3 Minute Gold News
A Quick Read for Busy People
Collapse of the International Monetary System
What it Means
COLLAPSE OF THE INTERNATIONAL MONETARY SYSTEM
The monetary system has collapsed before. Most recently in 1971, when President Nixon unpegged the US dollar to gold.
In 1977, the United States had to issue “Carter Bonds” — bonds denominated in Swiss francs — because the world did not want US dollars. The US Treasury couldn’t borrow in US dollars, that’s how much confidence was lost in the dollar.
If you measure the US dollar against gold, in 1971 gold was $35 per ounce. In January 1980, it was $800 per ounce — that’s a 90% collapse in the dollar relative to gold.
Between 1977 – 1991 the US had 50% inflation.
The international monetary system also collapsed in 1914 at the end of the classic gold standard, and again in 1939 on the verge of World War II, when Great Britain suspended gold shipments.
It’s collapsed three times in the last one hundred years.
The last time was forty years ago, and these things seems to happen every thirty or forty years.
It doesn’t mean it will happen like clockwork tomorrow, it just means that investors shouldn’t be surprised if it does.
WHAT IT MEANS
It’s not the end of the world. It just means the major financial trading powers sit down around a table and re-write what they call the “rules of the game”.
The famous conference was the Bretton-Woods conference in 1944, but you also have the General Conference in 1922, so these things happen.
“Collapse” really means a loss of confidence in the US dollar as the world reserve currency.
What would a new system look like?
One thing we can count on is inflation. Central banks and governments need inflation to get out from under their sovereign debt problem.
The other thing we can count on is the role of gold.
China is buying thousands of tonnes of gold. Thousands. Russia has doubled its gold reserves in the last five years.
The Netherlands just got their gold shipped back to the Netherlands. Germany asked for their gold back. Marine Le Pen, right wing party leader in France, has asked for an audit at the Bank of France. Same thing in the United States — Republicans are calling for an audit of the gold.
If you look around the world, people are saying, “Where is our gold?”, “We want our gold back.”, and they’re increasing their gold reserves.
We’re not on a gold standard, but it’s interesting that there’s a scramble for gold.
It tells us there’s something about confidence in the US dollar.
People won’t be walking around with gold coins.
If things get really bad and there’s social unrest and social breakdown, then perhaps one ounce silver coins will be how you pay for your groceries. But, Jim isn’t necessarily predicting that will happen.
One of the predictable results is inflation.
Look at 1998, for example, Wall Street had to bail out the hedge funds. In 2008, the Central Banks had to bail out Wall Street.
In the next collapse, perhaps 2018 with this ten-year-tempo, who’s going to bail out the Central Banks?
Each time the collapse gets bigger and the bail out gets bigger — you don’t kick it down the road, you kick it upstairs.
So who’s bigger than the Central Banks?
It’s the IMF (International Monetary Fund).
They can re-liquify the world in a financial panic with “world money” called SDRs (Special Drawing Rights).
They might print 4 or 5 trillion of SDRs and that will be highly inflationary in Canadian dollar and US dollar terms.
Canada is a very large gold producer, there’s a lot of gold in the ground, but Canada’s Central Bank has very little gold.
Canada has a very weak position in gold compared to GDP. For some reason the Commonwealth countries have a weak position.
The gold powers are the United States, Europe (with 10,000 tonnes backing the euro), and China is getting there.
China is lying about their official holdings. They are saying they have 1,000 tonnes, but it’s closer to 4,000 tonnes based on best evidence.
Stocks can actually go up in nominal space and down in real space.
You always have to separate these things.
With the Weimar Republic hyperinflation, people weren’t too concerned about the collapse of the currency because the stock market was going up. But eventually the currency went to zero, so you have to watch the real versus the nominal.
Stocks can actually go up on inflation — initially.
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns
from the album Preparing for the Fall