Those that monopolize the production of money impugn gold. "It's a relic. It's for barbarians. We own it because it's a quaint tradition." The makers of fiat, the early receivers of fiat and those that believe in the fiat system for whatever reason, insist that having man's hands on the levers of liquidity instead of its being at the mercy of dumb rocks and free markets, is the only way we can steer ourselves to prosperity. We must have their rational input in order for the markets to remain solvent and productive. But what would cause the entire world to be beholden to one strain of fiat?
The US Dollar has it's particular faces upon them. It has it's numbers and it's colors. It has it's own artwork. But surely it's not just America's own brand of artwork that so entices other nations, is it? What would compel other nations to continue to kowtow to the USD? (I understand some of the events of 1971)
You may say that it's America's military. Of course it's true that physical power can go a long way toward enabling us to get our way, but how capable is the US military? Can it really force all of the world to give it's brand of artwork, euphemistically referred to as money, it's regal status?
If nations reputed the USD, could the US military actually force them to change their minds? And if the military did engage in such a campaign, how long could it last? If nations dropped the dollar because of it's belligerence and they attempted to forge markets apart from it, how long would the value of the dollar hold up? If the dollar's value began to fall, we'd see an attrition of weaponry and we'd see an inability of the US to fund it's personnel. If this scenario is a strong possibility, that is, if the US military really isn't capable of enforcing it's employer's fiat reserve currency status, then what might be responsible for it?
We can't expect it to dominate based on it's artwork. We can't expect it to dominate based upon it's facilitators' abilities to con other nations' fiat industries. They're both in the same con.
I believe that a big factor in determining a nation's pecking order is it's gold reserves. It might not be their own gold reserves. It could be the reserves of an allied state, its reserves acting as a proxy. A nation must have something backing their play money. I couldn't just start my own money and give it fiat status and demand everyone to honor it. Granted, military power, levels of freedom, cultures, productivity, assets, they all go a long way toward providing legitimacy to one's fiat (oxymoronic, I know). And also other fiat nations most likely wish to continue their own monopolistic monetary creations without major disruption, but I can't help but think that competition between nations would tend to encourage those in anything less than first place to employ a few of their advantages to climb to the top.
I believe that gold reserves are a trump card. It's that thing that they can pull out that brings into the clearest possible focus who's got what and where they stand. I believe that while nations spit upon free-market money and sully the names of gold and silver, they are indeed using those same monies to power their positions.
Are the gold reserves of nations a factor in determining their status? If so, how much of a factor? If not, then why do you think they have gold reserves? Maybe it's just a product of their redistributed wealth, a diversification or an embarrassment of riches, but if China had 70% of the world's gold and the US had 5%, and China decided they wanted to end the reign of the US Dollar, how much would this gold advantage them?
And if gold does indeed advantage a nation, why then would they deny their own citizens that very advantage? I think we know why. Even though the ownership of gold by its citizens could empower them and as a result empower the nation (id prefer to say it empowers the geographic area or it empowers those people in those markets) within which they reside, that nation would rather maintain its power via the production of fiat, which is easy and unlimited. Beyond its borders these powers do not extend. It's the rough and tumble real world. It's independent nation versus independent nation. It must have the real stuff in the real world.
"The best way to bail out the economy is with liberty, not with federal reserve notes." - pairunoyd
"The vision of the Austrian must be greater than the blindness of the sheeple." - pairunoyd
a big factor in determining a nation's pecking order is it's gold reserves
It's more complicated than that. Yes, the gold reserves are there and they play a role but Bernanke wasn't lying when he said they're only holding it mostly out of tradition and for protection against tail-risks. One of the big things you're overlooking is the capacity of the government to tax its citizens. New money is actually created by issuing bonds - whatever portion of those bonds that cannot be rolled over will be repaid from taxes collected. So, the ability of the US government to tax US citizens is one of the key factors that gives USD its value.
A belief that the US government will exercise restraint in the issuance of new money is also part of the value of USD.
But probably the biggest factor is the military. There's no other government in the world that can print money at the rate the US government does and not see an avalanche of foreign reserves coming back home. That's why the Fed-Pentagon Complex is really an imperial machine. Its purpose is to force as many people as possible to hold as many dollars as possible so the Fed can "spread the inflation" as widely as possible, thus enabling it to print money at a faster rate than all other central banks. It's an evil, evil system. One day the history books will explain it all and people will be like "I can't believe the Americans used to feed people to the lions in their Football Stadiums!! What a bunch of blood-thirsty imperialists!"
Clayton -
The use and forced acceptance domestically of the dollar no doubt gives it power as it represents one of the most productive sets of people in the world (but increasingly the supposed productivity is a mere abuse of its reserve currency status).
Hypothetically, if the US or its bankers told the world or if it were credibly exposed that they no longer possessed gold reserves, what effect would this have on the USD's international acceptance? And didn't America's large gold reserves have a strong influence over the acceptance of its fiat as a substitute for that gold?
I had not looked into the relationship between gold and bankers and nations, but I came across an article somewhat touching on it and it listed each nations gold reserves. Since I wrote the opening post and have started thinking about it more, I've done some searches for more info and perspective. Here's a couple of good interviews with the author of Currency Wars. He's interviewed by a guy thats been a mover and shaker since he was a kid. I first came across him on his YouTube channel VisionVictory. He has another thats more hardcore economics - VictoryIndependence. He seems to be a good down-to-earth family man.
I've really become interested in the central banks' strange dichotomoy, their PR campaign for fiat set against the backdrop of their use of gold. I'd really like to see some awareness brought to the masses about this.
If Gold is Good Enough for the Bankers, Then It's Good Enough for US: Why Central Banks Give Us Paper and We Give Them Gold.
Good title?
James Rickards Interview on Why Central Banks are Obsessed with Gold & Why QE3 is Imminent Part 1
http://www.youtube.com/watch?v=Tl9axPXtN5E
James Rickards Interview on Why Central Banks are Obsessed with Gold & Why QE3 is Imminent Part 2
http://www.youtube.com/watch?v=IsLEFEiP7RU&feature=watch_response