Gold, Silver, And Blue Dollars

“Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange.

Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.”

- Alan Greenspan, former Chairman of the Federal Reserve

The political-financial elite will never formally acknowledge gold as a currency. Formally, it is more likely that standard drawing rights, via the IMF’s balance, will dovetail with the US Dollar’s drift away from reserve status.

The irony of course, is that the political-financial elite of the West is basically synonymous with the IMF – especially the United States. But formal admission or official re-institution will never occur.

Instead, a return to hard money will grow from the shadows, as more and more mainstream investors are forced out of the current financial ponzi. Awareness lies buried in the libraries of bureaucracy in the form of suffocating regulations that protect the elite from us.

Outside of the dirt road grass roots, nationally elected officials are powerless and ignorant.  Leaders have very little idea of what is happening. Re-election tactics require an appeal to the superficial, paid for by the military-industrial handlers.

The darker and more complicated these unnatural systems become, the systems become more fragile. Confidence across institutions goes hand in hand with social volatility as the political financial elite become further detached from reality.

Today, thanks to the Internet and social media, we can see the financial infernos many years in advance. Yet the mainstream will not listen. Everything is conspiracy. Then a fact. Then it breaks.

Except for cultures predominantly in the East, most people are disillusioned by money or the concept of wealth. Western culture is distracted and running on an endless hedonistic treadmill like a mouse in a cage. But change can come from the ordinary.

If you are reading these words, then you are a part of that. The perception won’t be pretty, but the damn will break. Will it be more like the Argentinean currency crisis with an official value and a street value?

The precious metals physical divergence could take some of what happened in Argentina. It will occur slowly, then all at once.

As Giles Powdrill writes:

“What do you get when you mix greenbacks with black markets and red tape?

In Argentina today, the answer is a ‘blue’ exchange rate: An informal market where $1USD currently trades for around 7.5 Argentine pesos (as of 23rd January 2013), or around 50% higher than the official rate of $1USD to 5 pesos.

Rampant inflation (conservatively estimated by the government to be around 10% but measured by independent assessors at around 25+%), draconian capital controls and a population that remembers clearly the dramatic collapse of the peso at the turn of the century, have resulted in a huge rise in the number of people seeking out the security of alternative currencies by whatever means are available. The rising popularity of the ‘blue dollar’ demonstrates both the level of concern consumers have about the ongoing stability of the peso, and the entrepreneurial spirit of the people.

Argentines are no strangers to alternative currencies. When the peso was pegged to the dollar in the 1990s, people became accustomed to using both. And during the height of the crisis in 2001, the government introduced the patacón, a state-backed bond that was used to pay bills and salaries and provide some liquidity whilst pesos were scarce.

What is different during the present economic uncertainty are the channels and tools that people are using to exchange their money and to secure their savings…”

And of course, paper still wags the dog in every market. But it’s certainly not hard to envision a shortage, where the premiums make up the difference between physical and paper even if things were to get truly out of hand.

Ban sales or prohibiting ownership would go about as well as 100 tax or banning firearms in this country.

While the Gold propaganda hit piece that followed Greenspan’s outrageous reassertions have been all over the map, the hope must be that confusion leaves the institutions out of the precious metals space.

Formal return to hard money may be an anathoma to the foundation of what they are – a ponzi for debt-tickets, notes used to destroy in the name of profits and so-called capitalism. Driven by rising premiums, the physical retail market takes on a mind of its own.

Bitcoin (BTC-eUSD) and other cryptocurrencies will certainly evolve over time. But widespread ownership will be limited, mainly due to technical barriers to access.

Certainly not as easy as precious metals. Once precious metals shortages become widespread rampant, sellers disappear.

The CME or COMEX or government can “fix” the price all they want. But at that point, it’s all a street game.