Gold Yuan Crypto

George Caleb Bingham The verdict of the people 1854

It’s been a while since we last heard from Dr. D, but here he’s back explaining why neither gold nor the yuan nor cryptocurrencies can or will replace the dollar as the reserve currency, but together they just might:

Dr. D: “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” –Ogden Nash

Over the last year or two, there’s been a discussion about the U.S. Federal spending moving beyond $4 TRILLION dollars, and whether a $1+ trillion dollar annual deficit, on top of a $20 Trillion national debt – Federal only – is sustainable. It isn’t.

“What can’t go on, doesn’t” is the famous quote of economist Herbert Stein. Since a spiraling deficit of $1 trillion deficit on a $20 trillion debt can’t go on, what will we replace it with when it very soon doesn’t? Historically gold. Whatever gold exists in the nation’s coffers, whether one coin or 8,000 tons, is used to as the national wealth, and fronted by paper to re-boot the currency. With some additions such as oil and real estate, this was the solution in Spain, France, Germany, and the Soviet Union among hundreds of fiat defaults. Why? Because at a time of broken promises — real goods, commodities that can be seen, touched, and used – are the tangible proof of wealth, requiring no trust, and from which the human trust system of paper and letters of credit can be rebuilt.

But in these complicated, digital times perhaps that’s too simplistic. Perhaps we have grown smarter than all our fathers and this time it will be different. Will it really be the same? Let’s look at how the system works now.

Before WWI, the world was on the gold standard. This had variations, exceptions, corruptions, but on the whole, there was gold in the back that was fronted by paper promises issued by private banks. The paper moved, the promises were delivered by telegraph and telephone, and the gold remained in the vaults. It was only when men felt unsure of the truth of the promise they could and did demand delivery, called the bluff, and the bank did – or ominously didn’t – deliver the gold, and thereby keep the paper system in line with reality, with real wealth, and with the economy. This method kept men and nations honest, mostly.

The main part is that the gold didn’t move: it stayed in the same vaults and its ownership changed, just like today. It didn’t matter how much gold existed: it simply changed price, just like today.

All this changed after WWI. The nations had so impoverished themselves that they could no longer repay their real debts and restore their currencies following a 1,000 year tradition of inflating during wars and deflating after. The deflation was too high for Britain and France even while removing the total wealth of Germany, and they began to cheat, double-counting the gold on their books to relieve the pressure. And so the non-gold system began. With other causes, the inflation of this change began to be felt through the Roaring 20’s, until when the phantom money was called on – as was tradition when people began to suspect that the paper they owned was no longer backed with adequate real goods – the illusion popped.

The inflation was shown to be a fraud supported by the highest powers in government and finance, and the real economy withdrew their lack of trust until the matter was fixed. It wasn’t. As the system was fundamentally unchanged and no trust was restored, the rich were protected and law and property rights were trampled in a decade of Tom Joads, the economy never recovered. Although destroying half the nations on earth restored the real balance between paper fantasy and real production, the unemployment that never existed before WWI was never cured and has continued, ever-worsening to this day. But note: before, during, and after the Depression, there was the same amount of gold. The gold did nothing, it was meaningless, only the paper promises over it expanded and contracted.

With the systemic dishonesty still in place preventing the books from matching the real wealth and production, the economy soon returned to a diseased state. While gold was illegal for men to own, the rich do as they please and as tradition, removed the gold of the United States to hold them to truth and honesty from printing too much fake money for guns and butter. They withstood the 12 year bank run until, in 1971, they folded, having lost 2/3s of the national savings, gold.

1 2 3 4
View single page >> |
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.