The End of the Dollar Standard

cropped-bob-shapiro.jpg   By Bob Shapiro

The Eurozone can be thought of as a 2-tier confederation. The northern countries have stronger economies, have trade surpluses, and have lower debt to GDP. The southern countries – often referred to as the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) – have been in and out of economic crisis after crisis for many years.

A few years ago, I was in preliminary contact with the government of Portugal. I prepared a 24 page report for them outlining how they could reverse the tailspin that the country was in.

One feature of my plan was for them to build up their holdings of Gold

and Silver, and the eventual introduction of a Golden Escudo Coin and a Silver Escudo Coin new currency. (Portugal’s currency was called the Escudo before they adopted the Euro common currency.)

Euro Currency

Portugal decided not to adopt my Proposal. However, it appears that both Russia and China are on track to do what I suggested to Portugal’s leaders.

The US has benefited greatly since WWII as the Dollar became the currency used around the world as each country’s primary Reserve Asset. Oil and other commodities were denominated in, and sold for US Dollars in world trade.

As other countries devalued their local currencies from time to time, in an effort to gain trade advantage, the Dollar became stronger on foreign exchange markets, and this strengthened countries’ desire to hold Dollars.

A major benefit for the US was that we could run huge Balance of Payments deficits, paying for goods imported from our trading partners, and using new Dollars which cost us next to nothing to print. These Dollars returned to the US mainly as part of the financing for the US National Debt (now approaching $18 Trillion).

As Dollar debt piled up in all the world’s Treasuries, far in excess of our ability to repay the debt, the Dollar has become much less welcome.

Balance of Trade

China declared that it no longer will add to its Dollar debt holdings, and it actually has reduced them somewhat. Over the last 5-6 years, China has greatly expanded its Gold holdings and its domestic production. (China is now the #1 world Gold producer, and exports are not allowed.)

When the US fomented the overthrow of the pro-Russian government in Ukraine, Russia invaded and annexed the Crimea in eastern Ukraine, which ethnically is highly Russian. The US responded with economic sanctions against Russia.

Russia sells it’s oil and natural gas to Europe (it also sells uranium to the US). Since Europe’s Greens have all but destroyed their fossil fuel production and blocked nuclear (except in France), Europe is highly dependent on energy imports from Russia.

The sanctions have convinced Russia to stop accepting Dollars. So, they just reached agreement to sell their oil and gas to Europe for physical Gold (or Dollars which would be converted into Gold immediately).

Russia imports much of the manufactured goods it needs from China, and they have agreed that it will be paid in Gold. So, Russia gets Gold from Europe for its oil & gas, and uses the Gold to buy it’s imports from China.

After WWII, the US held around 24,000 tons of Gold in Fort Knox and elsewhere in the US. As US imports continued to be higher than exports, some countries (especially France) demanded Gold for the excess Dollars – until President Nixon defaulted and closed the Gold Window.

The US now holds 8,000 tons of Gold, although some credible analysts report that even that remaining 8,000 tons has been sold or leased away, in order to suppress the Dollar price of Gold (trying to make the Dollar look stronger and more desirable to hold). There has been no Gold audit since Eisenhower was President.

Estimates of secretive China’s Gold holdings range from 2,500 metric tonnes to 10,000 tonnes, and still growing. Russia bought over 50 tonnes in just the last quarter, and their Gold holdings still are rising. India always imports Gold, and Brazil and many Asian countries are increasing their Gold reserves.

Gold, with its 5000 year history of being money, is moving year after year from the West to the East. Another monetary metal, Silver, also is in big demand.

The major world market for both Gold and Silver – where the price effectively is set – is the COMEX commodities futures exchange in New York. The structure of trading on the COMEX allows for high leveraging. A few thousand Dollars can “control” 100 oz of Gold, worth around $120,000. Leverage for Silver is high, although less than for Gold.

It looks like both the COMEX Gold & Silver markets may have been “cornered.” This happens when contracts requiring delivery are greater than available warehouse stocks.

With the spot contract reaching the delivery start date at the end of this week, there are 5 Silver ounces with open contracts for every deliverable ounce in the warehouse. For Gold, that ratio is 20 times as many ounces in open contracts as there is deliverable metal in the warehouse.

Unless massive numbers of these contracts are closed out very soon, the COMEX will have to default, opening up even more dire possibilities against the Dollars preeminence as the global Reserve Currency, and supporting a return to a Gold and/or Silver Standard.

Eagle Coins

You may want to consider buying some US Silver Eagle and US Gold Eagle legal tender Coins. Compare prices before you buy.

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