Here: “In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.”
Source link: http://archive.mises.org/10779/why-gold-is-soaring/
Why Gold is Soaring
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I’ll believe it when I see it.
I do not know what is going on.
http://online.wsj.com/article/SB125484066563367821.html
They are going to do it, soon. Don’t believe the denials. We (the US) are in debt that can’t be paid off and the rest of the world is going to finally figure that out. Technology is not going to rescue us.
One day we’re going to read this as a happening event, not as rumour. That’s be the day all sorts of stuff hits the fan.
BB
It doesn’t matter what oil is paid with, whether it’s yen or dollar or rubel. On the FX market, you can trade any currency into any other in a matter of seconds. The other aspect is that non of the oil producers are forced to keep any currency. So, if you pay in yen, you can exchange it into rubel in the next second, then buy gold with that and hold it.
Hiroshi,
I really can’t see this happening on that grand of scale. The Gulf states would never follow Iran. If the dollar fell through the floor what would China do with all those treasuries? Use them as fuel in their factories?
Shouldn’t the proper title of this be: “Why the dollar is falling” ? I mean the price of gold is an aberration due to a fiat money system. The “price of gold” doesn’t really change that much over time, only the value of the fiat dollar as measured against that rare commodity. Right?
Christopher,
China has a choice: write off $800B now or a whole lot more later.
Wayne,
There is something called ‘price of gold’ absent fiat money. Gold will freely exchange against other commodities and will be as such priced in commodities it can be exchanged for. When more people are making things, when there is productivity and prosperity, then chances are prices of other things in terms of gold will fall, because gold being rare cannot be mined fast enough to keep the price in gold constant. What is in fact happening in that case is gold is becoming more expensive, because you can buy more things with less gold. So yes, there is such a thing as ‘price of gold’ absent fiat money, it is the price in terms of other commodities.
Or is the value of gold like the value of diamonds? No one knows the value of diamonds because the wholesale price has been controlled for 100 years.
billwald,
there is no “objective” value of gold. Only personal values, and arguably, a market value.
Sure Obama is destoying the country by ruining its currency. But why would he do so?
Asia Times: Obama’s Permanent Depression
It’s more than just bad economic theory that they’re describing in this article … it’s bad and self-serving economic theory.
I call it the Nawlins Plan.
New Orleans shouldn’t exist any more. It’s ridiculous. It’s a city of welfare recipients, drug addicts, hookers, bartenders, waitresses and jazz musicians which is under sea level and sinking fast. Spending billions of dollars on levees, pumps, roads, entertainment complexes, welfare, schools, etc. to keep a city in business, which gives nothing to the country which couldn’t be done cheaper and better elsewhere, is futile to the point of utter stupidity. Or is it stupid?
Ask yourself, who benefits from these bad policies? Not the people who live there, who are lured into living in a unhealthy and hazardous trap. It’s the politicians, bureaucrats, police and army who benefit. The more fxcked up Nawlins is, the bigger the budgets they get and the more power they can seize, because of you know, “the emergency situation”. Look at the billions and billions of dollars being spent there (mostly on bureaucrats and on contractors with government connections), and the draconian response to the hurricane evacuation, with police and army running around busting into houses, grabbing guns (and who knows what else) and tooling around in expropriated SUVs.
That’s what the Big O and Company are doing to the entire US. They’re building the financial levees higher and higher (built out of paper money on a foundation of debt) while the economy sinks lower and lower. The greater the emergency, the more money and power the “first responders” can grab, meaning the government and its cronies win, everyone else loses. Watch America sink beneath the waves, meanwhile anyone with a clue will get the hell out and especially get their money out.
Wolfgang:
It doesn’t matter what oil is paid with, whether it’s yen or dollar or rubel. On the FX market, you can trade any currency into any other in a matter of seconds.
You can do that, but I believe that in practice both the sellers and the buyers of petroleum tend to keep large amounts of cash in USD bank accounts on Wall Street – for the purposes of hedging and for keeping profits liquid for the purpose of eventually investing them (or embezzling them). Because the oil is sold in USD then it makes sense to keep USD on hand and save money on conversion fees, among other inconveniences. In the past there were many more investment opportunities in the US than elsewhere, such as bonds, stocks, real estate, etc.
Those cash deposits then become the plaything of the Wall Street bankers through the magic of fractional reserve banking. Being located in the USA they also come under the jurisdiction (such as it is) of the US government, which means that the USG can do things like freeze the bank accounts of anyone with whom it is displeased.
Non-Americans are getting away from the dollar as a petro-currency because they don’t want to see the value of their cash deposits evaporate overnight in a puff of inflation when the USG debt is monetized, the bond issuers go bankrupt and their real estate and equity investments go permanently south, and they don’t want to see their money seized as a result of blowback from aggressive US foreign policy.
Re: Ohhh Henry
“Do you know how to unite the people behind you, Child Carridin? The quickest way? Loose a lion – a rabid lion – in the streets. And when panic grips the people, once it has turned their bowels to water, calmly tell them you will deal with it. Then you kill it, and order them to hang the carcass up where everyone can see. Before they have time to think, you give another order, and it will be obeyed. And if you continue to give orders, they will continue to obey, for you will be the one who saved them, and who better to lead?”
A quote from a Fiction book (The Dragon Reborn by Robert Jordan), but relevant nonetheless.
It’s funny to see all of the skeptics in denial. The fact of the matter is that the status of the dollar is being questioned around the world and for very good reasons. Why wouldn’t it be? Only morons, with illusions of grandeur, think that the dollar can hold it’s ground when the power and wealth of the U.S. empire is in decline.
A National Intelligence Council report published in November of last year, entitled “Global Trends 2025: A Transformed World,†makes clear the expanding power of the BRIC nations, emphasizing China in particular. The report states that “[i]n terms of size, speed, and directional flow, the transfer of global wealth and economic power now under way — roughly from West to East — is without precedent in modern history.”
http://www.dni.gov/nic/PDF_2025/2025_Global_Trends_Final_Report.pdf
I just heard an interview with Marc Chandler on CNBC today where he said that we need not worry about the dollar at all because we need to keep printing money to revive the U.S. economy. He also said that prices don’t mean anything. This guy is a goldmine of stupidity. The people who want us to forget about the dollar are the people who simply want to undermine it.
http://www.cnbc.com/id/15840232?video=1286162714&play=1
We are not talking about a change coming overnight. No one is saying that! These flaky reporters and paranoid commentators should quit responding to charges not being made.
It’s important to realize that it’s not a question of if but when. Maybe it will be 2018, but it’s coming.
Here is an interview of Robert Fisk on Al Jazeera: http://www.youtube.com/watch?v=CBDPGkW6SCU
Never believe anything until someone denies it. The central bank of Saudi Arabia has now denied it. I know that the commentators have raised several good objections for why this will not happen, but we know that such arrangements regarding paper currencies always break down. It is just a matter of when. These objection argue for the link of dollar to oil will last longer, but ultimately do not change the ultimate fate of these arrangements.
With all the deleveraging in the world cash is gaining value in relation to things. One of the best investments the last few years was cash. There is a lot of demand for cash in this time period. I don’t think countries are going to dump the dollar in the next few years. Other countries are printing money and debasing their currencies as well, not just the u.s. By many measures of money supply the euro, and canadian currency has been being debased faster than the u.s. dollar and that would explain the relative underperformance the last few years. Countries all over the world are destroying their currencies.
The concern for the U.S. is when present oil countries start becoming net importers of oil if there is any truth to peak oil. Oil is in terminal decline, and countries are going to want that oil for their own citizens, not for the u.s.
Well, people like Marc Chandler don’t make very good arguments. His economics and statistics are extremely misleading, and his propaganda serves an important function for those in power, by excusing the continuation of destructive statist policies. Most of the arguments made on this topic are not very good ones.
The status quo has the property that its position is rarely thought to be unproductive or irrational. It has a certain staying power, but not necessarily as a result of its merits. The dollar is not something other global powers want to support. It enables the U.S.’s wars, empire building and economic domination. China doesn’t want to see more encroachment of the U.S. into the oil-rich Middle East. It also doesn’t want to hold dollar assets in the long run. The talk about there being a lack of alternatives is humorous. It’s as if these pundits forgot about the existence of all the other currencies and hard commodities in the world.
The rush into worthless U.S. treasuries at the beginning of the current crises was only a sign that the immaturity and foolishness of global investors was still with us — they being under the impression that the U.S. government is what Peter Schiff called the perceived “Fort Knox of finance.” But this cannot continue for very long. The petrodollar cycle will come to an end. The rise of a mutli-polar distribution of power and a mutli-polar world economy is happening. The writing is on the wall, so to speak.
The U.S. rose to superpower status after Europe was completely destroyed in WWII. We took over the mantle of power from European states and became a leading export nation that helped rebuild Europe. I think that we have amply demonstrated, since the loss in Vietnam and the end of the Bretton Woods system, that we didn’t have the internal and external strength to maintain total control. The fall of the Berlin Wall was not the result of U.S. power, but the failure of Soviet economics. We keep puffing up ourselves in topics such as the world reserve currency, but we are simply full of hot air. Pride comes before the fall.
It seems to me as if this is just another contrarian signal to buy the US dollar (especially as it is coming from a fool like Robert Fisk). The reason the US dollar is currently falling is because people are happy (or at least happier) and a falling US dollar is consistent with rising commodities and stock markets (at least for the past few years). However, rising commodities and stock markets will not be with us forever and when they stop rising and people become fearful of all of the massive amounts of debt that they hold they will panic into US dollars as these are what most of the world’s debt are denominated in and therefore must be paid back in.
Gold could of course rise significantly more from here but the long term trend is for a strengthening of the dollar and further weaknesses in commodities and stocks. Central bankers are no good at doing even the things they should be good at – creating inflation and they won’t be able to inflate their way out of debt because inflation is debt in our credit based system.
I don’t know how many times I have heard the canard that other govts are going to get out of the US dollar – but it often seems to signify a bottom in its value.
Thanks a lot bushCo & Reaganomics. Thanks a ton corporate fascists and free market capitalism.
You sought to bring down america ala 1920s and you succeeded. History repeated itself with the help from the wealthy. Just like then. Consolidation of wealth has run rough shod over our fragile economy, now thousands of people are poised to freeze and starve. F**k you very much.
I thought that the leadership of the USD over the last few decades was a relative thing due to the Congressional mandate to the Fed to keep prices stable. The other nations that mattered had stated targets of 2% inflation. So it made sense to hold USD rather than any other currency because it lost value more slowly. The demand for USD made it stronger so the Fed HAD to expand money and credit to stave off deflation and keep prices stable.
One of the first things the current chairman said after the crisis hit is that he would accept a 2% annual inflation. So USD no longer has any advantage relative to other currencies. If I were them I would diversify my currency holdings too. But with so many USD out there, a tiny fraction of sellers will be a huge number of dollars. And once the fall of USD becomes perceptible, hyperinflation, economic chaos and Obama takes his rightful place beside Mao, Hitler, Stalin, et al, etc,… and the headline will be “No One Saw It Coming!”
Wolfgang
Mish presented a similar argument today and while it is true that the FX market does have a tremendous amount of liquidity and the transactions that you mention could easily be made it does not mean that commodity pricing in US dollars is unimportant or that a change from that pricing would not have a deleterious effect on the USD
“Thanks a lot bushCo & Reaganomics. Thanks a ton corporate fascists and free market capitalism.
You sought to bring down america ala 1920s and you succeeded. History repeated itself with the help from the wealthy. Just like then. Consolidation of wealth has run rough shod over our fragile economy, now thousands of people are poised to freeze and starve. F**k you very much.”
He left out Nixon and Ford
Let us all also forget about Kennedy, LBJ, Carter and especially market bubble impresario, W J Clinton, Obama also gets a pass even though he’s dancing to Wall Streets tune just like the rest of them.
They all had a hand in this fiasco and the Rep/Dem crap just don’t cut it anymore
Zap,
I could not agree with you more.
“Arrgy
Thanks a lot bushCo & Reaganomics. ”
I feel your anger. I feel it when I see our alledged representatives trashing the place and blaming freedom. There is not and never has been balance between power and freedom. But I believe that we were better off with Jefferson’s “Liberty and Justice for All” as the guiding principle rather than the current overriding “Winner takes all” mantra.
you’re forgetting the one and only reason why the USD will remain the world currency for the foreseable future: our guns are bigger than the rest of the worlds. No other reason. Period
sb101 hit the nail on the head. We’re obnoxious, arrogant and beyond reasoning. If it were my decision, I would have bailed out of US dollars a long time ago.
I did not say half of what was attributed to me. I stick wiht my analysis I presented at that time. Gold is not going to replace the dollar as the anchor in the international monetary regime any time soon. One comment claimed this was not a “soon” call but medium term. I have less faith in a 5-10 year forecast. It has been nearly five months since these comments made. The comments here were made mostly in Oct 09. The dollar bottomed against a couple of currencies by then and bottomed wihin a handful of weeks against the euro. Gold has acted as part of the risk on trades not a safe haven. On the clip here, Kudlow asked about why shouldn’t the US raise rates. I argued against it then saying it was premature and that inflation was not pressing. That seemed right at the time and in hindsight. Many of the critics said like they would have bailed out of dollars. They were sellers at the lows. Yes, every one is entitled to an opinion. Some opinions are rants and emotional. Others are fact based argument. A little less name calling and more analysis would be helpful for everyone.
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