Petro-Yuan, Petro-Dollar And Real Money, Gold: Why Gold Price Will Soar!
By Matthias Chang – Future Fast-Forward
All currencies in the world are “fiat Money” (paper money of no value, absolutely no value other than the number printed on a piece of paper and declared by law to be “legal tender” i.e. by law you have to accept it or go to jail). They are not real money because there is no intrinsic value. Its acceptance by anyone is because of the confidence reposed in the government that it will “honour its obligations”.
Honour what obligations? What obligations are we talking about? Please bear this in mind when reading this article and to discover the big lie!. This big lie is right in the open for all to see, yet no one of any intelligence or experience sees the big lie or is willing to see the lie. 99 per cent of economists consciously turn a blind eye to the big lie because they have been paid by various means or coerced to accept the big lie.
We need not examine the history of money to come to the conclusion that “fiat money” is a big con! It has everything to do with the “obligations” that do not exist or the promise that means nothing – empty priomise!
The easiest way to explain the BIG lie and EMPTY promise is to examine how Petro-dollar came about.
It used to be that the US dollar is exchangeable for gold at a fixed rate at US$35 per ounce of gold.
Then the USA, following the ruinous wars around the world, especially the Vietnam War, became bankrupt, was in dire straits and running out of money. France was the first to realise that the US could be facing financial ruin and demanded gold (at Fort Knox and vaults elsewhere) for her dollars holdings. This started a stampede of sorts for the exchange of dollars for gold. The state of affairs became so bad that President Nixon intervened in 1971 and declared that dollar would no longer be exchangeable for the gold in Fort Knox and in vaults elsewhere.
In the result, overnight the US dollar was worthless, pure paper money, in fact it could be said that it was worse than toilet paper.
The confidence in the dollar, prior to the intervention by Nixon was the declared irrevocable OBLIGATION to anyone that the US dollar can be exchanged for gold at the fixed rate of US$35 for an ounce of gold.
This obligation by the US Treasury, created the confidence of a holder of the US Federal Reserve Note, that the US government would honour the intrinsic value – i.e. backed by gold at the agreed exchange rate!
Without the gold backing, countries and people would dump the US dollar as being worthless, and it was virtually worthless as there was no longer any “obligation to be honoured by the US government.”
To make it really simple for the uninitiated in money and finance, we will use the following example.
Common sense will convince anyone to hold on to any money that can be exchange for gold. Thus, when the dollar was exchangeable for gold you, the holder of that paper can get something tangible (gold) for a paper promise secured by the good faith of a government, a military superpower – USA.
What is the use of a freaking paper promise to exchange one piece of paper for another piece of paper both of which have no value if there is no gold to be exchanged?
What is the freaking promise of the US government (and for that matter any government) is making, when it exchanges paper for another paper? What is the exchange value? Can anyone assert that a 100US$ note to be exchanged for another 100US$ note is an exchange based on intrinsic value?
The freaking promise is meaningless, it is a hollow promise and a BIG lie as the promise has no meaning at all – the promise of exchanging a piece paper for another piece of paper.
It might as well be a toilet paper, as toilet paper at the very least has a useful purpose!
And so, there would not be any demand for the “empty promise paper money”. In the result, the US cannot afford to have any country and even its own citizens to dump the useless paper money. However, if there is demand for the useless paper money (a demand artificially created and backed by threat of war or other forms of coercion), then countries and people would not dump the US Federal Reserve Note (an empty promise of the US$).
Hence, the ingenuity of creating the petro-dollar to preserve the dollar as the global Reserve Currency by Henry Kissinger. On threat of annihilation and the promise of total protection against coup or military invasion by any unfriendly countries, the stupid Wahhabist Arabs in Saudi Arabia as well as the other oil exporting countries in the Middle East agreed to sell crude oil in exchange of US dollar and US dollars only. They would not accept any other currency.
Anyone who wants to buy crude must pay in US dollars. This was a windfall for the Arabs. This created a massive demand for US dollars and thus averted the global dumping of US dollars. But, there was a catch. Knowing the Arabs to be crafty, the US financial elites demanded that the dollars accumulated from the sale of crude must be remitted to USA and invested in US dollar based assets such as real estate, shares in the New York Stock Exchange, US Treasuries etc.
In this roundabout way, the US was able to control the supply of the US dollar currency, digitally or otherwise.
The US government could continue to print and print the dollar (digitally or otherwise) to finance its wars and dominate the global economy. This was an extraordinary privilege. And the big CON.
The US$ dollar note was still paper. It has no intrinsic value. The demand for the dollar was because everyone had to pay crude oil with toilet paper money – US$.
Why was this a Con and an extraordinary privilege for the USA?
For you and me, Malaysians, Indonesians, Africans, Latinos etc., we have to produce goods through blood sweat and tears and sell them for US dollars to pay for the import of crude oil and other goods in the global markets controlled by US. For the US and its people, all they need to pay for imports from other countries is to print and print any amount of money without destroying its value, as it is now “backed by crude oil”. In this sense and this sense only are we saying that the US$ is backed by crude oil. If there was no compulsion to pay crude oil in US$, no one and countries would bother to accumulate US dollars (as foreign reserves) to pay for crude oil.
Can you see the BIG lie and CON? The obligation/promise to exchange worthless paper money for gold is now replaced with a “gun placed to our heads” with the threat, “you dumb arseholes, promise you will buy crude oil with US$ or we will wipe you out!”
Instead of the US making a promise to, we now have to promise the big bully that we will use the USD toilet paper money.
The entire world, with the exception of the elite of the developed world, was totally brainwashed to accept this ridiculous status quo, until recently.
All the freaking so-called economists of the Third World, who studied in the best universities in the world and having been brainwashed, seduced with PhDs and other accolades and promised with secured tenure by global financial institutions, universities etc. accepted the status quo willingly and betrayed their counties. And as they say, the rest is history!
Now China, having got out of the cocoon of the communist infection and realising that they have been made fools for such a long time has decided to play the same game, to be like big brother USA!
To be the big brother in international finance, they must first and foremost instil confidence of the world’s major trading partners that the Yuan, like the dollar prior to 1971 was as good as gold. China offered the same obligation as the US government did for the Federal Reserve Note. Yuan can be exchanged for gold. This was China’s paper promise to the world.
Hence, the recent announcement by China that if any country accepts payment in Yuan, the Yuan in the possession of any country is not toilet paper money but it is as good as gold because it can be exchanged for gold!
Global trade is worth US$ Trillions!
But, China though having large gold reserves (i.e. actual gold stored in vaults) as well as gold yet to be mined, cannot afford the risk that if global trade payable in Yuan exceeds a certain threshold and if like France in the late 1960s and early 1970s, there is for whatever reasons, a fall in confidence in the exchangeability of Yuan to gold, China would suffer the same fate as US before Nixon’s intervention.
The proverbial catch is that China cannot do a Nixon intervention with the Yuan, as China does not have the military power to coerce the Arabs or any other oil producing countries to sell crude in Yuan.
Therefore, to ensure the continuing demand for Yuan with the promise of an exchange for gold, China must ensure that the price of gold must be of such that the value of its gold reserve at the future gold price must be high enough to facilitate the exchange.
In simple terms – assuming the global trade payable in Yuan is US$10 trillion and the gold reserves of China that can be delivered physically in any exchange is valued only at US$6 trillion, there would be a shortfall of gold that can be exchanged.
To overcome this dilemma, all China need to do with her partners, say the members of BRIC, specifically Russia is to ensure that the value of gold must be hiked up to the extent that the agreed exchange rate can be met. The increased in value of gold would compensate for any shortfall in her holdings of physical gold.
Just imagine China has 12,000 tons of gold. And if the price of gold in the future is valued at US$10,000 per ounce, China can maintain her promise to exchange Yuan for gold because the value of her global trade at any time is less than the total value of its gold reserves.
This is simple common sense!
Experts have calculated (and it all simple maths, not rocket science) that gold could and must be valued at between US$5,000 and US$10,000 per ounce.
And if USA were to resist the efforts of China and others to dethrone the US dollar as the global Reserve Currency (and if US has, say 8,000 tons of gold) all she need is to hike the price of gold to a price to return to a partial “Gold Exchange Standard” to maintain its dominance. Then the US dollar can be exchange for gold. A reversion to the status quo ante Nixon’s intervention.
So, it is no brainer that the gold price will move upwards when the next geopolitical tectonic financial plates start moving to reshape the financial geography of the 21st century.