If the U.S. inflates and devalues the
dollar, gold will go much higher in price" Jim Rickards. (See here).
The last dollar devaluation took place
under President Roosevelt in 1934, when from being worth 1/20.67th of an
ounce of gold in 1933, the dollar was devalued to
1/35th of an ounce of gold.
The last opportunity for devaluing the
dollar took place in August 1971, when the dollar was still pegged at 1/35th
of an ounce of gold. Nixon took the advice of Milton Friedman and made the
worst mistake in history; Nixon did not devalue the dollar as he should have
done, but simply took the US off the gold standard, such as it was, and
thence forth the US refused to redeem dollars held by Central Banks around
the world at any price.
Since August 15, 1971, the dollar can no
longer be devalued.
Since the dollar is the reserve currency
of all Central Banks in the world, all other currencies � the euro included �
are only derivatives of the dollar. The proof of this statement is that the
value of each and every currency in the world is calculated in dollars,
The world�s currencies are devalued or
revalued against the dollar in the world�s currency markets every day of the
year.
There is a �Dollar Index� which shows a
value of the dollar against a basket of other currencies. However, the
currencies selected for the basket are arbitrarily selected and some
relatively important currencies are not included in the basket. Besides this,
the movement of the dollar in the �Dollar Index� cannot signify either
devaluation or revaluation of the dollar, because the currencies in the Index
are themselves undergoing either depreciation or appreciation in dollar
terms, due to their own national circumstances.
The US cannot declare an official
devaluation of the dollar because there is nothing against which it may
devalue, or rather, it does not wish to recognize the existence of gold as
money, against which it might devalue.
In order for the US to devalue the
dollar effectively, it would first be absolutely necessary for the US
government to establish gold as the referent for its value. The US government
would have to declare that the value of the dollar is equivalent to a given
amount of gold, and solemnly promise that that value will be upheld and made
good by offering to buy
any amount of gold tendered to it, and pay for it in dollars at a price
slightly below the officially established price of gold in dollars, as well
as offering to sell
any amount of gold paid for in dollars, at a price slightly above the
officially established price of gold in dollars.
Once an official value of the dollar in
gold were established, it would then once again be possible for the US
government to renege on its promise and devalue the dollar by establishing a
new and lower value of the dollar in gold. In other words, the dollar must
first of all be freely convertible into gold at an official rate, before any
devaluation can take place.
As things now stand, it is impossible to
devalue the dollar.
A rising price of gold does not devalue
the dollar, because there is no official link between gold and the dollar.
The world�s monetary and financial systems have no link to gold. Gold can be
any price without causing any effect upon those systems. We have seen gold at
$1900 dollars per ounce, and things were running just as they were when gold
was $300 dollars per ounce.
However, the rising price of gold is a
huge embarrassment to the US government not because it devalues the dollar
(it does not do this) but because it provokes a loss of confidence in the
dollar. When the dollar is seen as falling in value against gold, its fall
causes investors to exchange dollars and other currencies for gold as a means
of protecting wealth. The rising price of gold is a blot on the prestige of
the US dollar and the prestige of the US itself.
The price of gold in dollars is therefore under strict government control.
This fact, once derided as ridiculous, is increasingly accepted as truth by
those interested in monetary matters around the world. The means for
controlling the price of gold lies in the massive sales of �paper gold� which
take place to suppress its price, as so many investigators have amply
documented.
US monetary policy considers that the
dollar is here to stay forever, and that gold is no longer - and never again
will be - the world�s ultimate money.
The governments of several nations
around the world do not share the same conviction with regard to the
permanence of the dollar. China invented irredeemable paper money � which is
what the whole world uses today � some one thousand years ago, and several
dynasties of Chinese emperors learned to their cost that paper money always
degenerates into simple trash.
The Chinese government knows that the
dollar will not be around forever. China is purchasing enormous amounts of
gold to add to their huge pile of US Bonds in the reserves of the Bank of
China; the government of China is more enlightened than the government of the
US, because it is encouraging the Chinese to purchase gold and silver.
The US government tells the world that
it possesses some 8,000 tonnes of gold; the fact
that it cannot deliver physical gold held for Germany�s account belies the
assurances regarding the physical gold stock of the US.
The situation for the US � and for the
world � is dangerous: the US is like a ship with no lifeboats, because it is
presumed to be unsinkable.
The US and its allies are allowing the
Chinese and Asia in general, to take possession of huge amounts of gold every
year, while the US, the UK and Europe are drained of gold by shipments to the
East.
The US evidently believes that the
dollar is here to stay and that gold is just a passing fancy. This is classic
hubris or
arrogance.
When serious problems for the dollar
surface � as they surely will � and the US has little or no gold to fall back
on, the US with its back to the wall may become a very dangerous entity in
the world. Would it be possible for those running the US to loose their heads and decide for a suicidal nuclear war
in response to a desperate economic situation? Does the destruction of the
whole world matter to men about to take their own lives? Do suicidal bankers
worry about the fate of the world?
