• Tag Archives Bretton Woods
  • Jim Grant: Let’s Talk About Our Monetary Problems Using ENGLISH

    Jim Grant on CNBC today discussing:

    • The ‘bad idea’ to attempt to resolve the national debt problem by minting a trillion-dollar platinum coin. Supporters say the US Treasury would be able to deposit said coin with the Federal Reserve to act as an asset, backing part of the outstanding debt.
      • As Jim notes, this is not an honest approach to discussing the root problem – which is based in the monetary system, itself.
      • Besides that, the idea is preposterous and just shows how crazy this system has become.  Things don’t hold value because someone says they have value.  A thing has value based on the public/market demand for that thing.
    • Prior to 1971, government spending was constrained by both interest rates and the fact that there was some semblance of a gold-backed currency via Bretton Woods.  But today, we have neither constraint – the Fed’s zero percent interest rate policy combined with the current, purely fiat monetary system has created the unstoppable spending spree that has led us to these extreme levels of debt.  If there is anything left at all as a bar against further spending, it is the debt ceiling.  But even that is now being threatened with a proposal to remove it entirely.
    • The just announced appointment of Jacob Lew as Treasury Secretary.  Jim is holding judgement in order to see if there will be any honest discussion regarding the real problems of the monetary system.

  • The Fed is Possibly Even More Sinister Than We Think

    There’s been much discussion on the Fed’s newest monetary easing policy. The markets received their much anticipated stimulus and are reacting positively (for now).  But as previous posts have indicated, the Fed’s stated objectives and motives are questionable at best.  For a few steps further down the rabbit hole, here’s a must-see video from CrisisHQ

    “If you want to understand what’s happening in the Mideast, particularly in Libya, Syria and Iran, you must first understand the main driving force behind U.S. foreign policy. Contrary to mainstream media propaganda, it is not our desire to spread democracy or to prevent tyrannical despots from murdering their own citizens. The real agenda is to protect the Petrodollar system, because it is the only thing that is currently preventing the total collapse of our fiat currency.

    For more information on the Petro-Dollar, please see our research article: Root Cause: The Petro Dollar.

  • Nixon Shocked the Global Currency Markets

    On this day, 41 years ago, Nixon shocked the world by removing gold convertibility for foreign holders of US dollars – it would be the end of the agreement made at  Bretton Woods, where it was decided that the US dollar would be pegged to gold and all other currencies would be pegged to the US dollar.  The message was so important that Nixon’s administration decided to preempt the most popular TV series, Bonanza, on Sunday evening prior to the markets opening on Monday.

    What’s most aggravating is Nixon’s claim that he must save the dollar from the evil speculators trying to destroy the dollar – something we hear so much, even from modern day politicians.  Never do these con men ever mention that there wouldn’t be anything to speculate on if those in charge of the monetary system were honest and abstained from their blatant money-printing, inflationary policies.

  • Central Banks Buying Gold At Levels Not Seen Since 1965

    Posted on by JonK Comment

    Up until a few years ago, Central Banks of the world were selling their gold because they didn’t think they needed the ‘barbaric relic.’  But with all the money printing activities plunging the value of all fiat currencies around the world to their intrinsic value (=0), they’re now buying gold in substantial amounts.  Here’s Simon Constable of the Wall Street Journal further explaining why they’re expected to be the buyers of at least 10% of the available gold in the coming years.

    Wall Street Journal - Simon Constable

  • Root Cause: The Petro Dollar

    April 4, 2012

    There’s a popular theory among the world population that the U.S. launched wars in the middle east in order to control its oil reserves. On the surface, this seems entirely logical, but the truth of the matter may be much more sinister, and one should look a little deeper into the situation. It’s not the oil reserves the U.S. is after, although oil does play its part in this charade. The main concern of the U.S. in these wars is more likely the maintenance of its hegemony with U.S dollar as the world’s reserve currency.

    The U.S. dollar became the de facto world reserve currency after World War II, when delegates from around the world met and together agreed to what became known as the Bretton Woods System.  Under this system, the U.S. dollar would be linked to gold at $35/ounce. All other nations would tie their currencies not directly to gold, but indirectly through the U.S. dollar. This meant that those nations would hold dollars in their foreign reserves to support their local currencies.  In order to obtain dollars, those countries had to either borrow them from the U.S. Federal Reserve or earn them with a trade surplus. The U.S. got a sweet deal here – perhaps justified due to the fact that after the war the U.S. was indeed the strongest, most productive nation on the planet, along with a huge stash of physical gold.

    This system worked well for the world and especially for the U.S. during the prosperous years of the 1950’s and 60’s. But with the U.S. printing its own dollars to cover its increasing debts, including the vast expeditures on the Vietnam War, the world became concerned. Suspicious that the U.S. gold reserves would not cover the existing issue of paper dollars, countries began to trade in their reserve dollars for gold at the U.S. treasury using the pegged value of $35/ounce. The U.S. gold stash was steadily declining.

    In order to prevent the total depletion of U.S. gold supplies, in 1971 the Nixon administration closed the gold window – nations were no longer allowed to exchange their reserve dollars for gold.  It was the end of the Bretton Woods System, but not quite the end of the U.S. dollar hegemony in world reserve currency status.

    One must then ask the obvious question: Why would a nation now hold a seemingly valueless paper dollar as a reserve currency, especially since its tie to gold has been cut?

    The answer: The Petro Dollar.

    After Nixon closed the gold exchange window, the dollar was a free floating fiat currency, competing with other currencies around the globe. Inflation started to escalate since there was no tie to gold anymore. In fact, in 1975 the average price of gold was $160 – more than 350% increase in just 4 years since abandoning the gold window.  Additionally, OPEC nations had been using the dominant dollar as a preferred payment method for their oil exports, but now they were starting to lose money as the dollar lost its value. In 1973, OPEC launched an oil embargo, raised prices and started internal discussions on the logistics for trading oil for other currencies including gold. Steps had to be taken by the U.S. if it was to re-secure the dollar as the strong world reserve currency.

    The first step was taken in 1974 when Secretary of State Henry Kissinger launched the U.S.-Saudi Arabian Joint Commission on Economic Cooperation. Kissinger used the term “petrodollar recycling” to refer to the overall plan, which was to allow Saudi Arabia to purchase U.S. assets and services with the dollars it was receiving for its oil sales. A beneficial result for the U.S. was that the Saudi Arabian central bank (SAMA) could now use its dollar proceeds to buy U.S. debt (Treasury bills, bonds, etc.).

    But the most beneficial outcome for the U.S. was that Saudi Arabia, the most dominant member of OPEC, would agree to continue to accept only U.S. dollars in exchange for its oil sales and would convince the other members of the cartel to do the same.  By 1975, all OPEC member nations restricted their oil trade to dollar transactions. To this day, as long as these key oil states play along, their leaders are showered in luxury and are quite secure in that they’re guaranteed the defense by the U.S. military and its industrial complex.

    Meanwhile, countries around the globe must accumulate dollars in their own foreign reserves in order to import the most vital energy component – oil.  Nations have to aquire those dollars the hard way – by borrowing from the U.S. Federal Reserve or earning them by trading resources, goods and services to other nations for dollars.  But the U.S. enjoys the outrageous advantage of being able to print as much of the world’s reserve currency as it wants. Not only has it been able to use these dollars to purchase its own oil on the cheap, it has been able to continually out-do itself in annual deficit spending, now in the trillions of dollars, because it has had captive buyers for its debt.

    One would think someone would cry “Foul!”  Well, someone did. The first nation to step away from this rigged system was Iraq.  In November of the year 2000, Saddam Hussein declared that Iraq would no longer accept the dollar for trade in the Oil for Food program.  Instead, the oil would be priced in and exchanged for Euros. Many said this would be a bad investment for Iraq at the time, but the move was actually beneficial because the dollar declined 17% against the Euro until the U.S. attacked and accomplished its mission in May of 2003.  Of course, now that the country was “stabilized” the Iraqi oil trade was repriced in the dollar market again and things went back to “normal” for a while.

    The system would be challenged a second time, this time by Libya. In February of 2009, Muammar Gaddafi was elected the chairman of the African Union and would continue the effort to create the United States of Africa, which among other things, would include a unified currency, a dinar based on gold.  Gaddafi went so far as to suggest that the African nations’ oil trade would be switched from the dollar to this new gold currency. Here’s a segment from Russia Today:

    Furthermore, it’s quite interesting to note that prior to the Libyan Revolution in February of 2011, Libya didn’t have a central bank linked with its western counterparts. It’s strange that before the “rebels” even had concluded battle, before they had even established a new government, they created a central bank.

    And now the petro dollar has a third challenger – Iran.

    The western powers are terribly concerned with Iran’s pursuit of nuclear technology. Mahmoud Ahmadinejad has publicly stated his intent to “destroy Israel” and of course this is not something to be taken lightly. Additionally, one must wonder why Iran would even need nuclear power when they’re sitting on one of the world’s largest oil and natural gas deposits.

    However, attention should be given to recent events. Early in 2008, Iran launched a new commodity exchange known as the Iranian Oil Bourse. The intent was to allow for Iranian oil to be priced and traded with multiple currencies. As the system was ramped up, initially the exchange limited its trade to secondary petroleum products, with crude oil to be added “when the system was ready.” Iran recently announced it would be ready on March 20, 2012This was a declaration of war on the petro dollar!

    The U.S. along with the EU then implemented a defense. Just prior to the expansion of the Iranian exchange, on March 17, the EU carried out orders to expand sanctions against Iran by removing Iranian banks from the international bank-wire transfer system known as SWIFT.  Furthermore, any banks caught doing business with Iran would be sanctioned as well.  It seems Iran’s entire international commerce engine has been halted and its oil industry crushed.

    Japan, China, India and Turkey are among the countries who’ve been dependent on Iranian oil to some degree.  Various discussions have been taking place between Iran and its trading partners on the possibility to enlist trade for other commodities such as gold or grain. Unless someone caves in here, another war – perhaps a big one – seems to be on the horizon.

    This article was researched and published by JonK.

    Update: September 15, 2012: Must see video from CrisisHQ.

    “If you want to understand what’s happening in the Mideast, particularly in Libya, Syria and Iran, you must first understand the main driving force behind U.S. foreign policy. Contrary to mainstream media propaganda, it is not our desire to spread democracy or to prevent tyrannical despots from murdering their own citizens. The real agenda is to protect the Petrodollar system, because it is the only thing that is currently preventing the total collapse of our fiat currency.”

    Here’s a video from Alt Investors with a discussion on the petro dollar:

    Part 1

    Part 2

    Source material from books (available at Amazon) on the petro dollar:

    Here are links to further reading on OPEC’s petro dollar recycling:

  • The Gold Standard

    At the present time, all countries on the earth are using some form of fiat currency as their nation’s money. This has not always been the case, as gold and silver had historically been used to back currencies of ancient Rome and Greece.  But after World War II, the agreement reached at Bretton Woods would make the US dollar the world’s reserve currency – the dollar would be based on gold, but all other nations would base their own currencies on the dollar.  But in 1971, America decided to break the dollar’s tie to gold, leaving all world currencies completely naked with only the governments’ writ of fiat declaring its value.

    Now, however, people all over the world are starting to question whether or not this is such a good system.  Governments are spending too much and are increasing their deficits at an ever increasing rate.  Debt is out of control and to repay it, governments are simply printing more money.  But money creation such as this is inflationary in the extreme. Therefore, having some kind of gold standard in place would limit a government’s ability to print money and spend so easily.

    The following are some discussions on this topic.

    April 30, 2012

    In this USNews article by James Rickards, author of Currency Wars, the views taken by Ben Bernanke regarding gold’s use as a backing for currency are challenged.  Rickards explains how the Fed chairman regularly uses two primary arguments against a gold standard:

    1. There isn’t enough gold available to back the currency
    2. The gold standard is at least partly to blame for the Great Depression of the 1920’s

    Both of these arguments, however, are false and the result of an incomplete understanding of the facts. It’s a matter of price in both cases. In the first instance, there indeed would not be enough gold at current prices, given the mass money printing that has happened all over the world. But at a price of $10,000/ounce, this would be closer to a realistic backing for the paper supply. Furthermore, while it is true that the Great Depression occurred during a time when the US was on a gold standard, the deflationary environment was the result of setting the price of gold too low. Back then, if the price had been set at an amount closer to $50/ounce instead of $20, the US might have limited, or even avoided the depression altogether.

    Here’s Jim Rickards giving some historical examples of countries going back to a gold standard – both successfully and unsuccessfully, depending on their choice of setting the gold price to match their paper money in circulation.

    The concept of the gold standard was also discussed on Bloomberg’s Reganomix segment and some interesting points were raised in honest debate between Rob McEwen, founder and former CEO of GoldCorp, and Michael Crofton, CEO of Philadelphia Trust.

    April 26, 2012

    Reuters interviews John Butler, author of The Golden Revolution, where the prospects of nations returning to the gold standard are discussed.

    April 11, 2012

    Here’s an interesting MSNBC interview with Matt Bishop, author of a new ebook entitled In Gold We Trust?, where the gold standard – having a sound currency based on gold – is discussed:

    September 2, 2011

    Right now, the US dollar has no intrinsic value. There is nothing that gives the pieces of paper that make up the US currency system purchasing power other than blind faith in the institutions that issue the paper.  It allows the Fed and the Treasury to coordinate unlimited paper money creation to cover the government’s escalating deficit spending.  In fact, that is what gold’s rise in price is telling us – that our irresponsible spending is so much out of control that it is now impossible to pay the outstanding debt without some kind of default.

    A gold standard – making the dollar convertible into gold again – would serve as a measure of control. No one would have the ability to artificially inflate the currency system simply by printing because there would have to be a certain amount of gold backing up each representation of paper or electronic dollars in circulation. It would reduce politics and enforce responsible spending – a much needed thing for America today.

    Contact the author of this article by sending an email to: Jon K

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