to bet my life
that the latter will be at least attempted. Whether it's successful
or not depends in the final analysis on - you.
If you own and possess physical gold, at least
you will have something to defend, something to fight for.
If all you own is paper, and paper/computer claims to more
paper, why should you care? Expect a witch-hunt of all gold
owners, if that comes to pass,
As hinted above: Take a good look at China.
Interesting to note in all of this is that, of all places
China - yes, supposedly communist China - is strongly advocating
that its people own and save physical gold to hedge against
currency risk. Thus quoth Zhou Xiaochuan, the governor of
the Peoples Bank of China in a recent address to the LBMA.
If China will be the leader of the emerging
post-dollar world order as so many expect, can we anticipate
that private gold ownership will be an officially sanctioned
policy world wide? Or, maybe only Chinese citizens will be
allowed to own gold??
More time will have to pass before that call
can be made with any degree of certainty.
In the meantime, take advantage of artificially
suppressed, pre-dollar collapse gold prices, and stop complaining
about gold price manipulation. It's a pure blessing for those
who are wise enough - like the Chinese.
The motto? Don't fight it - take advantage of
it! Its days are numbered.
vs DOLLAR CURRENCY WAR MONITOR
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