The Currencies Of Last Resort

As one of my favorite bloggers, Sybil's Star often says, "you can take the gold out of the standard, but you can't take the standard out of the gold." A case in point was the 1970's.



In 1971, President Nixon took the U.S., and the rest of the world, off the gold standard. Gold prices went up, as expected, but soon began to settle. The OPEC oil embargo of 1973 caused another bump, but again gold prices soon began to settle. Then, inflation kicked-in, and the gold market has been a roller coaster ride ever since.

Flying under the radar, silver (the poor man's gold) is even more instructive. Inflation causes more uncertainty about the future than even warfare.



The first little bump is war with England (1812-15), the second is the Civil War (1860-65). World Wat I (1914-18) caused a minor ripple, while the depression and World War II were non-events, as far as silver was concerned. Then there is the inflation of the 1970's.

But why is this so? Everyone knows that gold has no intrinsic value, and silver has very little. As is often argued, the metals have no more real value than the circular rock money used by the people on the Pacific island of Yap.



Gold and silver are only rocks too. It is the value we place on them that determines their worth. Given the resources we have, there is nothing else to use.

In a recent interview, President Obama said:

“A lot of independents, Democrats and Republicans -- all are concerned about is what are we going to do about this long-term debt,” Obama told ABC’s Jake Tapper Monday. “We've got to show people that we are responsible stewards for their taxpayer dollars and that we're taking some serious steps to at least lay the foundation -- the pathway -- for bringing those deficits down over the next several years.”


An unnamed White House official followed up; “Democrats have to reassure voters we are not being reckless.” Here's why.





Inflation is coming. Got rocks?

Is The End Nigh, Yet?

March 18, 2009, I’m marking it on my calendar. Was that the day our president admitted to a high bowling score of 129? No. It was the day the Federal Reserve announced they would begin buying Treasury Bills. In effect, we are now loaning money to ourselves. There is only one reason why anyone would do this. Nobody else will loan us the money. Like an overzealous mall rat, we are paying off one credit card with another credit card. It is the last act of the soon to be bankrupt.

Ever since Hillary’s visit, the Chinese have been making public noises about their nervousness over our debt. They’re financing quite a lot of it and they have good reason to be nervous. With the currency being inflated, they won’t be getting the returns they were expecting when they bought in. Having taken our best customer to the cleaners, can we really expect them to come back for more?

There are stories circulating that the US dollar is going to lose its reserve status. It’s a subject you’ll be hearing more about once the upcoming G20 meetings get under way. Reserve status is a huge advantage to us. Not only do other countries buy dollars for emergency use, but also having our own currency as reserve, allows for all sorts of game playing with the debt. And boy have we been playing games with our debt lately.

Other countries resented us for it before, but now they are being pushed over the edge. Any group of countries can create a currency amongst themselves, and it looks like some are going to give it a try. Russia seems to be the ringleader. There is certainly talk behind closed European doors going on.

Here's what the metals have been doing through all this. The blue line shows the day before; stable and trending slightly down. The red line shows a spike up at the time of the announcement. The yellow line is the day after.


The same with silver:

I'm not quite ready to start walking around downtown with an "The End Is Nigh" sign, but a little metal under the floorboards might be a good idea, if you don't have some already.