Film Director Alfred Hitchcock was fond of describing the difference between surprise and suspense. Surprise, he would say, is when a bomb under a table goes off. Suspense is when there is a bomb under the table and the audience know it is there, but the characters on the screen do not. The audience become ever-more tense, wishing they could say to the actors, “Get out of there!”
There's a bomb under the table at present, and, physically speaking, it's quite a small one. It's a rectangular piece of paper that has green printing on the back and a picture of a deceased politician on the front. However, when it goes off, it may well prove to do more damage than the most powerful nuclear weapon.
The US dollar has, since 1913, been issued by the Federal Reserve. It has served fairly well in its purported role: that of the principal currency of the US and, to a significant extent, the world. It has also served exceedingly well in its other intended role: that of a form of hidden taxation. Over the course of the last one hundred years, it has been devalued by 97%, which is to say that, over that period, 97% of the wealth that has been created by its users has been surreptitiously (but legally) confiscated.
As a hidden tax, controlled inflation has robbed users of the dollar in a way that they never would have tolerated, had the US government simply created a more obvious direct tax.
So, now that the dollar has virtually completed its original task, we may ask ourselves, “What's next?” If the dollar is coming to the end of its usefulness, surely those who hold the power to control wealth will not simply lean back and consider their work done. Surely, they have a plan in the wings for an encore.
Certainly, the dollar will go out with a bang – the massive creation of dollars, both electronic and printed, that is presently taking place (rightfully described by some as “QE to infinity”) will lead the dollar on an end-run that is likely to end in hyperinflation and ultimate collapse. As frightful as this outcome would be to most of us, there are those who could benefit considerably from the final collapse of the dollar.
But even they do not wish for currency to cease its use in the world. Quite the contrary – the continuation of commerce and wealth acquisition is their life-blood. They will crash the dollar, not because they wish to see the world starve, but because it has fulfilled its purpose and must now come to an end, in order to make way for the next form of currency and, with it, further currency manipulation.
As to what that form that might take, there is great uncertainty. Certainly, many of those who traditionally chose to store a portion of their wealth in dollars are now either out of the dollar or plan to be out soon. Many of them, having considered other currencies, have concluded that when the world's foremost fiat currency collapses, the others are likely to fall by the wayside as well.
This view should not be taken lightly. Although the world has seen quite a few currencies collapse, often due to hyperinflation, in each collapse there has been another currency to turn to, to soften the blow. As a recent example, when the Zimbabwe dollar collapsed, the US dollar was used immediately by a burgeoning black market, and, to this day, Zimbabwe has no official currency. Yet commerce continues.
But then, the US dollar has acted as the world's default currency for decades. When the US dollar itself collapses, other currencies may not be a safe haven.
As a result of this predicament, an increasing number of those who wish to retain their wealth are turning to precious metals, and in a world of diminishing alternatives, that may well be the wisest direction to take.
Those of us who have stuffed the odd Krugerrand away for the future are very much in the minority. To date, less than one percent of investors have taken this step. So, although gold is being increasingly discussed in the media, those who have committed themselves to precious metal ownership are still, in effect, contrarians.
It is not surprising, therefore, that the vast economic wasteland that will exist “after the crash” is not being discussed very much. Even those of us who feel we are planning ahead have a tendency to think only up until the point that a crash has occurred – a time when we will breathe a sigh of relief that we have had the foresight to buy before the mania made gold purchase either irrational, unaffordable or near-impossible.
To my mind, once the gold mania is in full swing, it will be paralleled by dramatic inflation. Many people will lose the great majority of their wealth. Millions of jobs will be lost. There will be riots and, very possibly, famine. At such a time, the average person may well be so consumed with such simple acts as returning from the supermarket without being mugged, that the future of currency may seem unimportant by comparison. Therefore, the discussion as to where world currency is headed should begin now.
A New Gold Standard
Those who have invested in precious metals tend to assume that the world will return to a gold standard. After all, gold was the currency for some 5,000 years, and the move away from it, to full fiat currency, has been quite recent.
There can be no doubt that, once the dollar crashes, there will be a major push on the part of those who seek economic stability to return to the one currency that has actually stood the test of time. These people will be correct in their position, but that does not necessarily mean that the world will return to what works the best for the great majority of people. After all, fiat currencies were not created because they worked for the majority; they were created because they benefitted a small number of people who had the advantage of being in control.
Here are the primary directions that may take place:
Electronic Currency Backed by Nothing
Those who presently control the currencies of the world would, understandably, prefer to continue the fiat currency scam, since it has worked so well for them. However, if the Federal Reserve and the other producers of the world's currencies were to simply create another paper currency after the crash of the dollar, it would be in danger of being just as suspect as the old dollar. Electronic currency might stand a better chance of being accepted as a panacea. In addition, if every purchase (right down to a candy bar) were made electronically, the governments of the world would have the additional benefit of being able to trace every economic transaction worldwide by every individual, making it possible for governments to then control those transactions.
Electronic Currency Backed by Gold
Many of those who presently own gold say that a return to the gold standard is inevitable, and this may prove correct, but history has shown that people will accept most any form of “money” as long as the pretense of its having value is convincing enough.
However, it is entirely likely that electronic currency might be backed, either in full, or in part, by gold (in order to get it started), but, if so, it would be backed by the promise that such gold existed, not on any independent audit. In any case, once the system was accepted and fully in use, it would be simple enough to dispense with whatever gold was claimed to have been in place.
It is entirely possible that the outcome of this question will be determined by whatever forcefulness the various countries can muster. So, which countries will push for gold-backed currency? The answer is simple: those countries that hold the most gold. Let's take just two examples:
The US claims to have the world's largest depositories of gold, in Fort Knox and the Federal Reserve Building in New York, the latter gold being mainly the property of European governments.
If the US government feels it needs more gold than this, it may choose to confiscate the gold held by its citizens, as it did in 1933. If it were to do so, it would have the luxury of paying the citizens in fiat currency. If confiscation took place, this would be a strong indicator that the US planned a return to a gold-backed currency. (The more gold they held, the more control they would have, worldwide.) If they did not confiscate, it could be an indicator that they planned to go to a system without gold-backing.
China, in recent years, has been dramatically increasing its purchase of gold. It has also switched from outlawing the ownership of gold by its people to not only legalising it, but encouraging its people to buy. If China were to go to a gold-backed currency, it would have not only the government's reserves, it would have the option of confiscating what has been bought by its people, to further strengthen its position.
Does this mean that China is headed in a gold-backed direction? Not necessarily. It may simply mean that it is keeping its options open for any eventuality. (It may indicate that China is unsure of where the game is headed and is covering its bets.)
Beyond all of the above, it is possible that, should the US lead the way in a given direction, some countries may say, “We can't compete with that. We'll have to opt out and go in another direction.” Conversely, it is just as possible that they will say, “We're going to be hit hard by the new system, but the US is still the US and we will need to play ball or we would be unable to trade and so would be even worse off.”
If the US were to go to an electronic currency system, it would only succeed in its second purpose of tracking every transaction of every citizen if most, or all, other countries were to take part in the same system. It is entirely possible that they may therefore shoot for a system that is (at least in name) controlled by the IMF. This would make it more difficult for individual countries to opt out. However, the world is seeing an increase in the development of international alliances, such as ASEAN in Asia and Mercosur in South America. These organisations are primarily concerned with world trade and are very wary of the twin powers of the US and the EU. They will not allow themselves to be swallowed up, if they can possibly help it.
The possibility exists that, if the dollar were to cease to be the world’s default currency, more than one currency or currency system would take its place. One thing is certain: If one or more alternative systems were to be created (most likely, complete with their own form of a SWIFT system), it would be in the interest of all if the systems could interconnect. Although each group of nations would seek to retain its influence over the other(s), the need for trade would demand that they continue to interface economically.
Considering all of the above, there is by no means any certainty that gold will once again take its logical place as the world's primary currency. And, if it does, it may only serve a transitional role. To be sure, the governments of the world would each overwhelmingly prefer to issue and control currencies which had no backing whatsoever, as to do so would allow them the maximum ability to fiddle regularly with their value, to the detriment of others.
If gold were to play a lasting role, it is likely that it would come about through mutual distrust between countries and/or a desire by those who held the most gold to dominate those who held less.
At present, we are much too far away from the actual events to be able to speculate with any authority. Still, we should be considering all the possibilities now, so that, as events unfold, lights go on in the brain as to where the world's controllers plan to take us. The present international uncertainty of gold tells us that each world player is holding his cards tightly to the vest. How the game will turn out may well not even be known to them, but, rest assured, each is eying the chessboard carefully.
There is a bomb under the table, but, unlike in the movies, the suspense is not over whether it will go off, because it most certainly will. The question is when, and, more to the point, what will occur afterward.
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