Sunday, October 17, 2010

We Own The Real Money

This weekend Eric King of King World News posted a tremendous interview with Jim Rickards who is one of the greatest financial minds in the world today.

Click here for the most recent interview and for access to his recent discussions which are all worth listening to.

In the interview Jim discusses the fact that the United States government currently owns more gold than any other country by far.  China, Japan, the UK, and Russia all have an extremely low supply of gold in relation to their total currency supply.

It is fairly obvious to market participants that the end of this global fiat (paper) money system, which began in August 1971, is in its final chapter.  It has been a 40 year experiment that will end with the collapse of the paper money system.

What is important to understand is that while the United States currency will fall the furthest compared to other paper currencies, and perhaps even go to zero in value, our country owns the most "real" money in gold.  This coupled with our military power will make our country a powerhouse during the coming change in the global currency system.

Before 1971, when countries ran a deficit they had to send a foreign country gold in return for the additional goods.  This provided a balance of payments because when the country ran out of gold they could no longer borrow and spend.  They had to become producers of goods to earn the gold back.

This began to happen in the late 1960's as gold was pouring out of the United States vaults.  President Nixon, understanding what was taking place, took us off the gold standard and declared that currencies would be valued only against each other.  For the first time in history all currencies around the world were backed by nothing except the promise of government to repay in the future.

This proved to be an enormous benefit to the United States.  Over the last 40 years, instead of having to rebuild our manufacturing base, save, and work hard, we have just sent the rest of the world paper dollars, I.O.U.'s, in exchange for their hard work and goods.

This would obviously have to come to an end at some point and we have reached that point.  Our largest creditors are no longer purchasing our debt, it is now being purchased by the Federal Reserve with a printing press.

Bernanke is conducting an experiment that has only ended in disaster in the past.  What is important to understand is that the United States as a country will survive the coming re-set due to the government's gold holdings.  However, most of our citizens will be wiped out during the process.  The process will provide the greatest wealth transfer in history from those holding paper assets to those holding tangible assets.

Where we go from there is unknown.  We are in uncharted territory.

No comments:

Post a Comment