1971 redux inevitable?

There is no doubt that we are entering a full-fledged global currency war.  Will it result in the repatriation of gold reserves?

Written by:  Grant Cagann

Since the 1950’s the dollar has been the reserve currency of the world.  Over the last 60 years, global central bank policies and an era of unprecedented trade, IMF loan origination, derivative trading, and fiat-currency-fueled entitlement expansion have resulted in more physical and electronic dollars than one could fathom. 

SINCE NATIONS HAVE BEEN REQUIRED TO CONVERT THEIR CURRENCY INTO DOLLARS TO PARTICIPATE IN TRADE OVER THE PAST 60 YEARS, CONSIDER WHAT WILL HAPPEN WHEN ALL THESE DOLLARS HIT OUR SHORES IN THE COMING YEARS AS THE DOLLAR LOSES IT’S GLOBAL RESERVE CURRENCY STATUS!

When the dollar claimed planetary superiority in the 50’s, we were on a gold standard and our production/manufacturing industries were booming.  Unfortunately, we had ALSO been operating under banker control (the Federal Reserve system) for nearly 40 years, and while our economy was robust and there was more than enough wealth to go around, our government was beginning it’s mastery of fractional-reserve-based deficit spending and empire expansion.

Funding the seemingly perpetual conflict in Vietnam with fractional “near-fiat” currency kept the printing press churning and stretched the Treasury thin, spooking the international community. This triggered a run on domestic gold reserves as nations reduced their exposure to the dollar. Remember that since we were on a gold standard at the time, foreign nations could demand repayment of debts in dollars OR gold.

If the US government owed you money and you had the choice…which would YOU prefer?

When France demanded $191 Million in gold bullion, Nixon closed the gold window, removed us completely from the gold standard, and started the dollar’s doomsday clock countdown.  And this is when there were actual AUDITED GOLD reserves that were not (allegedly) hypothicated over and over again to various stakeholders as we see today.

So…too much fed printing caused nations to call on their US-held debt and/or gold reserves.  Anyone else surprised that a repeat of this hasn’t happened in the last 10 years?  Actually, it’s not so surprising since EVERY CURRENCY IN THE WORLD is now fiat (not backed by gold).  We have all been operating under the same ponzi scheme…a race to the bottom.

BUT...now that the dollar is losing credibility among nations and is being exposed to the masses (mostly through alternative news and social media), there seems to be another race…to either BECOME the next world reserve currency, or to be included in the “basket” of currencies that will likely be offered by the banks as the global solution to the currency crisis (that they created!).  You see this playing out in the US calling China “currency manipulators”, and in “enemy” nations dropping the dollar for trade negotiations (this is KEY since these countries will no longer need to convert their currencies into dollars to complete trade deals, thus greatly diminishing the global need for american paper).

This brings up the question:  Will nations seek delivery of US-held gold reserves in advance of the next gold lockout?  Hugo Chavez seemed to think so, and made world news by repatriating 160 tonnes of Venezuelan gold last November.

Even though we’ve been completely off a gold standard since 1971, the dollar has been treated AS GOLD for international trade for 60 years now.  With global QE in 2012 becoming an inevitability, the dollar’s world reserve status in jeopardy, and global central banks purchasing gold in record volume, is it crazy to assume that 2012 may be the new 1971?

Recently, King World News interviewed Jim Sinclair on the subject.  The audio link can be found here

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Courtesy:  King World News

With gold remaining firm above $1,650, today King World News interviewed legendary Jim Sinclair, to get his take on where things are headed.  Sinclair surprised KWN by telling us there would be a run, by European countries, on the gold they have stored at the New York Fed.  Here is what Sinclair had to say when we asked him if the IMF would be selling any gold:  “No.  The role of gold has changed and gold is moving more toward the central bank then away from it.  On top of that you have seen a significant amount of media attention towards, ‘Where is our gold?’  This is taking place in the European press.”

Jim Sinclair continues:

“(There is) surprise when they find out it’s in a cellar of the New York Fed, in Manhattan Island.  There’s a desire for gold to have more of a national scent to it as it becomes the only performing asset for the central banks.  When asked about Europeans wanting their gold brought back to their respective countries, Sinclair responded, “You’re starting to see that, and you have also seen, from the figures, the central banks accumulating.

The Fed would have no legal basis, whatsoever, to refuse to deliver it (to Europe).  Any refusal or even delay in delivering it would only cause requests for more.  So I would say there would be a lot of back channel arm-twisting not to ask for it.  A run begins slow and historically, if this is a trend, rather than decelerating it tends to accelerate.

I would say that when we go to QE3, in the US in 2012, that could accelerate the call for delivery on gold from the New York Fed.  It’s exactly what will happen.  You see it already in Euro press.  Accepted media, which is main media over there (in Europe), is discussing it….

“That begins to show something that has a great deal more to it than the political motivation of Chavez, who knows very well leaving his gold with people he calls, ‘enemy,’ is not the brightest idea in the world.  The New York Fed will give back the gold because of the ramifications of not doing it.”

When asked about the calls to provide liquidity to the financial system, Sinclair responded, “We live in a global world, transferred into a global economy, and the only central bank able to create that kind of volume of money, out of thin air, legally, is the New York Fed.  QE3 will be global and the Fed is the lender of last resort, not only to its members and the national banking community, but to the entire Western world.

Gold’s bull market in 2012 is a guaranteed event as a product of the fact central banks have no tool in their tool box other than moving, now, from national to global QE.  It’s a done deal.”

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