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US Dollar As Reserve Currency Not Working Very Well

We read with interest earlier this week a call by the United Nations Conference on Trade and Development for a new global reserve currency.

Apparently the current set-up of having the US dollar as a reserve currency isn’t working very well.

They’re quick learners at the UN obviously!

Their report makes some of the right noises, “The dollar-based reserve system is increasingly challenged.” Hmm, a slight understatement there. If “increasingly challenged” is a euphemism for “dead” then we’d agree.

But we don’t think that’s what they mean.

So, what do they plan replacing it with?

Special Drawing Rights, or SDRs. If you’ve got no idea what that means, it’s simple.

An SDR is something made up by the boffins at the International Monetary Fund (IMF) to act as an “international reserve asset.”

The rationale for the creation of the SDR was that “the international supply of two key reserve assets – gold and the US dollar – proved inadequate for supporting the expansion of world trade and financial development that was taking place.”

Look, your editor won’t pretend to be a grade ‘A’ student of monetary theory, but to us the creation of the SDR is part of the reason the global economy is in the current mess.

That gold was deemed to be inadequate for “supporting the expansion of world trade and financial development” tells you that’s when the Western world begun its massive spending spree.

Back in 1969 with the creation of the SDR.

A spending spree that couldn’t be achieved just through stealing money from citizens through the tax system, but one which could only be kept going by the creation of more money.

It was, you could argue, the beginning of the ‘consume, don’t produce’ Western economies.

The problem that SDRs ‘solved’ was the ability to crank up the printing press. Of course that didn’t happen straight away. There’s always a transition with these things.

First, as it happens, like the US dollar, the SDR was backed by gold. But if you’re creating a new reserve that you want to be more flexible than gold (ie. You want to print more money and spend it), then backing it with gold isn’t going to work.

Because backing a currency with gold helps to maintain the value of the paper currency. If you know that your $1 note is redeemable for a set quantity of gold then it will maintain value.

It means the banks can’t – or shouldn’t – create more paper money than the reserves they have in gold to back it up.

Simply put, it creates and requires discipline. Something that bankers and governments in the 1960s weren’t happy with. The ‘inflexibility’ of gold makes it harder to for governments to spend and makes it harder for banks to lend.

Therefore the creation of the SDR was a stepping stone to abandoning the reserve status of gold. And sure enough, four years after the SDR was invented, US President Richard Nixon closed the gold window at the Federal Reserve and there was no longer any obligation for US dollars to be exchanged for a fixed weight of gold.

Instead the US dollar was backed by nothing, and so the SDR was backed by the US dollar and other currencies which were also backed by nothing.

Yet it is this ‘worthless’ SDR which is being touted as the new reserve currency.

But why should the SDR make any difference? It won’t. An SDR is just a weighted basket of other currencies. Unless it is backed by something tangible, such as gold, then it will prove to be equally as worthless as the US dollar it is replacing.

Perhaps, bankers and governments will see the error of their ways and make a call for these new SDRs to be back by gold…

Not a chance.

There are several reasons for that. One, as I mentioned above, is that gold forces a government and its central bank to be disciplined. It cannot circulate more money without having a corresponding increase in its gold reserves.

If it were to do so then the paper money – or certificates – would not be fully backed by gold. This would cause the value of the paper to decrease – the greater supply of one thing relative to another devalues it.

If people got wind that the central bank was printing more money without increasing its reserve of gold, there would be an increased demand for physical gold. There would be a run on the banks.

The other problem gold has is an image problem. Take this comment from a recent article by Alan Kohler over at Business Spectator:

“But while there’s no doubt the gold will continue to be underpinned by the demise of the dollar, it is not a currency. I can’t go into JB Hi-Fi with a lump of it and buy a TV.”

“Central banks around the world own about 26,000 tonnes of it, which represents 8.5 per cent of total reserves, but it’s not legal tender. It’s just a commodity they got stuck with because it used to be a currency a long time ago and will never be again.”

It’s fairly common of the attitude the mainstream press has to gold. They don’t understand that it is a store of value.

Kohler claims you can’t go into JB Hi-Fi and buy a TV with a lump of gold. He’s quite correct on that score. But it wasn’t so long ago that is effectively what consumers did. Maybe not for TVs but for other items.

Under a gold standard where your dollar was backed by gold, consumers were exchanging a gold backed dollar for goods. It was an exchange of gold for goods, only that a paper note was used as a proxy.

What’s so crazy about that? Nothing.

But if you look at Kohler’s other comment about 26,000 tonnes of gold being only 8.5% of total reserves it gives the game away for the real reason bankers and governments don’t want a gold backed currency.

Inflation.

It’s no coincidence that since the early 1970s global paper currencies have lost about 90% of their value. Virtually every currency you name is worth significantly less today than it was thirty-odd years ago.

That’s not because prices have risen, it’s because currencies have become devalued.

As Kohler, perhaps unwittingly admits, central banks and governments have embarked on a massive money printing exercise.

If paper money still had the backing of gold then global economies would not have one-tenth of the current problems we are currently facing.

The fact that the UN and other government organizations are proposing to replace one currency backed by nothing with another currency backed by nothing signals they are either ignorant or are intentionally pursuing policies guaranteed to deliver economic destruction.

And more importantly to you, to guarantee the continued devaluation of your money and wealth.

Kris Sayce
for The Daily Reckoning Australia

38 Comments

  1. Justin says:

    Yeah, but Alan Kohler is pretty clueless.

    And I disagree, the USD is not backed by nothing, it is still backed by gold, a progressively smaller amount as time goes by. The day it is no longer redeemable for even a variable amount of gold is the day it becomes ‘worthless’. Same goes for the AUD, Pound, Euro etc.

    Large dollar holders are still able to redeem their millions, billions etc of USD for gold on the COMEX, but maybe not for much longer.

  2. Dinakarananda says:

    Nice article. I am totally sold about the necessity of a gold backed reserve currency. However, what puzzles me is the great depression that happened when the USD was backed by gold. Was it because of that 70% devaluation of USD done by FDR in 1934? Was it a recession from 1929-1934 that was made a monster depression by the then US president FDR? I am sure anyone in the distinguished panel of DR can enlighten me.

  3. Rob says:

    One thing not mentioned is that gold is still being dug up and this represents an ongoing reduction in its ‘store of value’ through greater supply, similar to printing money really, and through this mechanism, any country with more gold in the ground can print more money and have comparatively greater wealth.

  4. John Smith says:

    I agree there needs to be controls on a fiat money system. But Gold is worthless / essentially useless metal. Backing a currency with it encourages economies to waste physical resources to actually find, produce and best of all store it in expensive vaults for no purpose (more so than they waste now). Whilst paper money is also worthless / useless at least it doesn’t waste physical resources to produce. We should focus on laws to control the printing of money not bother backing it with gold.

  5. dsylexic says:

    John smith -totally and absurdly wrong. gold has value has jewelry and usage in hitech.this is apart from its monetary commodity value. getting people to spend resources on finding gold is not an exercise in futility unlike printing paper -since gold has lots of other uses as well.

    and Rob,sorry mate -your fears are unfounded.gold IS scarce .that is why no country can dig up gold and ‘inflate’ away to glory unlike paper.
    btw, the country with the largest amount of gold mines doesnt need to possess the largest amount of gold. the largest amount of private gold exists in india -and it has few mines.all of its gold was acquired by peaceful trade or imported for jewelry.both normal business activities.

  6. Lachlan says:

    Virtually everybody uses gold.

  7. Lachlan says:

    And dont forget silver….money,industry,medicinal uses (going bigtime) etc.
    We need gold for our computers so we can chatter on the DR website.

  8. But don’t forget that despite what the PR machine pumps out there is plenty of gold around, it is just that investor demand has put a lot in vaults. Remember a lot of gold isn’t consumed as such and is sitting on peoples fingers, in electronics and can be recovered. As a percentage, little gold is actually lost, it isn’t like oil.

  9. TC says:

    The whole idea of a floating dollar/central bank manipulation is about control. Not money or wealth. We are simply witnessing a point in our history that those who know and understand the inner-workings of the FED are free to do what they like. It matters not who is in charge politically. Meet the new boss…same as the old boss.

    There are internal power manipulations behind the scenes. There is a delay in the results but they are displayed in the media. This new aristocracy wants to manufacture (craft as the politicians/aristocrats are fond of saying) events through the laws they enact for themselves and their other friends in the aristocracy. These laws are frequently scams. Bait and switch, Ponzi, and my favorite – It’s For the Children.

    They are well connected and if you wonder who they are then you are not one of them. We only see about one tenth of them openly. The rest are in their castles. They form alliances as in the days of old when it was obvious whom they were. They sometimes marry to cement the alliance.

    I quote Andrew Jackson:
    The bold effort the present (central) bank had made to control the government … are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.

    I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.

    And the Rothschild’s:

    “The few who understand the system, will either be so interested from it’s profits or so dependant on it’s favors, that there will be no opposition from that class.” — Rothschild Brothers of London, 1863

    “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild

    And further Charles Lindbergh Sr:

    “This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson} signs this bill, the invisible government of the monetary power will be legalized….the worst legislative crime of the ages is perpetrated by this banking and currency bill.” — Charles A. Lindbergh, Sr. , 1913

    “From now on, depressions will be scientifically created.” — Congressman Charles A.
    Lindbergh Sr. , 1913

    The real question is how will this affect our future and our children’s/grandchildren’s future? And what can we do about it? Are at Ground Zero in Hiroshima 6 Aug 1945? Or are we somewhere else? Should the USA disengage from the UN? Should the USA go to the gold standard? Should all countries go the gold standard? Should the Central Bank be abolished?

  10. John Smith says:

    Thanks Greg. The whole point is gold has very little use practical use (other than Jewellery). Some much is stored in vaults! Brilliant what a complete waste of resources. Dig stuff out of the ground, refine it, mould it into nice bricks. Store it in a vault and make people think that it is useful and is doing something. Think fort Knox, Perth Mint etc. The high price then means other useful metals such as platinum get used for jewellery when they should be used for other things. Also, means people are paying more than necessary to have wedding bands, gold necklaces etc. It is quite insane really. Having said that so is printing money to solve financial problems.

  11. Dan says:

    Very deep comment from TC, especially given the date today. Worth pondering and following up IMO.

  12. John Smith the World Gold Council provide details about how gold is used and the industrial use of gold (including dental) is not a major driver of demand. Yes gold is used in industry, but much of this gold can be recovered. I tried to pull together the bull and bear views of gold here: http://www.shareswatch.com.au/blog/commodities/investing-in-gold-a-basic-guide-for-investors/

    Cheers!

  13. Biker Pete, Ottawa, Ontario, Canada says:

    Anything, including gold, is ‘worth’ any amount anyone will pay. Having said that, I recall Greg advising us that gold costs around $560(?) per oz to produce, so I guess gold IS worth at least that much. As a decent house in a good location costs a minimum of $380K to build (including land), we’d expect that to also be a base rate.

    I confess I was intrigued by Bill’s comment that: “The price of gold today, adjusted for inflation, is about where it was 26 years ago.” Some properties we owned twenty six years ago are worth well over twenty times what we paid for them. Our base property is worth 7.77 times what we paid for it in 1991.

    We accept that the US is in major strife… that US currency is highly questionable… that US citizens may, indeed be rational in fleeing to gold… but how sensible is it for Aussies, whose currency is sound, to go that route? Just can’t see it, sorry…. .

  14. Ross says:

    Physical gold is a logistics nightmare. It must be secured, it must be carried to be exchanged, and the person you exchange it with must have the same capabilities. Gold markets are subject to the same liquidity induced value issues as all the other equity, securitised, and commodity markets.
    Nobody knows if the marketing of gold, or “diamonds are a girl’s best friend” or anything else will prevail value upon it in a severe downturn. People will certainly reach for a promissory valued something and gold is a chance but it has only odds and not certainty.

  15. Some time ago Pete posted this graph during a discussion regarding gold we were having. http://www.aireview.com.au/images/dynamic/20090226/Graph02_270209.gif

    Also if anyone is interested this is where some of us were rambling on about gold prices: http://www.shareswatch.com.au/blog/commodities/are-we-in-a-gold-bubble-could-gold-prices-fall/

    Last time I checked gold production costs were in the range of $500-600 USD an ounce but this varies a lot from mine to mine. Some operations are pretty high costs (i.e. in remote areas)

    The fact is that demand is being driven by investors at present. This means we are simply putting tonnes of the stuff into vaults for? Maybe that trend will keep going, but it sounds a little silly to me. What do people expect to do with their gold?

    Some people say gold will hold value and if the global economy descends into chaos you will be able to use gold to buy food etc. Maybe. But remember as soon as people start selling off all that gold in vaults supply will increase, demand will decrease and the price will fall. So if paper money does become worthless you better sell your gold before the other guy :)

  16. William says:

    If paper money is worth nothing then why do gold producers readily exchange their yellow stuff for worthless paper ? Surely they would be better off holding on to their real money..

  17. Lachlan says:

    William because their share holders and creditors demand paper/electronic profits. However there are many miners who keep their personal fortunes in metal.

  18. Lachlan says:

    Since year 2000 gold has increased in value in AUD terms by a multiple of approx 3.9 ….working on approximates $400 to $1550 (Jan 09) or say a 280% gain. So Aussie gold outperforms US gold to this point. Maybe the benefits of having a reserve currency (ie stronger than it should be against metal). Whats the USD going to look like post reserve status? Soon their will be little reason to prop it (or slow its devaluation).

    For interest/arguments sake I have calculated that to buy a $3,000 000 farm (my dream) in AUD gold you would need 81kg of bullion. Sounds heavy but then how often do you spend $3M.
    I contrast if you were to do some food shopping at say $150 you would need but a mere 4grams of gold, equivalent to the weight of my debit card.

  19. Lachlan says:

    Re above: Latter calculations based on Au @ $1150 current price.

  20. Pete says:

    Biker Pete:
    “As a decent house in a good location costs a minimum of $380K to build (including land), we’d expect that to also be a base rate.”

    Land is the variable. What if land price halves?

    Gold production price factors in:
    – the costs of mining the gold, not something you can change without technological advances, and totally affected by depth of the mining
    – costs of processing the ore, totally affected by the grade of the deposit (or ‘vein’ or lode or whatever you want to call it), and is affected by cost of leeching or whatever method they choose to use
    – costs of refining the gold, eg smelting, turning it into 99.99% bars

    This includes variable costs in energy (eg oil), mining equipment, technology used for exploration, drilling rigs, material costs like cyanide, costs of wages (developing countries wages cost less).

    Whereas land prices…they vary based on demand. Demand is a huge variable.

    Yes, there are some factors that would set the minimum (and unrealistic) land price, typically stuff like fuel and convenience savings, good neighbourhoods, close to schools, close to shops. Putting a dollar figure on that isn’t that hard if you simply calculate it as a person’s time and travel expenses.
    For instance, living in an inner suburb saves 10hrs time per week (10 x $30p/h = $300) and 100ks travel distance (100 x $2 = $200 inc car maintenance). So $500 a week difference, or $25K a year between inner and outer suburbs (hypothetically). So if that is the saving, we could say that the rent for such a place = $25K + house rent. Without factoring in the actual house rental (talking only land) we could calculate an approximate land value of $25K rent, where a good rental RoI is 6%. Thats $416,000 land for inner city, without the house on it. The house might be another $200K (in material and design, etc). So an inner city house might be $650K in value, just for living at that location (and we know they cost more than double that in our bubble).

    Conversely, an outer suburb house would have much less of those advantages. The $25K would be fairly variable, depending on proximity to shops, schools, peers, centres of activity. But the benefit and time saving is very much muted. Lets say down to 1/4 of the value of the inner suburb = $160K, without the house. Then add the house material value – which might be $200K new, or much less if it is old. We have property ‘value’ in the outer suburbs ranging from about $200K to about $380K.

    So Biker, whilst I hate to admit it, the cost of a house at a base rate for a new house (depending on materials cost) may be close to $380K. That is for a house, not a flat or apartment or anything like that. But I disagree that an existing house (and many are quite old) which depreciates in value (houses depreciate, land typically appreciates) would be worth the same base rate. It looks like houses themselves within cities (suburbs, not inner city) could range in value from anywhere from $200K to $400K as a base rate.

    There are issues with inner city houses as, although prices can be high, the debt required to purchase the house (especially at today’s insanely high prices) is exorbitant.

    Also, just because these base rates exist, does not mean that prices cannot fall below the base rate.

    And I apologise for posting so much about property in this gold-related article.

  21. Biker Pete, Ottawa, Ontario, Canada says:

    “…land prices…they vary based on demand. Demand is a huge variable.” Pete, 11/09/09

    Thanks for your comments, Pete. Looking at land development costs over the years, with a view to entering that minefield (albeit on a small scale) we’ve been put off by the immense costs of development. At one stage, we calculated a gain of around $4K per block, certainly too little to warrant the expenditure and effort.

    I also appreciate that many older, deteriorating dwellings in sought-after locations may be overpriced. We’ve also steered away from that arena… for the reasons you’ve offered.

    While buyers are prepared to pay $600K plus for such homes… or $1000.00 / oz for gold, they clearly see value in the transaction. I’ve read recently that Sydney property increased by 6.6% in the last year. If prices really are insanely high (and rising faster than most other asset classes) there must be something more to the equation here. A blogger recently commented that housing is ‘not a necessity… it’s a commodity…”
    I think the failure to see housing as an _absolute_ necessity may cloud the issue a little… .

  22. Justin says:

    Yes Lachlan, I’ll be asking for my dividends from the gold mine, in gold!

  23. Lachlan says:

    Sure Biker wont mind the property diversion Pete.

    My 3Mill worth gold (99.99) would weigh 81kg, but in terms of bulk…it would fit into a cube with sides barely exceeding 16cm. Think of two people trying to lift such a small object, and yet it still twice exceeds health and safety standards for each person.

  24. Lachlan says:

    Will they accomodate you Justin?

  25. Ross says:

    Today from Breakingviews.com
    quote
    Geithner exaggerates US government retreat

    When is a lapsed guarantee really an extended guarantee? When the US Treasury secretary says Uncle Sam’s commitment to backstop money market funds is about to expire. The formal guarantees end next week. But it will be a while yet before the Feds let a big fund “break the buck”.

    unquote

  26. Lachlan says:

    Sorry for incessant pro gold posts but Im stuck at home for a period until I have a new work vehicle.

    Pete I sold my property for a profit last year and put a substantial part of the profit into gold. My viewpoint was that

    (a) Currency/political instability unfolding
    (b)productive land best buy ( long term appreciation or survivalist strategies apply). However I cant afford that right now. However…
    (c) gold undervalued
    (d) property overvalued (devaluation or zero growth for a period likely)
    (e)money supply certain to expand with increasing reliance on deficit spending

    It follows then that if my argument is sound that there must have been a decline in the purchasing power of gold for property over say the last fifty years or so.
    My research shows this is the case (no evidence supplied).
    From that I can only only conclude that either gold must rise against property, property prices decline against gold or a combination of both OR the trend of the last fifty years will remain in place.
    I think the latter unlikely because the limits of market manipulation have been reached as evidenced by the onset of the GFC.
    If so, best case for property bulls would be to become gold bulls also and hedge themselves against a reversion to historic ratios (gold:house/land prices). Or at least hope like mad that gold rises while property at least stays where it is.
    Lastly a quaint solution for ardent property bulls would be to keep buying property not only close to shops, services etc but on land with proven gold occurrences :) There you go I’ve solved all the problems, we can all go home now.

  27. Biker Pete, Ottawa, Ontario, Canada says:

    From today’s NY Times, a year after the collapse of Lehman Bros: “Pay is already returning to precrash levels, topped by the 30,000 employees of Goldman Sachs, who are on track to earn an average of $700,000 this year.”
    Lachlan, the more things change, the more they stay the same… and the ‘location’ rule of property remains the Golden Rule. Your prediction: ” …property overvalued (devaluation or zero growth for a period likely)…” appears improbable, given the continuing ‘growth’ in prices in those areas with high employment and good prospects (if you’ll excuse the pun… .) I’ll concede that it’s never a good idea to put _all_ your eggs (golden or not) in one basket… . (_Must_ I go home now? I’m having too much fun! :) )

  28. Lachlan says:

    What!
    30,000 x 700,000 =210 Billion dollars….. oh wait, thats USD isnt it. Poor buggers ;)

  29. Biker Pete, Ottawa, Ontario, Canada says:

    Very good article on the ‘next page’ of the NYT:

    http://www.nytimes.com/2009/09/12/your-money/mortgages/12money.html?em

    Spells out the pros&cons of property for FHBs… an abridged ‘Property for Dummies’ if you like… . :)

    The tax reference isn’t applicable (yet) but who knows* what The Henry Report may bring in November… ??!

    * I sometimes wonder if Ned isn’t Ken himself…. . Seems pretty close to the pulse…!!! ;)

  30. Bargeass says:

    The sun is already setting on the US empire but unfortunately things will get much worse under our new black hearted chinese communist masters. Don’t be fooled or blinded by the trinket money they use to bribe because you will be on the losing end of the ledger. Try enforcing a contract, agreement or other legal obligation against a chinese communist.

  31. John says:

    Re: production cost of gold
    I watched a 60 Minutes program last night where we were told that in the Congo miners are digging for gold with hand-held tools in very dangerous conditions, using mercury to dissolve the gold and then producing little nuggets to sell in town, all for a pittance. How many thousand times is that gold marked up, I wonder, when it is sold on the international market? We were urged not to buy gold from the Congo, but how would we know it is from the Congo?

  32. Unpopular Truth says:

    The USD is not based on anything tangible in the sense of a metal or bit of paper, but rather has been based around the threat of violence (which is very tangible, just ask the 2 nations they crushed in weeks in the last 8 years).

    The promise of violence has worked wonders

  33. NickW says:

    As usual it is always about basics.

    What is money? It can of course be almost anything, specially printed bits of paper, lumps of metal or even cowrie shells but whatever it is it must be capable of fulfilling three functions.

    It functions as “A medium of exchange”. People must be prepared to accept it in exchange for goods or services.

    It functions as “A measurement of relative value” at any given time. In this function money acts as a weighting to decide the relative value of individual items of purchase – from a money point of view a diamond weighs many thousands of times more than a potato,(except perhaps in very special circumstances). It is in effect the medium by which the whole process of supply and demand normally works. It is the ultimate rationing system.

    In this capacity it allows each individual with a limited amount of money (almost everyone in the world) to make decisions on the subjective basis of which item of purchase appears to them to have the most priority viz a viz some other item.

    It functions as “A store of value”. Anyone accepting money in its primary function as a medium of exchange MUST be satisfied that in the future it will be accepted for other goods or services and that its secondary function of relative value has not been and cannot be debased by monetary inflation.

    Gold can and has acted perfectly well for thousands of years in all of these roles including, until very recently, as a physical medium of exchange. Arguments have been made that gold would be an unwieldy base to act as currency but such arguments completely miss the point. You do not have to take pockets full of sovereigns around with you any more than it is necessary to carry cases of fiat currency around. Cards, cheques, coins and even paper can still be used if they are backed by gold.

    Governments use paper because it is in their interest to do so. It gives all governments power over our lives in too many ways to mention.

    But I will leave with one thought that cannot be repeated too often. Why do all governments never set inflation targets at 0%. It is because inflation is another tax on the people and it taxes us in at least two ways. As the issuer of currency governments do not feel the effect – only the ones at the bottom are hit by inflation, and at the same time government debt to its citizens is eroded away through inflation.

  34. I TOLD YOU SO! says:

    You’ll call me crazy but Maize is the way to go!! Those who knows world history specially when for the first time Europeans stepped on AMERICA SOIL, the INDIGENOUS PEOPLE used a currency known as MAIZE and not GOLD!! although the Europeans were puzzled by their thought procesing this becomes more likely to happen nowadays. Also check the BIBLE! it says so as well =>when the world no longer will value treasures and MAIZE will have a superior value! (not the exact words but the idea is the same)

  35. Justin says:

    Maize might be good but sugar is better!!!

  36. I TOLD YOU SO! says:

    You can make fun now of the concept I just postulated JUSTIN; but when
    I get my sack of grains of maize and you have your gold and try to purchase some food from me
    or someone else, I’m going to tell you to eat your gold because gold on its own has no “VALUE”.
    It’s you and I who gives the value because of our sense of vanity. In fact if you set your mind on survival mode, then it’s
    food and water what people will desire the most in times of crisis. AND BELIEVE ME “A CRISIS WE SHALL SEE”! (http://www.wnponline.org/wnp/wnp0712/)

  37. Justin says:

    No, no, I wasn’t making fun of the concept. I’m sure maize is potentially a currency in times of crisis.

    Sugar however is a form of currency, NOW! It always has been. It has by far the largest open interest on the commodities futures exchanges, out of all the agricultural products.

    It is one of the most hoardable, most marketable commodities.

  38. Harry says:

    The comment below is right. This is hard for people to understand. But since you can’t eat gold it has limited uses in a soon to be hungry world.

    “Comment by John Smith on 10 September 2009:

    I agree there needs to be controls on a fiat money system. But Gold is worthless / essentially useless metal. Backing a currency with it encourages economies to waste physical resources to actually find, produce and best of all store it in expensive vaults for no purpose (more so than they waste now). Whilst paper money is also worthless / useless at least it doesn’t waste physical resources to produce. We should focus on laws to control the printing of money not bother backing it with gold. “

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