Gold Standard Challenges

Source: Gold Seek, by Jim Willie

Scattered recent analysis has centered upon the Gold Standard and its viability within the global financial system. The topic is certainly very blurred and at times confusing. Consider a recent article by a competent analyst Charles Hugh Smith of the site OfTwoMinds on the practicality of gold used as a standard. The article is entitled “The Problem With Gold-Backed Currencies” (which is found HERE and also on Lew Rockwell site HERE). He makes several points, many good ones. In the Jackass opinion, his analysis avoids many potential solution features, is premature on focus of the currency (and not trade), and is unfortunately backwards in the logic. The main criticism to put on the work is that he confuses the extreme difficulties created from decades of fiat currencies, with the supposed problems of installation of gold-backed currency. The entire article is not well developed, seems sketchy, and misses numerous very important features which are being considered. He does put many critical issues on the table, valuable for discussion. He offers no solution to his stated problems. In modern parlance, the logic put forth would indicate that since a heroin addict has so much difficulty with kicking the deadly habit, ravaged by delirious tremens, beset by extreme health problems, that one should conclude movement toward a clean sober life would have problems and simply would not work. Thus the backwards logic. Unfortunately, CHSmith produces straw dogs in the face of absent solutions. Let us examine the points made.

The Gold Standard is near perfect, provides sound money, and requires modern tweaking to make it work. The transition period will not be six months, but more like six years. The transition is possible, is workable, but with tremendous disruption and arduous adjustment. The victim nations would be many, but they hold much of the banking and military power. The Global Currency RESET is essentially referred to, which will render deadbeat economic nations as extremely vulnerable to systemic breakdown. The definition of deadbeat is tied to huge trade deficits and oversized current account deficits, coupled by extremely unmanageable national debt. They tend to have bloated welfare states and diminished industry. The United States qualifies as the most at risk, the most out of balance, and the worst from a debt and an industrial standpoint.

The Gold Standard a la Bretton Woods was broken illicitly, illegally, and brutally to begin an American Dollar Hegemony in 1971. Here 46 years later, the distortions and imbalances are horrific. As forecasted in 2005 within the Hat Trick Letter, the King Dollar is being defended finally by war in the open. Obviously it is veiled cover for blocking the Russian supply chain and recently the Iran supply chain. The USEconomy operates on an invalid credit card, usurping the global currency reserve. The USFed monetary policy of Quantitative Easing has introduced a hyper-inflation injection into the global banking reserve capital foundation, for six years. The rot from wrecked money and rigged financial markets has forced an Eastern solution. It will be centered on gold, first in trade, then in banking, and finally in currency. CHSmith focuses on the last plank, rather than the requisite first two planks, in error for the sequence. Examine his main points, then dissect them, with a viable solution presented on the table. He cites the challenges of a gold-backed currency, not the problems which make it unworkable. He offers no path toward solution, whereas the Jackass will do precisely that.


The alternative to installing the Gold Standard is not acceptable, not tenable, and not workable. It is the present course, toward a global systemic breakdown and wider war. It would be better to adjust in a rabid industrialization process and a nasty wave of debt defaults, which might be more orderly than imagined, if begun. The move toward gold reserves would have to be quick in transition. The constructive path toward solution will be difficult and requires creative thought. The entire consensus must discard Keynesian lunacy. Gold is the arbiter of fairness, equitability, balance, and forces a just system. The Gold Standard is arch-enemy of the globalist fascist state. It is possible that Gold smothers war. It puts war and dominance in check, while putting industry and trade in the forefront while seeking equilibrium.

The initial focus should be on the Gold Trade Note, which is the fiat armor piercing weapon, to be used for trade payment. It is coming into view, with its key components. The Eastern nations and Emerging Market nations have the trade advantage, from actual stronger industrial bases. They can direct traffic with a reform in trade payments. Charles Hugh Smith has a focus on the gold-backed currency that is premature. One does not put the crown on the new king before he is identified, then walks to the throne and sits in it. Focus should be on the Gold Trade Note as the trade mechanism. It kills fiat paper. Gold is urgently required as solution, in order to bring order, to seek balance, and to achieve peace on the globe.


CHSmith states that for any currency to be truly backed by gold, it must be convertible to gold. He claims this line of thinking is disconnected from the real-world mechanisms of capital flows, and the way money is created in our financial system. Such is not true. He claims the trade deficits from the 1970 decade would have forced the USGovt to forfeit its gold, leaving nothing to back the USDollar. The US Empire would have collapsed decades ago if it had not abandoned the Gold Standard. This is untrue and total nonsense. The USEconomy would have been forced, due to French President deGaulle demands, to fortify its industrial base immediately and to reduce its federal deficits. It would have forced Washington to reform quickly and immediately in a national emergency setting.

CHSmith offers no solutions. Even when deficits exist, a gold cover clause could provide a solution to avoid full drainage of gold reserves. The underlying basis is for a Gold Standard in the currency. For instance, a 5% cover clause would entitle a nation with a $1 billion surplus with the US to claim $50 million worth of gold. Such is hardly a ruinous proposition, since it comes to about 1.25 tons gold. The message would be delivered and heard, to rectify the imbalance quickly. This is a simple feedback mechanism, and not a disaster. Such mechanisms are not only healthy, but urgently needed. Nations could alter their cover clauses to weaken their currencies. Moving to a 10% or 20% cover clause would be viable for a nation with a sizeable trade surplus. Moving to a 3% cover clause would be necessary and prudent for a nation with a decent trade deficit. The US might attempt a 1% cover clause, given a return to a gold-backed USDollar, since ridiculously insolvent, deep in debt, and in far reach of remedy.


The implication is for the Gold Standard to be evident in a hard currency, based in sound money, since convertible to gold itself. With the checks & balances gone, the US has therefore been permitted to accumulate a vast pile of debt. The USGovt debt has recently exceeded $20 trillion, which is roughly worth 500,000 tons gold bullion at current prices. Clearly conditions have gone way out of kilter. The debt doubled under the Obama Admin, for which he awarded himself a medal. To call him a charlatan is a grotesque under-statement, when marionette is more apt. The debt is unmanageable, seen in the graphic in the form of stacked $100 bills. Actually, the stacks shown make a tractor trailer truck seem small. The value of the massive structure is only $15 trillion. Football fields are included for better reference.

Read More Here: Gold Standard Challenges

Categories: Fiat, Financial/Societal Collapse and Dependence, REAL Money

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