Thursday, April 02, 2009

It's a small step to be sure

But a step in the right direction. Im talking about Russia's proposal to the G-20 summit to return to some form of currency backed by gold. Not 100% backed by gold, but it's better than money backed 100% by government say-so, as a monetary system anchored on something tangible instead of 'confidence in the State' could impose some kind of discipline.

The article points out that
The Gold Standard was the anchor of world finance in the 19th Century but began breaking down during the First World War as governments engaged in unprecedented spending. It collapsed in the 1930s when the British Empire, the US, and France all abandoned their parities.
Unprecedented spending. Interesting. The unprecedented spending was due to the fact that the governments of Europe began inflating their currency on a massive scale, bankrupting themselves in the process, in order to be able to kill millions of people in the Great War. That's what inflation and debasement of currency allows them to do. The governments of the world, the US included, are all essentially bankrupt. It is only because they can create money out of nothing that they manage to stay afloat. That and the docility of the citizens who do not know they are being fleeced, believing as they do the old government fairy tale that it's all the fault of the free market.
The world's fiat paper currencies have lacked any external anchor ever since. It is widely argued that the financial excesses and extreme debt leverage of the last quarter century would have been impossible - or less likely - under the discipline of gold.
It is less likely, sure. But even with gold-backed currency, the Central Banks of the world, acting in concert, can still issue paper far in excess of the actual gold, as long as they inflate together and at the same rate. That's basically what all this talk about the new reserve currency to replace the US dollar is all about.

I wish I can say that it'll be fun to watch all this G-20 crap unravel but it won't be fun. There are hopeful signs, such as when European leaders, most notably Merkel, balked at more stimulus spending, but they'll toe the line soon enough. We're addicted to fiat money and credit and deficits and all those things that make this world a wonderful place to live in.

Update 03 April: Right. Doesnt take a genius to see this coming:
The deal agreed by the leaders of the world's largest economies included reform of the international banking system and the injection of more than $1 trillion into the world financial system.

French President Nicolas Sarkozy and German Chancellor Angela Merkel, who had voiced concerns prior to the summit about the wisdom of pumping further public money into economies already in recession, welcomed Thursday's agreement -- though hinted at unresolved disagreements behind the scenes.


stuart-santiago said...

i was expecting fireworks, or at the very least some resistance, for the record, from france's sarkozy and germany's merkel. so what do you think does america have on france and germany that they were so easily prevailed upon to go along with obama and uk's gordon?

Jego said...

I really can't say. The G-20 is perhaps one huge club afflicted by group-think. Merkel and Sarkozy probably didnt want to be blackballed and blamed for when the G-20 recommendations end in disaster.

But more than Merkel and Sarkozy, I dont understand the Chinese. The Chinese should be very worried and speaking out. They purchased a lot of American debt, and it's becoming quite clear that the US will not be able to back the papers the Chinese bought.

grifter said...

i think the Chinese spoke out, and had to be separated by Obama when they got into a tiff with Sarkozy.

but for all i know, that was because Sarkozy taunted the Chinese for not having a stunning first lady.

Jego said...

If the US favors paying the Chinese over the citizens of the United States, be prepared for the PROUSA. Nyahahahahaa!

Anonymous said...

The problem is not that the currency is not gold backed, the problem is fractinal reserve banking.