A Historic Change in our Money ( www.wizardsofmoney.org )

[WhoCountsTheVotes]

There have been three times in the last century that the US monetary system changed significantly.

The first was the creation of the Federal Reserve System in 1911, turning over the creating of money to a new institution that was not quite public and not quite private. The FRS was the ultimate insider's program - while American farmers and businessmen used to debate monetary issues all the time, after 1911 the issues faded into technical squabbling over interest and reserve rates. The power to create money was taken away from the people and their representatives and turned over the state and corporate elites - in order to "keep politics out of it", which of course means "keep regular people out of it".

The second great change was Nixon taking us off of the Bretton Woods System, to a free floating currency. No longer would the US dollar be pegged to other currencies at a specific rate, it would be traded on a "free market" (the notion that trading government fiat money is a "free market" is an irony lost on many).

It looks like the third is coming now. Gold is up to $400/ounce. There are deficits as far as the eye can see, and the debt continues to grow rapidly, saddling future generations with paying off Bush's borrowing. While the Fed has been selling gold to drive it's price down relative to the dollar, Russia and China, rich from oil and cheap labor, have been buying. It seems that the Fed can't sell anymore gold at this point, for reasons which are supposedly unclear.

The US dollar is in serious danger of losing it's status as a reserve currency, it's position being chipped away by the Euro and the ruble and yuan. I can't see any results of this besides a serious drop in the standard of living for most Americans.

[gWbush is Mabus]

1. wasn't there a movement

to do oil trades via the Euro rather than the dollar?

that would really hurt the U.S. economy.

[BurtWorm]

2. In Russia, yes.

Not being an economist, I know that sounds bad, but I don't know why it is, exactly. Nor do I quite get what will happen if foreign governments start keeping euros instead of dollars on reserve as a hedge against inflation. In fact, I don't understand what a "hedge against inflation" means or how having foreign currency in reserve provides it.

[Mairead]

6. The "hedge against inflation" bit

If I understand it correctly (I'm not completely sure I do, but I think so), at any given moment there is some fixed amount of 'money' in existence (I believe it's called 'M3', with 'M1' being the component that consists of fairly liquid money (currency, etc.)).

If you and I want the same yacht or house or building or something else, and we have unlimited money, then we'll get into a bidding war and the price will inflate. From which we see that having 'too much' money in circulation causes inflation. The classic description of inflation is 'too much money chasing too few goods'. So to hedge against that, some friendly government might agree to keep some fraction of the money supply out of active circulation. It's still counted as being 'out there', but it's not being used to 'chase goods', so it acts as a curb on inflation. It's also a good reserve fund for the government doing it.

So if some government switches from dollars to euros, the dollar will become less stable because more of the total money supply will be chasing goods; the anchor will be gone. But the euro will become more stable, because now the non-circulating anchor will be a bloc of euros rather than dollars.

[BurtWorm]

7. Wow! Thanks for that lucid explanation!

:toast:

PS: I'm amazed that I could just mouth what I did fairly accurately, apparently, without really knowing what ter frick I was talking about!

[WhoCountsTheVotes]

3. Hussein tried it

Hussein tried to get the UN to repeal his sanctions in return for accepting Euros for Iraqi oil.

I have heard rumors that China and Russia have minted new gold coins, but I don't know if that's true - anyone else heard this?

[Art_from_Ark]

19. Modern gold coins

Russia has issued, at one time or another, gold coins that were traded for their bullion value. Back in the USSR days, the standard gold coin was a nickel-sized piece called a Chervonetz that weighed a little less than a quarter ounce. Russia has also issued Ballerina gold coins which it tried to sell at a premium over the gold value. I don't know if Russia is still making these coins.

China has been minting and selling non-circulating legal tender (NCLT) gold coins called "Pandas" since the early 1980s. Here is an example



The United States has also been selling bullion gold coins called "Eagles" since 1986.

In recent years, Austria has been offering NCLT "Philharmonic" gold coins to investors and collectors.

Australia has been involved in the bullion game with "Nuggets" (bullion coins featuring major gold nuggets discovered in the country), then when that idea washed out, they switched to "Kangaroos".

The UK at one time offered NCLT gold bullion "Brittanias"

And the second-most popular gold bullion coin in the US, after the aorementioned Eagle, is the Canadian Maple Leaf.

[BeFree]

4. Oil for $30 a barrel

Iraq had already moved to sell it's oil for Euros instead of greenbacks. That is one reason for our invasion.

The way it works is this: Oil is traded around the world using the U.S. dollar. It really means that the oil is owned by those who have U.S. dollars. Since U.S. dollars = oil, the dollar is propped up in value. If the Euro becomes the currency used to buy oil, then, the dollar will deflate.

There was a great deal of discussion on this problem back in the spring. Check the archives for a mo' better background.

[Deja Q]

10. Frightening

No wonder the corporate oil elite is scared and Bush happy to kill everybody just to keep the elite well fed. x( x( x(

[Spazito]

5. Sitting on the sidelines here, I have been watching this for a bit...

and I think you have expressed this very well. All the indicators are bad. The other related issue is the flight of foreign investment, it is down at least 40%, probably more now given that the 40% was from months ago.

[Deja Q]

8. The way corporations are exterminating the middle class... (do read)

it won't matter in the end.

With a collapsed dollar, they'll become middle class and we'll all be slaves, living off of crumbs and making you wish the terrorists HAD killed YOU.

ALL OF THIS IS WHAT THEY WANT.

Okay, I'm wearing a gigantic tinfoil hat :tinfoilhat: :tinfoilhat: :tinfoilhat: :tinfoilhat: :tinfoilhat: :tinfoilhat: :tinfoilhat: :tinfoilhat: , but nothing else explains the whole forest as nimbly.

[WhoCountsTheVotes]

9. www.wizardsofmoney.org

Everyone, check out this very good series. The first four episodes deal with how money is created and the roles of central banks and the financial system.

[Gulf Coast J]

11. How much gold does the fed have?

I was under the impression that it's such a small ammount that it really can't influence exchange rates. I've also thought the fed has been leaving exchange rates alone for the past couple decades. Do you have any credible source to back up what you posted?

[WhoCountsTheVotes]

13. About central banks selling gold?

Are you serious? Well, have a look at gata.org, and read the judge's decision on their lawsuit?

As to how much gold the Fed has, well, two years ago they had lots of "deep storage" gold, whatever that means.

[Gulf Coast J]

14. Here are some FACTS

http://www.federalreserve.gov/releases/bulletin/0803assets.pdf

The stock of gold the Fed holds has remained constant over the past four years. And even if they wanted to manipulate interest rates through gold (prove that they are!), they don't have nearly enough reserves to change the world interest rate.

[WhoCountsTheVotes]

15. explain this then

Please explain why a significant amount of Fed gold has been reclassified as "deep storage" gold. Check out the lawsuit and the judge decision.

"And even if they wanted to manipulate interest rates through gold (prove that they are!), they don't have nearly enough reserves to change the world interest rate."

Are you confusing the issue on purpose? No one said they were trying to manipulate interest rates by selling gold, but to manipulate the exchange rates. And what is a "world interest rate" anyway?

[Gulf Coast J]

17. Can you be a little more specific?

There are 11 links on the lawsuit part of the webpage and I'm not about to read through all of them. And so what if it's reclassified as 'deep storage'. Do you even know what that means? I don't. If you don't know what it means, how could you possibly use it to prove your point?

As for the interest rates, I glanced at something on the site accusing Lawrence Summers of suppressing the price of gold to keep interest rates low. I still contend that the government couldn't manipulate exchange rates if they wanted given their low holdings of gold. The world interest rate is what the interest rate is everyone in a perfectly open economy. We don't have that, but interest rates around the world do tend to move together. I should have said US interest rate.

And did you happen to read the part where the judge dismissed the entire lawsuit? Do you have anything a little more credible than this site?

[WhoCountsTheVotes]

23. okay

"There are 11 links on the lawsuit part of the webpage and I'm not about to read through all of them."

sure, okay.

"And so what if it's reclassified as 'deep storage'. Do you even know what that means? I don't. If you don't know what it means, how could you possibly use it to prove your point?"

I didn't, the attorneys for GATA did, and the fact that the Fed had released minutes talking about gold swaps they were doing. Does this prove anything? Nope. Does it raise suspicions? Yep.

"As for the interest rates, I glanced at something on the site accusing Lawrence Summers of suppressing the price of gold to keep interest rates low. I still contend that the government couldn't manipulate exchange rates if they wanted given their low holdings of gold."

This is what makes me think you are purposefully confusing the issue. The "government"? I was talking about the Federal Reserve and their member banks, who do have significant gold holdings, and have been doing "gold swaps" according to their own minutes.

"The world interest rate is what the interest rate is everyone in a perfectly open economy. We don't have that, but interest rates around the world do tend to move together. I should have said US interest rate."

Perfectly open economy? Okay, no we are talking lasseiz-fairyland? I was talking about the real, actual, imperfect economy.

"And did you happen to read the part where the judge dismissed the entire lawsuit? Do you have anything a little more credible than this site?"

Did you read the judge's opinion? The judge didn't dispute any facts of the lawsuit, but ruled that the Fed was allowed to sell gold if it wanted to, and that no one had "standing" to sue them for it. It's not a crime if it's legal right?

In any case, the dollar is no longer strong and gold is no longer cheap, so obviously things have changed, don't you think?

[loudsue]

18. Gata.org.....Guess who is head-honcho at Barrick Gold?? Poppy,

of course.

These a**holes are ripping off the entire world.

:kick:

[seemslikeadream]

20. A little history how Poppy got that job

Just before he left office he gave Barrick Gold Mining $10 billion in mining rights on U.S. public land for $10,000 citing a 1870 law. Greg Palast says that Khashoggi was the founder of Barrick.

[newyawker99]

21. Hi Gulf Coast J!!

Welcome to DU!! :toast:

[ignatius]

12. Typically, the holder of dollars invests in the U.S. either in

bonds(Corporates, mortgage backs or treasuries) and/or the stock market.

If this money is withdrawn, interest rates will go up to attract new capital and higher rates will slow the economy. We all have seen what happens when money withdraws from stocks.

When countries lose faith in each others leader, that can provide a catalyst for moving capital out of a country also, which is what I think happened to stocks after Dumbo was selected.

[BeFree]

16. When countries lose faith...

Is exactly what happened to Hong Kong in the mid 90's. The money fled to the US exchanges. A lot of it went into .com funds. Then Iraq went to selling it's oil for Euros, and the rest is history.

Also: What is a dollar but a piece of paper that is backed by nothing more than 'Full Faith and Credit'?

[Adjoran]

22. Total hooey

For one thing, the yuan is tied to the dollar, so it can't "chip away" at it, it isn't possible.

The Euro opened up a couple years back at .89, when the EU thought it would trade at $1.10. Since then they've spent billions propping it up.

Normally if the dollar started to fall, we would have acted to prop it up. The Japanese have always helped with this, too. But now it is being allowed to fall for two reasons:

1. It makes our goods cheaper in Europe and theirs more expensive here, so it's a payback for them not backing the Iraq plan.

2. A falling dollar stimulates the export sector, fueling recovery in time for the election.

[WhoCountsTheVotes]

24. well I wouldn't call your post TOTAL hooey

I said the Euro, ruble, and yuan are chipping away at the dollar's position as a reserve currency - and you are talking about China's fixed exchange rate with the dollar (which the US is desperately trying to get China to float). So what's your point exactly? And the Euro's been higher than the dollar since well before Iraq.