-- Posted 17 April, 2009 | | Discuss This Article - Comments:
An article on Reuters recently indicated a United Nations panel has decided much of the world would like to move away from the American currency as the world’s reserve currency. This panel wanted to look into a “basket of currencies” or perhaps another entirely different, new currency to replace the U.S. dollar. Additionally, both the Russians and Chinese have indicated similar concerns.
This event doesn’t surprise me in the least. If we go back a few years, it was only the Austrian school thinkers that stepped forward and said the U.S. dollar, or any fiat currency, was eventually doomed. Now other nations and the U.N. are saying they really don’t trust the U.S. dollar, which is what this amounts to. I wrote about something similar happening many times and one currency that I spoke about years ago was the golden yuan (renminbi). There was a meeting in Southeast Asia years ago, about a gold-backed yuan. I believe any basket of currencies tried will fail, because none of these currencies are tied to real value.
At some point the world monetary system will probably go back to some sort of a gold standard, but in my view it will not be a true gold standard but some kind of pseudo gold standard. No one really knows the future, and I’ll be the first to admit it, but what we are seeing now is what we see at the end of all great inflations and that’s a distrust of the fiat money system and/or a distrust of the leading currency. Russia is raising its hand and asking, “Why should anyone trust it?”
There are so many U.S. dollars in the financial system. In my view it is collapsing, but the reason the system hasn’t completely collapsed yet is because the U.S.’s trading partners, such as China and Japan, are holding on to dollars. So they’re not putting them into circulation, but once that happens or they get scared or try to exchange too many of those U.S. dollars for real goods or services, it could ignite more than an inflation—it could start a currency crisis.
Most of us know that there is manipulation going on in currency markets and in the financial system as a whole. The Working Group of Financial Markets (WGFM, also known as the Plunge Protection Team) was established after the crash of 1987 and was developed to prevent another crash. I must say again, “Great job, gentlemen.” It does not work on a long-term basis. Just take a look at the stock market averages; the very idea that any group is bigger than the market is ludicrous.
However, the WGFM certainly can influence the market on a short-term basis, and they have, again and again and again. Is Russia looking after their interest? The Dukat Project in Russia is one of the best silver mines around. Russia does have some decent mines and some very good mining techniques in addition to having a strong oil base. Russia watched the price of oil go from $147.00 down to below $40.00. Now Russia’s gross domestic product is in trouble because its main commodity has been cut by 70%. It’s the same thing in the metals markets when these prices get hammered down so badly that their “paper” worth is substantially decreased.
Many have asked where this will lead. If you review history and what happened to the Great British Empire when America started coming to the fore, you get a pretty clear picture of where the U.S. is going to go. The pound sterling was the settlement currency on an international basis. It had all the power, all the financial clout; but then here comes America, the up and comer, and they have CAPITAL—which, in the Austrian school of economic thinking, is the means of production. So when the waning of the United Kingdom was going on and the buildup of America began, it was a transition, meaning it was harsh but it was achievable.
That same scenario is taking place right now, except it’s the U.S. dollar that isn’t being trusted instead of the pound sterling, and Asia is the “capitalistic” society because they have a great deal of the means of production. The Asian countries are producing almost everything. And I think you’re going to see them continue to produce over the next decade or so, and you’ll see a continual decline of the U.S. Empire. It doesn’t mean America is going away but it certainly is not going to be the number one productive nation in the world. It’s going to be the Asian countries, primarily China.
However, I’m still bullish on America in some aspects. One is food; the U.S. can certainly get high yields out of the farmland it farms, although nutritional value is another matter and outside this discussion. Second is ingenuity; I think it’s almost built in to the gene pool that the American spirit is pretty much entrepreneurial. They are out looking for good ideas. How to build a better mousetrap, think outside the box, etc. And the third is education; when you look at it objectively, China is sending all their best students to American universities and there’s a reason for that. They still get the best education in math/engineering and science in the USA. America has a poor record during the mid to high school ages, but from the university level on up, America probably still has one of the best educational systems around.
Generally speaking, though, I agree with James Howard Kunstler, who said that the average U.S. citizen has become “an overstuffed, overfed clown.” Most Americans have gotten politically lazy and they’re going to pay for that in the future. They don’t read enough, they’re undereducated, and they refuse to get involved in the political system. They basically don’t have the American spirit that once prevailed. They’ve just become dulled down, but I believe—because of this economic “rearrangement,” if you will—that is going to reverse. So I’m very positive in the longer run that the American populace is not only going to wake up but shape up and move forward. It will be a leaner, meaner, and much more aware American in the next five years. And it’s going to be a tough transition for some and almost impossible for others.
Do gold and silver fit into this picture? Yes! To make the transition as painless as possible, everyone needs some gold and silver. The precious metals can be traded for any currency anywhere on the planet. Regardless of hearing more deflation talk in the news or inflation around the corner, the metals are a crisis hedge, a sure thing in a world of growing uncertainty.
It is an honor to be.
Mr. Morgan has followed the silver market daily for more than thirty years. Much of his Web site, www.silver-investor.com, is devoted to education about the precious metals. To receive full access to The Morgan Report click the hyperlink.
-- Posted 17 April, 2009 | | Discuss This Article - Comments: