Failure to produce a legitimate bonafide gold-backed currency, together with an adequate industrial base, would mean the United States will be confronted with a real big nasty currency crisis.The entire USEconomy would go into a downward spiral with higher prices, supply shortages, and social disorder.
During the crisis that comes, the gold price will find its true proper value between $5000 and $10,000 per ounce.
Scattered
recent analysis has centered upon the Gold Standard and its viability
within the global financial system. The topic is certainly very blurred
and at times confusing. Consider a recent article by a competent analyst
Charles Hugh Smith of the site OfTwoMinds on the practicality of gold
used as a standard. The article is entitled “The Problem With
Gold-Backed Currencies”. He makes several points, many good ones.
In
the Jackass opinion, his analysis avoids many potential solution
features, is premature on focus of the currency (and not trade), and is
unfortunately backwards in the logic. The main criticism to put on the
work is that he confuses the extreme difficulties created from decades
of fiat currencies, with the supposed problems of installation of
gold-backed currency. The entire article is not well developed, seems
sketchy, and misses numerous very important features which are being
considered. He does put many critical issues on the table, valuable for
discussion. He offers no solution to his stated problems.
In
modern parlance, the logic put forth would indicate that since a heroin
addict has so much difficulty with kicking the deadly habit, ravaged by
delirious tremens, beset by extreme health problems, that one should
conclude movement toward a clean sober life would have problems and
simply would not work. Thus the backwards logic. Unfortunately,
CHSmith produces straw dogs in the face of absent solutions. Let us
examine the points made.
The Gold Standard is near perfect, provides sound money, and requires modern tweaking to make it work. The
transition period will not be six months, but more like six years. The
transition is possible, is workable, but with tremendous disruption and
arduous adjustment. The victim nations would be many, but they hold much
of the banking and military power.
The
Global Currency RESET is essentially referred to, which will render
deadbeat economic nations as extremely vulnerable to systemic breakdown. The
definition of deadbeat is tied to huge trade deficits and oversized
current account deficits, coupled by extremely unmanageable national
debt. They tend to have bloated welfare states and diminished industry.
The United States qualifies as the most at risk, the most out of
balance, and the worst from a debt and an industrial standpoint.
The
Gold Standard a la Bretton Woods was broken illicitly, illegally, and
brutally to begin an American Dollar Hegemony in 1971. Here 46 years
later, the distortions and imbalances are horrific. As forecasted in
2005 within the Hat Trick Letter, the King Dollar is being defended
finally by war in the open. Obviously it is veiled cover for blocking
the Russian supply chain and recently the Iran supply chain.
The
USEconomy operates on an invalid credit card, usurping the global
currency reserve. The USFed monetary policy of Quantitative Easing has
introduced a hyper-inflation injection into the global banking reserve
capital foundation, for six years.
The
rot from wrecked money and rigged financial markets has forced an
Eastern solution. It will be centered on gold, first in trade, then in
banking, and finally in currency. CHSmith focuses on the last
plank, rather than the requisite first two planks, in error for the
sequence. Examine his main points, then dissect them, with a viable
solution presented on the table. He cites the challenges of a
gold-backed currency, not the problems which make it unworkable. He
offers no path toward solution, whereas the Jackass will do precisely
that.
DIFFICULT ADJUSTMENT PERIOD
The
alternative to installing the Gold Standard is not acceptable, not
tenable, and not workable. It is the present course, toward a global
systemic breakdown and wider war. It would be better to adjust in a
rabid industrialization process and a nasty wave of debt defaults, which
might be more orderly than imagined, if begun. The move toward gold
reserves would have to be quick in transition. The constructive path
toward solution will be difficult and requires creative thought. The
entire consensus must discard Keynesian lunacy.
Gold
is the arbiter of fairness, equitability, balance, and forces a just
system. The Gold Standard is arch-enemy of the globalist fascist state.
It is possible that Gold smothers war. It puts war and dominance in
check, while putting industry and trade in the forefront while seeking
equilibrium.
The
initial focus should be on the Gold Trade Note, which is the fiat armor
piercing weapon, to be used for trade payment. It is coming into view,
with its key components. The Eastern nations and Emerging Market nations
have the trade advantage, from actual stronger industrial bases. They
can direct traffic with a reform in trade payments. Charles Hugh Smith
has a focus on the gold-backed currency that is premature. One does not
put the crown on the new king before he is identified, then walks to the
throne and sits in it. Focus should be on the Gold Trade Note as the
trade mechanism. It kills fiat paper. Gold is urgently required as
solution, in order to bring order, to seek balance, and to achieve peace
on the globe.
CURRENCY CONVERTIBLE TO GOLD
CHSmith
states that for any currency to be truly backed by gold, it must be
convertible to gold. He claims this line of thinking is disconnected
from the real-world mechanisms of capital flows, and the way money is
created in our financial system. Such is not true. He claims the trade
deficits from the 1970 decade would have forced the USGovt to forfeit
its gold, leaving nothing to back the USDollar. The US Empire would have
collapsed decades ago if it had not abandoned the Gold Standard. This
is untrue and total nonsense. The USEconomy would have been forced, due
to French President deGaulle demands, to fortify its industrial base
immediately and to reduce its federal deficits. It would have forced
Washington to reform quickly and immediately in a national emergency
setting.
CHSmith offers no solutions. Even when deficits exist, a gold cover clause could provide a solution to avoid full drainage of gold reserves. The
underlying basis is for a Gold Standard in the currency. For instance, a
5% cover clause would entitle a nation with a $1 billion surplus with
the US to claim $50 million worth of gold. Such is hardly a ruinous
proposition, since it comes to about 1.25 tons gold. The message would
be delivered and heard, to rectify the imbalance quickly. This is a
simple feedback mechanism, and not a disaster. Such mechanisms are not
only healthy, but urgently needed. Nations could alter their cover
clauses to weaken their currencies. Moving to a 10% or 20% cover clause
would be viable for a nation with a sizeable trade surplus. Moving to a
3% cover clause would be necessary and prudent for a nation with a
decent trade deficit. The US might attempt a 1% cover clause, given a
return to a gold-backed USDollar, since ridiculously insolvent, deep in
debt, and in far reach of remedy.
IMBALANCE WITH DEBT ACCUMULATION
The
implication is for the Gold Standard to be evident in a hard currency,
based in sound money, since convertible to gold itself. With the checks
& balances gone, the US has therefore been permitted to accumulate a
vast pile of debt. The USGovt debt has recently exceeded $20 trillion,
which is roughly worth 500,000 tons gold bullion at current prices.
Clearly conditions have gone way out of kilter. The debt doubled under
the Obama Admin, for which he awarded himself a medal. To call him a
charlatan is a grotesque under-statement, when marionette is more apt.
The debt is unmanageable, seen in the graphic in the form of stacked
$100 bills. Actually, the stacks shown make a tractor trailer truck seem
small. The value of the massive structure is only $15 trillion.
Football fields are included for better reference.
![](http://www.silverdoctors.com/wp-content/uploads/2017/04/willie.png)
Harken
back to the early 1970 decade, when the USGovt under the Nixon Admin
broke the Gold Standard by force. No nation except for the United
Kingdom seemed to approve the gesture steeped in hegemony. Later the
French President Valerie Giscard d’Estaing called the US usurped global
currency reserve an exorbitant privilege. The unspoken element contributing to the fast rise in the USGovt deficits was the costly Vietnam War. Smith wrote, “And
any nation running large trade deficits will soon empty its gold
reserves as international holders of the currency choose to convert
their currency into gold, which is exactly what happened in the late
1960s in the United States.” The vicious meat grinder war was the
cause of the first couple $trillion in debt, with hidden motive to
advance the military industrial base in the US, and to capture the
Cambodian Triangle for heroin. Again, the author abhors the corrective
process which is essential within any healthy system seeking balance.
Indirectly,
CHSmith tacitly defends the war spending and overlooks the industrial
base issue entirely. If in 1971, the United States had forfeited $5
billion in gold to France and had set a precedent, the US nation would
have immediately gone on an emergency status and rebuilt its industry,
reduced its welfare system, and cut back in a big way its military
budget (hardly defense). The trade deficit was far less than a quarter
of what it is now, standing at $550 billion in the last fiscal year. Now
the task is greater, given the lack of effort toward rebalance. War has
become a constant feature. As George Orwell stated, “The war is not meant to be won; it is meant to be continuous.” He
was the elite spokesman at the time, without such recognition. CHSmith
cites a symptom of absent accountability as a justification for no
accountability, an absurd premise.
The
USGovt embarked on an additional decade of Star Wars military spending
during the Reagan Admin, expanded its welfare state, and accelerated the
trend of outsourcing industry to the Pacific Rim and later to Emerging
Market nations. All these three movements proved to be
disastrous. The Gold Standard imposition would have halted all three
movements in their tracks. But the hegemon turned to financial
engineering, raised Alan Greenspan to a semi-god, continued to shed
industry, and relied upon financial asset bubbles to sustain the
economies in an historical absurdity. All the US-based asset bubbles
have burst, the wreckage clear, but the US has seen fit to re-expand the
same asset bubbles. No discipline has been forced, since no officially
recognized arbiter exists. The Gold Standard would have prevented
financial engineering from going amok in the US, with an exclamation
point.
CREDIT CREATION RUSE
CHSmith
did not address any corrective mechanisms. He mentioned credit creation
as being potentially inhibited in the modern era. The credit creation
was a monster that fed the financial asset bubbles. It should not have
been permitted to flow so freely in one carry trade after another, in
unfettered debt, in unchecked military budgets, and recently in the
uncontrollable Medicare/Medicaid bills. The entire underwriting process
is totally out of control, and in dire need of a fair arbiter. Witness
more debt blisters and festering bubbles in the car sector, the home
sector, and the student sector, even still the energy sector from the
shale fiasco. The entire credit engine has had no control mechanism for
30 years. Its wreckage is not justification to avoid a Gold Standard. It
is precisely the reason for the Gold Standard, as firm arbiter. The
author has it backwards.
EXPANDED MONEY SUPPLY
A
simple point must be made, often cited by other competent analysts. In
the last several years, the money supply for the USDollar has expanded
something like five-fold since the Lehman failure event. The official
suppressed Gold price has retreated from its $1900 high. Such dual paths
are opposite to what should normally occur. The bogus argument has been
put forth that there is not enough gold to back the monetary system.
Although CHSmith does not make this errant point, it is a surprise to
the Jackass that he did not. Actually, the corrective
mechanism would call for the Gold price to be five times higher, like
around $6000 per ounce, in response to a massive increase in the recent
money supply. There is plenty of gold to cover the monetary system, but
the gold must be repriced an order of magnitude higher. Gold
must be priced much higher, in accordance to the money growth. In future
years, with still more legitimate monetary expansion, the gold cover
clause could be an indispensable tool. This is utterly basic as a
concept, and shatters easily the insufficiency argument.
DISTRACTION OF TRIFFIN PARADOX
The
Triffin Paradox presents challenges for a reserve currency, rather than
justify that the Gold Standard does not work. No nation should use as
its domestic currency a global reserve asset. To do so it absurdly
destructive. Triffin explains that a reserve currency has two distinct
sets of users: domestic users and global users. Each has different
needs, so a built-in conflict exists between the two sets of users.
Global users of the USDollar need enormous quantities of dollars to use
as reserves, to pay debts denominated in USD and to facilitate
international trade. The only way the issuing nation can provide enough
currency to meet this global demand is to run large, permanent trade
deficits. It would in effect be exporting dollars in exchange for goods
and services. The pressure would be run massive deficits in order to
supply the world with adequate reserves that fill its banking system
foundation. This is entirely backwards. Therefore, no
nation should use the global reserve as domestic currency, such as the
United States has done with horrendous abuse. Gold bullion
would be much better in the function of global reserve asset type.
Triffin’s Paradox is not a paradox at all. It is instead an argument for
the Gold Standard, and never for a nation to use the global reserve
asset in its domestic economy. CHSmith misses the argument entirely.
The
absurdity of the fiat currency system is exemplified in two respects.
First, the USDollar is implicitly backed by USTreasury Bonds, which is
USGovt debt. For debt to serve as a basis for banking systems is
backwards and insane. It guarantees a systemic failure, like what is
seen today. It invites a calamity to the entire supply chains of the
global economy. Implicitly CHSmith tacitly defends the fiat currency
system since fixing its outcome is intractable and extraordinarily
difficult. Again, the upside-down nature of the system,
and its extreme challenges to correct it, is not justification for
continuing the current broken system. A Gold Standard system that is
right-side up is preferable, even if difficult to install, even
tumultuous and initially disorderly. Secondly, Germany has in
the past couple years displayed a flaw in the system. It has been
running surpluses. The result has been inadequate debt with which to
supply the bond market, and hence negative interest rates are the rule
of the day. This is upside down. No nation should be subjected to the
absurdity of negative rates when economically strong with a firm
industrial base. The US floods the global financial system with debt,
even fake production of debt via derivatives, in order to maintain its
control and power. Its equilibrium is false and untenable.
CRITICAL MASS & NON-RESERVE CURRENCY
For
a Gold Standard to succeed, the Jackass has preached that the
collection of gold-backed currencies must have critical mass. Giving a
single hypothetical example of Slobovia and the quatloo currency is
errant and off the mark. No single nation, or even a
group of a few nations, can succeed in setting a Gold Standard, since
the forces are too great to absorb and to handle in the healthy feedback
mechanisms. The important concept is critical mass, which is
exactly what the Eurasian Trade Zone is attempting to achieve. They are
gathering nations toward participation in a better system. They are
building the non-USD platforms, building the non-USD market mechanisms,
soon to reveal the gold role. They recently signed up Turkey as a
potential gold provider for the all-important Gold Trade Note. It will
be used in trade payment, kicking to the curb the USTreasury Bill.
Imagine
the chaos when the Saudis sell gold to China, then to most of Asia, in
RMB terms and later in Gold Trade Notes. When a much larger organization
of nations, like the assembled mass from the Eurasian Trade Zone, the
BRICS nations, with Emerging Market nations in tow, agree upon the Gold
Standard in trade payments and in banking reserves and in currency
formation, they have force. If they command the majority of trade, then
they dictate the rules. The combined GDP of the stated group has been
attracting attention, as they are forming the critical mass. Already
Russia and China are in possession of at least 60,000 tons of gold. So
they will soon make the rules.
ERRANT CONCLUSIONS
Examine the final conclusion made by CHSmith. “In
a true gold-backed currency, every new $1 in currency must be backed by
the addition of $1 of gold to reserves. If the gold supply remains
constant but the supply of currency constantly expands, the value
measured in gold of the outstanding currency declines accordingly. Any
currency is only truly backed by gold if it is convertible to gold. Why
hold a gold-backed currency that can be diluted 10-fold overnight by the
issuing government/bank? Any nation issuing a gold-backed currency
cannot control the global price of gold, and so that nation’s currency
is hostage to fluctuations beyond its control. If the issuing nation
sets a peg to gold, that peg is subject to the whims of the central bank
and state. In other words, the peg is simply another flavor of fiat
currency. Simply put, there is no way to back a reserve currency or a
fractional reserve banking system with gold. It is easy to say that a
world with very little credit would be a good world, but it would be a
world with limited debt-based consumption, i.e. a world with little
growth. And without growth, the system implodes.” Almost nothing above is logical, factual, or correct. Cover them one by one.
The
gold cover clause could render $1 billion dollars backed by $50 million
in gold, or 1.25 tons gold bullion. The policy would be very
manageable, and also flexible with an adaptable cover clause percentage.
Export powers would have a higher cover clause, while deficit nations
would have a lower percentage. The concept is already being circulated.
No
nation would need to control the price of gold. This is backwards. The
gold arbiter would control the value of competing currencies. Several
gold-backed currencies would be on the table, varying in gold reserves,
in surplus versus deficit status for their economies, in commodity &
resource reserves, in wisdom of national leadership, in cooperative
trade policy, even in military aggression, and others factors. Nations
would not be hostage to gold price fluctuations. Gold is constant,
while currencies would vary in value depending upon inherent
conditions. The control of the individual currency would be the main focus, as CHSmith has it backwards.
The
final point made by CHSmith is also errant. He claims that a currency
pegged to gold is subject to whims of the central bank and state. The
peg would not be simply another flavor of fiat currency, hardly the
case. It would be part of a set of measures by which to gauge the value
of a gold-backed currency. Make the setting of the gold-backed Arab
Dinar stupid, and that currency would falter versus a prudently arranged
gold-backed Nordic Euro. The fading Arab oil monarchies would have to
compete against the stalwart wise Germans. If the Arabs fail in the
competition within the gold arena, they will lose their gold, truckload
by truckload. They would be forced to make adjustments, under the guise
of the feedback mechanisms. Instead, central banks would be held
accountable. This is requisite after the extreme abuses since QE began
in the West in year 2012.
CHSmith
reveals his shortcomings by jumping to the conclusion that in his
opinion, no way exists to back a reserve currency with gold. The
fact stands that he does not comprehend the mechanisms for creating the
Gold Standard and implementing its complex systems. Limited credit
creation is precisely part of the upcoming solution. Credit abuse has
become the standard, which must be remedied quickly.
He
implicitly gives tacit approval of the absurd cancerous situation with
credit fueling rigged financial markets, credit behind the interest rate
derivative machinery, credit trying to hold together the comatose
energy sector, credit fueling the nutty car loan business, credit
fueling the dead corpse of the housing market, credit funding the
ridiculous stock buybacks by major corporations, credit fueling the
algorithm high frequency stock trading, and credit behind the war
machine. Let us leave narcotics aside for another day and another
article, in its new role in guerrilla war.
These
credit abuses must be brought into check. The Gold Standard is exactly
what is required. Furthermore, the extreme deficit spending of most
nations is often linked with badly imbalanced welfare states and
unjustified military spending.
Credit
must be directed with urgency toward reindustrialization on the grand
scale, and capital formation with business creation on the local level. It
seems the advanced nations have lost their way, no longer competent in
capitalism and business creation, only in socialist taxation of business
and oppressive insurance systems. The Gold Standard can be used to
effectively rebuild industry with proper incentives.
The
Gold Standard requires defense and advocates. The Jackass stands by the
standard, and defends it. Some innovative thought is required. Always,
logic might be used properly, and not in any backward manner to dismiss
gold from its proper role. Most economic thinking in the modern society
today is atrocious and heretic, in defense of a profoundly corrupt
system. Even within the gold community, much thinking is flawed and
lacks logic.
NEW SCHEISS DOLLAR & GOLD TRADE STANDARD
In
time, expect an eventual refusal by Eastern producing nations to accept
USTreasury Bills in payment for trade. The United States Govt cannot
continue on numerous glaring fronts of gross negligence and major
violations. These violations have prompted the BRICS & Alliance
nations to hasten their development of diverse non-USD platforms toward
the goal of displacing the USDollar while at the same time to take steps
toward the return of the Gold Standard.
The
New Scheiss Dollar will arrive in order to assure continued import
supply to the USEconomy. It will be given a 30% devaluation out of the
gate, then many more devaluations of similar variety. The New Dollar
will fail all foreign and Eastern scrutiny. The USGovt will be forced to
react to USTBill rejection at the ports.
The
US must accommodate with the New Scheiss Dollar in order to assure
import supply, and to alleviate the many stalemates to come. The United States finds itself on the slippery slope that leads to the Third World, a Jackass forecast that has been presented since Lehman fell (better described as killed by JPM and GSax).
The
only apparent alternative is for the United States Govt to lease a
large amount of gold bullion (like 10,000 tons) from China in order to
properly launch a gold-backed currency. The annual trade
deficit would immediately render the entire batch of gold at risk of
forfeit. Any such lease would open the gates for a generation of
commercial colonization, but actual progress in returning capitalism to
the United States. The cost would be supply shortages to the USEconomy, a
result of enormous export increases to China.
Even
if the USGovt can secure such a large hoard of gold, like from Bush
Family and Rubin Clan seizures of stolen Fort Knox gold reserves, the
United States will be vulnerable from a $550 billion annual trade
deficit. Its settlement after one year would exhaust all 10,000 tons,
since at $1300/oz, such gold tonnage would be worth $420 billion. The
United States is truly trapped in an economic insolvency situation,
with inadequate industry and a huge unresolved trade deficit.
Failure
to produce a legitimate bonafide gold-backed currency, together with an
adequate industrial base, would mean the United States will be
confronted with a real big nasty currency crisis. Any new
currency, even with gold backing, would be subjected to a series of
devaluations due to the enormous trade deficit. The result would be
heavy powerful painful price inflation from the import front. The effect
would be to reverse a generation of exported inflation by the United
States.
The entire USEconomy would go into a downward spiral with higher prices, supply shortages, and social disorder. However, the rising prices would come from the currency crisis, and not so much from the hyper monetary inflation. That flood of $trillions has been effectively firewalled off. During the crisis that comes, the gold price will find its true proper value between $5000 and $10,000 per ounce. Then
later, it goes higher, as it seeks equilibrium in a new world where
gold serves as the global arbiter in trade and banking and currencies.
HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
Jim
Willie CB is a statistical analyst in marketing research and retail
forecasting. He holds a PhD in Statistics. His career has stretched over
25 years. He aspires to thrive in the financial editor world,
unencumbered by the limitations of economic credentials. Visit his free
website to find articles from topflight authors at
www.GoldenJackass.com. For personal questions about subscriptions, contact him at
JimWillieCB@aol.com
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