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Central Bank Currency Wars Will Destroy The Value of the US Dollar

Jim Rickards, author of the best-seller Currency Wars, sees the world’s central banks embroiled in a “race to debase” their currencies in order to restore – at any cost – growth to their weakened economies.

In the midst of the fight, the U.S. Federal Reserve wields oversized power due to the dollar’s unique position as the global reserve currency. As a result, actions by the Fed create huge percussive ripples across the battlefield, often influencing events in ways little understood by the players – and especially by the Fed itself.

In Rickards’ words, the policymakers at the Fed “think they are dialing a thermostat up and down, but they’re actually playing with a nuclear reactor – and they could melt the whole thing down”:

It will play out in all markets. When I say collapse, it is a loss of confidence in paper money.

Take the Fed, for example. The Fed has printed almost $3 trillion since 2007. Now, that is without a liquidity crisis. I mean, we did have a liquidity crisis in 2008. And the first round – I would say QE1 was a legitimate central-bank response to liquidity crisis. But QE2 and QE3: we will look back over them and we will see them as enormous blunders in one of the greatest failed experiments in economic history.

But the problem is, the Fed printed trillions of dollars without a liquidity crisis. What is going to happen when we do have a liquidity crisis, which I expect in the next couple years, where there is a 2008 panic starting again? What are they going to do? Print $6 trillion? $9 trillion? There is a limit on what they can do. And so at some point, it is going to get handed over to the IMF, and they are going to have to print SDRs (special drawing rights). That is the IMF world money. Because none of the central banks have clean balance sheets at this point; they look like hedge funds.

And so it really is a loss of confidence. Confidence is the key word – a loss of confidence in paper money. And that confidence is going to have to be restored somehow. And there are really only two ways.

One is the SDR, which no one understands. So maybe they can re-liquify the world by printing SDRs and that will create massive inflation, but no one will really understand where it is coming from.

And the other way is gold, which would restore confidence. But to have a non-deflationary price of gold, you are looking at $7,000 an ounce – very possibly higher, maybe as high as $9-10,000 an ounce. I know that sounds extreme. But it is really just eighth-grade math, if you look at the money supplies and look at the physical amount of gold. People say you cannot have a gold standard because there is not enough gold. Well, that is not true. There is always enough gold; it is just a question of price. So the theoretical question is, what is a non-deflationary price for gold if you have to go back to a gold standard? And the answer is, it’s north of $7,000 and up.

So that is the kind of thing that you might see. It is not what any central bank wants. It is not what the elites want. But it is the kind of thing you could get if you had to restore confidence. So that is what the future of the international monetary system will look like. But right now, the Fed is still behind the wheel, and they are still driving the bus over the cliff.

4 Comments on "Central Bank Currency Wars Will Destroy The Value of the US Dollar"

  1. J-Gav on Sun, 29th Sep 2013 5:24 pm 

    I agree with Rickards that the dollar is cruisin’ for a bruisin.’ But here’s where I don’t agree: “People say you cannot have a gold standard because there is not enough gold. Well, that is not true. There is always enough gold; it is just a question of price.”
    Yeah, like for oil. Those countries priced out of the market will use what to back their international commerce? Pixie-dust?
    In addition, gold is relatively easy to hoard amongst a few big players – who can then manipulate the price as they please.

  2. Arthur on Sun, 29th Sep 2013 6:32 pm 

    “There is always enough gold; it is just a question of price.”

    But who will set the price of gold in a multipolar world?

    Fiat money has worked very well in the past, provided it is issued by a completely independent central bank with the explicit task of keeping inflation low. The best example of such a central bank was the Bundesbank. The Deutschmark was trusted deep in Russia, Turkey and many other countries. The trouble starts if the owners of a central bank are not independent of the political objectives of those ruling the currency area.

    Gold is merely a currency of last resort after reckless politicians debased their own currency.

  3. bobinget on Sun, 29th Sep 2013 8:56 pm 

    Gold can go to three four thousand dollars an ounce,
    no one gets harmed.

    Oil OTOH goes 20% beyond current prices and everyone gets hurt.

    Gold itself is useless for growing a garden much less industrial scale crops. Petroleum OTOH is an absolute
    necessity. More to the point, getting that oil to where it’s needed requires sophisticated machinery and human supervision.

    Gold and oil are also linked financially through dollar pricing. Don’t fret over a dollar collapse. Paraphrasing Winston Churchill, “The USD is over-valued, except for all the others”.

  4. BillT on Mon, 30th Sep 2013 2:24 am 

    Central Banks are not, and never have been, independent. They are still run by the BIS or Rothschild family. Fiat is their method of extraction. Gold backed is the best as it is limited to the amount of gold available and that will put the brakes on finance. It worked fine until we started spending more than we earned and then it was vaporized to allow for the unlimited printing of credit.

    No, the dollar has to go, and so does fiat money, ‘for profit’ capitalism and central banks. The sooner the better, if we are to have a livable world. Malls have to be replaced with farms. Lawns with gardens. Factories used only for necessities and not i-junk. Energy, what we have left, for necessary things that cannot be done any other way. That means the end of personal cars, huge homes, etc. We have been living in a fantasy land built on debt and it is ending. The pain is only beginning.

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