Divorcing the Dollar and Marrying Gold

By Michael S. Rozeff, GoldSeek

With their money and banking system having presented them with a case of system failure by disintegrating before their eyes and taking the economy with it, America’s economic experts who support and run the FED’s central banking–inconvertible paper dollar system cannot place the blame for this where it belongs, which is on the system itself, its supporters, and those who make its policies. They cannot bring themselves to diagnose the system’s ills and rectify them because they are at the center of them. They cannot stare the failure of inconvertible paper money squarely in the face and move to eliminate it. If they did, they’d be out of jobs and out of power.

American central bankers, manned by expert economists, have in vain dealt with the crumbling banking system and dollar by manufacturing massive new credits infused into the players with the most leverage and the weakest balance sheets. In the not-too-distant future, this promises to unleash a second and greater credit debacle that may unravel the entire system and bring down the government with it.

A good many foreign central bankers are no better at the inflation game than the FED, as they too have presided over banks swollen with overpriced real estate and other loans. Many of these central banks, sharing the aversion to non-income-producing gold, have elected to hold U.S. Treasury securities as assets and to issue their individual currencies against these assets, thereby producing a derivative currency whose value depends on the value of U.S. Treasuries and the dollar in which they are denominated.

Suppose a foreign central bank holds U.S. t-bills as its main asset. Against this it issues its main liability, which is its own currency. Now suppose that the U.S. dollar falls in value by depreciating against gold. The reserve asset, t-bills, is now worth less against gold. Hence, its currency must be worth less against gold too.

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