End of the petrodollar? Return of the gold standard?
April 15, 2022 | Tags: money, PRICE OF LIBERTY, Russia
Many lovers of liberty – anarchists and even minarchists, have long called for a return to a gold standard. Completely gone since Tricky Dick killed it in 1973 on an American and worldwide basis, most people have assumed it would never return.
In recent years, more and more lovers of liberty and political economists have warned of the end of the petrodollar, that strange form of fiat money created nearly 50 years ago to try and replace gold, while allowing the insane inflation of the 1970s and 1980s. Especially the massive spending which has recently drowned not just the FedGov but most governments, Stateside and overseas, in the last three years.
Most have predicted some NEW type of fiat money – whether imaginary “special drawing rights” or the Euro or some expansion of it. Some have pointed out that a triad of inimical nations (usually the Saudis, Russia, and China) could create something that others (notably India, Turkey, perhaps Indonesia, Iran, and Brazil) could support, thus destroying the American economy, world dominance, and more all in one massive action.
One of those is Jim Rickards of Laissez Faire (Agora Financial and other aliases and associated firms).
But he has recently pointed out that as Russia sidesteps and does classic judo-like moves on their Western enemies (the FedGov, Europe, the UK/Commonwealth, etc.), Russia may have destroyed the petrodollar.
But NOT to replace it with a fiat currency. No, Jim suggests that Russia has begun to reestablish a world gold standard. Not just to replace the petrodollar, but to effectively shatter much of the current, corrupt world financial system. I think that maybe Jim has something here. There are, of course, many who contest his conclusions.
As far as I know, there are only two nations on earth which still use the gold standard, and they are both far too small (population and economically) to have a significant impact. One is the best known: the Helvetian (Swiss) Franc. The other is the Norwegian Kroner. Yep, Norway.
But now Russia has pegged the Ruble to gold. At a value about what gold was priced in rubles BEFORE the Ukrainian War and the massive – and supposedly destructive – sanctions by the West. Which have been claimed for weeks now to be bringing Russia to its economic knees.
And Russia has both the population (145 million), the economy (yes, smaller than Italy but still massive), and the actual, physical GOLD to influence the world economy. And even more, they have the natural resources: oil, gas, heavy metals, food crops, fertilizer and other chemicals, and infrastructure to harvest, process, and transport those resources to users. Users who now in effect have to pay in gold – NOT dollars or pounds or euros or “special drawing rights” for those resources. To buy rubles at the price set by Moscow.
Yes, as Peter Zeihan points out (he’s one who disagrees with Rickards), Russia is FORCING people to pay a set amount of gold for a ruble – and therefore for their products. But that IS what a gold (or any other standard) is. It is what the situation was here in the United States for a century and a half. If you “sold” a Troy ounce of gold for paper currency all you could get for it was twenty dollars. You had to pay twenty paper dollars (or silver dollars) for an ounce of gold. No market fluctuations.
But there is more to this. What Russia is doing to fight the sanctions (if not the Ukrainians) has already significantly impacted the world economy. And increasingly, though with little publicity (especially in the media), with more and more the support of much of the world. Not just the old standbys like Syria and Venezuela, China and Belarus, but many more. Turkey, India, Egypt, various other African and Asian nations. And surprisingly, nations like Israel. At least when it comes to foreign exchange and trade and money and resources.
We are certainly not going to assume that Russia is singlehandedly trying to reform the planet’s monetary systems and financial condition. That country is simply seeking to survive. But their actions at first glance appear to be beneficial to us all. As Peter and others point out, Russia is doing these things with gold and rubles as an act of desperation. Perhaps even a last desperate act.
After all, the Kremlin IS a government, and the power which fiat money lets government have is amazing. No government official wants to lose that power. Certainly we should not think Putin does.
The ability of government to debase the money supply (in the old days when the only acceptable money was copper, silver and gold) or print a currency into oblivion (the Weimar Republic of Germany or Zimbabwe in the late 20th Century makes government strong. BUT it has LONG been a cause of economic collapse and widespread misery. The ability to electronically create money through the fraud of fractional banking has made the consequences even more probable a path to economic destruction. Like other parasites, government often overestimates the health of its host/victim and kills it – thereby killing itself.
Gold and silver are, in the words of Robert Kiyosaki (and many others) “God’s money.” Beneficial as cryto-currencies may be for secure and private transactions, there is STILL a need for basic REAL money: not cheap tokens like clad dimes and quarters and half-dollars (who remembers THOSE any more), but actual SILVER dollars and GOLD eagles (whatever denomination is stamped on them).
Are we perhaps returning just a tiny bit to sanity? We can only hope.