8 ms·

James Rikard (author of Currency Wars) in his newest book Aftermath predicts that the dollar's reserve currency run may soon be over, and special drawing rights

James Rikard (author of Currency Wars) in his newest book Aftermath predicts that the dollar's reserve currency run may soon be over, and special drawing rights (SDR) reserve currency might only be 1/3 dollars. I think he is probably correct on this prediction but maybe not on another prediction: currencies like China's and Russia's might soon be 20% backed by gold. He makes the point that there is no need for 100% backing from gold since a smaller percentage would still prevent a country from printing new currency out of thin air. I think the dollar has a lot of inertia so it might reign for a long while longer as reserve currency, but then I also think about how much debt we have. Our treasury can not account for $21 trillion (ref: Catherine Austin Fitts http://solari.com http://solari.com) and the amount of consumer, educational, real estate, etc. of debt worries me, but: I expect a slow burn of our economy, not falling off of a cliff, economically speaking. We can adjust to a decade long slow downward economic trajectory, people are resilient.

thaumasiotes 7y ago
> currencies like China's and Russia's might soon be 20% backed by gold. He makes the point that there is no need for 100% backing from gold since a smaller percentage would still prevent a country from printing new currency out of thin air. What is the conceptual difference between a currency that is 100% backed by gold and one that is 20% backed by gold? Or rather, what is the difference between a currency that is 20% backed by gold, and another currency that is (a) 100% backed by gold; and (b) worth five times as much as the first currency?
- abacadaba 7y ago
  as compared to dollars, of course. (alt s/dollars/bitcoin/)
  - thaumasiotes 7y ago
    I don't understand this. Can you expand on it?
    - abacadaba 7y ago
      whatever they come up with will still be valued in terms of dollars, as dollars are still the fundamental unit of currency inherent to the universe.
- mark_l_watson 7y ago
  I think that his point is that 100% gold backing would make the price of gold very high, and a partial gold backing would be easier to accomplish with many of the same benefits like better long term stability (if some shorter term pain).
  - thaumasiotes 7y ago
    So, in these two scenarios: 1. The currency is 100% backed by gold. 2. The currency is 20% backed by gold. How much gold does it take to purchase 200 apples? You are saying that it will take more gold in the second case, right? Why?
    - pillpicket 7y ago
      No in the first case it might take 1 currency to buy 200 apples. Then in the second case it would take 5 currency to purchase the same 200 apples. 1 gold = 200 apples 1 gold * 1 currency = 200 apples 0.2 gold * 5 = 200 apples
      - thaumasiotes 7y ago
        That's what I was saying, but mark_l_watson is saying that in case 1 the price of gold is higher, meaning a smaller amount of gold to buy the same number of apples.
        mark_l_watson 7y ago
        I don’t have Rikard’s book in front of me, but from memory I think he was saying that the price of gold would adjust to $10K/ounce if currency were 20% backed by gold, but the price of gold would have to be much higher than $10K/ounce if currencies were 100% backed by gold. I don’t invest in gold, I have always thought that income property is the best investment for common people like myself. Rikard has a different opinion and thinks people should own gold in their portfolio (like 5% gold). I don’t understand the gold market, while income property is easier to understand.
    - 7y ago
- topmonk 7y ago
  The difference is, when you go to the gold standard, how much gold you acquire to support the currency. After that, they are the same (but keep in mind, the value of a currency is dependent on a lot of factors, and not just the gold that is backing it. Otherwise currencies backed by nothing would all be worth nothing, which we know isn't true).
  - thaumasiotes 7y ago
    > (but keep in mind, the value of a currency is dependent on a lot of factors, and not just the gold that is backing it. Otherwise currencies backed by nothing would all be worth nothing, which we know isn't true). True, but once you've pegged the currency to gold, it can't fluctuate very far from the price of gold. A change in one is necessarily an equal change in the other. Currency that isn't backed by gold is free to fluctuate independently of the gold price, but gold-backed currency isn't. You could have a currency backed by a weighted basket of commodities, but that would be "backed by a weighted basket of commodities", not "backed by gold, but the backing is metaphysically different than you might expect".
    - topmonk 7y ago
      > True, but once you've pegged the currency to gold, it can't fluctuate very far from the price of gold. I think this depends on what your definition of backed means. If you include the government not just buying the currency for a given amount of gold, but also selling the currency for the same amount of gold, I agree. But, otherwise, if the government guarantees it will only buy the currency for gold and not vice versa, then I disagree. For example, I could state tomorrow that I will guarantee to give anyone 1 oz. of gold is they give me $100 trillion in USD, and then technically USD would be backed by gold (by me), but such an offer would have no real effect on the how the market would value USD. I might be wrong about what backed means, but if so, then I also don't understand what is meant by partially backed.
toohotatopic 7y ago
>since a smaller percentage would still prevent a country from printing new currency out of thin air. When people argue against bitcoin, they say that limiting the supply is a source of deflation and that deflation is risky for a currency. Money can be used to store value but first of all, it is meant to exchange value. Don't you kill your economy with such a supply-limited currency since your economy cannot grow beyond your ability of acquiring gold?
- mark_l_watson 7y ago
  New gold is being mined constantly. I never liked the idea of a 100% gold backed currency, but 20% sounds OK. If new money is not printed out of thin air, it seems like prices for things would adjust. Slowly increasing money supply, faster growing productivity/goods/services would mean that prices would go up to keep things balanced. I am not an expert in this subject but it interests me.
  - AnimalMuppet 7y ago
    Per Wikipedia, there are 187,000 tons of gold above ground, and about 2000 tons are mined a year. That's about 1%. If all the gold was used to support currencies, mining would only let you increase the currency supply by 1% a year. If the economy is growing by more than 1% a year, then the currency has to be deflating. But all the gold isn't being used to support currencies. So here's a different scenario: A currency is 20% supported by gold. We need, because reasons, to increase the currency supply. 2000 tons of gold is 4 million pounds, which is 48 million (troy) ounces. Gold is $1500/ounce at the moment, which gives us $72 billion of gold mined in a year. That lets one country use the whole world's mining to create $360 billion of currency in a year. Well, in 2008, the US created $4 trillion to keep the economy from collapsing. So mining isn't going to let you prevent deflationary collapse when you need to.
    - mark_l_watson 7y ago
      Thanks, I understand your point. Without a doubt short term, it is good to be able to inflate the currency when there is a 2007/2008 event. But the counter argument is that making many ‘best for the short term decisions’ can cause more damage in the long run. Do we want the best world for our lifetime, or plan for something that is sustainable so our grandchildren’s children will have a great life. Native American Indians believe that major decisions should be made for what is best for the seventh generation after them.
shostack 7y ago
What would happen to life in the US if the dollar was no longer the global reserve currency?
- mark_l_watson 7y ago
  I think it would put us on par with other countries, we would lose a nice advantage. Worst case scenario would be a sharp economic decline, but I optimistically think it would be a slow leveling out, a slow decline in consumer purchasing power, limit government expenditures, etc. But, I am not at all sure what will happen.
  - shostack 7y ago
    Do you think that hostile foreign nations are actively trying to end the run of the petrodollar?
    - mark_l_watson 7y ago
      I think the point of the original article is yes, it is in some other countries interests to end the dollar being the sole reserve currency. On the other hand, the USA provides stability, so everyone who is rational in the world should want any transition to be slow. The whole world is in this together, I think we prosper together, or suffer together. Let’s hope for the first option.
- nine_zeros 7y ago
  Costs will be very high. Have you ever been to third world countries and wondered why their shopkeepers, barbers, regular service people don't live in houses with good materials? Because its too expensive for them. That expensiveness will come here to the US
- empath75 7y ago
  I think the main immediately recognizable change would be a slide in dollar denominated assets— houses, stocks, bonds, etc, as countries and corporations and crime syndicates stop using the US as a safe place to invest their wealth. Though that may go along with inflation, so it might be hard to tell it’s happening right away.
kds3 7y ago
How does it matter if your reserve currency is 100% backed by gold if you lose access to your currency account at the Federal Reserve Bank of New York?

thaumasiotes 7y ago

> currencies like China's and Russia's might soon be 20% backed by gold. He makes the point that there is no need for 100% backing from gold since a smaller percentage would still prevent a country from printing new currency out of thin air. What is the conceptual difference between a currency that is 100% backed by gold and one that is 20% backed by gold? Or rather, what is the difference between a currency that is 20% backed by gold, and another currency that is (a) 100% backed by gold; and (b) worth five times as much as the first currency?

abacadaba 7y ago
as compared to dollars, of course. (alt s/dollars/bitcoin/)
- thaumasiotes 7y ago
  I don't understand this. Can you expand on it?
  - abacadaba 7y ago
    whatever they come up with will still be valued in terms of dollars, as dollars are still the fundamental unit of currency inherent to the universe.
mark_l_watson 7y ago
I think that his point is that 100% gold backing would make the price of gold very high, and a partial gold backing would be easier to accomplish with many of the same benefits like better long term stability (if some shorter term pain).
- thaumasiotes 7y ago
  So, in these two scenarios: 1. The currency is 100% backed by gold. 2. The currency is 20% backed by gold. How much gold does it take to purchase 200 apples? You are saying that it will take more gold in the second case, right? Why?
  - pillpicket 7y ago
    No in the first case it might take 1 currency to buy 200 apples. Then in the second case it would take 5 currency to purchase the same 200 apples. 1 gold = 200 apples 1 gold * 1 currency = 200 apples 0.2 gold * 5 = 200 apples
    - thaumasiotes 7y ago
      That's what I was saying, but mark_l_watson is saying that in case 1 the price of gold is higher, meaning a smaller amount of gold to buy the same number of apples.
      - mark_l_watson 7y ago
        I don’t have Rikard’s book in front of me, but from memory I think he was saying that the price of gold would adjust to $10K/ounce if currency were 20% backed by gold, but the price of gold would have to be much higher than $10K/ounce if currencies were 100% backed by gold. I don’t invest in gold, I have always thought that income property is the best investment for common people like myself. Rikard has a different opinion and thinks people should own gold in their portfolio (like 5% gold). I don’t understand the gold market, while income property is easier to understand.
  - 7y ago
topmonk 7y ago
The difference is, when you go to the gold standard, how much gold you acquire to support the currency. After that, they are the same (but keep in mind, the value of a currency is dependent on a lot of factors, and not just the gold that is backing it. Otherwise currencies backed by nothing would all be worth nothing, which we know isn't true).
- thaumasiotes 7y ago
  > (but keep in mind, the value of a currency is dependent on a lot of factors, and not just the gold that is backing it. Otherwise currencies backed by nothing would all be worth nothing, which we know isn't true). True, but once you've pegged the currency to gold, it can't fluctuate very far from the price of gold. A change in one is necessarily an equal change in the other. Currency that isn't backed by gold is free to fluctuate independently of the gold price, but gold-backed currency isn't. You could have a currency backed by a weighted basket of commodities, but that would be "backed by a weighted basket of commodities", not "backed by gold, but the backing is metaphysically different than you might expect".
  - topmonk 7y ago
    > True, but once you've pegged the currency to gold, it can't fluctuate very far from the price of gold. I think this depends on what your definition of backed means. If you include the government not just buying the currency for a given amount of gold, but also selling the currency for the same amount of gold, I agree. But, otherwise, if the government guarantees it will only buy the currency for gold and not vice versa, then I disagree. For example, I could state tomorrow that I will guarantee to give anyone 1 oz. of gold is they give me $100 trillion in USD, and then technically USD would be backed by gold (by me), but such an offer would have no real effect on the how the market would value USD. I might be wrong about what backed means, but if so, then I also don't understand what is meant by partially backed.

toohotatopic 7y ago

>since a smaller percentage would still prevent a country from printing new currency out of thin air. When people argue against bitcoin, they say that limiting the supply is a source of deflation and that deflation is risky for a currency. Money can be used to store value but first of all, it is meant to exchange value. Don't you kill your economy with such a supply-limited currency since your economy cannot grow beyond your ability of acquiring gold?

mark_l_watson 7y ago
New gold is being mined constantly. I never liked the idea of a 100% gold backed currency, but 20% sounds OK. If new money is not printed out of thin air, it seems like prices for things would adjust. Slowly increasing money supply, faster growing productivity/goods/services would mean that prices would go up to keep things balanced. I am not an expert in this subject but it interests me.
- AnimalMuppet 7y ago
  Per Wikipedia, there are 187,000 tons of gold above ground, and about 2000 tons are mined a year. That's about 1%. If all the gold was used to support currencies, mining would only let you increase the currency supply by 1% a year. If the economy is growing by more than 1% a year, then the currency has to be deflating. But all the gold isn't being used to support currencies. So here's a different scenario: A currency is 20% supported by gold. We need, because reasons, to increase the currency supply. 2000 tons of gold is 4 million pounds, which is 48 million (troy) ounces. Gold is $1500/ounce at the moment, which gives us $72 billion of gold mined in a year. That lets one country use the whole world's mining to create $360 billion of currency in a year. Well, in 2008, the US created $4 trillion to keep the economy from collapsing. So mining isn't going to let you prevent deflationary collapse when you need to.
  - mark_l_watson 7y ago
    Thanks, I understand your point. Without a doubt short term, it is good to be able to inflate the currency when there is a 2007/2008 event. But the counter argument is that making many ‘best for the short term decisions’ can cause more damage in the long run. Do we want the best world for our lifetime, or plan for something that is sustainable so our grandchildren’s children will have a great life. Native American Indians believe that major decisions should be made for what is best for the seventh generation after them.

shostack 7y ago

What would happen to life in the US if the dollar was no longer the global reserve currency?

mark_l_watson 7y ago
I think it would put us on par with other countries, we would lose a nice advantage. Worst case scenario would be a sharp economic decline, but I optimistically think it would be a slow leveling out, a slow decline in consumer purchasing power, limit government expenditures, etc. But, I am not at all sure what will happen.
- shostack 7y ago
  Do you think that hostile foreign nations are actively trying to end the run of the petrodollar?
  - mark_l_watson 7y ago
    I think the point of the original article is yes, it is in some other countries interests to end the dollar being the sole reserve currency. On the other hand, the USA provides stability, so everyone who is rational in the world should want any transition to be slow. The whole world is in this together, I think we prosper together, or suffer together. Let’s hope for the first option.
nine_zeros 7y ago
Costs will be very high. Have you ever been to third world countries and wondered why their shopkeepers, barbers, regular service people don't live in houses with good materials? Because its too expensive for them. That expensiveness will come here to the US
empath75 7y ago
I think the main immediately recognizable change would be a slide in dollar denominated assets— houses, stocks, bonds, etc, as countries and corporations and crime syndicates stop using the US as a safe place to invest their wealth. Though that may go along with inflation, so it might be hard to tell it’s happening right away.

kds3 7y ago

How does it matter if your reserve currency is 100% backed by gold if you lose access to your currency account at the Federal Reserve Bank of New York?