got gold?

  1. 217 Posts.

    We refer frequently to the 'Dollar Standard system.' Readers accuse us of harping on it. Some think we are obsessed. And it's true: the world's monetary system haunts us like an unsolved murder.

    Most people would rather sit through a joint-session of Congress than have to hear about it. But for the benefit of new readers and the dismay of habitual ones, we harp on the Dollar Standard again today.

    Who cares about the world's monetary system?

    Reading the paper, a man first turns to see if his stocks went up. Then, he turns to the sports page for excitement or to the editorial page for laughs. But behind nearly every headline, in the financial section at least, is a salacious crime. The freakish monetary scheme known as the 'Dollar Standard' system did not come into being on its own. It was put into place, like a pliable crony, in 1971, after the Nixon Administration gave 'the VIP treatment' to the Bretton Woods system. [Faithful readers will recall, 'the VIP treatment' was Idi Amin's code for killing someone.]

    "China posts record export surge," reports the BBC. Thank the 'Dollar Standard system.'

    "Personal bankruptcies hit new world record," the NY Post tells us. 1.6 million people have declared bankruptcy in the last 12 months. That, too, is a consequence of the 'Dollar Standard system.'

    "U.S. trade deficit reaches nearly $1 million per minute," says the Daily Reckoning. Again, courtesy of the 'Dollar Standard system.'

    The money supply doubled since 1995, the Mogambo Guru told us on Monday.

    Debt levels reach new records. Housing starts soar. U.S. stocks sell at 33 times earnings.

    All the major financial stories, if they were followed by an energetic newshound, could be trailed back to Nixon's crime and the 'Dollar Standard system.' Of course, today's reporters can't be bothered to trace the clues. They know readers aren't really interested in what's behind the news; they just want the lurid details from the crime scene: stocks are up 25% so far this year - what more do you need to know!

    And yet, the biggest story never told will come to light some day. The Dollar Standard system seemed like great thing a few years ago! Under Bretton Woods, when a nation ran a trade deficit, it was expected to settle the difference in gold. This meant that nations had to sell about as much as they bought, or they would soon be out of gold and unable to buy more. No wonder central bankers looked the other way when Nixon put a gun to Bretton Woods' head. The new Dollar Standard removed the limits; suddenly, Americans could spend far more than they could afford...for years and years...and central banks could settle their accounts with dollars which were infinitely abundant, rather than gold, of which there never seemed to be quite enough. The dollars piled up in foreign central banks. Instead of redeeming them for gold...they were used to bid up prices of stocks and bonds all over the world. What could be nicer?

    If only it would last forever!

    But such is the world we live in that nothing lasts forever...and certainly not an international monetary system based on fraud and robbery. America is supposed to buy nearly all the world's excess production with I.O.U.s it never expects to pay off! Someday, those I.O.U.s will become worthless, and the whole system will blow up.

    In the meantime, we harp and watch the dollar. When it goes, it all goes: stocks, bonds, real estate...and as many as 20 million bankrupt Americans. (More on Friday...if you can stand it...)

    Posted on behalf of

    The Daily Reckoning
    Bill Bonner, Editor-in-chief
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