The Future of the Dollar as the World's Reserve Currency

  

Americans need to start thinking about what can and will happen when the dollar is no longer the world's reserve currency. What does it really mean? It's means that America becomes just another bankrupt banana boat republic swimming in mountains of debt and that our standard of living crashes.

China and Russia are Acquiring Gold, Dumping US Dollars

There is evidence that central banks in several regions of the World are building up their gold reserves. What is published are the official purchases.

A large part of these Central Bank purchases of gold bullion are not disclosed. They are undertaken through third party contracting companies, with utmost discretion.

US dollar holdings and US dollar denominated debt instruments are in effect being traded in for gold, which in turn puts pressure on the US dollar.

In turn, both China and Russia have boosted domestic production of gold, a large share of which is being purchased by their central banks...

It is absolutely true that China and Russia have been stockpiling gold because common sense tells them that the fiat paper monetary systems of the West will go bust. It's practically a law of physics that paper money always reverts to its intrinsic value of zero, except for the toilet paper value.

Many are wondering if western banks even have any gold. Ft. Knox has never been audited nor have our supposed gold reserves ever been verified. "Where's the Gold" is entirely an issue of pure speculation and while the US claims to hold the lions' share of the the gold reserves of the world, the stability of the dollar as it relates to gold and the gold that supposedly backs the dollar is prompting other nations to go for the gold.  Fiat paper currencies rely on trust and once that trust starts to evaporate, monetary collapse isn't too far behind.

 Chinese Gold Imports Surge In September, YTD Total Surpasses Official Indian Holdings

Anyone who may have been concerned by the slowdown in Chinese gold imports in August, when the country imported "only" 53.5 tons of gold from Hong Kong (down from 75.8 in July), can breathe a sigh of relief. According to the Hong Kong Census Bureau, in September Chinese gross imports soared by 30% reverting to the long-term trendline of 65 tons in gross imports per month, and rising to a total of 69.7 tons. Net imports were 40% less, although that excludes organic Chinese gold mining and recirculation, which is why for all intents and purposes the gross number is the apples to apples one. And using that, Year-To-Date China has now imported a whopping 582 tons of gold, more than the official holdings of India at 558 tons, and which through November has certainly surpassed the holdings of the Netherlands, and make China's gross imports in just 2012 nominally the equivalent of Top 10 largest sovereign holder of gold.

This way at least we know where China is recycling all that vast trade surplus, which incidentally in October just printed, goalseeked or not, at the highest level - $32 billion - since January of 2009. Too bad China no longer recycles all those excess reserves into US Treasury paper (as we showed previously here).

The last sentence above is crucial because it indicates that China is no longer buying US debt.  It's also important to note that the trend of foreign nations who once reliably purchased  US Treasuries has been quietly and not so quietly declining as foreign nations and investors dump Treasuries.

A government only has 3 methods to raise revenues:

1.  Tax the people (Americans are pretty much fully plundered by taxation).
2.  Borrow by conning other people and nations into buying your worthless debt.
3.  Just fire up the printing press and create money literally out of thin air.

Option 3 is the most dangerous and signals the end stages of a monetary system as it collapses through inflation.  America is in the final stage of monetary collapse.  So who is buying our debt?  The Federal Reserve is buying the debt.

Federal Reserve Purchasing Over 60% of 2011’s Fiscal Deficit

The other day, in my post “The Lull Before the Storm ”, I mentioned that for fiscal year 2011, the Federal Reserve would be purchasing over 60% of the Federal government deficit.

In other words, the Fed would be dancing the Monetization Waltz, just like Latin American countries used to back in the 1970’s: Proof positive that America is indeed a banana republic—only with nukes.

A lot of people didn’t believe me—or wanted me to check my figures. Or wanted to know if I was having an acid flashback from those aformentioned 1970’s. A lot of people couldn’t believe it.

Mark Twain said it best: There are lies, damned lies, and statistics.

Pay attention folks. We are bearing witness to the final days of the welfare-warfare empire. While the dollar remains a petro-currency tied to the price of oil, when oil starts to substantially trade in non-dollar currencies, we are officially toast because once the dollar loses it's world reserve currency status, thing will get very ugly very quickly.