Gold – The Canary in the Coal Mine

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Before
modern ventilation systems, coal miners would often take a caged
canary underground with them. In the presence of deadly gases,
the canary would first stop singing and soon die. That was all
the evacuation warning early miners needed.

The price
of gold is a referendum on the quantity and quality of paper money
and, like the canary in the coal mine, it is signaling a warning:
there’s trouble with the dollar reserve standard. Around
the world the alert are looking for ways to abandon it.

Americans have
had a pretty good, if undeserved, deal since the end of World War
II.

First the
dollar exchange standard buttressed the value of the US dollar
as other nations began to hold their reserves in dollars and issue
their own currencies against them – as they once had issued
their currencies as a claim check for precious metals.

The idea
was that they could hold these dollars without fear because the
dollar would forever be exchangeable for gold held in the depositories
of the United States.

That didn’t
last.

The United
States issued more dollars than it could possibly redeem at the
fixed rates.

In fact,
on a single day in March, 1968, private buyers took 400 tons of
gold from the London gold pool. With the demand to exchange dollars
for gold beyond containment, in 1971 Nixon closed the gold window
and abandoned any pretense of dollar convertibility.

Read
the rest of the article

October
9, 2009

Charles Goyette [send
him mail
] is the author of the upcoming book, The
Dollar Meltdown
.

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