“A gold standard is the most readily available alternative to the system of central banking but with the risk to the U.S due to excessive trade deficits.”
by Alan Yerushalmi from News with Chai
The yellow vest (a.k.a. gilets jaunes) protests in France are a sign of a populace that has grown more discontent with their falling standard of living and who feel completely disconnected from their elected politicians. The protesters have a wide range of concerns (i.e. immigration, taxes, free trade, benefits, etc.) that do not neatly fit into the left-right paradigm. It also appears that display of anger is spreading throughout Europe as in Belgium:
A retired man told RTBF that he receives a pension of €1,350 a month. “I get it on the 23rd of the month. It’s now the 8th and after I’ve paid insurance, rent, energy bills – which cost €150 – I only have €200 left for living expenses,” he said.
One protester gestured to the European institutional buildings behind him while talking to a NBC Euronews reporter. “There, in ‘Europe’, they’re having fun, they’re laughing,” he said. “The people who make the laws are the ones driving us further into the ground. We have empty pockets. We shouldn’t be called the ‘yellow vests’, but the ‘empty pockets’.”
I outlined how the current economic system is not working well for 35% – 40% of Americans in my previous article. I view central banks, especially the Federal Reserve (FED), as a large part of the problem. For a more detailed history and analysis, I highly recommend the book ‘The Creature from Jekyll Island: A Second Look at the Federal Reserve’ written by G. Edward Griffin. Former Congressman Dr. Ron Paul called it ‘a superb analysis deserving serious attention by all Americans’. I unequivocally reject critics who smear the book as ‘conspiracy theory’ and scurrilously attempt to demonize anyone who engages in critical thinking. Just because the FED website ends in .gov does not make it a government institution. The FED is a private corporation and as federal as Federal Express. For anyone who thinks the FED knows exactly what it is doing, recent remarks from Vice Chairman Richard Clarida’s about how the FED Chairman is ‘in a darkroom’ would probably not inspire confidence.
While it is unclear what direction the protests will take, the Europeans appear to be going through a mass awakening, similar to the one in the U.S. It would likely impede any central bank from bailouts in the near future.
A few points that I want to reiterate:
- The era of central banking (FED’s inception was in 1913) has been marked by war (WWI, WWII, Korea, Vietnam, etc.) and numerous regime changes (courtesy of the CIA).
- There is no way the U.S. can consider itself a ‘free’ country when the ultimate power remains embedded with a cadre of bankers.
- The era of central banking is coming to an end as the FED will either be either dissolved, [restructured] or phased out.
Central Banks Face Math Problem
The world is addicted to cheap credit, the FED rate increases are hurting the economy, U.S. corporations are under duress and U.S. debt continues to explode. One may ask how I could be so confident in my assessment that the existing fiat currency system will end. My answer is very simple – basic math. I previously warned about the massive risk of derivatives to the financial system and detailed how the debt (now at $21.87 trillion) puts the solvency of the U.S. into question. CNBC reported last month how U.S. companies are carrying a $9 trillion debt load (86% higher than 2007). Analysts worry that companies teetering between investment grade and junk status could cause market trouble should their standing deteriorate. Bloomberg just reported how global debt hit a record $184 trillion last year, equivalent to more than $86,000 per person. Central banks tried to solve the 2008 financial crises by lowering interest rates and adding more debt. The original debt was mostly not written off and an inevitable crisis was simply deferred.
Interestingly, Mike Maloney put out a recent video on the ‘financialization of government’ where there exists strong correlation between the stock market and tax revenues. If the stock market does not do well, the FED must print money to lift stock markets to get enough revenues. This dangerous predicament approaches Ponzi scheme conditions.
There have been a couple of dramatic updates in recent weeks.
Update #1 – Closing Days of the Petrodollar
The petrodollar system (in effect since the 1970s) is the primary reason the U.S. dollar is still the world’s reserve currency. Oil producing countries like Saudi Arabia do not sell their oil in currencies other than U.S. dollars. In recent years, there have been senseless wars in Iraq, Libya and Syria to protect the petrodollar. Without this agreement, the U.S. dollar would likely lose its role as the global reserve currency over time. China has made serious efforts to assert hegemony in the Middle East and in March introduced oil futures contracts priced in Chinese yuan. These contracts have achieved a 16% share of the global market and reached a pace of expansion termed as ‘explosive’. The repercussions of Saudi Arabia breaking ties with the U.S. and moving closer to China are unknown but potentially volatile. The recent vote by the Senate to end U.S. support for the Saudi war in Yemen could hasten this break. Stunningly, a new report claimed the U.S. has become a net oil exporter for the first time in 75 years. While this may have been slightly misleading, the trend towards energy independence for the U.S. could render the petrodollar system obsolete and irrelevant in a few years.
Update #2 – U.S. Has Gold
In 2015, President Trump (then a private citizen) was asked if he could envision a scenario where the U.S. could go back to a gold standard. He had some interesting comments:
“In some ways, I like the gold standard and there is something very nice about it but you have to go back at the right time… We used to have a very solid country because it was based on a gold standard for it. We do not have that anymore. There is something very nice about the concept of that. It would be very hard to do at this point and one of the problems is we do not have the gold. Other places have the gold.”
According to some sources (which will be covered in a future post), the U.S. now has the gold.
It is somewhat difficult to envision how a gold standard would work in today’s digital economy. Last year, former FED Chairman Greenspan confirmed its historic value:
“The gold standard was operating at its peak in the late 19th and early 20th centuries, a period of extraordinary global prosperity, characterized by firming productivity growth and very little inflation.
But today, there is a widespread view that the 19th century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics.”
Gold has played a part in policy even after Nixon closed the gold window and broke up the Bretton Woods system in 1971. According to this Forbes article, a panic occurred between 2011-2012 and to prevent a further decline in the dollar’s value there was probably ‘financial market manipulation at an unprecedented level’.
According to another Forbes article, ‘having a gold-linked currency made the selling of bonds, or equities, also known as international capital flows, much more attractive. The great era of the worldwide gold standard, in 1870-1910, was a time of internationalization, free movement of capital, and high levels of investment in emerging markets.’. As the U.S. trade deficit jumped to a 10-year high in October, it is unclear how the U.S. could maintain this imbalance without losing all its gold. It would be prudent U.S. policy to reduce its trade deficit prior to implementing any sort of gold standard.
I received a few humorous personal attacks in my last article where I merely suggested that cryptocurrencies could provide an ‘unknown path with the possibility of a better future’. I believe the future is promising for blockchain technology. No one can say with certainty that Bitcoin or another cryptocurrency will replace the U.S. dollar as the world’s reserve currency. Several cryptocurrencies have dedicated development teams, miners and advocates that represents a kind of community. But, as evidenced by the Bitcoin Cash war, individuals take actions that do not always represent the community’s best interest. Regardless, an infrastructure is being built to attempt to coexist with (if not supplant) the existing monetary system. The upcoming January 3 Bitcoin Proof of Keys day to declare ‘monetary sovereignty’ should be watched.
- The global debt bubble is on track to burst
- The mass awakening in Europe (in addition to the U.S.) will impede any central bank bailouts
- Higher U.S. energy production could render the petrodollar system obsolete
- A gold standard is the most readily available alternative to the system of central banking but with the risk to the U.S due to excessive trade deficits
- Cryptocurrencies hold promise but are not ready at this time to replace the system of central banking
I certainly would never pick a date for any sort of financial crisis nor offer financial advice. But Internet entrepreneur and political activist Kim Dotcom does offer somewhat provocative advice via this tweet. I guess anyone with capital can’t say they haven’t been warned. I completely understand how many readers may have difficulty coming to terms with such radical changes to our monetary system. People have been literally brainwashed into thinking the FED acts as some benevolent force for the common person’s best interest. Sorry, bankers at Goldman Sachs are not ‘doing G-d’s work’.
There is unfortunately a large entrenched establishment intent on maintaining the status quo. As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”. I do think there will be serious displacements in the workforce. I would guess that the banking, media/entertainment, and defense contractor industries along with the political bureaucracy in Washington DC would be adversely impacted. Many employees will need to transition to other areas of work. Since I do not endorse wealth confiscation (aside from extreme cases), I do foresee a problem. How do the estimated 35% – 40% of Americans (referenced earlier) who have hardly any savings obtain access to capital? I am sure there is a great plan out there.