(News & Editorial/ Precious metals will become currency as the dollar goes bad)
A. Recent headlines:
1. China-Russia currency agreement further threatens U.S. dollar:
2. Brazil, China Sign Trade Deal to Bypass Dollars:
3. China-Australia to Ditch US Dollar…
4. BRICS Nations (Brazil, Russia, India, China and South Africa) signed Local Currency agreement at Summit. They will not trade in U.S. dollars anymore. Agreements around the world between Countries to Drop U.S. dollar for trade (including Australia http://sherriequestioningall.blogspot.com/2012/03/bric-nations-brazil-russia-india-china.html
5. The Germans Want Their Gold Reserves Back In Germany:
6. “Germany wants its gold back, Fed says…eventually, maybe“:
7. Texas Wants Its Gold Back From The Fed:
With the world human population being 7.0 billion, so 30% of the world has moved away from the dollar.
China (1.3 billion population), Russia (143 million), Brazil (194 million), Australia (23 million), India (1.2 billion), South Africa (51 million) = total 2.91 billion population of listed countries.
B. Implications of the loss of the dollar’s reserve status
22 Mar 2009, MarketSkeptics.com, by Eric deCarbonnel
Excerpt pasted from: http://www.marketskeptics.com/2009/03/how-big-deal-is-loss-of-dollars-reserve.html
As the dollar loses its reserves status, at least half of the world’s $5,385 billion dollar reserves will be sold off and replaced with other currencies (yuan, euro, khaleeji, gold, rand, etc…). The US, with its $71 foreign reserves, will not be able to do anything to counteract this mass exodus from the dollar. With outflows of this magnitude, the dollar’s value will collapse to a fraction of where it is now. The process of foreign nations extracting themselves from the dollar is not going to be pretty. The likely impacts are:
1) The dollar’s value will plunge as investors see the writing on the wall and jump ship.
2) US credit markets will collapse. As the dollar fall, a mass exodus from credit market will begin. Investors sitting on toxic securities will sell at firesale prices to escape the currency depreciation.
3) The fed’s balance sheet will explode beyond all reason. In response to the mass exodus from credit markets, the fed will buy trillions worth debt in a desperate attempt to hold interest rates down. Unfortunately, the more debt the fed buys, the more quickly the dollar will fall, and the more panicked the credit selloff will become.
4) US interest rates will soar, despite (or because of) the fed’s efforts.
5) Countries around the world will be hurt badly by the dollar’s decline. These countries include:
_A) Nations which are heavily dependent on US exports: Japan, Mexico, etc…
_B) Nations with large dollar reserves: Japan, China, Gulf oil states, etc…
_C) Nations which receive large amount of US foreign aid: Israel, Egypt, etc…
_D) Nations which rely on remittances from citizens working in the US: Mexico, India, etc…
_E) Nations which use dollars as their official currency: Liberia, Panama, etc…
_F) Nations which have large amounts of dollars in circulation: Central and South America (especially Argentina), Eastern Europe, etc…
6) Some nations will see benefits from the dollar’s decline. These countries include:
_A) Nations with large gold reserves: EU zone, Switzerland, etc…
_B) Nations which owe dollar denominated debt will see that debt wiped out: Iceland, African nations, etc…
_C) Nations who stable currencies: EU zone, Switzerland, China, etc…
7) World politics will be greatly altered. There will be considerable anger at the US from nations hurt by dollar’s fall. The US will lose influence to Asia (mainly China).
8) US retailers will get crushed. As the dollar falls, the cost of imports for retailers will increase, but the American consumer will be unable to afford to these higher prices. Competition between desperate retailers will force them the sell inventory at below cost, creating massive losses. Retailers most heavily dependent on imports (ie: Wal-Mart) will be the first to go under. Eventually as more and more retailers go bankrupt, the few survivors will be able to raise prices enough to cover costs, and the sector will stabilize at a fraction of its current size.
9) American lifestyles will change radically. The end of cheap oil, low interest rates, and deficit spending will mean a lower quality of life and higher taxes.
10) The price of gold and other precious metals will explode.
11) US will experience hyperinflation.
C. WHAT IF?
29 May 2013, Gold-Eagle.com, an editorial by Larry LaBorde of http://www.silvertrading.net/ Pasted from: http://www.gold-eagle.com/editorials_12/laborde052913.html
What if the US lost its world reserve currency status? What might it look like? I suppose the first question is; what does it mean that we have the “world’s reserve currency”?
At the end of WWII the allies met at Bretton Woods and decided to use the US dollar as the official world currency and that it would be backed by gold. All worldwide trade would be priced in dollars and settled in dollars. Food, energy (oil), etc from around the world would be priced and paid for in USD. New York became the financial center for all world trade. Fast-forward to President Nixon in 1971 and the USD was cut loose from the gold standard due to OPEC oil imports and a growing imbalance of trade that was causing gold to flow out of the US in large amounts. Today goods from around the world flow to the US and newly created paper dollars flow out. (Well not really paper dollars, just newly created electronic digits made up on a computer.) In essence we create IOUs that everyone must accept due to the Bretton Woods agreement and they send us their stuff.
Once we completely figured this out we decided in the 1990’s that we would “think” and they would “work”.
The US was going to run as a clean “information society” and all that dirty industry would go somewhere else. Our balance of trade kept getting worse and worse. We imported way more than we exported.
We used to report our imbalance of trade numbers a couple of decades ago with great concern. Now no one seems to care at all since it is so far out of balance that it can never be fixed. (Sort of like an annoying knock in the engine that you fix by turning up the radio.) Ocean going freight containers started to pile up over here because we didn’t have enough goods to send them back fully loaded. For a while we sent hay overseas in freight containers because we had to send empties back to get them refilled so they greatly discounted the freight on the backhaul or return trip.
Many people have started to find creative uses for these freight containers that are building up over here. They are the empty boxes on Christmas morning. Who sends the empty boxes back to the store for more toys? You just get new boxes.
Under the original Bretton Woods agreement if one country imported more goods than they exported the difference was settled up in gold. After a while the lazy country sent so much gold overseas that its currency dropped in value and they could not import as many goods. The lower priced currency made their exported goods more competitive so they began exporting more and the gold flowed back.
When the link to gold was cut this self-regulating mechanism was broken. So now why should the US export anything? Why not import everything and just pay for it all with USD made up from nothing? Works great for the US but everyone else may have a problem with that system. So why does the rest of the world still accept our USD electronic digits?
One reason is the rest of the world can still spend them at the Middle East gasoline station to tank up with oil. In the late 1970’s and early 1980’s a deal was cut with the Saudis that so long as they priced their oil in USD and USD only, we would support their family rule with the full force of the US military. So even though we did not export enough goods to soak up all of our exported USD, the Middle East did. The OPEC countries then purchased our US bonds with their excess USD and earned a pretty good interest on their USDs – until now. Whenever someone in North Africa or the Middle East failed to live up to the agreement they were “replaced” with someone who would. The whole system is now broken but still working somewhat. The only reason the rest of the world has not thrown it out altogether is there is not anything else to easily take its place. (Your thoroughbred now is old and swaybacked and stumbles along but it is still better than walking.) The world thought the Euro might offer an alternative to the USD when it was first launched. We all see where that is now leading. Doug Casey famously said, “The dollar is an IOU nothing but the euro is a who owes you nothing.” It seems that the euro is not going to offer the USD any serious competition. The USD is still the prettiest horse at the glue factory. So what is next?
Well the BRICS (Brazil, Russia, India, China and South Africa) have started their own development bank. This cuts the World Bank out of the picture in much of the world. The G-20 is talking about alternative currencies to challenge the USD and perhaps replace it one day with something a bit more fair to everyone else. China is cutting trade deals directly with Brazil and Australia outside of USDs. India is cutting deals with Iran outside of USDs. This is in direct violation of the Bretton Woods agreement. However, these countries feel they are exchanging value for value in their trade with each other on a more fair and equitable arrangement.
What would make a new reserve currency attractive? If the country that issued it had a trade surplus or at least balanced trade with the rest of the world a lot of the resentment would disappear. If the new currency were backed by gold once again the self-regulating mechanism would be fixed causing no one country to benefit to the detriment of another. If a basket of currencies were used from several strong countries with both of these attributes then even better. Rumor has it that Russia and China have both been working hard to build up their gold reserves and they are both about 5 times the US gold reserve at its peak. Rumor also has it that the US gold reserve is maybe not as large as reported. What if instead of Greece (or another PIIGS country) pulling out of the European monetary union and reissuing its own currency that something more interesting happened? What if the strong man with the 3rd largest gold reserves and a strong export economy pulled out and reissued its own currency – backed by gold!
What if Germany pulled out leaving the Euro to collapse? Then what if Germany looked east and linked up with Russian and Chinese currencies that were also backed by gold? A new reserve currency made up of a basket of these three currencies (all backed by gold) would be a Eurasian powerhouse. But where would this leave the USD? So long as the Middle East Gasoline Station was still in business and accepting USD it would survive. But what if the Muslim Brotherhood took over Saudi Arabia? What if the house of Saud fell? What if the Chinese would not loan us any more money to mount Gulf War III to save the house of Saud?
There are several “ifs” here but what might happen? If the rest of the world could not spend their USD reserves at the Middle East Gas Station and we are not able to ramp up our exports and sell them something they might want, then what exactly would they do with those USD? Why would anyone else in the world want them? And since 1971 we have been sending them all over the world and they have been piling up in every corner, there are a lot of them out there that suddenly find themselves unloved. I believe that all at once there would be a race to spend them all at the only place where they must be accepted – to the only place where they are legal tender for all debts both public and private – right here within the US. They would buy everything that was not nailed down. Cranes, bulldozers, tractors, trucks, ships and entire factories all to be crated up and carted off. The mad rush of so many dollars would cause these items to be bid up to very high prices in USD. This of course would devalue the USD even further.
All of a sudden all those old ocean containers that have been piling up over here would be filled to capacity hauling assets off as fast as possible. All of those IOUs would come home to roost at the same time. Of course we could default or slap on export taxes of 1,000% or some sort of currency controls for repatriated USD. They could even call all of those USD overseas illicit drug money and seize all of it! But that might lead to a war or several wars. Wars have been fought over issues far less trifling than that. No one likes to get stiffed on an IOU. Especially the largest pile of IOUs in the history of the world.
Assuming that we did the right thing and honored our debts. What would the US look like after the smoke cleared? What few factories remained would be largely owned by foreign interests. With much of the means of production carted off we would have a hard time exporting more than we consumed. Anything imported would be terribly expensive priced in USD. A trip to Wal-Mart would be like going to Neiman Marcus. Since we no longer grow enough food to feed ourselves our imported food would be very expensive. If the welfare state continued the dollar would devalue even more and finally collapse. Everyone would have to accept a much lower standard of living as we worked in factories owned by foreigners. As our dollar finally devalued to a fraction of its former glory the US would become a cheap labor country. Factories would move back to the US for the same reason many moved to Mexico in the 1980’s and 1990’s.
Slowly we would rebuild and in a few generations we could be a first world country again.
So what can you do now? Where can you run? When the War Between the States began and the first Battle of Bull Run was fought, Southern General P.T.G. Beauregard set up his headquarters in the home of Mr. Wilmer McLean. Mr. McLean was too old to fight in the Southern army and sought to move his family to safety. He glanced at the map and picked a nice safe place 120 miles further south – in Appomattox. You see the war started in his front yard and ended in his parlor as General Lee surrendered the Army of Virginia to General Grant several years later. The first and last great battles of that war both found Mr. McLean. Sometimes you can run from danger but in the wrong direction. Take some time and carefully think things through for yourself. Make sure you are not jumping out of the fire and into the frying pan. A storm could be coming our way. Build a good storm shelter just in case. Years too early are better than seconds too late.
D. Arizona lawmakers back gold, silver as currency
18 Mar 2013, Yahoo! News, by Cristina Silva/ Associated Press
Pasted from: http://news.yahoo.com/arizona-lawmakers-back-gold-silver-233837866.html
Arizona Republicans want to allow gold, silver to be used as currency
PHOENIX (AP) — Arizona lawmakers say the global economy is on the precipice of financial ruin and the U.S. dollar could soon be worth less than the paper used to make it.
These doomsayers are pushing forward legislation that would declare privately minted gold and silver coins legal tender, no different under state law than the U.S. dollar printed by the federal Department of Treasury.
The measure is Arizona’s latest jab at the federal government, which prohibits states from minting their own money. It also reflects a growing distrust of government-backed money.
“The public sees the value in it,” said Republican Rep. Steve Smith, of Maricopa. “This is the type of currency we have had over the history of mankind.”
The bill, which advanced in a 4-2 vote by a House committee Monday, states that gold and silver should be legal currency not subject to tax or regulation as property. The Republican-led Senate gave the bill its blessing in February in a 17-11 partisan vote.
The bill would let people use the precious metals as money as long as businesses agree to take them. If made law, it would take effect in 2014.
Democrats oppose the measure. They say it would be a bureaucratic nightmare because businesses don’t have the equipment to determine the value of gold and silver.
“This should be addressed by the Federal Reserve and not by the state,” said Democratic Rep. Rosanna Gabaldon, of Green Valley.
Keith Weiner, president of the Gold Standard Institute, which supports gold-backed currencies, said he envisions a system where people can pay for goods and services with debit and credit cards backed by gold and silver.
Paper money is a “recipe for worldwide bankruptcy,” Weiner told Arizona lawmakers Monday. “Everybody is going bankrupt on this system so we need a sound and honest money system, such as gold and silver.”
In 2011, Utah became the first state in the country to legalize gold and silver coins as currency. Lawmakers in Minnesota, North Carolina, Idaho, South Carolina, Colorado and other states have debated similar laws in recent years.
Many investors have invested their money in precious metals in recent years as a hedge against the declining value of the dollar. When the value of the dollar declines, gold prices rise.
Gold rose $12, nearly 1 percent, to $1,604.60 per ounce on Monday with news of Europe’s bailout plan for cash-strapped Cyprus. Silver inched slightly higher, up 2.3 cents to $28.874 per ounce.
The dollar was up against the euro, the currency used by 17 European countries, as well as the Japanese yen and the Canadian dollar in February.
Proponents of the switch to gold and silver argue paper money is too vulnerable to government manipulations. When central banks boost the amount of currency in circulation to drive down interest rates, the value of that currency relative to others can decline.
“It’s actually strange to me that we don’t have this already,” said Republican Rep. David Livingston, of Peoria.
Gold-backed money fell out of favor during World War I because the U.S. and many other countries needed to print more cash to pay for the war. In 1971, President Richard Nixon formally abandoned the gold standard.
E. Arizona’s Hard Currency: How Much Gold Might It Need?
27 Apr 2013, Gold-Eagle.com commentary, contributed by Miguel Perez-Santalla
Pasted from: http://www.gold-eagle.com/editorials_12/perez-santalla042713.html
How much gold & silver might Arizona, Utah and the other states now involved in hard-currency laws come to need…?
ARIZONA is moving to allow gold and silver coin to be used to pay debts, and – effectively – go shopping. This has already been approved in the state of Utah, and there is an assortment of other states that are moving in this direction as well. However, Utah’s gold currency law has been on the books for more than a year. But it has not yet made any headway into how to manage gold and silver being used as currency. Nor will payees be obliged to accept bullion as payment. As a result, many pundits are pooh-poohing Arizona’s gold idea, acting as obstacles to its possible success.
Though I don’t personally believe that physical gold and silver carried around by persons is the future of our country, I do believe that there will be some structural change to come. The small yet actively progressing action in many states is an indicator of the demand for better controls and justification of the value of our money. Concern that the ability to print money without measure will destroy this country is not only just, but is also warranted.
The Federal Reserve – which is not part of the government – is actively in charge of our currency. By injecting capital to the markets to support the banking sector, which irresponsibly lost billions of Dollars in their management of customers’ funds, they have instituted an invisible tax on all citizens of the United States of America. It is no surprise that many people who pay close attention to these matters are up in arms. Especially, since they don’t participate in the windfall of free capital given by the Federal Reserve to the banks as a safety net.
In essence, every time the government issues money freely and gives it to others it is a promissory note on the ability of the populace to pay, it puts us all more in debt. The people of the United States of America are becoming fed up with the free-flowing funds the government regularly gives away as gifts of supposedly humanitarian aid to foreign countries that are not even considered allies. These gifts in the billions of Dollars are on top of expenses needed to support our infrastructure. This creates a mountain of debt that essentially devalues the US Dollar. Our ability to pay is what the citizens are concerned with.
To avoid this many are turning to silver and gold bullion as a reliable asset or marker of value. Of course when you tie up your money in an asset like gold and silver you want the most easily accessible manner to extract that value whenever needed. This is where the effort to make gold and silver accepted as currency is coming from.
So let’s take a look at what would happen if one state such as Arizona were to convert to a precious metal economy. Arizona’s GDP (Gross Domestic Product) was roughly $258 billion at last count. As a proportion of the United States’ entire economy, that’s about 1.7%. Which if we apply that number to the total of currency in circulation and bank deposits (known as M2 by the economists) gives Arizona a money supply of somewhere around $180bn. Using today’s market prices, in gold that would represent 126,000 ounces which is nearly 143% of the current annual world production, and it would represent over 945% of the world’s annual silver production. But of course silver is an extremely bulky and difficult metal to handle. No one thinks the entire state of Arizona would go to 100% metal-backed currency. People will of course remain free to use fiat (backed only by faith) money, and most would likely choose the same fiat Dollars and bank-account credits we already have.
But it’s important to understand that – in the proposals as they stand – people could choose to use metal-based currency for all their in-state transactions. So the potential ceiling on the gold or silver needed is much nearer to 100% of that $180bn than it would be under a formal “Gold Standard”. There, with Dollars redeemable for gold, full gold-backing wasn’t necessary.
The Gold Standard instead used precious metals as a standard of value. The last US gold standard was a 25% basis of gold in fact, before it was repealed in 1968. Applying a classical Gold Standard, and using a 25% basis for gold or silver, Arizona’s cash and bank-deposit holdings would occupy 235% of the world’s annual silver production at current prices, or 36% of the world’s annual gold production.
A more logical decision may be a combination of the two, with a 5% silver and 25% gold funding which would represent 30% annual gold production and 39% silver production. This of course would drive the value of the precious metals much higher, as the market adjusted to accommodate Arizona’s impact on global demand. But as we just saw, Arizona’s proposals go far beyond a Gold Standard, making 100% metal-backed banking and currency a possibility, if highly unlikely. Note, this is only for one state – and one where barely 2% of the US population now live. The numbers involved are already stupendous.
You can imagine what would happen to gold and silver prices if all 18 states currently working on similar “hard currency” laws saw only 10% of their citizens move to holding precious-metals. But that being said, I do not believe at this very moment it is the goal of this legislation. The new legislation deems to allow transactions to be negotiable and settled in full using gold or silver if the parties involved agree to it. Hence you can sell your car for 4 ounces of gold or buy a house for 10,000 ounces of silver. But to do so without an official government structure you would have to in effect be your own central banker and invest your currency into your own private gold and silver reserves. Hence when you go to enter into a transaction the value of your asset should have been protected from any central banking or government debt fiascos. Are currencies backed by gold and silver to be the future? This is possible in some form. Had this system not been tried before? The answer to this is yes. But the methods that were used in the 20th century were complicated by the entry of the Federal Reserve System and other Central Bankers. It was prior to central bank machinations that gold and silver brought stability to the financial markets and the economy in general.
With the entry of the central bank models, including the Federal Reserve, free spending of the people’s money became a possibility and is what eroded the gold standard and derailed a more functional system. Unfortunately most of the spending was used to fund wars. Maybe if wars had to be paid in hard assets they may have ended sooner than later with less loss of human life. However, there are arguments on both sides of the fence. As I read and study more and more about our modern-day banking system it is a miracle that it has not failed sooner. Of course this is my personal belief. This is also what is driving the current activity in the states to bring in some correlation of currency to gold and silver as hard assets. The history of the Federal Reserve, which is not a bank, has the US economy since its inception riddled with negative GDP growth. It is peppered with financial calamities. Its primary function was said to be the stabilization of the economy.
It has failed and has not performed better than any other prior system. I don’t have the answers but I know it doesn’t lie in the Federal Reserve System. This is a centralization of power away from capitalism to a form of modern day socialist tendencies of spending without limits within our system. This indicates to me in the event of a serious economic downturn, which seems to be forthcoming since we already did kick the can down the road as far as we can, we will have serious troubles in the union of these United States of America. But for the time being the general public who are able, are happy buying their gold and silver and keeping it in a safe and secure place for when this situation rears its ugly head. Those that do and are in the states where they have legalized its use as currency stand to have a much more secure environment moving forward as the government is not allowed to take away your money without cause. At least, not at the moment.
[Today, we have a price buying opportunity in gold and silver bullion coins. When the SHTF, prices on retail items will rise, inflation will surge, precious metal prices will have risen steadily ahead of events as the global situation deteriorated in ways not understood by the public. When everyone realizes that they need a stable source in which store the value of their rapidly eroding currency (dollars), those precious metal commodities will already be exceptionally expensive in dollar terms. You have to buy the dips while the opportunity exists, as the ancient adage says, "By low. Sell high". Mr. Larry]