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What is the ‘price’ of GOLD…if a currency loses its ‘legal tender’ status? Price and Value are not the same!

January 21, 2012

All commodities are ‘priced’ in some legal tender currency. What happens if a currency is abolished or declared invalid…no longer acceptable as ‘legal tender’? Price (of gold) is not the same as ‘value’!

We all assume that conditions now in practice (within our marketplace) will continue forever…but is this a good assumption given today’s volatile markets? As of this writing, many countries are starting bilateral currency exchanges to avoid the American ‘dollar’. Also, many countries now are so loaded up with ‘dollar’ debt (China, Japan, Britain) that they are desiring to decrease their current holdings. Currently, our ‘dollar’ is the reserve currency for all world trade and is accepted by almost all nations as legal tender. Will this legal status continue for our ‘dollar’ going forward…indefinitely? Let’s think about what could happen in the near future as nations seek ways to avoid the ‘dollar’ and ‘dollar’ accumulations.

This situation is now happening with trade for the nation of Iran as of January, 2012:

Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow. The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said. Iran has replaced the dollar in its oil trade with India, China and Japan, Fars reported.

The BRIC nations have also expressed a desire to reduce the role of the ‘dollar’ via bilateral trades and eventually as a settlement mechanism: 

April 14, 2011  BRICS Desires To Replace the Dollar as World Currency

These news items demonstrate that our ‘dollar’ which has served as the global reserve unit since the Bretton Woods Agreement of 1944, could be on its LAST legs. Let’s assume that the global marketplace (most of the major emerging trading nations) desire to replace our ‘dollar’ with either a barter situation or a combination of barter and their local currencies (as Iran is now doing). How could this affect ‘prices’ of commodities like oil, copper, wheat, corn, silver, gold, etc.? What if our current ‘dollar’ is also rejected by the American people…and declared no longer ‘legal tender’? How would this affect ‘prices’ (say of oil or gold)?

Most pundits ASSUME that everything will remain the same…forever. But is this a wise and valid assumption going forward? There are many forces now wanting to CHANGE our monetary system. There is currently a bill circulating in our Congress called the NEED ACT. This act is being proposed by Congressman Kucinich of Ohio and his description of this act and its implications can be viewed here: Basically, this ACT (if passed by our Congress) would eliminate the Fed and create a new fiat ‘dollar’ which would be created by Treasury personnel (say Geithner, et al). To accomplish this goal, it is likely that our current ‘dollar’ would need to be legally abolished and a new Kucinich dollar would emerge (as our official unit).

We also have Congressman, Ron Paul, who desires to abandon our current ‘dollar’ and return to some type of GOLD STANDARD. This goal would also require that our current ‘dollar’ be changed, abolished, or declared non-legal. What would these types of proposals do to ‘prices’ of goods and services in our economy? Keep in mind that all goods and services are ‘priced’ in a legal tender unit that is officially declared the ‘coin of the realm’. So if our current ‘dollar’ were no longer ‘legal tender’ (for all debts public and private), then we could have a major problem in our marketplace…instantaneously and immediately! Let’s think about this situation as a thought experiment!

What would be the ‘price’ of an ounce of GOLD without our current legal tender ‘dollar’ being officially valid? What would be the ‘price’ of a barrel of OIL without our current legal tender ‘dollar’? What would be the ‘price’ of your HOUSE, CAR, LAND, and FURNITURE…given this scenario? Do you sense that we could be back to a BARTER mentality with ONE official decision…a declaration that our current ‘dollar’ is no longer ‘legal tender’? Every item that you now observe around you could have NO ‘price’ (in current dollars). Gold would immediately go to ZERO (in current dollars). All other goods and services would also go to ZERO. Why is this so!

To understand money we must recognize that money starts out as IMAGINARY (a concept of one’s mind). The names, numbers, and symbols (say $1.00) that we use to denote ‘prices’ in the marketplace are really ‘imaginary’ units (derived from our individual consciousness). Why do you think that Ron Paul and many others accuse our Fed Chairman, Ben Shalom Bernanke, of creating MONEY…’out of thin air’? What is ‘thin air’…in reality? Another word for ‘thin air’ might be NOTHING (no thing)! In other words, our DOLLAR (which we use to ‘price’ all our goods and services) is really NOTHING (an imaginary unit, totally subjective, or a unit derived from one’s consciousness). What does this MEAN for ‘prices’? What does this mean for asset VALUES?

To understand money and prices we need to understand what has happened to our historical MONEY. Back in our Colonial days (prior to 1776) and up until 1971, our ‘money units’ were a ‘name’ for a real physical THING (silver, gold, copper, some base metal, or paper). The ‘name’ dollar described some THING outside my/your mind. Today, our current ‘dollar’ is NOTHING (no thing within spacetime). Our ‘dollar’ is now derived mostly from the MIND and CONSCIOUSNESS of Ben Shalom Bernanke and his FOMC committee. These policymakers ‘create’ units of dollars (now just digits in the computer) as our MONEY. Where do these ‘units’ derive from (some 95% of money transactions are now digital)? What are these ‘units’…in reality?

Ben Bernanke (USA), Mervyn King (England), Mario Draghi (Eurozone) and other central bankers now just ‘create’ units (called currencies or money) via their HFT (high frequency trading) COMPUTERS. How is this done? Ben Bernanke, today, can just  THINK up a number (say the recent $600 billion QE number) and then order the manager at the trading DESK (at the NY Federal Reserve Bank) to credit the SOMA (system open market account) with $600,000,000,000 of units (digits in the computer…which we call ‘dollars’). What a neat trick for creating ‘money’…out of what Ron Paul calls…’thin air’! Is this a SHELL GAME or not? Is this equivalent of ‘money from heaven’?

Bernanke can now create digits in his computer screen (his SOMA checking account) and then distribute these units (called cash or dollars) to whomever he needs to bail-out. Money appears from ‘heaven’ for Bernanke and his friends. What a great system for those with connections and special financial needs within the connected establishment. This same process is used by Mervyn King at the Bank of England and could be used by Mario Draghi and all the other Central Bankers on this planet. Does this system and process sound Constitutional or American? Would our founding Fathers of money, Thomas Jefferson and Alexander Hamilton, bless this system and process?

What we experience today in the monetary arena are fictitious and imaginary manipulations of our economy and all the ‘prices’ within our global economy. This has all evolved over the years since the closing of the ‘gold window’ in 1971. This event on August 15, 1971 (called the Nixon Shock) allowed this entire current system and process to emerge. When President Nixon removed all ties of our ‘dollar to a physical commodity and also disallowed any convertibility of our dollar into gold, this decision set in motion the system and process which we now experience. Historically, money units have always been some THING which existed in spacetime. Spacetime is usually viewed as ‘outside’ one’s MIND or consciousness.

Today, however, we do not have a physical unit for our money. Most of our financial transactions today are via the digital units which we experience within our computer screens. Virtual reality has replaced spacetime reality when it comes to our money (less than 4% of money transactions are now done with paper or metal coins). The best method for visualizing this reality (spacetime reality) is to observe our planet and people from the perspective of ‘outer space’ (say an earth satellite view). This you can do by clicking on this link: You can observe live images of: Central Park in New York, the Giza Pyramids, or even your personal house.  All these images should be viewed as ‘outside’ one’s MIND. Virtual reality, in contrast, can be experienced by looking at the computer screen directly in front of your nose at this moment. There is a distinct difference! Virtual reality is really an extension of the human MIND; whereas, spacetime reality is ‘outside’ one’s mind (as are gold, oil, silver, wheat, corn, lumber, gas, land, buildings, trees, etc.).

In conclusion, ‘prices’ today are mostly meaningless and imaginary. The reason for this fact is our money unit (our current dollar). This type of unit creates distortions in value, volatility in prices, manipulation of our economy by a select elite, and the coming financial flash crash that is likely sometime in 2012. Keep in mind that a commodity like gold can have a ZERO ‘price’ in fiat currencies and yet substantial ‘value’ as a trading or exchange unit. This is now starting to happen as the American ‘dollar’ is being rejected by many Nations as a settlement unit.

 Who will recognize the reality of this missive? The only presidential candidate that seems to have a comprehensive understanding of money and money manipulation is Ron Paul, Congressman from Texas. All the other candidates (Romney, Gingrich, Obama, and Santorum) seem unaware of what is now happening within our global monetary system. Will they become AWARE prior to election date 2012? Given the nature of the internet, I would think that they will. If you desire, you have my permission to pass this missive on to any one of them. Enjoy…and keep watching the digital markets for serious change in 2012 and beyond!

P.S. Update on currency swap agreement by China: 

China signs currency swap deal with UAE

(China Economic Net)

08:54, January 19, 2012


Edited and translated by Yao Chun, Peoples Daily Online

Peoples Bank of China, Chinas central bank, said on Jan. 17 that it has signed a 35-billion-yuan (5.6 billion U.S. dollars) currency swap agreement with the Bank of the United Arab Emirates (UAE).

The agreement will last for three years and is extendable by mutual consents, according to a statement posted on the website of the Peoples Bank of China.

The swap is aimed at enhancing bilateral financial cooperation and promoting trade and investment as well as ensuring regional financial stability, it said.

Since the onset of the global financial crisis in late 2008, China has signed a total of 1.3-trillion-yuan currency swap agreements with 15 countries and regions such as South Korea, Malaysia, Hong Kong, Belarus, Argentina, etc. Some of the agreements have taken effect and promote the bilateral trade and investment between China and these economies.

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