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.

Olympic Gold and Geithner's Cut of All That Glitters!

Olympic gold medals haven't been 100% pure gold since the 1912 Olympics, one year before the Federal Reserve was created. But what are the medals worth besides the obvious value of prestige, achievement and national honor?

What the 10 Biggest 'Gold' Medals Would Be Worth, If They Were Gold

The price of gold has soared from roughly $1,000 an ounce during the 2008 Summer Olympics in Beijing to $1,584 an ounce by mid-July of this year.

If an Olympian or the average Joe tried to cash in a medal from this year's games by means other than an auction or a sports memorabilia dealer, they'd be parting with 92.5% silver, 6.16% copper and 1.34% percent gold. International Olympic Committee rules dictate that gold medals need to contain at least 550 grams of silver and at least six grams of pure gold coating. That adds up to a medal worth roughly $800 for "gold" medal winners in London, which is a huge discount from a medal worth its weight in gold.

Since the actual medal weight of gold and silver has significantly declined over the years, Olympics medals have a whole lot less gold and silver value than they used to have. More interestingly, while the weight of the gold and silver in the Olympic medals is shrinking, the government's claim via taxation is also quite significant.

Go for the Gold! (Pay the IRS.)

Even by the standards of our government, the numbers are insane.

For instance: Americans who win bronze will pay a $2 tax on the medal itself. But the bronze comes with a modest prize—$10,000 as an honorarium for devoting your entire life to being the third best athlete on the planet in your chosen discipline. And the IRS will take $3,500 of that, thank you very much.

There are also prizes that accompany each medal: $25,000 for gold, $15,000 for silver, and $10,000 for bronze. Silver medalists will owe $5,385. You win a gold? Timothy Geithner will be standing there with his hand out for $8,986.

So as of this writing, swimmer Missy Franklin—who's a high school student—is already on the hook for almost $14,000. By the time she's done in the pool, her tab could be much higher. (That is, unless she has to decline the prize money to placate the NCAA—the only organization in America whose nuttiness rivals the IRS.)

ATR notes that the real twist of the knife is that most other Olympians won't pay any taxes on their medals because America is one of only a handful of countries which taxes "worldwide" prize income earned overseas.

So much for American exceptionalism! About the only thing America is exceptional at is plunder.

What Happened to America's Middle Class? It's All in One Graph

Feel like your dollar is buying less, even though the financial press claims that the dollar is strong? It is buying less — but so are the other fiat currencies.  Zero Hedge

Middle class wages and purchasing power have plummet since Nixon de-tethered the dollar from gold in 1971 via an Executive Order and without congressional authority. Middle class prosperity peaked in 1971 and plummeted when Nixon de-tethered the dollar from gold.

To create the illusion of prosperity, the government swapped out real prosperity for fake debt based prosperity. So long as the dollar was tethered to gold, gold was a noose around the Bankster's necks and prevented 'Banksters Gone Wild' and 'Government Gone Wild".  

Since 1971, wealth and power has been concentrated into the hands of corporatists, banksters and government as the wealth of the 99% got transferred to the 1%.

The above chart is from Zero Hedge, one of my favorite blogs.

John Maynard Keynes, Charlie Munger and Warren Buffett all said or implied that gold was a barbarous relic. But what’s the barbarous relic? The precious metal that shows prices without a veneer of manipulation, or the paper currency that smudges the true state of supply and demand through money printing, thus misleading markets and society? Charlie Munger says gold is not for civilised people, but in reality gold may be the most civilised currency of all — because it allows civilised people to purchase insurance against the risk of civilisation failing.

A central bank can claim to have demonetised gold. It can claim gold is a barbarous relic (even while keeping thousands of tonnes on its books), or just an “instrument to hedge tail risk” (although Jamie Dimon surely disagrees — J.P. Morgan prefers to “hedge tail risk” by making huge speculatory prop bets on credit derivatives).

But gold is still gold. It’s still that same shining yellow metal that investors have for thousands of years held up as a unit of account and store of value, and a medium of exchange.

Central bankers can’t just abolish history. On the other hand, history may very well abolish the central bankers and their fiat currencies.

Read the rest here

Zero Hedge