“If the U.S. inflates and devalues the dollar, gold will go much higher in price” Jim Rickards.
The last dollar devaluation took place under President Roosevelt in 1934, when from being worth 1/20.67th of an ounce of gold in 1933, the dollar was devalued to 1/35th of an ounce of gold.
The last opportunity for devaluing the dollar took place in August 1971, when the dollar was still pegged at 1/35th of an ounce of gold. Nixon took the advice of Milton Friedman and made the worst mistake in history; Nixon did not devalue the dollar as he should have done, but simply took the US off the gold standard, such as it was, and thence forth the US refused to redeem dollars held by Central Banks around the world at any price.
Since August 15, 1971, the dollar can no longer be devalued.
Since the dollar is the reserve currency of all Central Banks in the world, all other currencies – the euro included – are only derivatives of the dollar. The proof of this statement is that the value of each and every currency in the world is calculated in dollars,
The world’s currencies are devalued or revalued against the dollar in the world’s currency markets every day of the year.
There is a “Dollar Index” which shows a value of the dollar against a basket of other currencies. However, the currencies selected for the basket are arbitrarily selected and some relatively important currencies are not included in the basket. Besides this, the movement of the dollar in the “Dollar Index” cannot signify either devaluation or revaluation of the dollar, because the currencies in the Index are themselves undergoing either depreciation or appreciation in dollar terms, due to their own national circumstances.
The US cannot declare an official devaluation of the dollar because there is nothing against which it may devalue, or rather, it does not wish to recognize the existence of gold as money, against which it might devalue.
In order for the US to devalue the dollar effectively, it would first be absolutely necessary for the US government to establish gold as the referent for its value. The US government would have to declare that the value of the dollar is equivalent to a given amount of gold, and solemnly promise that that value will be upheld and made good by offering to buy any amount of gold tendered to it, and pay for it in dollars at a price slightly below the officially established price of gold in dollars, as well as offering to sell any amount of gold paid for in dollars, at a price slightly above the officially established price of gold in dollars.
Once an official value of the dollar in gold were established, it would then once again be possible for the US government to renege on its promise and devalue the dollar by establishing a new and lower value of the dollar in gold. In other words, the dollar must first of all be freely convertible into gold at an official rate, before any devaluation can take place.
As things now stand, it is impossible to devalue the dollar.
A rising price of gold does not devalue the dollar, because there is no official link between gold and the dollar. The world’s monetary and financial systems have no link to gold. Gold can be any price without causing any effect upon those systems. We have seen gold at $1900 dollars per ounce, and things were running just as they were when gold was $300 dollars per ounce.
However, the rising price of gold is a huge embarrassment to the US government not because it devalues the dollar (it does not do this) but because it provokes a loss of confidence in the dollar. When the dollar is seen as falling in value against gold, its fall causes investors to exchange dollars and other currencies for gold as a means of protecting wealth. The rising price of gold is a blot on the prestige of the US dollar and the prestige of the US itself.
The price of gold in dollars is therefore under strict government control. This fact, once derided as ridiculous, is increasingly accepted as truth by those interested in monetary matters around the world. The means for controlling the price of gold lies in the massive sales of “paper gold” which take place to suppress its price, as so many investigators have amply documented.
US monetary policy considers that the dollar is here to stay forever, and that gold is no longer – and never again will be – the world’s ultimate money.
The governments of several nations around the world do not share the same conviction with regard to the permanence of the dollar. China invented irredeemable paper money – which is what the whole world uses today – some one thousand years ago, and several dynasties of Chinese emperors learned to their cost that paper money always degenerates into simple trash.
The Chinese government knows that the dollar will not be around forever. China is purchasing enormous amounts of gold to add to their huge pile of US Bonds in the reserves of the Bank of China; the government of China is more enlightened than the government of the US, because it is encouraging the Chinese to purchase gold and silver.
The US government tells the world that it possesses some 8,000 tonnes of gold; the fact that it cannot deliver physical gold held for Germany’s account belies the assurances regarding the physical gold stock of the US.
The situation for the US – and for the world – is dangerous: the US is like a ship with no lifeboats, because it is presumed to be unsinkable.
The US and its allies are allowing the Chinese and Asia in general, to take possession of huge amounts of gold every year, while the US, the UK and Europe are drained of gold by shipments to the East.
The US evidently believes that the dollar is here to stay and that gold is just a passing fancy. This is classic hubris or arrogance.
When serious problems for the dollar surface – as they surely will – and the US has little or no gold to fall back on, the US with its back to the wall may become a very dangerous entity in the world. Would it be possible for those running the US to loose their heads and decide for a suicidal nuclear war in response to a desperate economic situation? Does the destruction of the whole world matter to men about to take their own lives? Do suicidal bankers worry about the fate of the world?