Hello everyone, I'm glad you could come along. My name is FOA. I see a lot of old faces here,,,, and some new. If you are wondering where we are,,,,,, your participating in one of our walks and talks on " The Gold Trail". You're one of many people who take the long drive out of the city to come here. Some say it clears their mind from things that are not real. Whatever the reason, it seems everyone arrives here sooner or later. For myself, I have been hiking this path for a good part of my life. I prefer it here, because from this vantage point we can better grasp how the world works.

None of us are the first, nor will we be the last to take this hike. Over time, various people and nations have been on this path, perhaps going back a thousand years or so. During some periods this same trail was followed right through the main stream of society. While during other times, like today it has tracked far away from the economic illusions in our modern world.

I see most of you have brought your laptops (computers) and cell phones for internet access. Good. We will be looking at charts and things as we go along. Also, one of our rules here is that no one can offer their credentials of track records to each other. Out here we all are the same with no exception. Just real people taking in the world events as they happen around us. Besides, one's past accomplishments and financial success are about what happened yesterday, not tomorrow. And understanding the future is what time on this trail all about. We will only look back at past events and commentary to gain perspective, understand ourselves and find reasoning. A process that helps all of us think more clearly in this world gone mad.

And one more thing before we get started: some of you were asking who I am. And I also heard those city slickers in the back joking about how this was all "so lame". Well, to address the second item first,,,,, more than a few of you slick dudes have left this trail complaining that the hike made their brain hurt worse than the old leg muscles. We'll see if you new ones are still joking after walking a few miles! Oh yes, I see you're wearing hard sole dress shoes. Now that "is" lame! (smile)

Back to the first question: all of you already know me. Just look in a mirror and see for yourself. I'm the butcher, baker and bricklayer,,,,,, doctor, lawyer and the banker. From the Texas oil man to the yardman in Hollywood, I represent the thoughts, feelings and perceptions that many people have, but never express. After we share some time on the trail, many of you may find that most of this understanding and knowledge of FOA was already with to you to begin with. Truly, it was the years of exposure to "Western life" that has obscured our good reasoning.

Mine is also a world perspective that offers thoughts and views as seen though the eyes of others from many lands. Sometimes it's through the eyes of Another. Oh yes, one more thing,,,,, I'm American to the core! "Born in the USA" and still living a "very" private life in my home there.

Onward

We must view the world in a broad context, just as much as in a detail perspective. The larger perception can be just like looking at a river the valley from the ridge above. From far away it's easy to see what direction national trends are flowing. The whole body moves as one, always towards the sea. The problem comes when we get too close and interpret things using only a small river section in front of us. More often than not, the white water we see only hides a deeper flowing truth.

In like sense, national governments and society in general, are the same as those boulders and eddies in the river. Seen up close, they sometimes give the impression that the river is flowing up stream or sideways, when it's only one small section of a larger political will. The same is true in the modern gold markets. The largest part of the river could be flowing in one direction with an unstoppable purpose, but the various swirls and eddies make it look like it's going in circles.

Further

Within every social order, people have conflicting factions that try to dominate the whole. But if one can understand and pinpoint the logic and reasoning of several dominate groups, we can get a grasp for the overall eventual flow. We have seen through out history and in our modern life that the human spirit, most always reaches for and leans towards natural conclusions to ages old problems. There is something in us that makes mankind flow this way. Time and again we build up our emotional will. Then in a great flood we literally overwhelm the branches and rocks that distort our progress through this stream of life.

Today, it seems that the need for this natural flow has been perceived by several of the worlds large groups. We see this in the progress of the gold market to date and is something we have been discussing publicly for several years now. We have given many different perceptions of this changing modern gold market. Each appropriate to it's own period of time. Indeed, they were snapshots of political will,,,, each taken in the context of the moment,,,,, all documenting the evolution of gold as a new force,,, a new player in the world today.

Truly, the stream is being prepared for the great flood that must come, will come!

We rest now

Our most broad view, expressing our strongest position is this: From ten or perhaps twenty years ago a political will, a concept was being formed that would today change the economic architecture and power structure of the world. Within this change, gold would undergo one of the most visible transformations since it was first used as money. We expect that starting three or four years ago, the actual gold market itself, started responding to this sea change. As such, in our time, physical gold will enter the greatest bull phase in it's human use history.

This my friends is the very trail we walk today. During our hikes and fireside chats, we will point out this political will, consider the logic and express our reasoning for this position. All the while, observing the "river current" in the form of events that will soon confirm our view. Indeed, as Another always said, "time will prove all things".

At times we will walk looking backwards, as we pull up many of our old posts and discussions, detailing the whys and what-fors. Why we said what we said, then. I hope these walks will be as interesting for all of you as it will be for me. When not writing here, I can be sometimes seen discussing gold on the USAGOLD forum as "Trail Guide".

And lastly, I wish to thank Mr. Michael Kosares for creating this fine venue. Displaying all of the creative, professional talents of the Centennial group of people, this entire site is a testimony to their forward thinking ability which is so lacking in most precious metals companies. With this in mind and considering our changing world, a relationship with them today will most certainly benefit the investor in the long run. Possibly in a way one may more fully appreciate later. I encourage you to support your future as well as this USAGOLD free site.

"the human river flows for the will of no man,,,, it takes our precious time as it's own
our lives are spent learning how it does pass,,,,, yet it will never know how we have grown"

We walk this new Gold Trail together, Yes? Thank you for reading,,,,,,
FOA / your Trail Guide

http://www.usagold.com/halldiscussion.html
A Day Walk

If I had a nickel for every time we thought the dollar was finished, I would have a bunch of nickels! Remember back in the early 80s or even further back into the 70s. All we heard was how the dollar was finished and going to crash and burn. Books about hyper inflation and the need for gold / swiss francs were all over the place.

I read all of them to gain perspective and also acted on some of their advice. Made some money on it too. But even then, something just didn't completely ring true about the whole scenario. Indeed, in hind sight, gold never did return above $800, the dollar didn't hyper inflate and most of the world kept using the dollar as a reserve.

Today, we can more fully understand why so much of that early insight failed to deliver.

True, the dollar was seen as a basket case back then. It had just been pulled from it's gold bond and prices were going up all around us. However, because the world had been on a simi dollar / gold standard, all nations that had previously signed onto using the US buck as their currency reserve now did so with even more resolve. More important, it seamed than using gold itself was out of the question as every country's Central Bank brought dollars as fast as we printed them. The dollar still settled most all trade accounts while dollar reserve buying made an obvious show of support for this world system. No matter how much bad press was offered, they were staying on track and they have continued to do so right up into the 90s!

But all of this flew into the face of what every economist was saying, back then. The common understanding of the era was: if the US didn't stop over printing it's money, we would all experience a major price inflation,,,,,, and no one could stop it! Again, "major" inflation didn't happen and to ask a further question: if the dollar system was so bad, why didn't the world just dump the reserve system and refrain from using it further? In other words, let the dollar be "the US dollar" but don't use it as a backing for your own money system.

Thick Brush Now

Going against the logic of "sound money": through out all the currency turbulence of the 70s and 80s era (including today), the US never did reign in the over printing of it's currency. It continued almost non stop money supply expansion for it's local economy and in addition sent a good portion of it's cash all over the world. On and on the US trade deficit continued to do it's work of feeding ever more US cash into foreign economic systems. We printed paper currency by borrowing it into existence,,,,,, used it to purchase real goods overseas ,,,,,, while foreign governments actively soaked up this dollar flood by expanding their own money supply.

Like this: When you buy an item externally, a dollar is sent overseas to pay for it. Usually, through the world currency trading arena, that dollar is converted into the local currency of the nation which the goods came from. But more often than not,,,,,,, as we print that dollar out of thin air, the foreign government takes the dollar into it's reserve account and prints one of their units for deposit in the local economic system. They do this because: if the foreign CB didn't save the dollar as a currency reserve ,,,,,, and sent it back into the world currency markets to "buy" an existing unit of their money supply,,,,, this action would drive up their currency value vs the dollar and make the price their goods non-competitive in world markets. In other words, a US citizen couldn't use a printed (borrowed) dollar to buy an item for $10.00 that outside the "dirty float" of exchange intervention would cost $15.00.

This is how the "dollar reserve process" inflates the money supply world wide as we (USA) run a trade deficit for our benifit. It keeps the dollar exchange rate higher than it would naturally be thus allowing a US citizen to buy goods at a cheaper price than our expanding money supply and implied currency value would normally dictate. A process in and of itself that invites still more dollars to flow out and purchase still more external goods. Had foreign CBs not taken so many dollars, the ever expanding US money supply would have long ago impacted currency exchange rates and forced a major price inflation internally (in the US). Yes, the major inflation so many saw coming,,, back then,,,,, would have arrived,,,,, then.

So why did these other CBs do it? The standard explanation was that this created a market for their goods here in the US. Yes that's true, but it begs the question; did no one in their land want to buy goods manufactured locally,,,,,, and pay for them with the same printed money supply? Why is it the US could inflate it's money supply to buy cheaper goods externally for no more than the price of printed paper? But, in the same country our paper was sent to, they couldn't print their own currency to buy their own goods? Why couldn't they raise their real standard of living somewhat using the same process like the US,,,,,, and doing so without the burden of inflation or importing foreign currencies?

Again, why would our printed, inflated money movements not create price inflation for us (USA) in goods purchased externally? What if they (foreign goods producing countries) printed an amount of their money equal to the inflow of dollars,,,, but, without holding paper dollars as reserves to back it,,,,, brought the exact same goods from themselves. Common prevalent economic theory says price inflation would result? Or would it? Or better said: why them and not us?

Into the deep woods again

Again, and as above,,,,, In the 70s, it was widely held that the dollar reserve system forced other countries to inflate their local currencies, thereby importing dollar price inflation. But, as time went by,,,,, indeed a decade or two now,,,,,, the same process continued non stop, with no change. It seemed that some "other" countries had found a "new way" to somewhat circumvent the dilemma. Or was this "new way" something sold to them in order to extend the dollar system's timeline?

Many of the lesser third world countries experienced a combination of sporadic hyper inflation and deflation as we forced the dollar reserve system down the throats of their citizens. Their people's living standard constantly fell as they worked ever harder to produce more goods in return for more of our printed dollars. But, instead of using the extra inflow of dollars (positive trade balance) to buy their own currencies in the local system,,,,, thereby keeping their currency strong,,,,, they used that dollar flow as collateral to borrow (from IMF and international banks) more dollars from the world dollar float (mostly called Eurodollars). The lure (or the hard sell) was that they could build up their infrastructure,,, increasing their production efficiencies (human productivity's),,,, thereby raising the national standard of living. Further, they were sold the unneeded idea that even if they didn't completely use the dollar surplus to borrow more, they should hold those dollars in reserve (buy and hold US treasuries) and print more of their own money!

Again, it seemed they had no advocate to push for their own best interest. No one told them that their people already worked cheaply enough to more than offset the competitive loss of a stronger local currency. No one told them that with a strong local currency structure,,,,( that using the dollar surplus to buy their own currency would create),,,,,,,, would allow them to borrow in their own capital markets. A more go slow approach that builds long term benefits. This process would free them from the entanglements of making international debt payments in another money. Indeed, the costs of those involvement's later proved overwhelming!

Now the trail becomes more open

For third world countries their international dollar debt exposure eventually locked them into a servitude to the dollar reserve system. Despite all their natural and human resources, currency involvement had taken a lion share of any productivity increases and increased lifestyle this modern world offered.

However, it did help the cause for the dollar reserve system. By creating an ever growing international debt in dollars, eventual dollar demand to service this debt would only increase. Thereby keeping it's value artificially high. In addition, any left over floating dollars quickly took the form of US treasury debt held in these small countries treasuries. There they were used to further hyper inflate their own currency supply.

For the more developed gold owning countries of the G-7, they had a different question in mind. Again, if taking in inflated dollar reserves was the act of importing US dollar inflation into ones local economy,,,,, and in the process creating a market for your goods overseas,,,, why not just print your own currency without taking in dollars,,,,,, and in doing so give the same buying power the US citizens have in your market,,,,,, to your own people?

If it's not price inflationary to take in part of a world "inflated dollar supply" and create jobs for your people locally,,,,,, why would it be any more inflationary to print your own currency outright? Indeed, why does one need a dollar inflow to legitimize the same money inflation process? That being currency inflation to create jobs?

Why should we (as dollar asset holders) think about this question? Because someone else is and doing something about it today!

Back to a marked trail

Today,,,,,, and after all of this,,,, the dollar never did crash from price inflation. At least nothing like what was expected earlier in the last two decades.

The dollar reserve system was never going to fail then because the major world economic powers were willing to use (waste) all the productive efforts of the worlds people to keep it running. Looking back we now understand the thinking behind this. Without the dollar acting as a reserve, we would have had to go back to a gold system. There was no other currency structure strong enough or deep enough to carry the load.

But, gold had been proven to be much to easy to circumvent as a national or world currency. It seemed human dynamics would never allow an economic system that operated on a pay as you go process without gold debt. If history had proven anything it was that if we have a money,,,, fiat or gold,,,,,, we are going to lend it, borrow it and in the process create debt. Yes, even using gold!

Even if we have a pure gold system, human nature will find a way to turn it into securities. In doing so we will,,,,, come hell or high water,,,,,, lend more gold than we have and borrow more than we can pay back. One has but to return to the history books to see it all in plain print. Over and over again, we start with a solid gold foundation and soon degrade it into trash. It's not just the American way,,,,, it's the world's way.

Because the modern world had progressed into the efficiencies of using high speed digital fiat currencies, no one at that time or today, was willing to crash the whole system by returning to gold. I suspect that the worlds richest would have lost a lot, but so to would "us regular" people. Even with our savings in the form of a "digital illusion", at least we had a job to go to and a dream in our bank account. Removing the dollar and returning to gold would have erased the illusion and temporarily shut down the jobs.

So, dollar hyper inflation never arrived and gold did not make it's run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the worlds working poor. But this is not about to last!

A broad view from the ridge

Not long after the US defaulted on it's gold loans,,,, dollars held as gold certificates,,,,,, major thinkers began the long process of forming another world currency. One that would not maintain the fiction of a gold standard with the somewhat fixed gold prices inherent in such a system. The creation was distorted, to say the least. Just as the River in my first post was often seen in distortion, so too was this currency issue. It began with the European Currency Unit (ECU) and has later progressed to it's present state of the Euro.

After operating on a fiat system for 20+ years people are starting to realize that the only thing that backs a currency is the real productive efforts of their people. Yes, over time we always borrow more than out productive efforts can pay back and proceed to crash the money system.
But what else is new? (smile)

We call this a money's "timeline" and it's as new an idea a life, death and taxes! Time and debt age any money system until it dies. The world moves on. Only this time gold is going to play a different part in the drama. We will all watch it unfold.

It seems people saw something else that would make the Euro unique. Paid up assets also stand behind circulating money. Indeed, if someone owes a $100,000 dollar piece of land , has a good producing job and borrowed $50,000 against his land,,,,,, the world is likely to circulate that debt note as a fiat land backed currency. But, if his gold (the land) is worth $1 million in a free physical market,,, AND RISES FURTHER IF CURRENCY SUPPLY OUTPACES REAL PRODUCTION,,,,,,, and his other debts are relatively low ,,,,,, the same note would circulate just as effectively if the $50,000 was borrowed against his name alone.

In essence, the jump into the Euro is more based on a new currency that is more honest in dealing with our historic human dynamics. Let's try not lying to ourselves and admitting that gold alone in a currency will not remove our will to borrow and lend and therefore eventually defraud each other! Would it not be better to at least not shackle the money to gold. Indeed, a real physical freegold market will constantly be devaluating any fiat currency over a long term. While removing the need for CBs to maintain fixed exchange structure through a dirty float against gold.

But, the most important aspect is in the escape valve gold would provide to developing countries with positive trade flows. Those that wish to settle their debts outside the currency arena using gold as a settlement. Or, if they wish, to buy gold in the open market with their trade reserves.

The secret to all of this is in the "Legal Tender laws". Allowing gold to be used as a Legal Tender,,,, "for the settlement of all debts public and private",, but changing international law such that no form of debt can force it's payment in gold! This opens a one way street for gold and a two way street in fiat currencies. No one will lend gold because they cannot force it's return in the courts, thereby making gold a physical only international currency. Yet, on the other hand, we all must borrow in this modern world and currencies will be the only avenue for this. Creating a demand (and added value) for them in addition to general use demand.

The first thought many will have is that everyone will just buy gold to make debt payments, driving out fiat currencies. But remember, if you have debts they will be in currency settlement only. One will weigh the cheapest form for repayment! Gold in this atmosphere will be completely free to trade, become extremely expensive and stay that way. Not to mention that it's sale as a commodity (outside it's money use) on the private level will be well taxed.

We rest now

True there is a lot more to this story. Some posters have been discussing it publicly for some time on the USAGOLD forum. If you want a wonderful background reading on what "Freegold" would mean,,, get your laptops out tonight and read the link above. There is also considerable agitation voiced against this view.

First read all of:

Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589) It begins! -----* Executive Summary --an Outline of Observations *-----

My position: The world is going to change it's currency system before long and this will greatly impact the wealth of dollar asset holders. Not to mention physical gold holders. As a note for further consideration and talks,,,,, we have talked before about the "Texas Railroad Commission" and how it once declared oil a public utility and later controlled it's production. In the future, international law must declare all large gold reserves to be "public utilities" in the countries they reside. Mines will be very profitable and good investments after they recover from the destruction of our existing paper gold market. Still, their total production will be controlled and somewhat taxed. Small private operations will more likely be heavily taxed.

We will pick up the pace later (smile). Eventually getting to oil and the markets today.
Fires out.

Thanks for reading,,,,,, FOA/ your Trail Guide

The real hike begins

In my last post "Foundation", we raised several questions as we walked. Some were implied and others were direct. But all were mentioned to give pause to think. Today I'll offer my thoughts from an old study.

By 1971 the remnants of our gold exchange system had two major forces working against it.

First:
The US had printed way more dollars than it had gold to redeem them. This didn't even take into account the fact that Americans couldn't exchange the native part of the money supply for gold. The whole concept of physical bullion keeping officials from printing too much money became shot full of holes. The reality of our modern day dictated that any major world power, not just the USA could eventually override the precedent of a money supply tied to a fixed price of gold.

It seemed that as powers became super powers and nations represented larger people blocks, their ability to just walk away from a stated monetary policy increased. Thereby negating the good effects of gold on a system.

The US had changed it's gold backing policy once before as hard times attacked the local economy. After the 1929 downturn began to gut the wealth of almost everyone, we just took gold out of the INTERNAL money system and added that supply for backing the EXTERNAL money system (foreign dollars). Indeed, all American gold was called in from US citizens. So, for anyone that owned real gold (in their hands), the historic dynamics of retaining ones wealth in gold during a "debt destroying black hole experience" was removed. Further, the "gold force" was not allowed to do it's job of cleaning out all the "dead wealth" created through the prior process of inflating the money supply.

Of the many excellent writers on the USAGOLD forum. I think some would see that the "hard times" of economic contraction are created in the first place by not adhering to a golden monetary system. I agree. But looking at it today, whether it's before the fact or after the fact, society just will not work within a system that fully kills off bad debt. Even if one separates society into two groups,, "controllers" and "the rest of us", it's still the way the world has functioned from the beginning. So, the perception I have received as to how policy will evolve in the future presumes human dynamics will continue as they always have.

Also:
Having changed the rules once (1933) already. We (USA) later proceeded on the same road again. By 1971, we were making dollars at a rate that virtually assured another change in the gold backing game. Indeed, it was becoming obvious that gold could not control the will of a large nation.

Second:

In addition, the very system itself offered no discipline. Think about it. Accepted policy dictated that a nation's gold was held in the same geographic economic block that utilized the money said gold was to represent and control. If that block held the gold and the "real money substitutes" under the same society roof, there was no impartial authority to control how the rate of gold could be exchanged for dollars! A natural, fair $X dollars for X amount of gold exchange rate could be changed at will and for the economic will! For a true gold system to really work, gold would have to be stored and it's conversion rate controlled in a separate nation from the country that printed the money. Without that separation, a large modern power could "using local law, take it out of the system" or "not ship it's gold" if the money supply increased too much. Indeed, this first item was followed by the second and is exactly what happened after 1971.

So, our modern society was quickly proving that it was incapable of maintaining a monetary function of gold if it was intertwined in any official fiat currency mix. Even if the currency represented an outright gold receipt in storage and supposedly redeemable through force of international law!

The trail is heading uphill now

Few people can fully accept or consider that oil became the backing for world dollars after gold was removed in 71. But that is exactly what happened in theory and practice. Using some earlier writing, I'll tie them into what we are saying today. I'm going to repost some of my comments
(between ---- marks) from the USAGOLD forum archives. Starting with FOA (1/15/00; 14:58:12MDT - Msg ID:22961).

---- my friend, they were not using this concept as a real "commodity money play" in the "gold standard perception". At that time we were buying local oil with "fiat dollars" (made so by the 1933 internal gold confiscation) and foreign oil with "gold dollars". But, as you pointed out, dollar production was so far past it's "gold backing" that it was obvious they (USA) were pegging dollar printing to oil prosperity, not gold reserves. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil pricing fully well expected to cash in unneeded dollars for gold. As we can see, reality and present day events of that time were as "mismatched" as today! All of the dollars success was ultimately made possible because oil could (and was) priced so far below it's "economic worth" to the world. At that time, even our Middle East friends had no idea just how useful oil would (and had) become to maintaining the world economic base.--------

Having read that (and keeping it in mind), I return to the implied questions of my "Foundation" post below. "Why in the world did foreign governments, especially Europeans, eventually go along with supporting a now fiat dollar reserve system after 71?"

Well, the whole notion of using any paper money is in the confidence that we can eventually trade it for something,,,,, Beer, food, clothes, cars, etc.. Gold was always in the money mix to insure that we could get these items at a somewhat standard price. Still, most of society thinks along the immediate line that: "I don't care where the fiat money comes from or what it's backed by,,,, especially if I can get something well below today's value cost,,,, and it benefits me, now!"

This is where oil made the jump from being "just a commodity" to "the major world necessity that can and did back the dollar". Prior to the US going off gold in 71, our whole economic structure was expanding because we were gaining massive leverage through cheap oil. Back then, oil was literally changing our lifestyle for the better, and doing so because it's dollar price was so incredibly low relative to what science was doing with it. Modern science had made oil worth so much more than we paid for it, we could extrapolate our debt and money supply growth far into the future and still figure that productive increases would cover it. In effect, the US was targeting it's economy and money value to future oil flow value, not gold. Here is the same thought in my post:

------ the new found prosperity from cheap dollar oil was being used to justify mountains of dollar debt. As long as a barrel of oil could be used to produce more relative real wealth than the dollars used to buy it represented, dollar inflation worked in the only political measurement that counted. "An increase in the standard of living"!--------

The only problem was that if we continued this route, two things had to give: we would have to leave the gold standard because our money supply was exploding (relative to gold supply) and find a new source of oil because ours was running out. Again, here's more from my old post

-------At that time (prior to 71) we were buying local (internal) oil with "fiat dollars" (made so by the 1933 internal gold confiscation) and foreign oil with "gold dollars".-----

------ , dollar production was so far past it's "gold backing" that it was obvious they (USA) were pegging dollar printing to oil prosperity. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil deals fully well expected to cash in unneeded dollars for gold.--------

In the eyes of our official thinkers then,,,, For the local US economy to mature we needed to get off the gold standard,,,,,,,, get the world to accept fiat dollars backed by oil,,,, and find more oil that could deliver triple dollar value for every dollar we paid! It was a tall order and one that would require a major adjustment. The transition through out the 70s was rough to say the least.
More from my post:

-----------they (usa) were already shipping so many dollars out and any more would further aggravate the "possible gold drain perception". This was everyone's problem then as the industrialized world wanted to still get gold if needed, but they also liked the "non inflationary" (relative to that time) expansion of the dollar base as it expressed the new oil economy and it's real goods produced wealth. The US wanted new oil reserves to be "Local" (the Americas), because it could be paid in "fiat 33" cash (internal dollars were not backed with gold after 1933) , not the more golden "foreign cash". Both our neighbours to the north and south ever asked for much gold. In this light they acted like the local oil companies that received post 1933 dollars for oil (as mentioned above). Yet, to get these new reserves for fiat 33, they had to prevent the very cheap Middle East oil from supplying it all if dollar (oil) prices were higher. --------

------- First and foremost, everyone was caught flatfooted as the dollar broke from gold. Like I said above, the industrial world loved the dollar expansion in the oil context presented. (They were) Caught between what appeared as a good system based on cheap oil and the loss of gold delivery ------

------ Even as we left gold behind (1971) and oil went up (1978), the system still worked (at higher prices) because oil was perhaps delivering $100.00 worth of value and being brought for $30.----------------

In a somewhat convoluted way, by leaving the gold bond, it forced all world oil prices higher. Advancing the search for new (still cheap by value return standards) oil and paying for it using dollars backed by not only oil payment settlement in dollars but the continued purchase of supply "well under world use value".

G-7 countries knew that initially they would have to sell some gold in a controlled burn that would allow gold to seek a higher level after the dollar / gold break. However, once oil producers understood that gold was going to be "managed" at reasonable levels, the continued pricing of oil in dollars and it's flow was assured for some time. Allowing the exchange of dollars for gold on the world markets,,,, as needed and wanted.

This also appealed to major countries outside the US because it addressed the "second" problem I listed in the beginning. That being the geographic location of a currency's real backing asset. With most of the world oil reserves located outside the US,,,,,, and the US slowly running out of it's domestic reserves,,,,,,, using oil as a backing dynamic somewhat controlled the "free will" of the US. If indeed, the US backed away from managing a cheap gold market or ran it's printing press too fast,,,,,, oil prices could be managed upward in a devaluation of the dollar. No, not the best of policy concepts for the world, but better than perceiving that the US "Fort Knox" gold was a control on money printing!

Going back to the initial logic of my "Foundation" post, this was the context that G-7 countries "brought into" as they accepted and supported the new fiat dollars without gold. Like I said, the alternative would be a real mess to behold and this position brought time. Time to conceive and introduce a new world reserve structure.

It worked in a broken pattern for a number of years. Oil and gold defied all predictions of higher prices as they retreated from every advance. Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation.

Cutting across the field and returning to today's trail

Nations today, with little gold holdings seemed to have no clue to where this was all going. To a degree, the US used them as they took in dollars and never brought gold at all. They must be thinking that the dollar can be expanded forever and never lose value! To this end, they have based their entire social and economic order on selling goods to the US for a dream in return. Yet, after all these years they are only now seeing that foreign dollars are worthless when the US only runs a trade deficit that will not reverse. The real risk today is now being understood. The American economy will only slow down from a hyperinflation,,,,, and that will be caused from a shift from the dollar reserve function! Trapped holding dollars and no gold to compensate, these other nations are headed for real trouble.

Again, thoughts from my Foundation post

Euroland thinkers (today) are beginning to see where they really don't need dollars in reserve to retain market share in the US. Just as I asked: "if the US is just pumping it's money supply to build a bubble,,,, flooding the world with inflated dollars that we must buy to engage exchange rates..... With the Euro in play,, why do I need to hold their dollars to legitimize the further creation of my own currency? I can buy gold as a "wealth asset" to hold as a physical reserve and print my own money supply....... It's the same difference and at least I have a reserve that

" " IS NOT FLOWING FROM AN IRREVERSIBLE TRADE DEFICIT " " !

In better words:

The Euro float is still too small to receive a massive dumping of unneeded dollars. Indeed, the more the US tries to discredit the Euro,,,, the greater the risk of a "Washington Agreement #2" where the BIS / ECB uses unneeded reserve dollars to BYPASS the paper markets and massively buy "real PHYSICAL gold". In fact, all they have to do is enter the market in a minor way and the entire paper gold arena will go up in flames.

So, Is the Euro falling? Or is the dollar running away as a liquidity crisis threatens it's use?
Are we at the very doorstep of a crash in the US markets and it's dollar?
All caused by an evolving transition from the dollar reserve system?
We have some old writings on this subject and will examine them later.

We make camp here

FOA/ your Trail Guide