What French President Sarkozy and British Prime Minister Brown would have us believe is that the convening of "Bretton Woods II" is now underway in Washington DC with the Summit of the G-20 Heads of State. As this is being written, the potentates gathered there are - figuratively at least - passing the wine decanter at the end of the State Dinner hosted by US President Bush. Tommorow, the Summit proper begins. What will be discussed? Well, for public consumption, better bank and borrowing regulation, more interest rate cuts, more bailout packages and more government spending in general. In short, all the things that got the world into the financial crisis in the first place. As for the calls for "better regulation", nobody sitting at the dinner table in Washington lifted a finger to curb in any way the lending practices which have led to this mess. Just the opposite, they cheered every one of them every step of the way.
Writing in the Wall Street Journal on November 14, Judy Shelton has produced a timely piece entitled "Stable Money Is Key To Recovery" (read it here). Ms Shelton is the author of Money Meltdown: Restoring Order to the Global Currency System - published in 1994. This is a fine economic and financial history of the period between the Bretton Woods Conference in 1944 and the early 1990s. We recommend it to you.
Ms Shelton asks a simple question (all good questions are simple questions) in her WSJ article: "To speak of 'overvalued' or 'undervalued' currencies is to raise the question: Why can't we just have money that works?" Sadly, that question raises another one in our minds: "Works?" "For whom?"
The sad fact of the matter is that the current financial system - the one which grew out of the final repudiation of Gold in 1971 and the "floating" of all currencies in 1973 - is much to the taste of the political and monetary powers that be. In fact, without it, the intrusions of governments everywhere could never have reached anything like their present all-encompassing size. "Running" a country is a very expensive proposition.
And, as we pointed out in the current issue of The Privateer (Number 616 - published on November 9), gaining complete control over what is used as money is a necessary pre-requisite for both a Welfare State and the interventionist economic policy which a welfare state cannot exist without. Stripped down to the bone, this is the reason why ever since the "financial crisis" came to world attention in August 2007, not one word has been uttered by any of the principals in the global financial system regarding money itself or the vital role it plays in ALL markets.
Actually, that is not quite correct. As we pointed out at the time Mr Trichet of the European Central Bank did make this statement exactly a month ago:
"Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline. It's absolutely clear that the financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline"
ECB chief Jean Claude Trichet - speech to the Economic Club of New York on October 14.
The "first Bretton Woods" is the one which was torpedoed, along with the final vestiges of a viable global monetary system, in August 1971 when the US repudiated its promise to redeem $US 35 for one troy ounce of Gold. In reality, despite the survival of the World Bank and the IMF itself, there has been no "Bretton Woods" since then.
Sadly, about the only thing to anticipate as the G-20 Heads of State meet in Washington is whether anything will leak out from under the door regarding money itself. In this regard, it is interesting that on November 14, Reuters ran a story titled: "Bretton Woods Gold/Dollar peg unlikely at G20" It seems that the writer had noticed the big turnaround on the $US Gold price in the US on the day. On November 13, spot future Gold had closed at $US 705.00. The next day, it closed at $US 742.50. This big move was put down to anticipation that "something from the G20 meeting is helping Gold."
The point is that it is not Gold that needs help, it is what is now circulating as "money". All the ills which our financial potentates would have us think have been caused by irresponsible bank lending practices and lack of regulation have in fact been caused by the fact that the world today does not use a SOUND money. This will not be discussed, at least not in public, because the Heads of State meeting in Washington all know that their power and prestige stems from their ability to manipulate the financial system for their own ends.
A sound money is one which can neither be printed nor lent into existence. An unsound money is one which can. The only viable commodity which the world has ever found to be universally acceptable as a sound money is Gold itself - or paper which is guaranteed to be redeemable in Gold at a fixed ratio on demand.
The problem, and its solution, is as simple as that. The problem - for the Heads of State meeting in Washington - is that the solution would require a shrinking of the size and influence of government down to a very small fraction of their present levels. That is now, and has been since 1971, why very few people in government anywhere want to talk about SOUND money.
(Chart appears here in original analysis)
As you can see, a new low was hit on the chart this week when spot future Gold closed in New York at $US 705 on November 13. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early this month. Then came the big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 is rapidly firming as SOLID support for Gold.
We began the table below in 2007 and have extended it into 2008, even though Gold in all four currencies in the table remain well above their 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
In mid (northern) summer, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. Three weeks ago, on October 8, with the announcement of co-ordinated interest rate cuts by SIX major world central banks (including the Fed), Gold hit new all time highs in terms of the Australian Dollar, the Euro and many other major world currencies. Now, that situation has been reversed with the onset of savage global deleveraging.
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