The Dollar Meltdown: S...
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Before modern ventilation systems, coal miners would often take a caged canary underground with them. In the presence of deadly gases, the canary would first stop singing and soon die. That was all the evacuation warning early miners needed.
The price of gold is a referendum on the quantity and quality of paper money and, like the canary in the coal mine, it is signaling a warning: there’s trouble with the dollar reserve standard. Around the world the alert are looking for ways to abandon it.
Americans have had a pretty good, if undeserved, deal since the end of World War II.
First the dollar exchange standard buttressed the value of the US dollar as other nations began to hold their reserves in dollars and issue their own currencies against them – as they once had issued their currencies as a claim check for precious metals.
The idea was that they could hold these dollars without fear because the dollar would forever be exchangeable for gold held in the depositories of the United States.
That didn’t last.
The United States issued more dollars than it could possibly redeem at the fixed rates.
In fact, on a single day in March, 1968, private buyers took 400 tons of gold from the London gold pool. With the demand to exchange dollars for gold beyond containment, in 1971 Nixon closed the gold window and abandoned any pretense of dollar convertibility.
October 9, 2009
Charles Goyette [send him mail] is the author of the upcoming book, The Dollar Meltdown.
