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This is a repost
of a comment I made in a previous article:
Everything but physical gold has counterparty risk. It is everywhere. The
counter party to the dollars in your wallet is the US Treasury, ultimately
the whole of the taxpaying American public. That can and is being defaulted
on by printing new money and deflating the value of what is in your wallet.
Everything the investment banks hold on their balance sheets has even bigger
counterparty risk. For one bank to live up to it's counterparty obligations
requires another bank living up to it's obligations, and on and on ad
infinitum.
The mob enforcer is these banks short selling their peers into bankruptcy.
When they don't live up to their counterparty obligations, their peer bankers
take them out. Bye bye Bear Stearns, bye bye Lehman. And there's always a
next on the list until they are all gone. Buh bye.
You ask appropriately "Is the dollar that desired around the world, or
can Europe, Asia, and the Middle East do without them?"
ANOTHER would answer this question with, "The world currency system has,
for years been little more than digital credits backed by "usage
demand"."
So as long as the majority of "things" (oil being the biggest) is
priced in dollars, the usage demand will be there. That may end soon.
Also, these foreign countries find economic strength (falsely) in keeping
their currencies weaker than the dollar. They see this as helping their
economy by making their products cheaper on the world market. But all it
really does is make their citizens holding their money poorer on the world
market. Yet still they buy dollars to keep their currencies lower. This still
goes on today.
Then, ANOTHER would say, "In the long run it was oil backing the US$
that kept it all together! It truly is strange, that in the end it was gold
that backed oil! In a even more strange twist, [the Central Banks refusing to
part with their physical gold just to support the failing COMEX gold futures
market] will bring the system down!"
I think this too is coming. If the dramatic rise in gold continues in the
face of physical shortages, look for a major default within the next 90 days.
You say, "Oil is traded in dollars. Oil producing nations get our
dollars, and have nothing else they can do with them but buy our limited
manufactured goods, and our financial, real estate/ insurance goods and
services."
This brings up one of ANOTHER's biggest points. He claims to have inside
knowledge about some deals that were made, presumably with Saudi Arabia, and
presumably in the early 80's. My post titled The King and his Gold was my attempt
to present briefly what ANOTHER said over 3 years. It's probably not totally
accurate. That's why I made it into a story. But I think it captures the
message he was trying to get across.
The point he makes is that they aren't interested in the dollars or the
goods, etc... only in the gold that they can get for those dollars. Because
they have a different view of gold than we do in the West. We view it as a
commodity and they view it as wealth. But to trade gold for oil on the open
market would explode the price of gold, so instead they keep the price of
gold low and let the Saudis buy it from the mines which are forced to produce
it and deliver it at the price on the COMEX.
If gold were to trade freely, the Saudis would get much less gold for each
barrel of oil, but they would be just as happy. And the longer it takes
before that happens, the more wealthy and powerful the Saudis will be once it
does happen. And it will happen. It is one of those inevitable consequences
of a manipulated system.
You say, "Now, those nations have the Yuan because China bought their
currencies". This is not totally true. A lot of the dollars bought by
the Chinese Central Bank come into the country through the trade of goods.
The Chinese people sell goods to us for dollars. Then the banks buy those
dollars from their citizens. So instead of holding the Yuan, we hold the
goods it makes instead. By buying these dollars from the citizens, the
Chinese banks keep the dollar valuable, and keep the Yuan down.
Of course the Chinese could do us great harm by spending all the dollars they
hold in reserve. But so far, they do not think that is in their best
interest. They don't yet fully realize that they would be fine without the
American consumer.
Dollars ARE debt. Remember, the counterparty to the dollar is the American
taxpayer. So as long as the dollar is the world reserve currency, our debt is
their currency. And their government is STILL trying to keep our debt
valuable. Why? Because it will be painful to make the transition, and pain is
politically difficult to sell.
I agree that everyone could uncouple from us. But so far they are too timid
to do that.
The incentive for, lets say China, to see the price of oil rise, is that they
can get all that they need. If the law of supply and demand is alive and
well, then a correct price puts the product where it is most needed. If the
price is lower than supply and demand says it should be, there will be
shortages where it is most needed. What good is a loaf of bread for 99 cents
if the store is sold out? Wouldn't you rather pay more and always be able to
get some?
You are right about the FDIC. I think that will become the most
hyperinflationary problem in the next year.
The problem is that there are more "digital credit units" (dollars)
out there locked up in banks and investments than there should be. If
everyone ran to the bank to get theirs out and spend them, there wouldn't be
enough. And this goes for investors cashing out their holdings as well. There
are just too many. There's should only be about $60 Trillion worth of dollars
out there in the whole world (including all currencies). Yet there are between
$600 Trillion and $1 Quadrillion worth of "digital units" of
derivatives and other stuff out there.
So as we bail out banks, and ultimately the FDIC bails out individual
accounts, we will be converting those "ghost credits" into real,
spendable dollars. That is hyperinflationary.
Your final paragraph is this, "I have no idea about gold and silver.
With a somewhat operating Europe and Asia, the price might not really move to
its former highs. But if there is a war with Iran, it will likely jump up out
of panic. Most Americans don't really have much available cash to buy gold or
silver, only bread and milk and college tuition and car payments and
mortgages. They are hoping once their bank fails they can get their cash
out."
This brings up another one of ANOTHER's main points. That we of "Western
thought" see gold as a commodity. You use the word "price"
with regard to gold. Would you say "the price of the Yuan"? More
likely you would say the exchange rate of the Yuan. Would you say you don't
have much cash to buy Yuans because you are buying bread and milk? No,
because there is a difference between what you hold for wealth and what you
spend to live. "Western thought" has programmed us to think of gold
as a commodity. But in reality it is an artificially suppressed currency.
This is proven by the fact that foreign Central Banks hold gold as part of
their "foreign currency reserves". In the Euro countries, the
members are required to have 15% of their foreign reserves held in gold.
So as you can see, the GIANTS of this world see gold differently than we the
people do. Perception rules our world right now, just as in The Matrix. But
after the collapse, the Matrix will be destroyed and reality will once again
rule. At that point, those that hold physical gold, including countries,
central banks and individuals, will have infinitely more wealth than anyone
left holding worthless paper.
ANOTHER says that upon the crash gold will stop trading everywhere. And for a
long while it will not trade. It's value will not be readily known. During
that time, holding a bar of gold will be like possessing an original Van
Gogh. It is not the most liquid of currencies. In fact, you probably have to
auction it off if you want to spend that wealth. That is because it is so rare
and yet it is valued by many people.
So imagine a world where the US dollar is carted to the market in
wheelbarrows as it is in Zimbabwe. There is no Kitco gold price website
anymore, because gold is not traded. It is simply a valuable store of wealth.
And it's value must be calculated by it's rarity with respect to the amount
of people and things in the whole world when they are compared to the amount
of gold in the whole world.
Also, gold mines will not be producing much gold at this time because they will
either be nationalized or they will be so heavily taxed that there will not
be much profit in it for them.
This is the picture ANOTHER paints. It is both rare AND valuable.
FOFOA
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