a friend of mine, an old college roommate from the ’60s is starting to wake up. he asked me what ron paul means when he talks about “financial collapse.” here’s my answer:
he’s basically saying what voltaire said – “paper money always reverts to its intrinsic value, which is zero.”
if you research back to the end of WWII, you will find an event called the bretton woods conference, which led to the bretton woods agreement. this was the pow wow where the financial rigging for the postwar world was set up. from time immemorial, international trade imbalances had been settled in precious metals, primarily gold. (china persisted on a silver standard, and it broke them). if a country imported more than it exported, it had to settle up in gold. this was a great incentive for responsible behavior.
at the bretton woods conference, john maynard keynes (may he rot in hell) proposed that instead of gold, that the u. s. dollar could be the basis of international trade. if argentina sold poland more corned beef than poland sold kielbasa to the argentines, poland could settle up in dollars (conveniently borrowed from the feral reserve.) argentina could then hold the fednotes in their central bank to finance their subsequent international trade. poland could pay us back in kielbasa. of course the world is a multilateral place, so things were more complicated than this. what it amounted to was that every country except us had to produce real goods and services, and hold our i.o.u’s (fednotes and treasury notes). all we had to do was print steel engravings of dead politicians and eat kielbasa (and drink french wine, scotch whiskey… etc). if any foreign central bank accumulated more u.s. paper than they wanted, they could cash it in at the new york fed. res. bank @ $35/oz. the u.s. having the largest military establishment on the planet, nobody had much to think over before agreeing.
this worked for a while. world trade re-emerged, and the u.s. flourished. this prosperity gave us the interstate highway system and bought all those b-52’s the cold warriors liked so much. it put the military industrial complex in such a dominant position that eisenhower felt he had to warn us in his farewell address. it also put the financial elites in the saddle. the feral reserve, the big banks, and the mil-ind complex were riding high. all was good with the cleaver family and with lucy and desi, ralph cramden had a steady paycheck. jfk was a little worried about it, and started issuing “united states notes” from the treasury, backed by the government’s silver stockpile without the blessing of the fed. too bad for john. lbj’s first act in office was to stop the u.s. notes issuance. coincidence?
lbj, having learned his trade under fdr, liked to SPEND. the war on poverty, and the upsizing of our southeast asian adventures pumped out a LOT of fednotes.
some of these 60’s prosperity dollars leaked out of our borders, and were spent overseas. i know, i spent some of them in france and england myself. some foreign countries (notably france under de gaulle) started accumulating more dollar reserves (u.s. issued i.o.u.s) than they felt they really needed and started cashing their dollars in. gold started to flow out. slowly at first, but picking up speed. johnson (may he rot in hell with keynes) left office and dumped it in tricky dick’s lap. i bet humphrey felt relieved. the dollar rate was adjusted (devalued) to $41/oz to give tricky dick (with the help of the financiers) time to set up a new rig (bretton woods 2.0). on august 15th, 1971, nixon suspended (defaulted) conversion of u.s. paper for gold – “temporarily” of course. the u.s. having swindled the world into holding LOTS of its i.o.u.s, welshed on its debts.
…but not without having set up a back-up plan. enter the petro-dollar. knowing this was coming, the u.s. had approached the major (and minor) oil producers with a deal. we would guarantee the security of their political regimes no matter how corrupt or tyrannical (think the shah, and the saudi royal family) against all hazard, and all they had to do in return was to agree not to sell their oil for anything except u.s. dollars. the producers agreed, but wanted higher prices. the price of gasoline approximately doubled from 1971 to 1980. the gold backed dollar is dead! long live the petro dollar!
the petro dollar arrangement has lasted pretty well. better than it should have waaaaay longer than we deserved. cracks started to appear when the shah was diagnosed with cancer and a teenaged heir. oops! when saddam hussein started talking about selling iraqi oil for euros, it rocked the boat. saddam was dead eighteen months later. mohammar ghadaffi started talking about setting up a gold based islamic currency and accepting gold for oil. he was dead sixteen months later. now russia is accepting euros, gold and rubles for their oil. what did we do? we are trying to start a war with them. look what we did in ukraine! if the kgb destabliized the canadian government and set the mafia up in its place, what would be our response? personally, i think putin’s showing admirable restraint.
meanwhile the value of the dollar continues to drop. paid a dollar for a cup of coffee yet? at some point, the system will break. when? ah, the timing is always the hardest part to call.
voltaire was right. that’s what ron paul is talking about.
end of rant.
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i hope i didn’t put him on information overload.
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