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How Iraq crisis will undermine the dollar
James Rickards, author of the current bestseller, “The Death of Money: The Coming Collapse of the International Monetary System,” explains why unrest in Iraq has the potential to escalate into a regional conflict, cause oil to skyrocket and the dollar to fall in value.
How much inflation have we had since 1913?
Just like compound interest, compound inflation grows faster and faster. The average annual inflation since 1913 is “only” 3.24 percent.
But as you can see from the chart below, compounding something for almost 100 years at 3.24 percent will result in over 2,000 percent inflation.
The Consumer Price index (CPI-U) for January 1913 was 9.8. The CPI-U for September 2013 was 234.149. This means that something that cost $9.80 in January of 1913 would cost $234.15 today!
If that isn’t bad enough, actually the situation is even worse. If you look at the chart carefully you will see that inflation was fairly steep during the “teens” from 1913 to 1920 actually almost 100 percent. Then during the 1920s and 1930s, inflation actually declined. The CPI-U index stood at 13.9 in January 1940.
So actually most of the 2,000 percent inflation occurred since 1940. The average annual inflation rate in the 1940s was 5.52 percent, in the 1970s it was 7.06 percent, and the 1980s was 5.51 percent. Each of those decades were especially hard economically for people trying to make ends meet while prices increased and wages didn’t keep up.
From KFOR News:
Law makes gold, silver coins legal tender in Oklahoma; does away with ‘nonsensical’ tax
A new law signed by the governor makes gold and silver coins legal tender in the state of Oklahoma. Organizers say it’s good news for investors of precious metals, but it’s not intended to help people pay their day-to-day bills.
Officials say the goal is to eliminate a tax on precious metals that some lawmakers called nonsensical. The law takes effect November 1.
North Korean gold found its way into U.S. companies’ supply chains
Some of the nation’s flagship brands are being marred by their suppliers’ use of banned North Korean gold.
Dozens of companies have disclosed recently that their suppliers used gold refined by North Korea’s central bank, including Hewlett-Packard, Ralph Lauren, Williams-Sonoma, Rockwell Automation and IBM, according to Wall Street Journal columnist Joel Schectman.
The potential violations appeared unwitting in most cases, and occurred upstream in the companies’ supply chains. IBM, for example, revealed North Korean gold was used in making its memory-storage systems even though its suppliers were required to “procure minerals from responsible sources.”
U.S. law forbids importing materials from North Korea even if they are in a completely different form by the time they reach the retail customer.
The Dodd-Frank Act required companies to query their suppliers and report this month for the first time whether gold, tungsten, tantalum or tin used in their products came from mines controlled by armed groups in the war-torn Congo. In checking for a Congo connection, the companies revealed a North Korean one, Schectman wrote.
In most cases, the companies’ suppliers may have used North Korean gold, but that gold did not necessarily make it into the U.S. products at all, he said. For instance, Ralph Lauren said listing the North Korean central bank was an error and none of the gold was used in any of its products.
Among the 1,277 U.S. companies reporting their supply chains, 68 listed the Central Bank of the Democratic People’s Republic of Korea – the outlaw regime of North Korea – in their filings with the Securities and Exchange Commission, Bloomberg reported.
Economic adviser Benko: Gold standard would ‘unleash tsunami of prosperity’
Implementing a gold standard, as the late Rep. Jack Kemp, R-N.Y., proposed 30 years ago, would go a long way toward solving our economic problems, says Ralph Benko, senior economic adviser for American Principles in Action.
“Enactment, in the opinion of this columnist and others, would unleash a tsunami of equitable prosperity on America and the world,” he writes in an article for Forbes.
Benko is optimistic that some political leader will run with Kemp’s idea. “It’s an appealing opportunity,” he argues. “Many – Republican and Democrat – who supported the original Kemp supply-side agenda politically flourished.”
Lower marginal tax rates and “good, rather than easy, money” formed the base of Kemp’s economic thinking, Benko explains.
“The ‘good money’ aspect of the Kemp formula has decayed, far more seriously than have his tax rate cuts,” he writes. “With easy – which is to say, decayed – money, America has suffered economic stagnation for well over a decade.”
We can get back on track with a gold standard, Benko says.
He cites economist Arthur Laffer’s recent praise for the idea. A gold standard “will be the foundation for a new era of global prosperity,” Laffer said.
Destruction of the dollar
GoldMoney founder and GATA consultant James Turk says the U.S. dollar’s failure to rally amid the European Central Bank’s resort to negative interest rates indicates that the dollar is as sick as the euro.
From Adask’s Law:
Forbes: ‘Link dollar to gold or face Great Depression II’
Steve Forbes (Forbes Magazine) recently warned that government must link the fiat dollar to gold or face another Great Depression.
If that’s true, we’re going to have another Great Depression because government can’t link the current fiat dollar to gold.
Why? Two reasons:
1) There are reportedly up to $17 trillion of our current fiat dollars being held offshore. What do you suppose would happen to those $17 trillion if Obama announced that they were all backed by gold at, say, $5,000/ounce or even $20,000/ounce?
Those intrinsically worthless $17 trillion would come flying, pouring and stampeding back into the U.S. to be redeemed for physical gold. The influx of $17 trillion might cause U.S. inflation to go hyper.
Our 8,200 metric tons of gold (less than 300 million ounces) would be “disappeared.”
Because, even at $20,000/ounce, 8,200 tons of gold is only worth $5.7 trillion – about one-third of the $17 trillion in cash allegedly being held offshore. Anyone holding that $17 trillion would know he had only a 30 percent chance of redeeming his fiat dollars for gold and so would try to instantly send his fiat dollars into the U.S. trying to beat all other competitors. The instant influx of most of $17 trillion into the U.S. economy might precipitate instant hyper-inflation.
But if the government tried to back current fiat dollars with gold, the influx of $17 trillion foreign-held dollars would be so enormous that our entire gold treasury would be exhausted. We might be able to back the current fiat dollars with gold for a few days, perhaps even a month, but after that, the entire U.S. Treasury of gold would be depleted and our dollars would once again be pure fiat and backed by nothing tangible.
2) It’s conceivable that the U.S. might try to keep the existing fiat dollar (perhaps for domestic transactions) and also create a second “dollar” that’s backed by gold for, say, international transactions. Government might try to run both fiat dollars and gold-backed dollars at the same time. It seems unlikely that two different “national” currencies could be sustained, but it’s not impossible.
3 central bank gold trends
By Ed Moy, former director of the United States Mint (2006-2011)
There are three seldom-reported gold trends and they all have to do with central banks: Their demand is up, the frequency of audits has increased, and more are repatriating their gold.
Central bank demand for gold worldwide is up. For the last three years, the amount of gold bought by central banks has exceeded the amount of gold sold by central banks. Their net increases were 544 metric tons in 2012 and 409 metric tons in 2013. Their net increase was 122 metric tons in the first quarter of 2014.
The two main factors causing this trend are less selling from European central banks and more purchases from central banks in the emerging markets of Asia, Latin America, and the Middle East. And in the last three months, European Central Banks has added 7.7 metric tons to their reserves to become a net purchaser instead of a net seller of gold.
The nations that have added the most to their reserves are also interesting. Russia went from 450 metric tons in 2008 to 1,040 metric tons in 2013. Though the numbers from China are a bit sketchy, it appears that their gold reserves went from 600 metric tons in 2009 to 1,050 metric tons in 2013.
The specific reasons why central banks have increased their gold reserves are many and complex, but their general goal is to strengthen their currencies.
The frequency of audits of countries’ gold reserves has increased. Of course, in the United States, former Rep. Ron Paul, R-Texas, has been the standard bearer for wanting the first full audit of the U.S. gold reserves at Fort Knox since 1953.
The most common reason given is confirming that the gold is still there. It is still a valuable asset of a nation and should be accounted for on a regular basis. True enough, but full audits have been few and far between until recently.
Finally, more countries are repatriating their gold. For them, an audit is not enough. They would like their gold back. Azerbaijan, Ecuador, Iran, Libya, Mexico, Romania and Venezuela are on a short list of countries that have requests in to their custodians to transfer some or all their gold back to their countries.
Why is all this activity with gold taking place among central banks? If the global economy is healing, albeit in fits and spurts and slowly, then why are countries interested in increasing their gold positions, making sure their gold is there and even making the effort to bring that gold home?
One explanation is that countries are gearing up for a currency war. Given the alternative of austerity, most countries have pursued aggressive stimulus plans (e.g., flood the market with huge amounts of newly printed money) to shock their economies into growth. The result has been incremental and fragile growth in the United States, the threat of deflation and uneven growth in the European Union and slowing growth in China. The European Union and China are doubling down and increasing their stimulus. There is a real risk of inflation, and that comes with a real risk of a currency war. Having gold reserves you can depend on might be the difference between a winner and a loser.
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