The Next Monetary System

In the following video Mike Maloney answers some of your YouTube questions. Find out why Mike IS NOT a fan of the gold standard:

More on the Next Monetary System: Gold Standard vs. SDR's

Jim Rickards

James G. Rickards is Senior Managing Director for Market Intelligence at Omnis, Inc. Mr. Rickards is a seasoned counselor, investment banker and risk manager with over 30 years experience in capital markets including portfolio management, risk management, product structure, corporate finance, regulation and operations. The following is an excerpt from an interview from King World News with Jim Rickards of Omnis Group:

Eric King: Jim I want to start off with a piece that you made me aware of here, you sent this out, and this is regarding the IMF. And they are talking here about gold and the gold standard. What is going on here Jim?

Jim Rickards: Hi Eric, yeah thanks for having me back, it's a great question and I think what you are referring to is a publication the IMF came out with about a week ago, I sent a link to it on my Twitter feed, called Reserve Accumulation & International Monetary Stability supplemental information published by the IMF.

Couple interesting things about it, number one the date on the report is April 13th but they actually released it about a week ago and so I don't understand why they have these long lags between authorship and publication, they also put it out on a Friday night. Whenever I see anything on a Friday night I'm always suspicious of what they call "news dump", which is you have to put it out there but you pick a time when you think nobody is watching.

A couple interesting things about the paper, number one it starts out with a historical overview of the gold standard and how today's International Monetary Stability, what they call IMS as opposed to IMF, compares to previous eras. And of course in 1973 the IMF officially abolished gold as part of the monetary system, at least by dictate. The US ended the gold standard, international transactions in 1971 but it took a couple years for the IMF to say gold is no longer money as far as for international financial transaction purposes and yet here they are talking about it. It's kind of interesting as 40 years have gone by since the end of the gold standard and it's not taught. I happen to have been an economics student in the late sixties and the early seventies and I was actually taught this stuff and lived through part of that period, but there are an awful lot of bright younger traders, analysts, market experts, and even economists who don't understand the role of gold; that you'd almost have to be a history major to understand it so it's kind of interesting that they are kind of putting this back out there.

But then the rest of the paper is more of a technical analysis of candidates for a new reserve currency, and then a special section on the SDR and the composition of the SDR basket. None of this is by accident, these are not random academic musings of some economics PhD's, clearly these things are being put out in advance of the G20 leaders summit which is coming up in Toronto in a couple weeks, to get the dialogue going about the possible replacement of the dollar. It's what we have talked about before, if the dollar is the engine of world growth, if just pumping out and printing dollars is the way to keep the rest of the economy growing, what happens when the guy printing the dollars starts to go broke? And that's starting to happen, there are limits on what the US can do and at that point, one of two things has to happen either you turn off the printing the press and the world will go into something like a deflationary contraction and a great depression which I think is very likely in my view, but the alternative is to find another engine, find another liquidity pump if you will. That's clearly what the G20 leadership would like to do and their chosen candidate are the SDR's and their chosen vehicle is the IMF. So basically the IMF putting out SDR's will over time displace the Fed printing dollars as the engine of world trade, world liquidity, and world growth.

So that can't happen over night, that is a momentous shift, it's going to require a lot of consensus building among the G20 members and so what they do is they put these papers out. You know get the dialogue going, get it on the agenda, talk about it, get people kind of used to it. The average citizen has no idea, it's not that they are dumb it's just that they are not necessarily informed or trained in this fairly technical area so it's the kind of thing the elites can pull off without a lot of accountability and they are definitely headed in that direction....

So what will be interesting going forward is as the IMF moves to SDR's which is a form of world money, whether they are going to let people own gold or whether there will be another effort either to confiscate gold or tax gold or limit the issuance of gold coins or do something to limit the ability of people to acquire gold because it almost seems like you have to do that if want to force them to use debased paper currency. As long as people can go to gold on their own you are always going to have a problem making them take worthless paper money.

Eric King: Jim let me ask you 'cause nothing is in this report by accident. Gold is mentioned several times in this thing, you already know that. Is there going to be a new gold standard down the road or something that they concoct, is that what you are getting from this? I'm asking you to speculate here.

Jim Rickards: I think it's the last thing that the G20 and the IMF want but it's the thing that is most likely to happen. In other words if you ask whether this is what the G20 leaders want the answer is absolutely not because the gold standard is very straightforward. Your money, or you paper money, your circulating currency, is backed by gold at some ratio. It can be one to one, it can be five to one. I think there is a fair debate about that, some of the sort of hard shell gold standard people think that the only thing that works is one to one. I have slightly more liberal views on that, I think that if you have maybe a twenty, thirty, or forty percent gold reserve against paper than maybe that's adequate. But leaving that debate aside, a gold backed currency would be one that would be convertible into gold, at a fixed ratio.

I like to say we are on the gold standard today. I can take my dollars and turn them into gold any time I want. In fact I do, I just go down to my gold dealer and buy gold, now I don't have dollars any more. I have gold, gold bullion. Anybody can do that. But the problem is it's not at a fixed rate, it's at the market rate. So one day it's $800 the next day it's $1200, so you don't have a fixed rate. A real gold standard would be at a fixed rate. But governments don't like that precisely because it ties their hands, they cannot spend and print money faster than the gold supply expands and over very long periods of time, we know that gold expands about one and a half maybe slightly more, a little under two percent a year. And that's a nice moderate tempo and it syncs  up pretty closely with a natural rate of expansion of economic output based on population and technology, so it's not a perfect synchronicity but it's close enough to make it a sustainable monetary standard. That's why gold works well and helps to avoid inflation and deficit spending, and that's exactly why governments don't like it.

So if you are asking me if the IMF want a gold standard the answer is no. If you are asking me if we are going to end up with one, the answer is yes, because the paper money policies are not sustainable and are actually imploding before our eyes.

Monetary System Changes are Common

Here in the United States in 1971, Richard Nixon put an the end to the Brenton Woods Agreement. Now in 2010, after nearly forty years of this fiat currency print all we like experiment, we are due for a major monetary change.

What type of change in the monetary system will take place?

We believe the coming dollar and fiat currency crisis will be so calamitous, whatever monetary system changes are finally implemented, gold bullion will be a must to hold. Paper assets have and are lining up to continue to lose value versus precious metals, gold and silver.

What type of monetary system would you like to have for your future?

Gold and silver bullion bars and coins are the honest money we like. We cast our vote each and every time we secure these precious metals. We choose real money. We choose free markets. What about you?

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