Economic Collapse And Dollar Hegemony - How Did This Start?

Authored by Federico Pieraccini via The Strategic Culture Foundation,

In the previous article I explained why bitcoin should be considered a reaction to US dollar hegemony and how other nations and central banks are facing the crisis of the dollar brought on by de-dollarization. In this article I will go into how we came to this point and what mechanisms helped to bring about a debt-based society. In the third and last article we will examine the nature of the future geopolitical and geo-financial transition as well as the signals we need look out for in the immediate future.

From Gold to Paper

To understand what is happening today we must look back to simpler times, back when people bartered with each other. The utility and availability of commodities determined their value. Gold in particular represented a finite good that was difficult to find and was useful in various fields. For this reason gold has always been considered the highest example of a valuable good, together with diamonds, platinum, silver and other elements that are difficult to find but have a common or daily use. For example, the importance of utility transformed uranium, an otherwise worthless element, into a valuable commodity following the discovery of atomic energy. Returning to gold, one can understand how in the era of barter, gold was the reference element with which to price the value of everything. Little by little, gold was joined by silver and then bronze in simplifying the exchange of goods and increasing convenience of use.

Gold had its own intrinsic value and was valid in every empire around the world; the same with silver and bronze. Gold had become not only a means of exchange and a measure of value but also a reservoir of value to be bequeathed to heirs. Above all it was a means of payment. When silver coins began to become scarce, payment with currency printed on leather was introduced. However, they were often refused due to lacking the basic principles that gave gold, silver and bronze their measure and reservoir of value. The skin of this currency could wear out, and though it was a means of payment, it was not as solid and trustworthy as precious metals.

The real revolution began in the 1700s when the French central bank began to take gold bars from its citizens in exchange for pieces of paper with the corresponding value written on it. This change would have enormous repercussions on the world economy over the next 300 years.

The most important aspect of this change was psychological, whereby the ordinary person is willing to deliver his physical gold to the French bank in exchange for a piece of paper indicating the amount of gold owned. There are two fundamental reasons that have led to this choice, both relating to human nature: the simplicity of use, and trust in the system. The French state, through its central bank, withdrew from the public gold, silver and bronze and exchanged it for physical paper currency without any intrinsic value. But the paper currency offered a high degree of portability and ease of use, aiding in its use as a means of payment and exchange of goods. Capitalism was thereby born and the transfer of wealth complete. The world was transitioning from a real economy based on intrinsic value, such as with that represented by gold, silver and bronze, to a fictitious one anchored to pieces of paper.

World Reserve Currency

The British Empire, and then the American one, have thrived enormously on this arrangement, thanks to the accumulation of gold in their central banks. The Bank of England had accumulated huge reserves of gold, and so was able to issue massive amounts of pounds, building up the concept of a world monetary reserve. The pound had slowly replaced the French currency as the main medium of exchange around the world, leaving Britain in a privileged position as a result of London’s central role in the global economy. Throughout history, the rise of major empires has coincided with their currency being the global reserve currency. Up until the British Empire, currency had always been a mix of valuable currencies and substitute currencies. But with sterling, gold was completely replaced with the pound, giving Britain and its colonies a disproportionate power to manipulate the global economy. To make the system sustainable, the obligation was to print currency only in relation to the quantity of gold actually owned. Each pound issued corresponded with a gold fee that was only borrowed from the British central bank. Each currency holder, first in France and now in England, could theoretically have asked for his gold back instead of sterling or French florins. This arrangement relied on the trust placed in central banks and the state, liberating the average citizen from having to transport and protect the precious coins.

 

At the end of the Second World War the United States emerged as the biggest winner in the West and Washington soon replaced London as the premier global power, with the dollar taking the place of the pound as a global reserve currency. The real negative change came when Nixon decided in 1971 to drop the dollar from the corresponding gold value that had been established at the Bretton Woods Agreement. The Fed was no longer required to have the gold price printed on its paper money. The 1973 oil crisis further fixed the value of the dollar as a result of this oil shock, bringing Saudi Arabia and the OPEC countries to sign a secret agreement with Washington. This agreement provided that in exchange for Washington’s political and military protection, the OPEC countries would be required to sell oil only in dollars. The petrodollar was thus born, being a replacement for the gold-linked standard that existed prior to Nixon.

Over the space of a few years, the world economy experienced a dramatic and catastrophic shift. American military and economic power had prevailed, and the FED was free to print endless amounts of dollars without worrying about its sustainability or credibility, relying on war, the media and consumerism to prop up the facade. The world began to send consumer goods to the United States in exchange for waste paper with no relationship to gold. The scam of the century was now complete. It is a farce that relies on the collusion between banks, federal agencies, rating agencies and governments to create the illusion that US government bonds are the safest asset in the world, even more so than gold itself, which began to slowly disappear from the radar as a store of intrinsic value.

Fast forward to the end of the 1980s and the situation began to worsen with the transition to a digital reality regulated by Wall Street and financial speculation. Central banks could create money simply by transferring money to banks digitally.

This phenomenon brought about an enormous divergence between real assets and the value of currencies. Many countries lacking a certain level of international credibility could see inflation rise in a matter of hours as a result of strong financial speculation, devaluing the value of their currency with disastrous consequences for the real economy.

Twenty years later, the crack revealed by Lehman Brothers suddenly amplified all the existing problems. The risk was that citizens would lose trust in the dollar or the euro, undermining the understanding that had existed since the 1700s, where citizens would exchange gold for paper safe in the knowledge that the integrity of this process was guaranteed by the central bank of their country. Rather than heal the financial system, the solution devised sought to increase the power of the banks and financial institutions, and to above all flood the market with money to save the banks that were too big to fail. The ordinary taxpayers all of a sudden found themselves saddled with an $800 billion debt with a simple mouse click, the Fed working through the night to create money from nothing in order to increase the liquidity of banks.

Thanks to a continuous stream of mainstream-media propaganda, the average citizen was little concerned by these actions and the global economy avoided going downhill. The central banks found themselves in an unprecedented situation, forcing them to admit that the only way to save the economy was to create more money out of thin air. Such an absurd situation has led Deutsche Bank in 2018 to accumulate such toxic financial instruments as derivatives worth approximately $46 trillion, twice the American economy. This is degenerating into meaningless madness, as we will see in the next and final article of the series.

In the next and last article of the series I will explain how cryptocurrency could save the whole financial system in the event of a new crisis and why this means the end of the unipolar moment for the USA.

Comments

Troy Ounce JibjeResearch Fri, 01/26/2018 - 22:52 Permalink

The absence of a measurement tape defining value like a gold or silver standard, the anaesthetization of risk as well as relentless money printing by Central Banks has confused people for such a long time that their offspring is now mentally compromised by this fake reality and living in a risk-free la-la-land thereby supporting "das gesundes Volksemfinden" of Cultural Marxism and identity politics without realising that they are being set-up.

We're fucked.

In reply to by JibjeResearch

1 Alabama Four chan Sat, 01/27/2018 - 07:06 Permalink

Cept to balance that little mouse click a paper bond was attached to it that if forced to sell with no buyers, would have to raise rates until a buyer(now beyond the greater Fed fool theory) was found, this could quickly not only raise rates, but raise awareness that all is not well in derivative land, either forfit your investment, or bring on the trade war and much higher rates. And no one in power likes to capitulate.

In reply to by Four chan

swmnguy house biscuit Sat, 01/27/2018 - 09:49 Permalink

Wasn't any Trumptardation or Trump Derangement Syndrome referenced in the article either.

What's really funny is that the article is pretty darn close to Marx's analysis of Capitalism, until the author got to the "Deus Ex Machina" of crypto, which kind of ruined his argument.

Marx's economic analysis of Capitalism has proven by far the most accurate these past 175 years or so.  Fortunately for the Oligarchs, Marx's crappiness as a political philosopher is a great pretext to disdain his economic analysis, which is playing out right in front of us in real times.

On a Saturday morning, I'd rather see some bouncy-tits GIFs, myself.

In reply to by house biscuit

silvermail Troy Ounce Sat, 01/27/2018 - 04:25 Permalink

You're right! Over the past 300 years, the economy has accumulated such a huge amount of lies and manipulations in terms that is not present in all other sciences combined.

In the minds of ordinary people, the boundaries between the fundamental concepts of "money" and "currencies" were purposely erased. This was necessary for bankers. Bankers made people believe that their banking "currencies" that they can make out of thin air - this is real "money."

To achieve this goal, bankers need to back their lies, with different scientific academic justifications.
Thus appeared the quack and the pseudoscientist John Keynes. Earlier, before Keynes, the bankers were erected on a pedestal, just as charlatan and pseudo-scientist, named Thomas Gresham.

-------------------
The law of Gresham is just a lie, - manipulation of terms and consciousness.

If the law contained the term «currencies» and its definition instead of the term «money», it would`ve been absolutely right and it would have reflected the truth. However, the formulation of Gresham's/Copernicus law, containing the term «money», is an antiscientific and unhistorical alogism, that is out of all relation both to economy and historical reality.

Let us depict the chain of creation, setting priorities in chronological order. It looks like this:

1. Energy begets life -> Life gives birth to reason -> Reason generates goods -> Goods entail commodity exchange -> Commodity exchange generates money -> Money begets currencies

This chain is absolutely clear, let`s lay it down as an axiom and remember it well as we will definitely need this postulate later.

 

2. Let us define the «Goods»: The goods represent the energy, embodied in various commodity forms using reason and labor. You can find more detailed information here.

 
3. Let`s take a look at the classical definition of «Money»: Money is primarily a commodity. Moreover, it`s a universal commodity. All participators of commodity exchange agree to accept it as a payment for their goods.

 

4. Now let us give the «Currency» an axiomatic definition: the world`s currencies represent the money, guaranteed by some emitters of these currencies.

 

5. Let us remember the expression, used by J.P. Morgan during his speech in the United States Congress on the 19-th of December 1912: «Gold is money and nothing else. Everything else is credit».

 

6. Now let us add and define «The Value», another essential term:

The value of an object is defined by the correspondence of the price the buyer is ready to pay for it and the payment the seller is ready to accept.

 

7. We should also pay attention to the fact, that the concept of money, presented in item 3, and the concept of currency, presented in item 4, can`t be equated. These phenomena have different economic and juridical nature. Money is primarily a commodity, while currencies represent the money, promised or guaranteed by somebody. This is the main difference between money and currencies: the relative value of money is determined by the market exclusively, during the commodity-money exchange, while the relative value of currencies is determined by the emitters` decrees.

If you equate money and currencies in economic laws, it is the same as equating your parents and children in legal documents.

Good money has always driven out and replaced bad money. Money (the universal commodity) was represented by various goods, depending on the historical epoch: small rocks with apertures, sea shells, sheep, sacks of grain etc. However all these kinds of bad money were eventually replaced with good money. Consequently, mankind gradually recognized gold as the best kind of money. Due to its properties, gold insensibly drove out all the bad money that had been used earlier.

This generally known historical fact contradicts the common formulation of Gresham's/Copernicus law and refutes it completely.

The above mentioned information is quite enough to draw a preliminary conclusion, that Gresham's/Copernicus law is wrong, at least its literal formulation, that is used very widely and learnt by students. It`s obvious that both Gresham and Copernicus were talking about currencies, not about money. In other words, the law contains a silly mistake or a deliberate juggling of facts and concepts. In either case the common formulation of Gresham's/Copernicus law is antiscientific and utopian, this thesis is confirmed by both elementary logic and the monetary history of mankind.  

 

https://www.kdggold.com/en/content/zakon-greshema-eto-nelepaya-oshibka-…

In reply to by Troy Ounce

Consuelo Fri, 01/26/2018 - 23:00 Permalink

 

 

"In the next and last article of the series I will explain how cryptocurrency could save the whole financial system in the event of a new crisis"

 

Oh please make it stop...

Pernicious Gol… Sat, 01/27/2018 - 00:38 Permalink

I'm not an economist and I'm not a historian, but even I can see there are so many mistakes in this it would take ten times the space to list them all.

Let's start - Gold, diamonds, platinum and silver had no practical use, except as ornaments, until electricity and machining were invented. People wanted them because they were rare and beautiful, just like an extremely beautiful woman.

Bronze, copper and iron were and are exceptionally useful. They should not be lumped into the category of gold, diamonds, platinum, silver. You can make weapons and plows out of them. Read the Odyssey. Iron was the most valued gift. Bronze, copper and iron are like the plain to ugly woman who can suck chrome off a bumper.

You can be 100% certain the French government issued far more currency than they had gold.

Nixon didn't just wake up one day and decide to leave the gold standard. His spendthrift predecessors printed so many dollars the US didn't have enough gold to cover all its promises to other countries, who were supposed to be able to redeem US dollars for gold. The French figured this out (see the point above) and began a run on US gold. I keep asking: What other choice did Nixon have? Anybody?

I could go on but I'm tired and I need to mix another drink.

 

 

swmnguy libertyanyday Sat, 01/27/2018 - 09:58 Permalink

Wars of choice and convenience and profiteering will always destroy an Empire by first destroying its economy.

This fact, which I don't believe has ever been refuted by events anywhere, is why the US economy and Empire cannot be improved, much less saved, without cutting at least a zero off US War Machine spending. 

So when we see news that War Machine spending is to be increased, without any even plausible threat to US territory or sovereignty, we should understand that the Oligarchs have concluded that the US economy cannot be saved without their being personally impoverished, so they have decided to pursue the rout of bankruptcy and liquidation of the US to their personal profit.

This is in fact the only reason the Oligarchs would stock the White House and Cabinet with men who have built their entire careers around bankrupting and liquidating business interests.  They're eyeing up the biggest prize to loot in History.  And it's us.

In reply to by libertyanyday

JerseyJoe Pernicious Gol… Sat, 01/27/2018 - 05:34 Permalink

Yes, his history was weak and full of blatant mistakes.   A new, instant money/currency expert with superficial knowledge and somehow an expert...with a crypto solution to everything.   

Nirvana awaits - just buy this math based set of electrons - store it safely on a data stick - away from hackers and if you go to exchange it...make sure the exchange can't be robbed or run out of cash and it will all be better.   

In reply to by Pernicious Gol…

new game Pernicious Gol… Sat, 01/27/2018 - 06:00 Permalink

oil. did i say oil. petro dolla to be moar specific. watch the ball bouncing. yup-simple shit maynard.

no mention of the commodity that is the lifeblood of almost everything we do consume and live by.

hmmmm, gold aint but a measure of it all, and that is weak. cause in the end it just sits and does shit.

the military madness is what prevails. biggest stick til the stick can't be financed. that is the point of chaos...

In reply to by Pernicious Gol…

Philthy_Stacker Pernicious Gol… Sat, 01/27/2018 - 12:11 Permalink

Pernicious

"Let's start - Gold, diamonds, platinum and silver had no practical use, except as ornaments."

Wrong.

Gold was used on the Pyramids for a reason(?) and as currency before the Bible was written. How much Human history did you want to consider? Were the Inca/Aztecs a bunch of posers? For those willing to peek down the rabbit hole, I suggest researching Aliens and Gold mining. Gold is Gold. Always was, always will be.

Silver has been and still is, the greatest anti-bio-tic the World has ever known. Germs will NOT stick to it. (AKA Google it).
It's also the most conductive metal on Earth. I believe it will prove to be the single most valuable commodity on Earth one day. In fact, I would even guess that today, the G/S ratio for current inventories existing is 5 to 1 silver to gold. Certainly not 78:1

You can keep the diamonds. There's enough to go around in a vault somewhere.

In reply to by Pernicious Gol…

Scipio Africanuz Pernicious Gol… Sat, 01/27/2018 - 16:07 Permalink

It was Lyndon did it sir, I swears, I saw him order some guns and butter, yes siree, he sure did, that Lyndon, crooked thief.

When a post mortem is performed on USA, it'll show that Richard Nixon was one of the greatest US presidents, he bought time for the USA but what did we do with it? As usual, we squandered it! Just like we did everything our ancestors bequethed us, like goodwill, strength, diplomacy, wealth, reputation, and yes, the Republic!

In reply to by Pernicious Gol…

Conax Sat, 01/27/2018 - 01:41 Permalink

Little by little, gold was joined by silver and then bronze in simplifying the exchange of goods and increasing convenience of use.

Stop it.. Silver and copper were not late comers nor also-rans, they were right there in the beginning. In fact I'd argue that silver was in more widespread use as money since it was easier to acquire and less valuable, thus used in more transactions. Copper coins are mentioned in the Bible, I see no references to bronze there. Bronze coinage was rare (Roman Empire) then fell from common use in ancient times, but the guy drags it up.

Gold was the most valuable, not the first metal used widely as money.  Every article I see, even those sympathetic to monetary metals, keeps silver in last place.  They hate that silver, yessir.

In Chinese the word for "Bank" translates to Silver House.  The Hebrew term 'shekel' described a piece of silver.  Silver is the true money. Gold was also, but not like silver. The constitutional US Dollar was a measure of silver, not gold. Silver, bitchez.

Damn all the liars.

JerseyJoe Conax Sat, 01/27/2018 - 05:41 Permalink

Thank you - there are so many of these kinds of history re-writes in this piece as to be a "piece".   Some instant monetary expert...with a crypto solution.  Wow - I have seen many of these guys popping up.

BTW  Where's the geek clown with the puffy hair and John Denver glasses?  Wasn't that soyboy fucking annoying.  Another instant monetary expert because he bought some bitcoins.  LOL.  

In reply to by Conax