I think we can also agree that the USD is in fact the Worlds Reserve Currency. The significance of that fact is that if the USD fails, all of the worlds currencies will fail.
I agree that if the USD failed, that is the U.S. economy failed, it would cause the failure of many other economies. However, that's different than saying other major world currencies are pegged to the dollar. As I pointed out, the Euro is the other major world reserve currency with over a 25% share. When the Euro is down the dollar goes up on the FX market and when the dollar goes down the Euro goes up. That's one reason a number of other countries are using both the dollar and the Euro for their reserve currency needs.
The crux of my argument is that never in history has a currency backed by gold failed.
It depends on your definition of failure. It's a failure in the sense that no nation has ever been able to sustain a currency backed by gold or silver; that's just a fact. The reasons include war (not only to attack but also defend), speculation (forced the British off the gold standard in 1931), gold and silver discoveries, and international trade.
The same forces that forced every nation in history to abandon currency backed by gold or silver are still in effect today. You can read about all this
here.In fact, gold backed currencies work so well that politicians can't play their games of deficit spending, war and manipulation, so they eventually find a way to abandon the gold backed currency
Now you are contradicting your expert Gary Korolev who states early in his lecture that while England was on the gold standard the many central-like banks were using fractional reserve banking to create money so the King could go to war. Okay, but to do away with fractional reserve banking means banks can't loan out depositor's money to make money, and if banks can't loan out money then they'll have to charge to store deposits. So where do people and businesses go to get loans that won't involve either leverage or fractional reserve banking? It can be done, but it makes it hard for individuals and businesses to borrow money and that slows economic growth.
You say that "politicians can't play their games of deficit spending, war..." So if a country is attacked as many were in WW2, they won't have the money to defend themselves. Of course, if such a country is defeated, then its gold backed money is worthless because the winner will take the gold reserves. Either a nation goes off the gold standard in time of war or it risks defeat in which case its money is worthless anyway.
Because only the dead have seen the end of war, currency backed by gold or silver is unsustainable; it's a proven historical fact.I would like to ask you to comment on the two charts now. It is my possition that the US Monetary Base chart is an infinitely better example of what a bubble looks like. What do you think?
While the graphs are similar in shape, one is for a commodity and one is for the money supply. It's comparing apples and oranges and trying to draw a connection that doesn't exist.
The money supply growth up to 2008 represents the growth of the U.S. economy which is normal and expected to maintain price stability. The spike from 2008 on is the intentional manipulation of the money supply to avoid repeating the Great Depression. The good news is that the Fed can quickly shrink the money supply through higher interest rates and other techniques as the economy picks up steam. After all, it's just fiat money. As I said before, either the theory will be proven correct on not and that will have a lot to do with where the nation goes politically, if not in 2012, then by 2016.
I posted the graph on gold prices to show individuals the risk they take in purchasing gold at current prices. The graph shows that historically gold has been a poor investment, not even keeping up with 2% inflation for 30 year periods. The spike in gold prices represents fear over the current financial and debt crises. As I pointed out with TIPS, there are safer ways to protect your assets from any level of inflation short of an all out collapse of the U.S. economy, and if that happens you would be better off if you had invested your money in 25-year shelf-life food.
Bottom line, you're taking a lot of risk buying gold at current prices with little chance of substantial gain. Think about this; if the world economies started to unravel and the price of gold went to $5,000 an oz, would you sell your gold for fiat money when it looks like that money is going to fail? If not, then you gain nothing from the high price. If fiat money does fail, food will be in short supply for the reasons I gave and because food is an immediate necessity, it will be far more valuable than gold in the chaos of an economic collapse.
Only under a narrow set of conditions will buying gold at current prices prove to be a good investment, such as selling your gold when the fear generated price is even greater than it currently is. Are you really going to do that? However, under a broad set of conditions gold bought at current prices will be a bad investment, such as the economy recovers and investors sell off gold as they move back to stocks (the move may have already started).
Of course the gold merchants aren't going to tell you this because it's in their interest for more and more people to buy gold to jack up the price. That same conflict of interest is true for anyone who holds lots of gold. Many will lose their life saving in the collapse of the great gold bubble. I've offered ways to avoid the risk and still be prepaid for the worst, yet some find that offensive.
