-- Posted Sunday, 7 November 2010 | | Source: GoldSeek.com
What master do you serve? Not the president, not even the tax collector or the bill collector. You serve the dollar. You work for it and you do the government's bidding for it. It gives you food, shelter, security, and your station in life. The dollar is a promise that when you work, you will be rewarded, that when you commit mortgage fraud, you will be rewarded, that when you vote for the right politician, you will be rewarded.
Many times I have heard that: "The USA does not produce anything these days. All we do is export dollars."
While there is some truth to this, it is a naive perspective. The empire of the US dollar has created the financial capital which has industrialized much of the world. This is an empire which has allowed the dollar capital (and other fiat currency capital) in the world to far out-strip the hard capital (gold) to an extent never seen before. In fact, the US financial system has been extremely creative in coming up with ways to increase the total dollar capital in the world. The most obvious mechanism to do this has been securitization.
Of course with this creativity has come fraud, abuse and obscene concentration of wealth. The problem is that dollar (and other currency) creation has been utterly divorced from gold, which serves as an accounting mechanism that short circuits fraud.
What we have now is an unstable US dollar based financial system which must change soon. However, the world is a much more wealthy place than it was in the recent past. That wealth will not disappear. What does need to disappear is the disconnect between gold and fiat currency based financial instruments and obligations. This would be impossible if we had to pass around gold coins, but that is not the case. The advent of electronic forms of payment makes it possible to revalue gold by something like a factor of thirty or fifty. In fact, electronic payment systems make it all but inevitable that gold will be massively revalued.
We may have a chaotic crash of the current financial system, or a transition to another fraud ridden system with a golden gilt for short while. But it is inevitable that people will seek out real money. Fractional reserve will be replaced with fractional milligrams. I expect to see a gold price in the one or two thousand dollars per gram range (2010 USD equivalent). This will bring stability to the world's financial systems because:
1) Dollar (and other fiat) denominated debts will be massively devalued.
2) Money will not be created from nothing to reward and forgive fraud, hand out political favors or rig markets.
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