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A 3 minute synopsis of the interview by Peter Shiff, author of The Real Crash, with Jim Rickards, author of The Death of Money.
Exiting the U.S. Dollar Reserve System
Financial War with Russia
Peter Schiff and Jim Rickards
August 13, 2014
EXITING THE U.S. DOLLAR RESERVE SYSTEM
The Federal Reserve is using the dollar as a weapon.
The dollar is backed by one thing – confidence. If people believe it’s money then it’s money. The problem is that when people lose confidence in it then it loses value very quickly.
The Fed is giving other countries reasons to head for the exits.
Other countries are doing trade agreements between each other – bilateral agreements – but it’s not the same as a reserve currency.
With a reserve currency you have investible assets from your profit that comes from your trades.
There’s a movement in the BRICS, mostly China, to create their own version of the IMF, mainly backed by China, which has trillions of dollars in reserves.
That will make them an alternative to the IMF for countries wanting to leave the US dollar reserve system.
Countries want to get out of the dollar just like there are people who want to get out of prison – easier said than done. So countries are joining together for a jail break.
The new BRICS bank will help those countries, so they can borrow from and loan money to each other.
Right after it was set up, China entered a bilateral swap agreement with Switzerland. So China can get as much Swiss currency as they want and lend it to Brazil.
There’s no one in the world who won’t take Swiss francs.
These bilateral deals are happening all over the world now. Particularly with Russia. You’re seeing it in South America and you’re seeing it in Asia – it’s a big trend.
We’re in a financial war with Russia – these are financial weapons.
Obama has talked about cutting off Visa and MasterCard dollar processing in Russia, and Putin is more fearul of this than anything else that’s been talked about.
Russia in the 90s, when communism fell in 1991, they went to a free market that was chaotic. They didn’t have a mature banking system or consumer credit system. Visa and MasterCard came in and set up this system.
Russia is utterly dependent upon it today.
Putin doesn’t care what Obama thinks but he does care what the Russian people think.
His popularity is close to 90%.
If you cut off Visa and MasterCard watch the Russian people turn on Putin because it hits their pocketbooks.
China wants to get out from under the dollar and they’re buying gold.
Russia wants to get out from under the dollar so they’re not victimized in the financial war.
Saudi Arabia wants to get out from under the dollar because the U.S. doesn’t guarantee their security anymore. There’s alot going on, and the Swiss are joining in.
It doesn’t happen overnight. It happens in small stages. But at the end it could happen very quickly.
Anyone who doesn’t have some gold as an insurance policy is taking an enormous risk.
The U.S. dollar is the single largest reserve currency, not as large as it was, but the largest. You would think they would want to be building up their gold reserves.
Countries that have the biggest dollar reserves would have the biggest vested interest in getting as much gold as they can to replace the dollar, backing up their own currencies.
This is what is going on and Jim discusses this in his book The Death of Money.
China officially says they have about 1,000 tonnes of gold. You can make a reasonable estimate that they have between 3,000 – 5,000 tonnes because we know what their mining output is, over 400 tonnes a year, we know what their imports through Hong Kong are, about 700 tonnes a year, and there are gold convoys coming in which Jim talks about in his book.
There’s speculation that China wants to launch a gold backed yuan currency to defeat the dollar. Jim does not believe this will happen as China is not ready to be a reserve currency.
What they are doing is creating a hedge position.
They have $4 trillion U.S. dollars. They can’t dump them so they’re building up a pile of gold.
Every time there is 10% inflation it means there’s a wealth transfer of $3 billion from China to the U.S.
Now if the U.S. tries to devalue and cheapen the dollar with inflation then China will lose money on the paper dollars, but they’ll make money on the gold.
For this to work gold has to move up spectacularly. Peter believes China has to lie about how much gold they have because if the truth got out then gold would rise now before they have a large enough hedge.
China is quietly buying as much gold as they can as cheaply as they can because they need a lot of gold as they have a lot of dollars.
Maybe the U.S. is also lying, pretending to have more gold than it actually has.
Jim believes that Fort Knox has the gold they say they have, but that it is leased out. Gold manipulation is blatant and well researched. The question is who is doing it and Jim’s number one suspect is China.
The U.S. has not returned gold to Germany that Germany has asked for, saying it will take ten years, and then not even returned the amount promised in the first year.
The dirty little secret is that Germany doesn’t want the gold back.
Merkel asked for it as a political issue only, and once she won the election she didn’t need to appease the parties who wanted the gold returned.
There was a fear that the U.S. would confiscate their gold, which Jim believes they may do in the future out of desperation.
Deutsche Bank is part of the manipulation, but it’s centered in London and New York. London and New York have mature leasing markets – Frankfurt doesn’t.
If you move the gold from New York to Frankfurt it reduces the floating supply available for lease, because no one will go to Frankfurt for a lease.
If you’re part of manipulation then you want the gold to be in New York because that’s the center of the manipulation.
When JP Morgan leases gold from the Fed they don’t get the physical gold in a truck. They get paper title – and that’s all they need. Then they go out and sell ten times the paper entitlement called “unallocated gold” through the London Bullion Gold Association. Now you’re flooding the world with gold contracts.
All these people out there say they own gold but they don’t own gold – they have a paper bilateral contract with JP Morgan.
There’s nowhere near enough gold to go around.
If they all shout out for the gold then JP Morgan would terminate the agreements under force majeure laws and give everyone a cheque at yesterday’s (lower) price.
There’s a referendum coming up in Switzerland to vote to back the Swiss franc with 10% gold. It used to be legally backed by 20% gold.
The referendum, scheduled for early 2015, if passed, says that Switzerland cannot sell any more gold. They’ve sold gold over the last ten years, so they would have to buy gold now to fulfil the 10% requirement.
The citizens want to bind the bankers and governments in golden handcuffs so they can’t create all this inflation and undermine the economy.
2013 was the first time in eleven years that gold was down, and that’s because the big banks looted the GLD warehouse. There was 500 tonnes taken out. If there’s another 500 tonnes taken out then there’s not enough to pay the bills, so that happened one time in 2013, and it won’t happen again.
The whole gold market is moving to Shanghai. The vaults are there, the refineries are starting to crop up, and they’ve redefined ‘delivery’.
It used to be delivered in 400 oz bars so it would be hard to carry around. It’s being changed to a 1 kilo bar that is 99.99% pure gold.
That’s the new standard.
Some are saying that Bitcoin and other digital currencies will replace the U.S. reserve dollar, and that it is set up to be Gold 2.0 and will be where the fiat dollars go when the dollar dies. They are saying that the inflation will move fiat dollars into Bitcoin which is privately created and not beholden to governments and central banks.
Anything can be a currency.
Shells and feathers have been currency, and Bitcoin can be currency, but only if people have confidence in it.
Jim’s problems with Bitcoin are:
1. Bitcoin’s value is being expressed in U.S. dollars which he believes ties it to the dollar standard.
2. It hasn’t been through a business cycle yet. We don’t know how it will perform in a panic or a downturn.
3. People don’t understand the tax aspects of it and Jim believes it could be a problem with undeclared gains that people don’t know how to report.
Peter’s problem with Bitcoin is that there are many digital currencies now. Absent of a unit of exchange there is no value in Bitcoin because he believes there’s nothing you can do with it except give it to someone else.
Gold is valuable as a physical commodity even if you don’t make a transaction with it. If people lose confidence in Bitcoin then you can’t do anything with them.
Gold is genuinely scarce.
When people are under stress they go to gold.
The early adopters had a vested interest to promote Bitcoin because they got them for virtually nothing. In 2013 gold was going down and Bitcoin was going up so it was being promoted as a replacement as a store of value or a hedge against inflation.
People who bought Bitcoin at $800 or $1,000 may stay in hoping it goes back up in value, but Peter believes there will be a sell off, and that when you lose confidence you really can’t rebuild it.
Gold will shine and if we return to a gold backed money system instead of fiat currency then we’ll have an economy that is much more sound, with all the booms and busts.
The fiat system might go on longer than people expect.
Central banks and sovereign governments are on their last legs but the trump card is the IMF.
They might play the SDR (Special Drawing Rights) card in the next liquidity crisis.
When the dollar crashes eventually then there are still hard assets. Warren Buffett is dumping paper currencies and buying railroads and natural gas – hard assets.
Jim says investors should do the same.
Elaine Diane Taylor will be a guest on Double Crossed Radio tonight, August 14, 2014 from 7 -8 pm PDT, http://www.ucy.tv/xx discussing Bitcoin Barbarians, Bitcoin and sound money from the artist and communications aspect.
words and music Elaine Diane Taylor
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Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns available on iTunes