“Supreme Excellence”, Pt. 3: America’s Ugly Descent into Financial Tyranny
Winning a War
Have you ever read “The Art of War”? If not, I highly recommend that you do. Attributed, over 2,000 years ago, to a general and tactician named Sun Tzu, it details in clear maxims, how to subdue one’s enemy. It lays out the case that there is, indeed, an art to winning. What surprises most folks though, the first time they read it, is that the book asserts many times that the key to winning isn’t really in fighting, per se. Fighting is important, but is not considered “supreme excellence”, according to Sun Tzu.
Winning, it stresses, is determined largely by things like preparation, intelligence gathering, and knowledge, both of the enemy and one’s self. Whoever has taken the time and pains to do these things, and do them thoroughly, is likely to be victorious. In other words: you do your “winning” before you even head to the battlefield. At that point, the details in battle largely take care of themselves.
Bretton Woods I
We are seeing that truth being played out before us, in this new financial war between East and West. Before we can even understand this battle though, and why it’s being fought, first we must understand what led to this point. Otherwise, without historical context, what’s happening, and what is soon to happen, will make little sense going forward.
In the year 1944, as World War II was raging on, many delegates from numerous countries met at the ostentatious Mount Washington Hotel(pictured below), in Bretton Woods, New Hampshire. For three weeks, these financiers, bankers, and big-moneyed interests met to cobble together a new financial system for the Western world, and the world as a whole.
The United States at that time, due to its productivity, political stability, and its 20,000 tons of gold reserves(the world’s largest stockpile), was able to set itself high atop the monetary totem pole. Having the most gold, gave the U.S. government the most bargaining chips, and because of this, it was able to reach a deal, which made the U.S. dollar the World’s Reserve Currency.
The only way they were able to convince the rest of the world’s countries to use the U.S. dollar as their default currency for trade settlement, was to agree to “fix” the dollar in terms of gold, at roughly $35 per ounce, and make those dollars fully convertible to gold at that price. Remember though, due to Franklin Delano Roosevelt’s gold confiscation, it was still illegal for U.S. citizens to store the bulk of their wealth in privately held gold bullion, so we couldn’t take advantage of this arrangement. Foreign governments and central banks were the only parties allowed to exchange the paper dollars they held, for gold from the U.S. government.
Even though this arrangement was a bum deal for U.S. citizens, it convinced enough of the world’s governments to go along with this arrangement, and things seemed to work, for awhile. Eventually though, it became more and more difficult to maintain this “peg” of a constant $35 value for an ounce of gold.
What made it more difficult to maintain gold redemptions at $35 per ounce? Two words: war and welfare.
Guns and Butter
President Johnson had many ambitions in the 1960’s, which he didn’t feel could be paid for by taxes. After all, when you’re busy fighting the Vietnam War, the Cold War, and you’re in the Arms Race, you probably don’t have alot of money left over for newer programs like the War on Poverty, Medicare, and Medicaid.
Paying for these programs via taxation simply wasn’t going to work, as tax rates were already high, and raising taxes while trying to fight a prolonged war was something that the American populace wasn’t going to tolerate. Pesky questions like, “can we even afford these programs at all?”, never even entered most politicians’ minds. What could be done then, to push full-steam-ahead with these projects and more?
Why, simply print up(or borrow) enough new dollars to pay off all the creditors for these new programs! After all, the United States has the World Reserve Currency, what good is such a privilege, if you can’t abuse it a little bit? At least, that’s what D.C. thought: since people accept these dollars as if they were gold, why not just print up more “gold” in the basement of the U.S. Bureau of Engraving and Printing, and dole it out to cover the costs?
That’s exactly what they did, too. The problem was, it was a scam. The only reason the world had ever agreed to this Bretton Woods arrangement in the first place, was that they were told that each dollar would be gold-backed, and gold-convertible. How could the U.S. afford to make good on their promise to foreigners, to back all these new dollars with gold?
Short answer: they couldn’t.
“We’ll Take it in Gold, Thanks”
As the Vietnam War raged on, and casualties, as well as costs began to soar, the world began to detect a problem. It just seemed as if there were too many dollars floating around, for everyone to be able to get their gold. These questions became more open, and the discontent grew louder, until finally, someone stepped forth, and called out the U.S. government on its monetary abuses.
In 1965, the charismatic French President, Charles de Gaulle, stepped out publicly, and told his people, in plain words, why U.S. dollars had become a problem for France. He told them that this privilege which had been granted to D.C., had become a liability, rather than an asset to the French people, and he announced his intent to ramp up payment for the U.S. dollar reserves France owned, in the gold they were promised. Charles was “cashing out” of the Bretton Woods arrangement, and although he’d begun this process slowly in 1958, he decided to go “all in”, as the problem had only gotten worse. In the speech he gave below, you can still cut the tension with a knife, it seems so electric. If you haven’t watched this speech before, you should before continuing:
Those weren’t just words to him, either. In fact, that year he actually sent the French Navy to the U.S., in order to guarantee that the gold France was owed, was brought back safely. That year alone, their navy returned to France with roughly $150 million in gold.
Charles wasn’t alone in his suspicion of the U.S. dollar though, as the French Prime Minister, Georges Pompidou, also remarked, “The international monetary system is functioning poorly, because it gives advantages to countries with a reserve currency”(read the United States).
As a final act of rebellion against this arrangement, Charles de Gaulle announced that France was quitting the “London Gold Pool”. The London Gold Pool was a cartel of Western Banks, led by the U.S. government and Great Britain, which operated out of London, and sought to supply enough gold onto the open market, in order to keep the price of gold at $35 per ounce. In other words, the Pool was formed for the express purpose of managing, or manipulating, the price of gold. The only reason gold stayed at $35 per ounce all those years, is that this banking cartel dumped many thousands of tons of Anglo-American gold onto the market.
The tonnage of gold needed in order to keep the price at $35, became so great however, that soon the United States gold reserve had dropped off a cliff from over 20,000 tons, to roughly the 8,000 tons that D.C. claims to own today. Roughly 60% of the world’s largest gold reserve, was gone.
It was at this point, that the London Gold Pool, in utter failure to stem the tide of gold outflows, collapsed. Not long afterward, in 1971, President Nixon announced that the U.S. dollar “gold window” was closed. Meaning the foreigners who’d not yet gotten the gold they were rightfully owed, were up the creek without a paddle. The U.S. government had broken its fiduciary and monetary promises.
Bretton Woods II
The new arrangement which was born in 1971 from the failure of Breton Woods I, is largely known as Bretton Woods II. This arrangement was similar to the previous one, in that the U.S. maintained the world reserve currency, with one big difference: it was no longer backed by, or redeemable in, gold. The U.S. dollar was to be a “fiat” currency(meaning to say, it could simply declared into existence), and that all other fiat currencies of the world, were to be anchored to the U.S. dollar for stability.
The prevailing explanation out there for this bizarre new system, is that the U.S. dollar was still accepted by the world as its reserve currency, due to the U.S. being so productive, and so stable. We’re told that others had a great trust that the Federal Reserve system was above reproach, and would manage it admirably. We are regularly told, that we’ve “gotten past” gold, and now have a “PhD Standard”, where Harvard and Princeton grads can(and should) manage the world’s monetary policies in order to provide real stability.
There’s a huge question though, which the conventional explanation above never volunteers to answer: if the world lost all faith in Bretton Woods I (while dollars were still convertible into gold), what on earth made them go along for a 2nd ride on this international monetary “train to nowhere”, now that dollars were no longer redeemable for gold?
The Petro-Dollar System
In 2006, congressman Ron Paul stood up on the House floor, and gave, what I consider to be, one of the most meaningful and important speeches of his entire career, called “The End of Dollar Hegemony”. I highly recommend every single person who’s never read or heard it, to read it in the link above. It’s that important. Yet, very few of even his most ardent supporters know about this speech.
He explained an “open secret”, not simply to his colleagues on Capitol Hill, but to his supporters and the peoples of America. He described, in fairly minute detail, the truth about our current international monetary system, and what had made it “work” for the past 35 years, up until that point. It’s this system, which you’re never told about, that I’m going to address briefly below.
Here’s the truth about how Bretton Woods II actually functions. The U.S. government, arranged a deal with the House of Saud, in Saudi Arabia, in which D.C. would maintain the world reserve currency, in exchange for a unique relationship with the Saudis particularly, and OPEC in general. In this relationship, D.C. would guarantee support for the Saudi regime, and would personally guarantee their energy and leadership hegemony in the Middle East region, in exchange for the guarantee that both the Saudis(and all other oil-producing countries), would only take U.S. dollars in exchange for the oil(or natural gas) that they produced.
Futhermore, once those oil-producing nations acquired U.S. dollars(and only U.S. dollars) for their oil, those nations were then expected to “recycle” those dollars, by reinvesting them back into the U.S. stock market, and Treasury bonds. This had a cyclical effect of sustaining long-term demand for D.C.’s newly-created dollars, which, in turn, was used to levitate and sustain the U.S. stock and credit markets, which, in turn, created the perception of strength for the U.S. dollars they were using.
This has been an even worse system than the previous Bretton Woods was. For one thing, we all know exactly how “prudent” both the U.S. government’s borrowing and monetary policies have been. Just one look at this chart, shows to what extent the rest of the world has been hoodwinked in accepting U.S. dollars.
There ya go! There’s what a “PhD” monetary standard is worth in the end: -$17.7 trillion(as of August 27th, 2014)and ballooning by the day. Notice how the hockey-stick pattern doesn’t really begin until after “gold window” had been closed. Since the entire world is expected to take U.S. dollars in exchange for their hard work, it’s not simply U.S. citizens who’ve been given the shaft by the Federal Reserve, and U.S. policymakers, but rather the entire world. The situation continues to get worse with every legislative session in Washington.
From endless wars, to endless welfare, there is a near infinite demand that U.S. politicians have placed upon U.S. dollars, which we continue to have to borrow from everyone else. The pace at which D.C.’s debt is growing, has become so steep, and grown to volumes so vast, that it threatens the entire world’s financial and monetary system. After all, the world’s other fiat currencies are anchored to the U.S. dollar, but what good is that, when the thing they’ve anchored to, also has no anchor? No fixed purchasing power or value?
Yet we continue to demand that the world give us their goods, and their hard work, simply in return for more debt. We continue to say that “the American way of life is non-negotiable”, and as a result, the nations of the world continue to receive our depreciating currency in exchange.
“But Watchman”, you’re probably thinking, “why does everyone put up with it? Why don’t they just stop taking payment in U.S. dollars for their oil? Why don’t they walk away from the entire system, altogether?”
Well, shield brother, good question! What do you think this current financial war is all about? That’s right, it’s all about whether the rest of the world will be able to live their lives free from the oppression of the U.S. Petro-dollar system.
But, let me answer your a question with a question of my own:
You don’t honestly think that the crooks in the Federal Reserve, or D.C. in general, are going to give up this “exorbitant privilege” of having the world’s reserve currency, without a fight, do you?
After all, several countries have already tried to break away and escape from this system, and the results for each of those countries were deadly disasters!
Enjoy the Watchman’s insights? Want to join one of the fastest-growing precious metal brotherhoods on the web? Then be sure to enlist here as a shield brother, to guarantee you never miss out on any of the action!