Re: [gang8] Dollar Hegemony Revisited

["Hugh Whinfrey" <econ@xxxxxxxxxxxx>]

William notes:

> In my view GATA is a collection of conspiracy theorists with a gold
> bug's religion.  That includes Bill Murphy, their chairman.  A good
> name for them is "gold nuts."

OK, fine. I'll then change my previous comments to suit your
terminology then. I don't have any emotional attachment to the
terms one way or the other, so it's no problem.

>What is in it for them as individuals?  Why would
> they risk their hard-earned reputations and possible jail time by such
> a conspiracy?  And what would they gain by destroying the economies of
> developing countries?

Folks all over the world are asking these questions. So you're
certainly not alone in posing them.

> Whether gold is or is not a "reserve currency" is of no real
> importance.  As I have already noted, the gold held by the US Treasury
> was monetized at a value of $11 billion, which is trivial in terms of
> the current size of the monetary base.

You realise of course that what you're saying there is enough to scare
the heck out even those folks those who aren't staunch advocates of a
gold standard, i.e. that the gold backing for the US dollar is "trivial" in size.

> The "dollar hegemony" exists because of the economic strength of the
> US economy.

Nope. It exists because of its weaknesses and/or vulnerabilities.

History says that gold flows to the stronger economy. The US has
been bleeding gold ever since the end of WWII. That is to say
that the economic strength of the US is in decline. You can trace
that back to the fact that it was really the only major economy
left standing after WWII. So its relative strength was in fact illusory
and predicated upon the destruction elsewhere - as the other
economies around the world shattered by the war began to
rebuild it was natural that the US would fall back to a more
subeservient place in the world order - and the flow of gold
shows that it in fact happened in spades. The fact that it was so
predictable certainly argues for moves in advance purely out of
self-interest aimed at hanging on to what would obviously be a
temporary advantage..

"Dollar hegemony" is part and parcel of the denial of the gold
situation for the US, ultimately caused by the temporary imbalances
cast in concrete at Bretton Woods. The seignorage makes up the
difference, i.e. it basically serves the role of the 'missing' gold which
the US has failed to acquire, using that manner of thinking about it.

> It is a legacy of the aftermath of World War II, and took
> shape under the Bretton Woods agreement.  Although it is a net benefit
> to the US, one should not discount the value of a de facto
> international currency to other nations.

Pretty much what I was saying above. I see we're on the
same wavelength then.

You're confusing me here. Gold has been a de facto
international currency since time immemorial - I'm
not at all discounting its usefulness in that regard although
I do think it's a bit barbaric of a thing to be moving
around in physical quantities and, personally, I'd
rather use paper money instead.

>
> What you meant was manipulating the market, which is not the same
> thing as "capping on gold."

No. I pretty much meant what I had said, actually. In this case, JP Morgan
has held an extremely large short position in gold in recent years. The figures
are a matter of public record. The point is that you don't hold an extremely
large short position if you want to make the price to go up sometimes. This is
pretty elementary numerical stuff .

Hugh