The tallest structure in the world is (Burj Khalifa) in Dubai (United Arab Emirates). It was paid for in SILVER. Dubai is one of a growing number of countries that do not accept the Federal Reserve Notes (called “Dollars” by Americans) that have been the “reserve currency” of the world since 1944.
Since 1944, the United States has gone from the worlds’ greatest creditor nation to the worlds’ greatest debtor nation – and so can still claim to be the world’s greatest nation (in other ways as well)! U.S. currency, however, is not!
Not only is the U.S. “dollar” not “backed” by anything (since President Richard Nixon took it – and with it, the rest of the world’s currencies – off the gold standard in 1971), but Federal Reserve Notes continue to be printed at an ever increasing rate – which further reduces the “value” of all dollars in (or out) of circulation and increases U.S. “national” debt.
While Federal Reserve Notes many “resemble” money – they actually “re-present” debt (both public and increasingly private). The Federal Reserve is not really a “reserve” – of anything, except the “right” to print money and set interest rates. While it has ties with the U.S. Government, it is really not much more “federal” than Federal Express. It is a private corporation. So is the IRS. This could be why neither the “Federal Reserve” or the “Internal Revenue Service” has EVER been audited by, or been “accountable” to, the U.S. Government – which is also a corporation.
MOST of the taxes, fines, and any other funds “collected” by the IRS do not actually go for use by the U.S. Government, but to repay the Federal Reserve – which prints the “notes” Americans call “dollars” and charges the Government (6%) interest in order to use them. Congress is forced to issue a bond in order to buy them – and thus is paying double interest (first to foreign investors, in places like China, that buy the bonds – and then to the foreign investors, in places like Europe, that actually own and control the Federal Reserve) for every dollar that exists. This is part of the reason the U.S. debt is so high – and continues to increase (and compound into multiple trillions, at a rate of about a million-a-minute – which is more than I can even comprehend).
U.S. debt cannot be repaid. Ever. It is impossible. Even if all the counterfeit “dollars” in the world were collected, there still would not be enough printed paper (Monopoly) money to cover the interest owed on the “legal tender”. At some point, probably sooner than later, something is going to have to change. And it may be “painful” – for more people than not.
The United States is not the only “nation” struggling with what to do (about its central bank, currency, debt, situation regarding finances). There have been many calls for a new (global) medium of exchange – other than paper, plastic, or increasingly invisible electronic digits in someone’s computer with nothing “real” to “back” or “redeem” for them. A “fiat” currency is “worth” whatever the government decrees it’s worth. While many are crying – about Fiat taking over Chrysler, or fiat money taking over and endangering the world’s economies (and a desire to return to a gold standard), others are starting to laugh – all the way to anywhere but a bank.
It is significant to note that Burj Khalifa was not only NOT paid for with fiat currency, it was also NOT paid for in GOLD – or any other “commodity” that people (traditionally) consider of value. It was paid for in SILVER. Last year, China (suddenly) announced that it had an additional (previously not disclosed) 600 metric TONS of silver – and that the average Chinese citizen was encouraged to buy some (along with gold). How I don’t know – since many are on wages so low that those (literally killing themselves and their families from exposure to toxins while) illegally extracting “e-waste” silver from “recycled” (American) electronic devices for $8 a day think their pay is “good”. China is also exchanging much of the U.S. debt it holds for hard assets – like silver mines. China is buying a lot of other things, too – but not as much American goods or (bad) debt as the U.S. Government would like. But then, like the Panama Canal, the U.S. has lost control of many things that China has gladly taken over and exploited in its dual role as a “developing nation” and “world power”.
People sometimes think that something they paid to own or control has gained or lost (market) value. The only way to know for sure is to sell it. Until then, the ONLY change in value is in the person’s mind.
The “value” of anything is relative – and is only determined during an exchange when a buyer accepts a sellers’ offer.
“Inflation” and “deflation” are terms best reserved for balloons and tires rather than currency or market prices. Trading prices for stocks and houses may fluctuate wildly, but they do not exist in “bubbles” – and cannot “burst”.
The “spot” price of gold is currently over $1,100 while the price of silver is around $20. The cost to acquire either is expected to go up. WAY up! Both are increasingly being promoted as “hedges” against the inevitable “collapse” of the (“U.S.”) Federal Reserve Note – and all other fiat currencies in the world.
Despite what some collectors and depositories may claim, neither gold nor silver is “real money” – since only central banks can usually exchange it (as bullion) without a “broker” – who collects a fee (and thus makes YOU broker)! You can “barter” precious metals (in any form), but you cannot take even “government” minted gold or silver coins into a bank and trade them in, use them as collateral for a loan, or in any other way have them recognized as “currency” (other than, perhaps, for the face value of a silver dollar). You might be able to get a “loan” a pawn shop; but again, it’ll cost you.
For a “currency” to function and be perceived as worth anything it must be able to be exchanged without a cost and it must keep flowing – even if everyone is actually playing “hot potato” or any of the games where you hope not to be the one stuck holding it in the end (like “Old Maid”). This is why “wealthy” people both convert cash into assets and also pump paper into the economy. Meanwhile “consumers” either hold on to their cash in an effort to keep it – or spend it instead of using credit cards because they’ve learned that most debt is bad and that having almost anything else is better than worthless paper (where only difference between “denominations” is the picture, numbers, and words printed).
There are NO gold coins currently in circulation (even though you can buy gold in other forms from a vending machine in Germany), but you might occasionally get a 1776 Centennial Eisenhower Silver Dollar in change. Keep it! It’s “worth” more than the “numismatic” face value – but you can’t “buy” more than a dollar’s “worth” of stuff with it. There was a court case where a man paid his employees in American Gold and Silver Eagle coins. These coins have minted face values established by U.S. law. Silver Eagles are “1 OZ. FINE SILVER” and say they are worth “ONE DOLLAR”. Gold Eagles come in different weights. A “1 OZ. FINE GOLD” Eagle says it is worth “50 DOLLARS”. There are also (lighter) Gold Eagles with face values of “5 DOLLARS”, “TEN DOLLARS”, and “TWENTY FIVE DOLLARS”. The face value of the coins are the amounts everyone claimed on their tax returns. The IRS considered it “tax evasion” – since each gold or silver coin is worth far more on the open “market” than its face value. The IRS lost the case!
As a side note, banks have also lost foreclosure cases in which they were challenged to produce the actual title of the property (which they long ago sold on the secondary market) or to prove they would actually lose something if they were not paid – in a fractional reserve system they almost NEVER have the “money” they loan out. They just put in on their books as owed – without ever being “out” anything!
When I was born, there were still (a few) Silver Certificates in circulation. That time is long gone! You may occasionally come across a gold or silver certificate, but you’ll be lucky to get any more than face value for it – even from most collectors. A one dollar certificate has printed on it: “This certifies that there is on deposit in the Treasury of the United States of America one dollar in silver payable to the bearer on demand.” Today, you can demand all you want, but you are not going to get anything – except maybe arrested (and possibly imprisoned).
Gold is often used as the “standard” (for almost everything except fiat currency), but silver is a better buy – as far as asset appreciation is concerned. I’ll write more about that in my next post.
© 2010, Oren Pardes. All rights reserved.