QUESTION: 2014 should not have happened, but it did. There’s no way to sugarcoat it: the gold bugs were wrong, Austrian economics was wrong, and the Keynesians were right. And now the sound money community is left trying to figure out what it missed and, crucially, whether the problem was merely one of timing or of fundamental worldview.
What do I have to believe ? Keynesians are right ? Shall I become communiste or socialiste ? Shall I forget about Austrians economics ? They have been wrong for the past 4 years and Keynesians are winning now ……
TL
ANSWER: The Keynesians are not correct nor are the Austrians. Both of these theories are in serious need of revision. They are deeply rooted in a ancient world of tangible money that is defined by the territorial limits of a nation. I have sought to explain that the currency of the nation or empire that forms the financial center of the world economy has historically ALWAYS, and without exception, become the world currency extending beyond its borders.
Here is an IMITATION of a Roman gold Aureus of Septimus Severus (193-211AD). The imitation pictured here was struck in India and this demonstrates two things. First clearly GOLD was by no means the actual medium of exchange for here the imitation weighs 11.3 grams compared to the actual Roman coin 7.1 grams. The fact that the imitation weighs more illustrates that the CONFIDENCE in Roman coinage extended far beyond its borders. If it were gold that was the medium of exchange, then (1) there would be no need for India to imitate Roman coinage to gain acceptance, and (2) the raw gold should have been worth more than the Roman coin. This illustrates my point that the DOLLAR has become the world currency by default in the same precise manner because of the implosion within Europe, the decline in Japan, and the lack of any sophisticated market in China to allow foreign investment into its currency.
We see this very same trend nearly 600 years earlier when Athens was the financial capital of the world. Athens Owls were imitated in Northern Europe as well as in Asia.
Here we have imitations that are lighter by half of Philip II of Macedonia – the father of Alexander the Great. To the right we have a very crude imitation of a Roman Denarius struck in Britain during the time of Augustus (27BC-14AD) BEFORE Rome conquered Britain. Obviously, the Brits knew well who the Romans were.
The theories of the Austrian School and Keynes fail to comprehend the real structure of money and its role within the global economy. The dollar will rise now BECAUSE it is the in the same position as the dominant currency of every empire that has preceded it throughout history.
The US dollar takes its name from the German Thaler. A one ounce silver coin became the standard monetary system. Hence, the money that circulated in America was not the British pound, but the Spanish 8 Reals known as the “Pillar Dollar”. This was cut like a pie into 8 “bits” equally a dollar. The United States actually adopted the Spanish system rather than the British.
The expansion of the money supply of dollar has FAILED to produce any inflation BECAUSE the old theories have failed to take into consideration the global nature of the world economy and its demand for the currency of the current Financial Capital of the World. This is WHY the dominant currency has ALWAYS been imitated because people had confidence in the dominant currency – NOT the mere fact it was tangible.
This has always been a CONFIDENCE game. You cannot forecast markets based upon old theories that fail to take into account the real trend historically. Yes debasement of a currency results in the decline in the purchasing power of a currency when we are talking about single nations. This does not apply to the dominant currency based upon simple supply for the demand stretches far beyond the borders and is by no means limited to only that nation. Eventually the dollar will collapse, not because of QE, but because the world is headed into a black-hole of finance and the debt will destroy everything as it always has. Yet the US national debt of about $18 trillion is nothing within a sea of $150+ trillion in debt globally. The US cannot print enough money to meet the world demands. The destruction of capital in Europe is massive and there too, the wholesale creation of Euros is not the mere reason for its demise. Brussels has destroyed its economy by raising taxes.
