"Nearly 50 years ago, Yale University economist Robert Triffin identified the inevitable future deterioration of the dollar in his book, Gold and the Dollar Crisis: The Future of Convertibility (1960). Essentially, Triffin argued, under the Bretton Woods system in which the U.S. dollar was the world’s principal reserve currency (instead of gold, for example), the United States had to incur large trade deficits in order to provide the rest of the world with the liquidity required for functioning of the global trading system.
Unfortunately, Triffin wrote, U.S. trade deficits eventually would undermine the foreign exchange value of the dollar because foreign accounts would hold an increasing quantity of dollars. Restating Triffin's argument in contemporary terms, as the proportion of dollar claims held abroad versus U.S. gross domestic product (GDP) increases, the foreign exchange value of the dollar must decline if dollar interest rates do not increase at about the same rate as the foreign dollar claims.
Issuing the reserve currency gives domestic policy makers an advantage by making it easier to finance either domestic budget deficits or foreign trade deficits because there always is a ready bidders' market for any financing instruments from that issuer. Issuing the reserve currency enables the domestic population to consume more goods and services from whatever source than otherwise would be feasible. And issuing the reserve currency gives foreign policy officials of that nation the upper hand in determining multilateral approaches to either diplomacy or military action.
This last reason probably is why U.S. policy makers clung to the original Bretton Woods format for about 10 years beyond the point at which it still was viable, with the whole apparatus finally collapsing in August 1971."
Walker Todd, Triffin’s Dilemma, Reserve Currencies, and Gold, AEIR October 2010
Jesse: Gold and silver became interesting for the first time in the 1990’s, when I started to study the history of speculation and stock market crashes, and the rise and fall of bubbles. This led to a fairly serious study of the nature of money. Up to about 1999, I had no interest in gold and silver. What I saw happening in the world economy then sparked my interest in that subject.
I write about gold and silver now because they are at the heart of what is happening. I am fascinated by the sea change in the world monetary system, which has been colloquially called ‘the currency wars.’
L.S.: Will those ‘currency wars’ intensify going forward according to your analysis, and if so, how do you think they will play out?
Jesse: Yes they will intensify and we are seeing that already. A fiat currency is an exercise in both confidence and power. As confidence weakens, the use of power must intensify to maintain it.
L.S.: If you were calling the shots, what would you do to solve the crisis?
Jesse: I obviously cannot address that in any reasonable amount of words, except to say that the influence of big money on the political process is the root of much evil. At one time we had a thesis and antithesis in the political debate. But now that the ruling class has found out that they may become quite rich by acquiescing to certain things, and that there are few consequences for what one may do in that pursuit, the outcome is fairly predictable. We have to bring back consequences, transparency, and the rule of law.
Jesse with German journalist Lars Schall, All Out Defense of the Status Quo, The Matterhorn Interview September/October 2013
"From top to bottom of the ladder, greed is aroused without knowing where to find a comfortable foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned."
Robert J. Bausch, Thoughts On the Business of Life, NY Times, 2002
To abandon reality one must give themselves over to lawlessness. And having lost a firm anchor to reality founded in independent laws and principles, the slide into delusion and madness is almost inevitable.
Despite a very strong wave of paper selling, gold found a footing and managed to post yet another strong gain and new high.
Silver struggled a bit but is holding strong.
The Dollar continued to slide.
Stocks initially sold off, but managed to pull together and stage a rally in the quiet of the afternoon.
There will be a Non-Farm Payrolls report on Friday.
It may move the markets.
I cannot stress enough that geopolitical events are going to be weighing heavily on the financial markets, sooner rather than later.
The recklessness of a childishly selfish, shockingly arrogant few are going to be the catalysts for a potentially highly destructive outbreak of renewed conflict.
They have no shame or fear, and have convinced themselves that there will be no judgement or consequences. This is the fruits of sustained moral hazard.
We are in a period of elevated, and highly mispriced risk.
Do not be deceived. For God is not mocked. What a man sows, so shall he reap.
Have a pleasant evening.
