Paper currencies are ephemeral tokens clumsily applied to the true values (hard resources, ideas and actions) which really improve the human condition.

Who cares if the dollar devalues to nothing or about any other paper currency? Everyone should know that paper currencies are transient hot potatoes - you never want to hold them over long periods of time or you will be burned.

Paper monies have only momentary utility enabling more efficient transactions than barter. Paper monies will always have close to zero long term value.

In order to facilitate their role as transactional tokens it is only important that paper currencies devalue to zero relatively slowly.

"Article is pure nonsense"

This would be the first time that someone in the press misunderstood the fundamentals!-)

Now, seriously..
It will take a number of major political and economic techtonic shifts before the US$ will be unseated - probably not in our short lives. As long as the US is consumer Nr. 1, dollar hegemony shouldn't be a problem.

I see two (or more) problems with this sort of analysis. The first is mixing the dollar::othercurrency ratio analysis with the dollar::gold ratio. The two have very little to do with each other, 'cause they're *all* fiat currencies. Gold is a thing.

The second problem is the assumption that dollar supply will expand just because the PTB want it to, causing inflation. The supply expands when the banks lend money, right? Well, if less money is being lent than interest due, the money supply can't expand! Then the money actually *gains* value, which is about what's happening now. Or do you see inflation out there? I don't. I see the same situation as in Japan the last 15 years...

Anyway....

Cheers from Munich, Dom

The world has many serious problems but the color of the money is not one of them.

I would disagree. The very nature of our money is responsible for many of our problems in that our monetary base is not tied in any meaningful way to our productive base or our resource base. Now one could argue that the market adjusts our monetary base to the real world (e.g. increasing supply of $s decreasing/stagnant resources/production, thus a falling dollar). The fallacy of this argument is that the majority of market participants are unaware of the difference between real values and nominal values.

Information is the key.

Currently, market participants regard their own production and buying power in terms of dollars, euros, etc. They are totally unaware of their production/buying power in terms of energy. A currency that was based around energy would communicate such information in every transaction. As such, people's actions would be different. Solar panels, backyard gardens, etc. would appear to be very good investments. More efficient cars would be seen as more valuable as opposed to the current perversion of less efficient cars being more valuable*. People would see the absurdity in burning several hundred thousand calories of fuel to go to the corner to get a couple hundred calories of food (lunch/dinner/snack, whatever). I'm not saying that an energy currency would suddenly compel people to always act rationally and/or responsibly but at least it would be an enormous step in that direction.

*If we, theoretically, had an infinite supply of fossil energy as our infinitely growing monetary base now suggests, then more powerful cars would be more valuable as one could theoretically go from A to B in less time. If we ever get to the point where we have a self sufficient and expanding non-fossil fuel energy base, this may again become the case.

Didn't M. King Hubbert, himself, talk about how our monetary system was unsustainable and must change.

There are so many misunderstandings illuminated in this post, and in other articles referenced in this post, that it is hard to know where to begin. Let me start somewhere ...

Let's try here; this argument is part of the larger argument that has been taking place in finance offices, among economists and far and wide in the blogosphere; whether the world is experiencing inflation or deflation.

CNBC invited Jim Rickards, a senior managing director at a firm called Omnis to comment on the latest G-20 meeting and the future of the dollar.

Rickards links an oped article at the Wall Street Journal penned by Federal Reserve governor Kevin Warsh to the G-20 meeting in an interesting way: it is a camouflaged warning against a fast drop of the dollar against other currencies, especially gold.

And ...

This is crux of the matter, Central Banks have very limited options regarding gold; being it a resource in very limited supply,

And ...

The Fed needs the dollar to get down by about half in the next 14 years. We have 60 trillion dollars of liabilities [...] there's no feasible combination of growth and taxes than can fund those liabilities. […] They need to do that, but that's a dynamically unstable process. They would like to do it gradually, and that's the plan, but if the market gets ahead of it, if the market sees this playing (which probably they will), you could have a very rapid collapse of the dollar [...]

And ...

The IMF is being sort of anointed as a Global Central Bank. They are now running a balance sheet, they've issued debt for the first time in History, they are issuing SDR, the last time they were issued was in 1980 or 1981 […] they are printing money, there's nothing behind these SDR.

And ...

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars [...]

And ...

UN calls for new reserve currency The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit.

"Important progress in managing imbalances can be made by reducing the reserve currency country?s 'privilege' to run external deficits in order to provide international liquidity," UN undersecretary-general for economic and social affairs, Sha Zukang, said.

Doesn't something jump out at you? "Federal Reserve Governor", "Federal Reserve", "IMF", "Global Central Bank", "G20", "Finance ministers and central bank governors", the "UN" ... all centralized authorities.

Here's what Milton Friedman sez about inflation: "Inflation is always and everywhere a monetary phenomenon."

Here's another def from Mike 'Mish' Shedlock: "Inflation is best described as a net expansion of money supply and credit." He defines deflation similarly: "Deflation is logically the opposite, a net contraction of money supply and credit." The implication is some authority, acting on its own without any public interest expands money and credit.

There are many other similar takes on inflation as a money supply issue. Bernanke is accused of massively increasing the money supply by printing limitless amounts of dollars. This is an attempt to inflate the US currency to devalue out of existence that hopeless amount of USA debt. To counter this, central bankers/ finance ministers/Wall Street/the IMF cabal meets secretly to create a new currency that cannot be inflated into irrelevance. Maybe, there will be a gold- backed currency, like in the 'good ol' days'. I guess that will show those undisciplined Americans a thing or two about financial prudence!

To understand what 'money supply' refers to, take some time and watch this video primer, "Money As Debt":

In fiat money systems - which include all money systems in all countries on planet Earth - the dollars and other currencies are lent into existence by banks and other finance houses. The principle behind this is simple, double- entry bookkeeping. A deposit to a bank account - a loan from another bank, often - is recycled as loans to others, that are in turn deposited by sellers in other banks to be lend again and again. Every loan is an asset to the lender, balanced by deposits which are loans to the bank. normal daily business results in the creation of money; central banks, the G20, finance ministers, the UN or other authorities don't create money. In the process of borrowing money, you and I create it.

The Fed is simply another bank, it does business the same way as do other banks, it lends to the Treasury as do other banks, it lends to other banks as well. Unlike other banks it can monetize interest payments; consequently there is no abstract limits to the breadth of the Fed's balance sheet. Even so, it cannot create inflation. Only people buying/selling can do so. This is the 'public participation' factor. People are currently not buying/selling. We are in deflation as a consequence, even though the Fed spews money into the banking system, unless people start buying/selling, the new- money output of the Fed is as a bucket of water to the ocean.

Perhaps the 'dollar doom' stories are an attempt to scare customers into spending money before it 'becomes worthless'. If so, the attempt is irresponsible. It also isn't working. People don't need to spand; they already have everything they need! My brother owns four cars. He's not going to buy another one, regardless of how much credit is available!

Here's the Steve From Virginia definition of inflation; the lumped- together buying and selling by everyone results in inflation. The more buying and selling, the higher the rate of inflation. (Buying is coupled with selling as for every buyer there is always a seller.) This rate on its own without lending/borrowing represents the 'velocity' of transactions; the turnover of the same money in different buying/selling transactions. In the real world, the turnover of transactions and money amplifies its creation and that of credit as each bankable transaction allows more credit ... and more money ... to be created. Deposits to the bank are lent against; it can be considered there are are two components to inflation - and deflation as well - buying/selling and lending/borrowing. Both are interconnected; creating money by borrowing generally is part of any given transaciton; money is borrowed to be spent, money is spent creating the demand for more lending.

If buying/selling is inflation, then less buying/selling is deflation. No buying/selling at all is depression. The establishment can print as much money as it pleases, it can expand the supply of available money as much as possible and it will not generate inflation. There is no way authorities can conjure inflation, regardless of intent - or scare mongering.

At the same time, authorities can remove money from circulation, they can make it out of pancake batter or radium foil, if few people buy/sell, there is deflation. That this is taking place right now is obvious and should be observable to central bankers and other bureaucrats, but they may not go out very much.

Inflation is self- generating and by doing so it is a virtuous cycle. The increase of lent money reduces the real value - as opposed to the nominal amount - of the principal due to the lender; at the same time the lender receives interest payments on the money that otherwise earns nothing. Since the returns are immediate, the potential loss of principal value in the future can and is discounted.

Since the public, not authorities create inflation or not, the fundamental precept of this piece is incorrect.

The dollar became the world's premier reserve currency as a matter of convenience. There are large amounts of dollars; the 'base money' is around $1 trillion. About 3/4ths of this is in circulation overseas. The dollar is the official currency of Ecuador and Panama; it is the unofficial currency of dozens of other countries. That there is so many dollars in circulation makes them available when currency is in demand as was the case last year. That there are many dollars in circulation is the result of the hundreds of thousands of American tourists who travel abroad every year and the billions of dollars sent as remittances to families of workers legally and illegally in the US, also every year. It represents the cash accounts of organized crime syndicates that sell drugs, arms, whores, pirated goods worldwide; also the receipts of US businesses that contract with workers overseas; China is the 51st state of the US, whether they like it or not at any particular second.

The dollar is the world's premier reserve currency because of what it is proxy for, what it can buy. Currencies of nations or regions are 'grounded'. They originate in a place and generally can only be redeemed for a good or service in the place where they are born as debt into money. The dollar can be - and is - used to buy any good made in the USA. Since goods in the USA are also made in China, India, Saudi Arabia, Japan, Germany, Ireland, Russia, etc; the dollar is proxy for all of these other countries' goods and services as well. What can anyone buy in the US with yen? Very little, yet any good found in Japan can be had for dollars. Same with all other countries that trade with the US; Pounds- Sterling, Euros, Roubles; all these currencies are limited to what can be had in their originating countries, which can also be had with dollars. Everything that can be bought for yuan in China is available for dollars in the USA. This is what 'reserve currency' really means. It has nothing to do with prestige. The dollar is proxy for all the world's goods. This is the result of the market speaking; the actions of both American and others buying/selling.

What about gold? What can be bought for gold? How many people have or possess gold? Imagine gold as the currency - it was USA money up to 1934 - who would have all the money if gold was the currency?

Right, only the rich people. If gold is the money, the rich can sit back and wait for it to come; trading food for gold. A person without gold would be destitute. For those with some gold, becoming destitute would be a matter of time. All the gold bugs ever talk about is buying gold, nothing is ever mentioned about selling. What does one buy with the gold? Paper money? A can of beans? Gold, like any other currency has no value unless it is spent, a person spending gold does not have it any more. If gold is the money, that person has nothing. The shift from gold to paper signified an historic shift, from possessing wealth to transacting business. In a fiat system, if there is a shortage of money, the people themselves can lend/borrow some more into existance.

It's not just the amounts of money in circulation that matter, its what the money buys. Not one finance article or money trade or commodity money article I can easily find ever mentions this major characteristic of money! The Chinese yuan is a paper representation of poisoned dog food and hammers that break in your bare hand. The dallar buys Hollywood! ... '57 Chevies, the Dallas Cowboys, New York City, desktop supercomputers, Babe Ruth, crack cocaine, Jack Daniels, and freedom ... even if it's tarnished, constrained, corroded version of the real thing.

China; you buy a hypeer- corrupt, hard- line dictatorship, a command economy that is in worse shape than the US's veneered over with lies, a bubble ready to pop. All this punctuated with polluted 'Blade Runner' cities and the ugliest buildings imaginable.

Since so mnay people out there in the world are going to use dollars because of convenience and what it can buy, it is hard to see an alternative being circulated in quantity enough to be equally convenient. Since buyer/sellers create currencies, it is hard to see how the required volume of circulation can ever take place, despite the fervent desires of China and the IMF bureaucrats.

Dollar alternatives are proposed as reserve currencies because of these currencies' relative exchange value. These currencies are scarce and this is reflected in a scarcity premium. This isn't transactional value, but a commodity - supply/demand - value. It is useful to currency traders but nobody else. This is also never seen in articles about money and reserve currencies. It is nevertheless observable in the real, outdoorsy world.

MONEY AND OIL

One misconception that arises from the article is the that there can be different VALUES for oil depending on what currency is used or is put into service. This is false since all currencies are markers for buying/selling (not production!). It would be ironic that a customer for a product (oil) would be penalized for being a customer, whicb is often suggested.

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports -- since denied -- that China, France, Japan, Russia, and Gulf states were plotting to replace the greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.

A Freudian slip of the keyboard? I doubt it ... dollar/oil relationship is what matters ... and the way currency/swap markets work is that ALL currencies/oil are proxies of the dollar. It's value/oil, whether in dollars or guinea pigs ... or Venitian ducats. Since the dollar's proxy relationship with what it buys, this proxy value is the relationship to oil. No authority makes this decision, it is producers and oil refiners buying and selling, the refiners themselves as proxies for their own customers who in turn buy/sell and create the means to support the value relationship. Certainly, the oil producers need the US to buy oil, for their own reasons, they have decided to follow the American example and make waste out of their own product, but this is not the issue of this discussion.

The proxy is the 'American' buyer, with the 'American' lifestyle ... be he Japanese, Chinese, French, Brazilian or whatever. Until destiny and the Earth itself rules otherwise, all the world is America, whether anyone likes it or not.

3.) Additional pressure on oil prices from outright decline of oil production.

If we were to single out one major culprit, wouldn't #3 be the lynchpin, the disintegrating keystone, the coup de gras?

memmel said: "Its fairly obvious that there is no way out for the US."

This is the real monster problem that nobody is willing to face. The US has followed such a foolish path of "borrow & spend" with no thought of the future, that now it is effectively bankrupt and should be taken over by its creditor nations. The smoke and mirrors antics of the financial organisations cannot for much longer maintain the fantasy that there is a comfortable solution.

Globalisation has been a dead-end street, and there is no turning space at the end. Nor do we have a reverse gear to take us back to sanity.

The US Military/Industrial cartel is not about to allow the nation to be taken over by its creditors, even if the financial/political cadres attempted this option.

The OPEC and BRIC nations will take a severe hit when they pull the plug on the US and other deeply indebted nations, but the time is near when they will have no other rational option. It's a bit like the drugs industry: the pusher need the addicts, but if the addicts are never going to pay then the pusher might as well stop supplying and smoke his own dope.

To me it seems that the only plausible path is to "Hit the Reset Button", namely:

1. All nations simultaneously Nationalise all foreign owned assets within their territory.
2. All nations simultaneously Repudiate all foreign debt.
3. All trade treaties are cancelled.
4. New bilateral trading relationships are formed without financial or military coercion,initially on a barter basis.

This is definitely a Pie-in-the-sky scenario, but as all the experts are blatantly failing in their attempts to correct the problems, maybe we need to consider such a way-out proposition. No doubt there will be horrified screams of "Communism" and "Socialism" from the US Rightwingnuts, but as they are going down the tubes anyway, such screams can be ignored.

Cheers
Merv

"no one wants to see the US default "
IMHO this is incredibly unlikely to happen. Why?, the US's debt is denominated in USD which can be "printed" by the government, it does not have to obtain foreign currency like say Iceland. Take the case of the UK a small island with few natural resources, despite various problems including The Great Depression, panics, wars including almost being overrun it has not defaulted on its GBP debt.

Consider the US, a large country with lots of natural resources protected from invasion by two huge oceans. The aggressive military spending (I won't call it defence) could easily be cut and troops brought home from the many, many countries thay are stationed in. A progressive tax on fuel bringing it up to European levels over several years would act to significantly reduce demand (which will have to happen anyway won't it:-) OK, this won't help the economy in the short term but it's going to happen anyway.

"it seems like the US Government still thinks its dealing with a problem of maintaining housing prices" the point here is try and stop the meltdown in asset prices used as security against debt. IMHO there are stacks of banks in the US that are already bankrupt but just being kept alive by mark to myth accounting and another increase in jingle mail would tip them over the edge - this might well happen anyway.

"A new fiat currency does not solve this problem" completely agree and a world currency would have more problems, e.g. the exchage rates would have been locked in at one point in time; interest rates could not be changed for local situations (see Ireland & Spain housing bubbles with the euro)

I hadn't really thought about rising interest rates. But eventually countries are going to want this, especially if the value of the dollar is falling. And as you say, rising interest rates will do in the US economy. The only thing that is keeping things going now is the super-low interest rates. Once these start going back to normal levels, there are going to be more a more defaults on debt. The US government will find its deficit growing because of increasing debt payments, as well as the other causes.

Things really aren't looking very good.

coke-75 cents to 1.39
candy bar-65cents to 1.50
gum?
coffee- free with ten dollars gas 89cents to 3.50
licorice sticks-havent seen one in many years
bus ride-two bucks

And these prices are in a part of the country noted for low prices

Important point there. A LOT of the "recommended solution" has already been done.

I am just old enough to remember sticking a three-cent stamp on a letter envelope, about the same time period as your example. And I'm also old enough to remember when people did write letters!

I knew something was going wrong when they stopped making coins out of silver in 1965 and starting using that "clad" stuff.

Items that I could purchase for 5 cents during my youth: Ice cream cone, coke, candy bar, gum, coffee, 5 large licorice sticks, bus ride.

All except the bus ride arguably 'bad' for you:-(

Look mate, Australia is a little country. 20 million people. 5 cities. Great beaches but otherwise lots of flat red earth.

I mean, yeah, we have a few megatons of ore under the ground. And wheat and sheep on top. But you reckon the Aussie dollar has something to do with the price of your gold? Bumping the Aussie bank rate's got something to do with the USD implosion?

Strewth you're the blokes with the atom bombs. You're the media-military-industrial overlords droppin' millions of bombs on millions of brown people to liberate democracy or whatever. We're just a bunch of drongoes taking time off from the beach to raise the tin lids. Then we retire to a kombi van and spend the rest of our days watching daytime telly.

Seriously, that's our whole plan. That's the point of our culture. Go out, pull a bird, have a laugh, whoops, kids, gotta raise 'em, that done rack off and see a few sunsets before we turn up toes. No wars to fight, no empires to build, just treat your mates right and don't smoke anything you didn't grow in the backyard.

But you reckon we've got your bottle? Pull the other one, mate, it's got bells on!

*why* gold broke out to new heights is actually pretty irrelevant, especially for technical traders. Unless this is a head-fake, we're about ready to see much higher gold prices.

Gold is scarce, why shouldn't it be expensive??

To your "We are going to be a very poor people" I would add " but with very pricy housing"

Thing is who else offers anything better? - New Labour's Orwellian power for its own sake project is pretty much over, the Liberals can't ever seem to get enough concentrated votes to get anywhere (and all three have barely distinguishable loony back to growth policies so the differences hardly matter). That leaves only some fringe one issue parties that would be a disaster in power...

Obviously, you tin-foil hat people have not considered the need for expanded inter-planetary trade. This expansion can be leveraged by outsourcing labor to more efficient species such as dogs, monkeys and ponies.

FWIW, anyone can print their own currency and/or accept anyone else's own currency. No laws regarding that. No way to enforce laws regarding that. Ithaca Hours (Ithaca New York) is one such example of a local currency. The only barrier to a currency is local/regional/national/international acceptance.

However I suspect that if that were to happen the serfs and peasants might not want to just quietly return to fields...

http://www.cnn.com/2009/WORLD/europe/10/07/turkey.imf.protests/index.html

ISTANBUL, Turkey (CNN

The violence came as top officials of the IMF and World Bank wrapped up their annual session and made a public call to establish a "new world order" of economic relations in the wake of the global economic crisis.

You can use paper depository certificates or even electrons to subdivide gold into very small units, which can then be used as a meduim of exchange. You dont' actually have to use gold coins themselves. However much gold there is, that is "enough" to support whatever economy there is. It is only a question of valuation. The bigger the economy and the smaller the gold stock, the more valuable it is.

Since EVERYTHING can be easily traded electronically....I would say that commodities ARE in the process of becoming the default world currency. And that all extant currencies will begin to reflect that reality...as demand for commodities increases and supplies are constrained.

The world has seen what the wizards who print and game the USD can do to the world economy?

People will buy what they see as most valuable into the future....

As for what you carry in your pocket...it will still be paper or the electrons on those cards? The USD will be sound again when it is devalued and reflects reality...i.e....the fundamental value of commodities.

China is now exploiting it's large labor pool...and the worlds resources...to the detriment of the biosphere. The growth paradigm again runs headlong into reality....and the next crash.....

Here is a good example from the Market Ticker-China is looking out for China, unlike other countries where special interests rule http://market-ticker.denninger.net/

George Ure sorrta agrees - 1st there will be deflation then inflation.

Right now you see deflation of the housing bubble and other things as credit tightens/demand drops.

In the background the M3 is going up - 13% or some such from shadowstats.

So the danger is a whipsaw effect. Upside - if you have productive assets you can somehow keep getting paid for at the inflated price (ie not a once a year corp job/once a year rent increase) you could end up doing well paying off the old debts with the new less valueable money.

What is interesting is when 'the masses' loose the faith in the currency - it stops being a viable currency. And the US Dollar may be at this point soon.

Mr. Ure posted this here http://www.urbansurvival.com/nl20091003.htm

There may be a [banking lock up] in many countries emanating from the USofA outward. There may be [inter bank lock downs] in which [central banks] and [wealth storage clearing houses] will not be able to function. There are data sets suggesting that the rapid shift into building tension language on the 25th originates from and is propelled by the [financial system implosion] that then morphs over into [dollar rejected by all] a mere 10/ten days (more or less) later. There may be shut downs of all kinds of banking activity within the USofA and the rest of the anglosphere.
The [sudden/urgent travel] of the [administration (obama et al) minions] in early November, under this MOM background load shows up as being about [desperately trying] to get the rest of the [planet] to [loan] the actual [resources/wealth] to [restart] the [USofA banking system].

So we'll all get to see if Ure was actually plugged in or just another stop on the World Wide Web.

He is right but why do these analysts always take retirement and social security as the example? To relate to the target market and sell the books or whatever obviously.

Social Security is still running a surplus and if inflation happens, wages will go up leading to greater SS revenue.

A better example is the defense budget IMO. There is no source of revenue produced in war. And the unfunded cost of war/defense is larger than SS. These expenditures can continue for short periods of time, but when wars are pursued in perpetuity as in the case of Viet Nam, Iraq and Afganistan it is no different as far as creating unsustainable and unpayable liabilities than SS.

We can not have wars without end for oil security or even against terrorism. All wars have to end at some point due to the exhaustion of one or more participants. In Viet Nam it took about 13 years for the U.S. to exhaust itself. We have exhausted ourselves in Iraq after about 6 years and are withdrawing.

Afghanistan is entering its 9th year. Four more years and it will be longer than Viet Nam. Obama appears to want to try to set a record if the latest administration rhetoric is to be believed.

My point is that when large war/defence expenditures are made year after year they become a claim on resources just as sure as the Social Security obligations of the Federal Government. But they are even worse since physical resources and lives are destroyed that could have potentially added to Federal tax revenue were they still in existence.

Darwinian,

I'm in complete agreement in regard to the long term likelihood of inflation.Of course a collapse or a revolution could change things in this respect , but It's hard to imagine how they would change for the better.

Many years ago I read a book titled Social Security: The Fraud in Your Future.It basically outlined the future history of the system ,given the likely demographics of the country, the tendency of politicians to buy everything now and pay later ,etc.

I have read a number of other books with similar messages over the years.

The message was very clear-as clear as the peak oil message, as clear as the evidence for evolution-perfectly clear to any one with an open mind.

The folks who don't believe in inflation really oughta watch the video you linked for us-thanks.

The current financial crisis may result in a collapse but if we get thru it all the ground work for a big inflationary wave is in place and will only be reinforced by environmental and resource problems.

I expect you can remember nickel soft drinks too!

May be the folks who don't believe in inflation aren't yet old enough to have seen it in action.

Or maybe they're like the oil cornucopians-they will finally believe it when they actually see it.

One thing about inflation is that it can continiously spread the pain over the whole economy without creating an IMMEDIATE crisis or rebellion.An old man living on his savings is not likely to start tossing molotov cocktails if the inflation rate can be kept from getting too out of hand.

Couldn't agree more with you.

Gold is not analogous to oil. It's recyclable.

Supposedly China is accumulating physical gold on any price slump.

And nowhere in any of this are there more jobs -- that's the crux of "no more growth".

Well, there may be an uptick in positions for the crier who yells "Bring out your Dead", as the cart full of corpses is pulled through the village...

This means revolution and war. It's that simple.

No. A drop in the value of the currency does not automatically raise the value of RE-RE values are dependent on the income levels of current owners and potential purchasers. When the currency drops 30% in value, not all employees automatically get a 30% raise (most don't get a raise at all). It will raise the value of prime USA RE valued by foreign investors (probably less than 5% of USA RE).

I am not sure how this would all work out. If the dollar devalues, the price of oil will rise, even more than previously. It seems like this would cause the US economy to go into recession, even more than in the past. This would likely mean more people laid off from work, and more people defaulting on their loans. Government revenue would decline, making it less able to provide services and to repay its debt (without just printing it).

The idea of the commercial real estate becoming attractive to foreign investors seems strange to me. The price will be dropping, both because of the recession, and because the drop in the value of the dollar, so you are right from that point of view.

But at some point (perhaps quite a few years off), it seems like things just go to pieces. Will there be sufficient police and fire services to guard all of the unoccupied buildings? Will there be fire insurance policies that are actually providing coverage on these buildings, or will the insurance companies have gone under, because of all the debt defaults? Will confidence remain that long term the rights of foreign investors will be recognized? If the US is effectively defaulting on its debt, other countries may try to grab US overseas assets, and the US may try to grab back.

The trouble is, it can no longer be assumed that as the value of the US$ declines, the pay packages of US workers will go up proportionately. More likely, a declining dollar will just mean a declining US economy and a declining standard of living for most Americans. In that environment, I don't see housing prices going up (except maybe for a few luxury homes in areas attractive to foreign buyers), because most home buyers will be able to afford less and less rather than more and more. Some select CRE locations might become attractive to foreign buyers, but most of it will be declining as well.

There is no replacement for the dollar as the common reserve.

Perhaps not immediately; but over a time period (say 8-10 years) there is.

Gold is such a f^&*ing joke---it's strictly for morons.

Perhaps the joke is on you. Gold has gone up by a factor of 4 in the last 8 years. During that time stocks have gone no where. The real morons are the people who believe that the US can live beyond its means forever; that debt can grow faster than income forever; that the US $ will not be drastically devalued even when deficits exceed 10% of GDP. The real morons also believe that you can have very high deficits and low interest rates at the same time without causing your currency to collapse.

The bull market in gold is nothing more than the inverse of the bear market in US $. Gold will keep rising as long as the US $ keeps falling.

I became interested in gold around 1960 when I read in Fortune Magazine that the gold acquired by the US circa WWII was rapidly returning to other countries. Nixon later stopped this hemorrhage. Gold was about $35 per ounce at that time but was illegal to own except in certain forms. As an investment and insurance policy I bought a few legal double eagles at a gold price equivalent to about $48 per ounce. They have been in my safe deposit box since that time. I believe in diversification and do not accept the label of moron.

There is no replacement for the dollar as the common reserve.

Baloney.

At one time the Pound Stirling was the common reserve. How's that working out for Brittan?

Gold is such a f^&*ing joke---it's strictly for morons.

If the morons have what I want and only want gold for it - who's the moron the one who has what I want, me for wanting it, or them for accepting gold?

Hello Majorian,

Your Quote: "It drives Putin crazy that all they get for their oil is Greenbacks."

The Ruble could increase in value fast if Putin partially backstopped it with some minor percentage of real asset PMs, crude, natgas, or Elements like NPKS. Let's say for every USD$ ten million in greenbacks converted to rubles would allow the converter one ounce of gold or the equivalent in the other items I listed.

Which one of the infinite regression of mirages would you care to discuss?

I suggest this one as a starting point:
http://www.scientificamerican.com/article.cfm?id=green-is-a-mirage

Coincidentaly I have always had a profound dislike for the term 'Green' when applied to any industrial product but the example of the Life Cycle Assessment given for packaging glass alone is mind boggling.

The basics for making glass have changed little since the time of ancient Rome. Today, natural gas- powered furnaces burn at up to 2,000 degrees Fahrenheit for twenty- four hours to melt sand into glass for windows, containers, or the monitor on your cell phone. But there's far more to it than that. A chart showing the thirteen most important processes deployed to make glass jars revealed a system stitching together 1,959 distinct "unit processes." Each unit process along the chain itself represents an aggregate of innumerable subsidiary processes, themselves the outcome of hundreds of others, in what can appear an infinite regression.

I think it underscores the divergence of the two Intellectual Systems: Matter-energy and the Monetary Culture that Gail linked to above. It doesn't matter what happens in the world of finance or which currency or basket of currencies the world chooses to run the economy. Until we all understand that it is the resources, energy and the environmental impacts of our foot print that are the only thing that matters we have no hope whatsoever of moving forward.

Ok, next mirage?

Gold is a bubble.

No, gold is a rare metal in the getting of which humans need to dislodge and mine tons of rock and then crush that rock to powder and then use a variety of chemicals to obtain just one ounce of it. The process described is energy intensive and is likely to become more and more expensive over time, just as gold supply dries up. It's even worse for silver.

Well said, Wiseguy.

The best thing is to let the Middle East/Afghan/Pakistan ascend to the Somalia plane of existence.

No more evil Western democracy and affluence( aka colonialism) for you.

Let Osama be your guide and let the Taliban be your teachers.

One thing though, while America may have problems supporting thousands of troops, China and India could easily supply hundreds of millions of troops.
I hear they are looking for real estate.

Just sayin'

Wisdom,

It is true that we are no longer the only country with nukes.

It is also true that if they are used there will be nobody left in your part of the world to enjoy our downfall.

I hope and pray that it never comes to pass but the US could kill EVERYBODY
in the middle east within an hour if we decided to do so.

Of course things would be very hard over here too.

Depending on what the Russians and the Chinese decide to do in the event of WWIII, we might all be dead too.

Wisdom, I'm not sure the Chinese, the Russians or your friends and neighbors in India won't quickly step in to fill the vacuum should the western world completely and suddenly collapse. If you look at history you'll see they can be pretty brutal too and are not immune from attempts at empire building. Americans are only as human as everyone else.

The human race runs the gamut from the good the bad to the ugly. The percentage of these types is rather constant regardless of ethnicity or national origin.

So, just curious what are you doing to make the world a better place? Are you teaching people how they can help each other. Or are you just clapping your hands in glee that the evil westerners will soon be suffering.

If that's the case I think you will soon find that when reality sets in the glow wears off rather quickly. Especially when the reality on the ground will not be any noticeably better for the majority of the poor around the world.

If the plan is to turn North America into a trading block like the EU

The EU tolerates members maintaining their own currencies (Britain), and pretty much all other forms of independence, on a full goup of individual member basis. I'd say NAFTA is already at pretty much the same level as the EU.

So where's the huge fear / conspiracy issue? Afraid your cities may have to improve their quality of life to match that of Canada's?

That's a very revisionist view of the 20th century. There is no way to reconcile historical fact with a view that the US had any hand in starting WWII.

At first world economy boosted very very fast, 1960s was certainly easy time to live, but then there was a boost in population too. You're contradicting yourself there. The "boost in population" happened almost exclusively in the countries which did NOT have "easy times" or "very very fast" economies. If they'd ignored the Soviets, command economics, and not lost that more than half century to stagnation, world population would now likely be stabilized at less than present and on a rapid downward trend.

Too many errors to address all. I fortunately do have some close friends from Pakistan who are not convinced that stoning women to death for the crime of being a rape victim, or having twenty children, are the proper way to act on earth. Hopefully their will will prevail in the long term.

As a Canadian, I too have some issues with many US foreign policies, esp. related to interference in domestic affairs of other countries like Nicaragua, Honduras, Columbia, Cuba, Venezuela, Iraq, Georgia, etc. etc., but am hopeful that US citizens can re-gain control of their government from the corporatist elites who run it now. They should re-read their constitution and the history of its drafting. As far as making huge efforts to assist the Afgani people to break free from that deplorable religious zelotry which has controlled them, I strongly support Canada's efforts even though it has so far resulted in a higher casualty and mortality rate among our military per capita than for the US military in that sorry mess of a country.

It might be helpful to view the Bankers as "farmers" and the bulk of humanity as "cattle". The "farmers" have gotten plenty of milk and meat from the cattle over the centuries but now the farmers can no longer maintain such a large herd due to energy constraints. This signals tough times ahead for the cattle as the farmers need to cull the herd and consolidate the farm.

A useful visual:
http://www.youtube.com/watch?v=P772Eb63qIY&feature=player_embedded

==AC

When you say:

"When you have democracy you also have lots of problems that you can avoid in a kingdom."

One has to realize "democracy" only exists as a concept not as an actual functioning model. This BBC documentary IMO clearly demonstrates that what is considered "democracy", largely in the west, is nothing more than a managed tyranny that parades as "democracy" to trick the mass into believing they actually have a "choice"or that they are "free".

http://video.google.com/videoplay?docid=8953172273825999151&hl=en#

"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. Our minds are molded, our tastes are formed, our ideas suggested, largely by men we have never heard of."
~Edward Bernays, Propaganda (1928)

==AC

Most above are completely all wet regarding democracy. Clearly there are many issues with many examples at present, but there are also many examples of very effective democracies in large countries. Canada, Sweden, Norway, Denmark, Australia, NZ, etc.

There's just a few simple rules to making a representative democracy workable. The most important is to very severely restrict anyone from providing financial support to competing parties or candidates in elections. Provide each candidate a flat amount of funds for a campaign from the public coffers, and audit them and chuck in jail anyone who breaks the law. Works in Canada, where its also illegal for anyone BUT the candidate to finance any media promotions of a candidate, party, or cause.

In the long term, representative democracy must be replaced with true democracy, where every citizen has the right to vote on every item of legislation. Qualified civil servants (mostly contract term appointed on proof of qualification, eg. multi-lingual etc., working from home) operate debating fora per ministry, prepare and publish synopses and precis, provide for televised debate among participants. New legislation proposed by anyone, but needs seconding by 5% to 10% of all voters before going to committee of civil servants for preliminary drafting. The required seconding percentage increases 5% or more each time an issue is re-proposed after being defeated. Voting is done on each law / issue by all citizens over a reasonable time period, pass or fail on 50% + 1 for normal, 75% + 1 for constitutional matters. If I'm not interested in following a topic, I can assign my voting rights in advance to any other citizen I choose for any time period. Their vote then counts as two votes. Civil servants also maintain the secure debating and vote gathering websites. 10 to 100 MBPS 2-way communications and home terminals are provided by the state to every voter from state revenues (of course via existing telephone and cable companies competitively). Civil servants are overseen by an elected board of directors, 5 year terms renewable. Chairman of board acts as head-of-state for cerimonial functions, eg. visits from foreign "dignitaries" who demand such.

I, for example, would assign my votes on finance issues to Ilargi of the AutomaticEarth, on economics to my friend professor Banks, on energy to Nate, on sciencee issues to Gail, and cast my own votes on matters of education, industrial policy, foreign affairs.

Many refinements required, but workable. And if it turn out to be sloww in passing new laws etc., so what? The laws we now have work quite well already, thank you.

Silver is the smart investor's play. It is useful in so many ways, much more so than gold. For instance, in the renewable energy future, we are all going to rely far more on Father Sun to power us along, most likely using devices that reflect sunlight onto concentrators. The very best of these are coated in silver, because silver is the most reflective material on Earth:

Andraka says the first and probably most important advancement was improved optics. The Stirling dishes are made with a low iron glass with a silver backing that make them highly reflective —focusing as much as 94 percent of the incident sunlight to the engine package, where prior efforts reflected about 91 percent.

"The magical properties, with which the Egyptian priestcraft anciently imbued the yellow metal, it has never altogether lost. ... Gold (was) originally stationed in heaven with his consort silver, as sun and moon."
John Maynard Keynes

The value of gold and silver is psychological in nature. Gold represented the Sun and Silver the moon. Its value is spiritual in nature, "mana", the power of the gods. The first banks were temples and the first to issue "money" were the priests. While we may believe our economic pursuits are secular in nature that is far from true. Commercial industrialism promised Western man a paradise on earth that replaced the paradise in heaven of the Christian myth. While we may have forgotten the origins of our spiritual quest for immortality we have not escaped them. Our Kings [capitalists] and their Priest [economists] have billions worshiping at the alter of economic growth and progress via the ritual of money. Like all fanatics we will sacrifice everything, including the biosphere itself, for our faith.

No expert Bob but would assume the irrational love of gold will always trump silver. Gold is sacred. Gold is god. The ratio of value between gold and silver is not rational, but neither is our pursuit of it.

==AC

"It has been long known that the first markets were sacred markets, the first banks were temples, the first to issue money were priests or priest-kings. But these economic institutions have been interpreted as in themselves secular-rational, though originally sponsored by sacred auspices. The crucial point is (B.) Laum's argument that the institutions are in themselves sacred.

"Laum derives the very idea of equivalence (equal value) from ritual tariffs of atonement, the very idea of a symbol of value from rituals of symbolic substitution, and the very idea of price from ritual distribution of the sacred food.

"In other words, the money complex, archaic or modern, is inseparable from symbolism; and symbolism is not, as Simmel thought, the mark of rationality but the mark of the sacred.

"If we recognize the essentially sacred character of archaic money, we shall be in a position to recognize the essentially sacred character of certain specific features of modern money -- certainly the gold standard, and almost certainly also the rate of interest.

"As far as gold and silver are concerned it is obvious to the eye of common sense that their salient characteristic is their absolute uselessness for all practical purposes. John Locke put his finger on the essential point with his formula of 'mankind having consented to put an imaginary value upon gold and silver.'

"Measured by rational utility and real human needs, there is absolutely no difference between the gold and silver of modern economy and the shells or dogs' teeth of archaic economy."

"Keynes ... recognizes that the special attraction of gold and silver is due not to any of the rationalistic considerations generally offered in explanations but to the symbolic identification with sun and moon, and to the sacred significance of sun and moon in the new astrological theology invented by earliest civilizations.

"(F. M.) Heichelheim, the authority on ancient economics, concurs on the essentially magical-religious nature of the value placed on gold and silver in the ancient Near East.

"Laum states that the value ratio of gold to silver remained stable throughout classical antiquity and into the Middle Ages and even modern times at 1:13 1/2. It is obvious that such a stability in the ratio cannot be explained in terms of rational supply and demand. The explanation, says Laum, lies in the astrological ratio of the cycles of their divine counterparts, the sun and the moon.

"The history of money from this point of view has yet to be written. Greek money, which contributed to modern money the institution of coinage, was recognized by Simmel to be essentially sacred and to have originated not in the market but in the temple.

"Laum has amplified and established the thesis. But Simmel and Laum are confused by the illusion that modern money is secular, and hence they confuse the past by describing as 'secularization' a process which is rather only a metamorphosis of the sacred.

"Even Keynes perhaps shares this illusion, although he sees the real secularization of money as still lying in the future.

"The historian must doubt the possibility of having capitalism without gold fetishism in some form or other. At any rate, the historian must conclude that the ideal type of the modern economy retains, at its very heart, the structure of the archaic sacred."
~Norman O Brown, Life Against Death

Look at production, not stocks.

There's not enough gold supply around

Bull ... Shit.

It's all a matter of what value is assigned to gold. Of course, at current value there is not nearly enough. But multiply by a sufficiently large factor and you're there.

The possible future:

http://www.e-gold.com/