Reserve Currency

Say what you want about the gold price languishing below $1200 (or not, as the case may be, after this week), and say what you want about the technical picture or the “6,000-year bubble,” as Citi’s Willem Buiter recently termed it; but know this: gold is an insurance policy — not a trading vehicle — and the time to assess gold is when people have a sudden need for insurance. When that day comes - and believe me, it’s coming - the price will be the very last thing that matters. It will be purely and simply a matter of securing possession - bubble or not - and at any price. That price will NOT be $1200. A “run” on the gold “bank”  would undoubtedly lead to one of those Warren Buffett moments when a bunch of people are left standing naked on the shore. It is also a phenomenon which will begin quietly before suddenly exploding into life. If you listen very carefully, you can hear something happening...

"Most investors go about their job trying to identify ‘winners’. But more often than not, investing is about avoiding losers. Like successful gamblers at the racing track, an investor’s starting point should be to eliminate the assets that do not stand a chance, and then spread the rest of one’s capital amongst the remainder." So as the year draws to a close, it may be helpful if we recap the main questions confronting investors and the themes we strongly believe in, region by region.

The oil price drop is a big problem - not just for Russia, or for the other over-levered emerging market currencies that stand to be traumatized by a rising dollar, but ultimately even for the US itself

Russia supplies China with hi-tech military hardware. Russia has negotiated two major natural gas deals with China in the last year. China expects to double its gas usage by 2030. From a Chinese point of view, it is certainly expedient to keep Russia on its side.

This is it, folks; this is the endgame right in front of our faces. The year of 2014 is the new 2007, with all the negative potential but 100 times more explosive going into 2015. Our nation has wallowed in slowly degrading financial conditions for years, hidden by fake economic statistics and manipulated stock prices. All of it has been a prelude to a much more frenetic and shocking event. We expect a hailstorm of geopolitical crises over the next year to provide cover for the shift away from the dollar. Ultimately, the death of the dollar will be hailed in the mainstream as a “good and necessary thing.” They will call it “karma.” They will call it “progress.” They will even call it “decentralization” and a success for the free market. But it will not feel like a positive development for the American public, who will suffer greatly as the dollar crumbles.

"Mutually assured destruction" now best describes the uneasy stand-off between an increasingly indebted US government and an increasingly monetarily frustrated China. So here's a quiz: 1) Which country is the world’s largest sovereign miner of gold? 2. Which country doesn’t allow an ounce of that gold to be exported? 3. Which country has advised its citizenry to purchase gold? Three questions. One answer. In each case: China. Is it plausible that, at some point yet to be determined, a (largely gold-backed) renminbi will either dethrone the US dollar or co-exist alongside it in a new global currency regime?

"... America has followed the Soviet Union down the path of re-engineering its ideological culture... shifting towards a new socialist middle ground where centralization has woven the macro economic system tighter around a supra-sovereign statehood... They will say no one saw it coming...    The sad reality is that the disorganized masses will remain ignorant to the whole process as they become consumed with television news drama that hides the structural truth behind the engineered cultural implosion of the American identity."

Precious metals investors (and even precious metals commentators) have a tendency to put the cart before the horse. We familiarize ourselves with the dramatic economic fundamentals which have an enormous impact on the value of precious metals (and the prices for all hard assets). We study the parameters of supply and demand for gold and silver. But we frequently omit learning about the intrinsic properties of these amazing metals.

The Federal Reserve and its owners print and party, while the rest of us work and weep..................

When no lesser establishmentarian than Obama's former chief economist Jared Bernstein called for an end to the US Dollar's reserve status, it raised a few eyebrows, but as the WSJ recently noted, the voices discussing how the burden of being the world's reserve currency harms America, more than just Vladimir Putin is paying attention. While some argue that “no other global currency is ready to replace the U.S. dollar.” That is true of other paper and credit currencies, but the world’s monetary authorities still hold nearly 900 million ounces of gold, which is enough to restore, at the appropriate parity, the classical gold standard: the least imperfect monetary system of history.

Total U.S. national debt hit a new record high overnight at over $18 trillion as the Obama administration continues to pile debt onto the back of the U.S. taxpayer at a rate that would have made George W. Bush look prudent.

Money is stored labor.  Labor is part of human life.  To devalue money is to debase life itself.

Western dominance was born from a distrust in the dominant reserve currency at the time. Its decline will be because they followed the same route. And the canary in the coal mine is what’s happening in Switzerland this weekend.

Recently we posted the following article commenting on the impact of USD appreciation and dollar circulation among oil exporters, as well as how the collapsing price of oil is set to reverberate across the entire oil-exporting world, where sticky high oil prices were a key reason for social stability. Following today's shocking OPEC announcement and the epic collapse in crude prices, it is time to repost it now that everyone is desperate to become a bear market oil expert, if only on Twitter...