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Exorbitant Privilege: "The Dollar Is Our Currency But Your Problem"
Submitted by Dan Popesceau via GoldBroker.com,
There is no better way to describe the international monetary system today than through the statement made in 1971 by U.S. Treasury Secretary, John Connally. He said to his counterparts during a Rome G-10 meeting in November 1971, shortly after the Nixon administration ended the dollar’s convertibility into gold and shifted the international monetary system into a global floating exchange rate regime that, "The dollar is our currency, but your problem.” This remains the U.S. policy towards the international community even today. On several occasions both the past and present chairpersons of the Fed, Ben Bernanke and Janet Yellen, have indicated it still is the U.S. policy as it concerns the dollar.
Is China saying to the world, but more particularly to the U.S., “The yuan is our currency but your problem”? China’s move to weaken the Yuan against the US dollar is in fact a huge response to America’s resistance to reforming the international monetary framework. It’s telling American policy makers that the longer they delay acting on reforming the international monetary system, the harder and longer they are going to make it for the U.S. to climb out of their trade deficit and depreciate their currency to where they need it to be.
China has been preparing for this moment for several years by accumulating gold through its central bank but also by using banks/corporations and individuals. It has in recent years signed several international agreements to bypass the US dollar in international trade and use preferably the Yuan. It has created an alternative World Bank (Asian Infrastructure Investment Bank) and a gold fund to invest in gold mining for more than 60 countries. The project is being overseen by the Shanghai Gold Exchange (SGE) and it is likely that the newly mined gold will be either traded on the SGE or be sold directly to the PBoC and other central banks. It has also bought a large amount of gold and kept the exact amount as secret as possible.
The international monetary system is in crisis and ready to collapse. It has been since at least 1971 but it seems we are very close to the end (within five years). The International Monetary Fund (IMF) is working discreetly to have the Special Drawing Rights (SDR) replace the US dollar as the international standard. Since the delinking of the dollar from gold in 1971, the US dollar has been the de facto international standard. The IMF itself makes no bones about its ambition to establish the SDR as the global reserve currency.
In a 2009 essay, Governor Xiaochuan of the People’s Bank of China (the Chinese central bank) also called for a new worldwide reserve currency system. He explained that the interests of the U.S. and those of other countries should be “aligned”, which is not the case in the current dollar system. Xiaochuan suggested developing SDRs into a “super-sovereign reserve currency disconnected from individual nations and able to remain stable in the long run”. What does he mean by “disconnected from individual nations”? The present SDR is a mathematical formula of the price of its composing currencies of “individual countries” with no backing whatsoever. Does he imply some kind of link to gold? That would explain many other statements in favor of gold by China’s officials and their aggressive encouragement of Chinese institutions and individuals to buy gold.
Julian D. W. Phillips, of Gold Forecaster, says, “What has become clear in the actions of the Chinese government and the central bank is that they are determined to accelerate the Yuan’s passage to a reserve currency, hopefully with the cooperation of the IMF, but if not, they will walk their own road.” However, this is not the final objective of China. Its target is to eliminate the “exorbitant privilege” of the dollar, not just to join the “club”. China doesn’t want to destroy the dollar, only to eliminate its “exorbitant privilege”.
With a different approach, but also very aggressively and more so since the U.S.-EU sanctions that amplified the new cold war, Russia has also accelerated its gold buying. Russia and China have also started a new payment system to avoid the U.S. dominated and controlled international payment system. Elvira Nabiullina, Chairwoman of the Russian Central Bank, said, “Recent experiences forced us to reconsider some of our ideas about sufficient and comfortable levels of gold reserves.” Also in a recent CNBC interview, Ms. Nabiullina remarked on Russia’s increasing gold reserves, saying, “We base ourselves upon the principles of diversification of our international reserves and we bought gold not only last year but during the previous years. Our gold mining industry is very well developed and it is ready to supply gold.” Dmitry Tulin, who manages monetary policy at the Central Bank of Russia, said, "The price of gold swings, but on the other hand it is a 100% guarantee from legal and political risks." Russia is boosting gold holdings as defense against “political risks”.
In 1997 Robert Mundell, Nobel prize of economics, wrote in an article, “The problem with the pure dollar standard is that it works only if the reserve country can keep its monetary discipline.” Aristotle said something similar 2,500 years ago: “In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” It is evident that since at least the collapse of Bretton Woods the U.S. has not kept its monetary discipline and has no intention to do it.

Dr. Mundell, in the same article, said, “The United States would not talk about international monetary reform … because a superpower never pushes international monetary reform unless it sees reform as a chance to break up a threat to its own hegemony … The United States is never going to suggest an alternative to its present system because it is already a system where the United States maximizes its seigniorage … the United States would be the last country to ever agree to an international monetary reform that would eliminate this free lunch (exorbitant privilege of the dollar)”. He seems to have been right. The U.S. is dragging its feet. The U.S. has not yet ratified the IMF reforms agreed even by the U.S. government in 2010. I doubt it will pass before the U.S. election at the end of 2016. This has upset not only China and Russia, but also the European Union and most of the international community.
During the 2008 crisis that almost succeeded in bringing down the current international monetary system, gold made a stunning comeback into the system. During the crisis, gold became the only accepted guarantee in order to get liquidity. What was significant was that after having been ignored for decades, gold was coming back into the international monetary system via settlements of the Bank for International Settlements (BIS). These transactions themselves confirmed that gold was coming back into the system. They revealed the poor state of the financial system before the crisis and showed how gold has indirectly been mobilized to support the commercial banks. Gold’s old emergency usefulness has resurfaced, albeit behind closed doors at BIS in Basel, Switzerland. Since the 2008 crisis both China and Russia have accelerated their purchases and accumulation of gold by any means possible as it can be observed in the chart below.

Since 2010 we have been in a G-0 world (no dominating power), in currency and gold wars and a new cold war. The world desperately needs a new world order and a new international monetary system. Will it happen after a major collapse and possibly war or through collaboration and consensus avoiding a war? It is evident to me that, as Dr. Mundell said in 1997, “Gold is going to be a part of the structure of the international monetary system for the 21stcentury, but not in the way it has been in the past.” What form will it take? It’s hard to say now. In this adversarial environment of a cold war and currency/gold wars I can hardly see a fiat monetary system succeed (fiat SDR). That requires trust and consensus at the international level between countries. A détente, disarmament and collaboration environment was there between 1990 (end of cold war) and 2008 (start of new cold war and currency wars), but no more.
In the conflictual environment we are now in, it looks more and more to me that gold will impose itself as the de facto money. Jim Rickards, in Currencies after the Crash, edited by Sara Eisen, said, “When all else fails, possibly including a new SDR plan, gold is always waiting in the wings as a stable, widely accepted store of value and universal money. In the end, a global struggle between gold and SDRs for supremacy as “money” may be the next great shock added to the long list of historic shocks to the international monetary system.” Any fiat SDR international settlement currency will only be postponing the inevitable “big reset” to some form of gold standard.

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Yes, the worm has turned.
Bitcoin is our currency and fiat is a joke.
Yuck.
China is preparing a 20% DEVALUATAION of it's currency, which explains their panic buying of oil, gold, and real estate.
USD? What kind of barbarous relic is that?
Where did you hear those rumors?
Kaiserhoff's word is as good as comex deliverables man !!!
That sounded pretty good until I thought about it;)
i was never much good at giving compliments !!!
ZH a couple of days ago.
Seems to be a left hand/right hand thingy;)
@FinalEvent: $hitcoin will never succeed as a currency. You can't guarantee its acceptance or inability to be seized by gubmint and mtgox, plus you can't hold bitcoins in your hand or hear them jingle in your pocket. Not saying that gold and silver are perfect for currency (coins can be shaved or filed) but there are fewer unknowns with gold and silver.
um no, bitcoin is a darpa experiment and youre the mark.
How much is a moster box of them going for these days?
If Fiat Currency is created out of thin air by electronic means to create credit, and Bitcoin is created out of thin air by electronic algorithms to create credits, you'll have to excuse me for seeing the two of them as the same thing.
If Fiat Currency is created out of thin air by electronic means to create credit, and Bitcoin is created out of thin air by electronic algorithms to create credits, you'll have to excuse me for seeing the two of them as the same thing.
If Fiat Currency is created out of thin air by electronic means to create credit, and Bitcoin is created out of thin air by electronic algorithms to create credits, you'll have to excuse me for seeing the two of them as the same thing.
It is only righteous and just when the US does it. Some call it Imperial privilege. I call it hypocrisy.
Business as usual and they'll keep pushing it even after everything goes off the cliff....
Strong dallah policy
I call it hypocrisy with a big dollop of narcissism and arrogance on top.
Gee, I wonder why the U.S. is so well loved,,,
;-D
@CD what has fascinated me is that we conjure up our reserve currency out of thin air and basically export our inflation to the rest of the world( about our only export , aside from war and debt) and yet people still send us precious commodities by the boat load for these digital credits our banks create from nothing. Not only that, but they BUY dollars to trade with another country, further boosting demand for them. I can't believe it's lasted this long. Of course when you are the world police with bases almost everywhere, I guess it's hard to say no to us.
<<<The world desperately needs a new world order>>>>
Whose world? What happened to "Realpolitik"?
I think I must be ready for a little chaos because I never liked the old world order and I already don't like the new world order.
I think more accurately what china is saying is....... "up yours"
What is good for the goose is good for the gander....
What part of "all" fiat will die don't people understand?
The danger is while you wait for the fiat to die, your investments or you die first. Timing is more important than being right.
The good king, the good banker, and their replacements are the enduring fantasies of mankind.
The US took advantage of the rest of the world.
That's why the US will never audit the Fed. The Fed says it has $4.5 trillion on it's balance sheet but there is a lot more hidden.
The Federal Reserve's financial fantasyland is finite. When it's Ponzi ends it will destroy a lot of lives.
Agreed. Unlike Madoff, no one at the Fed will "fall on their own sword; even though it's the same scheme.
I wonder what is the point of auditing a counterfeiter that's monetizing deficits for a treasury of a State that has prices of financial assets set by arbitrary models and not by market demand any more?
If you make a gawd-awful criminal mess of the 'market', and you're a particularly big gambler, the CB just tops you up again, and your good to go! You just put it on the tab, that tab that is never going to be paid off, so does it matter how big the tab quantity is?
An audit is to tell if the books balance, but in an organization and country that does not believe in the validity of balancing the books anymore, and is not keen at all on having a real market.
So what's the point of having an audit? Can we just call it vaporized and pretend it's all good?
they just call it "swaps" and like magic not on the balance sheet. wouldn't surprise me if uncle Bennie had 20 trillion + hidden away under his, now yeller's, "swap" mattress.
China’s move to weaken the Yuan against the US dollar is in fact a huge response to America’s resistance to reforming the international monetary framework. It’s telling American policy makers that the longer they delay acting on reforming the international monetary system, the harder and longer they are going to make it for the U.S. to climb out of their trade deficit and depreciate their currency to where they need it to be.
What does it mean when they start bragging "my improperly managed MOE is better than your improperly managed MOE"?
With a proper MOE management process, you "can't" weaken or strengthen the exchange media. It can only be "perfect". Perfect means:
Once someone (it doesn't have to be a government) institutes a proper MOE management process, all others will copy it exactly (resulting in never changing exchange rates) or will wither on the vine.
It's just that simple.
Have you run this by Curly and Larry? I'd like to know their thoughts on it as well.
"The Dollar Is Our Currency But Your Problem"
No truer words have ever been spoken after the shill in the oval office sold his Country out with announcement of the "petrodollar".
Bet Connally wanted to do something about it but understood if he made too many "waves" that magic bullet would more than likely pay him another visit -with nobody but nobody waiting in the wings to back him up!
Ladies and gents 43 years later. Put simply this is what happens when hush money becomes more important than your integrity and the truth!
USA is like Bernie Madoff.... what's the difference... PONZI LAND
AIIB should just lend like hell to nations near and far and establish it's own ponzi system, at least China can sell them products so that it makes sense. This combined with protection of Iraqi and Iranian oil, should be golden... Russia too of course.
There shall be no need for US dollar trade....
Since the delinking of the dollar from gold in 1971, the US dollar has been the de facto international standard.
The dollar was delinked from gold before 1971. In 1971, at the time the spoof was no longer sustainable, the street dollar was worth 1/2 as much as the official dollar.
The French figured it out and demanded to be paid in official dollars ... actually in the ficticious gold those dollars supposedly represented. The game ended very quickly after that.
The same will happen again if the Mises Monks have their way and, by law, confuse money with some commodity.
These Mises Monks are oh such prolific writers. If they only had a clue!
While the Misonians may be prolific writers, I much prefer these articles than the frequently reused blathering about "minimum wage".
I would love to have those Misonians write something about the inefficiencies that Criminals Bankstering introduce into a financial system rather than stomping on some WalMart greeters
yes, in the US gold was forbidden from 1934 to 1974. no, outside the US until 1971 it was convertible to gold. hence the French warships collecting at the NY-Fed until Nixon closed this convertibility
I'm ignorant on this subject, so I ask:
Did France ever repay the.Marshall Plan dollars? With any interest? Or vaulting fees?
If no, what were we thinking with putting.any gold on those ships?
Did France ever repay the.Marshall Plan dollars? With any interest? Or vaulting fees?
If no, what were we thinking with putting.any gold on those ships?
BC
To answer your question it was never ours in the first place and in hindsight it was the smartest move France could have made at the time because they saw where the "control freak" was headed... Just keep reminding yourself that in 1945 the same people that were driving the oil-for-reserve currency controls were the same fuckheads that gave us WWII... So France's leaders pretty much knew the score and simply chose not to be a part of it -which was wise!
Why we didn't rebel against where Nixon and his mentors were taking us, just like the banker bailouts 36 years later is a question we should be asking ourselves to this day?!!!
“The United States would not talk about international monetary reform … because a superpower never pushes international monetary reform unless it sees reform as a chance to break up a threat to its own hegemony … The United States is never going to suggest an alternative to its present system because it is already a system where the United States maximizes its seigniorage … the United States would be the last country to ever agree to an international monetary reform that would eliminate this free lunch (exorbitant privilege of the dollar).”
Correct. And for fundamental reasons detailed in the links I've provided in other posts here, that hegemony isn't going to end any time soon. NOTHING in that article provides any proof of any kind that it will. Neither gold demand nor the totally piss-ant total dollar value of it compared to dollars in existence are going to change that any time soon.
5 more fucking years of this shit????
"China has been preparing for this moment for several years..."
Rome was not built in a day.
there is a more gentle way of describing the "Exorbitant Privilege of the dominant Global Reserve Currency"
it's goodwill
in the case of gold, it was simply it's millennial track record of fulfilling it's promise of keeping value in it's spending power. and the "Privilege" was of gold miners and mints
in the case of the Pound Sterling, it's successor the US Dollar (ok, Federal Reserve Note), or their predecessors (backed or not), the expectation that the power of that state issuing it is enough to fulfil all it's promises
goodwill generates... credit. the father of debt, yes, and yet it all starts with the expectations in a deal, a trade... and it's later conclusion by payment or matching trade
and since oceans carry most trade, who keeps the oceans open for trade gets a lot of this goodwill, and who fosters and harbours a believable and fair-looking open financial system gets a lot of this goodwill too
two points that are not lost to the Chinese government, and weigh more then many other more debated considerations like IMF vs AIIB, or even the current Currency War, imho
Any fiat SDR international settlement currency will only be postponing the inevitable “big reset” to some form of gold standard.
Think it is better to see the "big reset" as the singularity of total global price discovery all currently obfusicated by all the fiat and other worthless paper. Then smile knowing that billionaires who try to cash out of the fiat system into physical, remember on paper it is fiat worth nothing generate the spontaneous fiat combusion globally if they are actually allowed too.
Wishful thinking. Gold has little commodity value in this day and age, and a retrenchment to non-fiat money will require something that has commodity value. I think the goldbugs just want what they want and have always wanted -- legacy of the shock to bankers of losing their monopoly on the money supply which had derived since the Bank of England was founded, on their control of the gold supply.
The most likely rearrangement will involve a basket of currencies such as the SDR, perhaps supplemented by a basket of commodities. It could take the form of a commodity basket setting the value of the SDR, and local currencies being valued against the SDR standard. Fundamentally, though, it will come down to local currencies being valued against the commodities produced by the local economy, with similar effect to the old gold regime. Trade will have to balance over the long term, or currency will devalue and balance trade. The losers once again will be megabankers, whose ability to manipulate currency and value will be stymied for at least a decade.
Gold is just one commodity, and you can't eat it or run your car off of it. If it turns out to be essential for making high-efficiency batteries, however . . .
Gold is primarily money, and not a commodity, and yes Greenspan agrees.
https://www.youtube.com/watch?v=JlM6kNNz0G8
And additionally .1 grams buys a loaf of bread.
https://www.youtube.com/watch?v=Jt15F21jpN8
China and India agree so your opinion is irrelevant.
a common misconception, in fact the opposite is true: a higher value of a monetary medium as consumptionable commodity decreases it's usefulness as monetary medium
at the end, every monetary medium has to carry it's monetary "goodwill", i.e. it get's used as payment for trade over it's "otherwise marketable value"
if not, it will be kept, and not used further as currency, as in the old adage: "bad money drives good money out (of circulation)"
Faierie, gold has whatever value we bestow upon it with confidence. And being this shiny shit has been around for many millenia (and there are so many millions of us globally that believe in it), makes it valuable to all of US.
Your stance just makes you economically irrelevant and without any value as a trade partner to us.
I guess that makes this easy for both...
Johnny
It's commodity value will be to serve as a medium of.exchange, to make the value of commodities, property, labor, etc. portable and transferable.
What difference will the SDR make, it is just a collection of vacuous fiat currencies. The one thing that guarantees gold's place in the new system will be lack of confidence in fiat. Whne the average man pays $100 for a loaf of bread you can bet that confidence in credit and dollars will vanish fast. What is that saying, "it can take years to build trust but an instant to destroy it". Considering how many brainwahsed worshippers of our leaders I know (90+% of my acquantances), when confidence is lost it will be lost big time. I tell my friend who has been denying even listending to this stuff for years, about how scarce silver is now and he says, "I don't care". They have absolutiely no clue and I respond, "But you will, oh you will Luke..."
SDR will be the last fiat, but it will also be the hardest fiat to kill. People will not even recognize that it is failing as everything will be measured in Fiats.
The calculations of the value of commodities and PMs VS SDRs will be striking.
That is exactly what the US is doing now.
Fund (IMF) is working discreetly to have the Special Drawing Rights (SDR) replace the US dollar as the international standard.
SDR will come into being as world currency to recapitalize the entire world one the financial debt crisis bursts and bankrupts the world economy. SDR is waiting to be printed to infinity, believing a new fiat can save the world for an old fiat problem. Fiat is fiat, SDR is still asswipe, backed by nothing. Can a new fiat save the world from debt and worthless fiats? I myself doubt it, just printing a new fiat, how does that address the structural problems the world faces?
"The dollar is our currency, but your problem.”
True in the short- and intermediate-term, not in the long-term.
However, those printing and issuing the fiat are always a problem.
Zion is a scheme, not an ethnicity..
...just to add to the ongoing stream of consciousness feedback. Yes, the French (DeGaulle) knew about USD's exorbitant role.
What got USA in such financial trouble that necessitated abandonment of the gold standard by Nixon in 1971
Easy---Vietnam War expenditures.
Hold on a second....hypocrisy is not a wholly American trait. It is post WWII and France (DeGaulle) wants its former colonies returned so that they might continue their plunder of "IndoChine."
Yes, DeGaulle threatened Eishenhower that "...France would turn East to Russia if USA did not assist its efforts to reign in Vietnam"
Great Read: the Pentagon Papers. Read the TOP SECRET report written by General Matthew B. Ridgeway who was sent to Vietnam by Ike in order to assess US Military combat readiness in event of.....
General Ridgeway wrote that "...the only way that American troops can prevail in Vietnam is to kill all the inhabitants and pave the jungle with 4" of concrete."
Top Secret from 1956 until released by Ellsberg in 1971.
USA had good intel , refused to listen. We fell for DeGaulle's feint attempt.
History reads like fiction!
FuckVALERY GISCARD D'ESTAING, and this quote. Rest assured if it was the French Franc that was being used there would be no "Exhorbitant Priviledge" but Divine Right. From one of the buliders of the Maginot Line.
China, Russia and India et al are smart and accumulate gold at a fast pace, but not fast enough to blow up the system, to maximize accumulation. 100B U$ is roughly global yearly current mine supply. China still has 3.5T reserves... If they go on with their dollar liquidations then watch the CONeX/LBMA scam blow up really bad...
Forget gold...too hard to control, too hard to track and too hard to confiscate. It will never fly with the globalists. If a currency can't be backed by force, what good is a trillion dollar a year military??