The two critical questions on this tour have been what about the Hong Kong-Dollar Peg and the Swiss-Euro Peg? The answer is simple. NEVER in history has there ever been any PEG or STANDARD that has ever survived. Why? Because “shit happens” meaning there is a business cycle that incorporates weather and climate changes as well as war.
Trying to hold even a gold standard cannot be accomplished because the economy is not a flat line. Attempts at creating a gold standard (fixing its value) have always collapsed as was the case with Bretton Woods in 1971. Napoleon’s gold standard failed. Britain tried to switch to a gold standard and was forced to leave several times. Its attempt to PEG the Pound to the Deutsche Mark collapsed in 1992.
WHY do all PEGS and STANDARDS simply collapse? Aside from trying to eliminate the business cycle, why communism also failed, it encourages speculation. PEGS are the greatest gift to traders in history – the illusive and fabled GUARANTEED TRADE. It is like going to the casino and you bet 100,000 on number 23 at roulette. If you win, you get your 35 to 1 return. If you lose, the house returns your 100,000. It is a no loss game.
Speculators can jump on the Hong Kong PEG as well as the Swiss PEG. When the timing is right, they will build up the position with no risk of loss. If they lose, the state held the peg and simply returns their bets; they win either way.
Some in the Goldbug Fanatic camp hate my guts because they paint me as some sort of traitor because I do not support their idea that returning to a gold standard will save the world. Their entire focus is money and nothing else. They refuse to consider history and ask the basic question if the gold standard is such a magic cure, why has it never lasted?
The Goldbugs confuse gold as a medium of exchange and an investment (as now), both having independent value (former by politicians latter by the free market), with the idea that only gold should be MONEY. They do not understand MONEY really can be anything because it is simply an economic language being the medium of exchange between two tangible objects. They are fixed on this idea that MONEY is of some standard value and thus becomes a savings. That was the entire basis of the Wizard of Oz – the political satire about maintaining a GOLD STANDARD that created austerity and depression. Sound familiar watching events in Greece? This same argument about fixing money has been going on for thousands of years. It has always collapse because there is such a thing as the Business Cycle that even Paul Volcker had to admit the Keynesian Economics completely failed to eliminate that in his Rediscovery of the Business Cycle.
As soon as MONEY becomes a savings, you need a place to store it and you then create banks that lend the MONEY and you get leverage creating the VELOCITY of MONEY. Thus money is created by lending. Eliminate that to keep MONEY simply purely GOLD and then we are back to the Stone Age and you could only buy your house when you had cash since there would be no mortgages.
Why does MONEY have to have some fixed value when everything floats including your wages? Are you willing to work for a fixed sum for the rest of your life? Are you willing to sell the house for the same price you bought it at? Why invest if everything is a flat line and fixed? This debate has been going on for a long time but neither side listens to history.
The Fanatic Goldbugs further do not understand that to create a GOLD STANDARD is a derivative of Marxism – the idea of eliminating the fluctuations in the economy we call the Business Cycle. Just look at Southern Europe. Unemployment is off the charts. Social unrest is rising. The streets are often in flames. It is called austerity. This would be the same result introducing the GOLD STANDARD – the contraction of the money supply called DEFLATION. The Spanish youth have no future and a migrating to Brazil. Migration patterns such as this are common during economic crisis. A GOLD STANDARD would be more of the same.
The Fanatic Goldbugs’ superficial knowledge of monetary history serves only for slogans screamed from a tower with a loud speaker. Their logic is far from rational and amounts to basically if someone eats a carrot and died, gee, carrots must be dangerous. They childishly think money just has to be gold and all will be well. How does one create such a system without a Mad Max outcome? They have no idea.
This has been the debate even in the USA that has raged since the days of Andrew Jackson and the Bank War. Here is a picture of PUCK magazine from London showing America drowning in silver dollars which they valued more than Europe and led to massive gold migration from USA to Europe. That is why J.P. Morgan became famous lending the US Treasury gold in 1896 because politicians manipulated the gold-silver ratio and did not understand international capital flows. It has never been WHAT is money that is the core problem – but the complete lack of fiscal responsibility. Jefferson had it right – prohibit government from borrowing.
Hamilton won the issue to create a national debt. Jefferson agreed on two terms. One it would be paid off, which it was. Secondly, the capital of the United States be moved next to Virginia becoming Washington, DC. Today, we have a national debt that is borrowing with no intention of paying it off. However, every pension fund is deeply invested in sovereign debt. It is the basis of reserve currencies for both local domestic banks as well as central banks. Going to a GOLD STANDARD would wipe out the world economy imposing major austerity
What do you do with the national debts? Do you now pay them off in gold? The bankers would love that and the treasury would be broke all over again. If we eliminate the level of debt, is new economic growth even possible? Just how can you pay down debt without creating money or restructuring the debt (devaluing it)? We only need to look at Greece to see what debt deflation creates. It is massively self-destructive to the brink of creating civil war.
On the other hand, not paying down debt but simply going bankrupt sets off a chain reaction where everyone’s pension funds vanish into the dark of the night. That too will lead to civil unrest and the Mad Max Effect – the total destruction of civilization. Perhaps it is just more practical to leave it alone and we simply inflate away. Society may hold together longer avoiding the civil unrest until they figure out they have less and less to show for their labor? But this lead government into authoritarian. They are already hunting down anyone with money. They create the Maximinus Effect – the hoarding of wealth and collapse of the economy as was the case with Rome.
So those proposing a simple return to the GOLD STANDARD cannot even begin to address these questions. This is not about what is MONEY, creating PEGS and STANDARDS that are simply derivatives of communism seeking to eliminate the business cycle. This is about trying to use history as a solution to save Western Civilization from the Debt Abyss not walking down the halls of Ivy.
This is the solution that will be presented at the Berlin Conference. This is the subject of the movie. This is not about me. This is about trying to come up with a solution reviewing history just for once to develop that solution. An alternative approach is the only answer. But it requires understanding the REAL role of the MEDIUM OF EXCHANGE since it has been everything from cowrie shells to paper.
How did Germany solve its hyperinflation? It replaced the Papiermark by the Rentenmark, which was an interim currency backed by the Deutsche Rentenbank, owning industrial and agricultural real estate assets – land. The French at one time also tried backing currency with land. Nonetheless, in 1924 the Rentenmark was replaced with the Reichsmark which was a permanent replacement. The Reichsmark was put on the gold standard at the rate previously used by the Goldmark, with the U.S. dollar worth 4.2RM. While the GOLD STANDARD was abandoned, during the Second World War, Germany established fixed exchange rates between the Reichsmark and the currencies of the occupied and allied countries, often set so as to give the Germans economic benefits.
These are just the real questions that have to be answered at the Berlin Conference (English: All-English / German All-German). Returning to a GOLD STANDARD because money should be REAL, is not practical, will lead to the Mad Max Effect, and accounts for nothing from history why all attempts to fix currency values have failed WITHOUT EXCEPTION since the legal code of Hammurabi who first attempted to fix the prices of everything in the first known STANDARDIZATION attempt in society of flat-lining the business cycle.
To the Goldbugs who demand a GOLD STANDARD so they can become rich, sorry. You are going to have to make money the old fashioned way – trade or work. This is not about saying gold is worthless. It is a object that retains value and is a recognized unit of value around the world. The only major commodity that is the same everywhere. It should remain as a hedge against government and should be a free market at all times.