blog.milesfranklin.com / by Bill Holter / April 13th, 2015
We live in a world where all currencies are “fiat”, none backed by gold, silver, oil or anything else. Yes of course the dollar, otherwise known as the “petrodollar” has functioned and survived (so far) based on oil revenues being recycled back into U.S. Treasury bonds, but this has been changing over recent years. The change has accelerated greatly over the last five years. This era of “fiat” everywhere and real money nowhere is now 44 years long in the tooth and the very first time in human history there was no alternative currency with a real foundation.
Before you tell me “the U.S. is the most powerful military nation in the world, we don’t need no stinkin’ backing”, think this through. Though for a time, this “arrangement” worked and no one could stand up to the U.S., is this still true? Can we impose our will with everyone and everywhere on the planet? Or has our military technology been leapfrogged as evidenced by the USS Donald Cook last year? Can’t countries just decide to do business with each other …at the exclusion of the U.S. and use their own currencies to settle? Isn’t this what has begun to happen with China and other nations doing individual trade deals? Countries’ trade moving away from the U.S. and away from using dollars is as simple as grade school kids gravitating away from the schoolyard bully and deciding to play in harmony amongst themselves.
This 44 year old experiment has always needed “confidence” to exist. At first it worked because the U.S. was not over indebted and had plenty of room to lever up or “reflate” if you will. We still had plenty of untapped or unencumbered collateral left to borrow against, this is no longer so. Once the 2nd Great Depression kicked off in 2007, the Treasury started to run trillion dollar deficits and have now doubled our indebtedness. The Federal Reserve has more than quadrupled their balance sheet to well over $4 trillion that sits on the head of an equity needle of less than $70 billion, they are THE largest and most leveraged hedge fund in the world! The monetary lunacy by no means is confined to the U.S., it spans the globe and is practiced everywhere. Europe and Japan’s central banks have done the same, so has China to some extent but with a couple of large caveats.
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