Thursday, September 29th, 2016 MST

Gaddafi knows gold is superior to dollars

Is that the real reason he must go?

The history I was taught in school never held much interest for me. It seemed like a random progression of names, events, and dates attached to motivations that made little, if any sense. It wasn’t until I began my self study of economics, and particularly the nature of money, that a whole new world was presented to me. This was a world whose history was anything but random. In fact, almost every event throughout the history of Western civilization could be traced along a single thread of motivation: the control of money and resources.

The last 100 years, in particular, are the story of the dollar and how its creators have come to dominate the control of the world’s resources. In 1971, the dollar’s last implied link to real money (gold) was officially broken. Since then it has reigned supreme as the Petrodollar. Its creators – and controllers of the world’s largest military – have made sure that oil around the world could only be bought and sold in dollars. If you want to buy oil, you must first buy dollars.

It is for this reason, that stories like the one below from Russia Today, are particularly interesting. Libya has oil, which is of critical importance to the US, but Libya has always had oil. The rumored plans of Gaddafi to attempt a break of the dollar hegemony, by selling oil for gold Dinars, should not be taken lightly – as I’m sure they weren’t by the controllers of the dollar. If successful, it would be hard to imagine the rest of the OPEC nations continuing to accept depreciating, digital dollar credits in exchange for their finite, precious resources.

Such an event would have disastrous consequences for the dollar and the US Government. The cycle of trading newly created dollars for oil would be broken. The practice of countries around the world trading their goods and labor for infinitely diluted paper IOUs would be put in serious danger. How long could the US Government survive if it had to pay it’s bills in gold?

9 Responses to “Gaddafi knows gold is superior to dollars”

  1. RK in TX

    I respectfully disagree. I think your criticism of the dollar as a fiat currency of declining value is perfectly sound, but I do not think that Khadafi’s or Saddam’s desires (or potential threats) to sell their oil for gold rather than dollars had/have anything much to do with motivating the military actions that the US and NATO countries have pursued there.

    If it becomes more convenient for sellers and purchasers of oil to use gold rather than dollars, then they will do so, and there will be no military option that can change that. For now, nations can freely interchange dollars and gold at (for the most part) whatever the gold price (in dollars) happens to be on a given day or given minute. If the price of gold (in dollars) soars, so can the price of oil (in dollars). Thus, keeping the payment in dollars rather than gold cannot protect the USA from paying high prices for oil.

    The real payment problem will only arise in the case of hyperinflation, where prices rise so fast that contracts cannot be fulfilled before the terms of the deal effectively change. In that case, dollars will quickly become useless for most/all purchases both at home and abroad, not just for oil, and (as now) there will be no military option available to change that situation. Just my two cents. And… please keep up the interesting commentaries!

    Reply
  2. Thomas Avery Blair, EA

    I feel no compassion whatsoever to or for Gaddafi or his regime, but I do understand why he create a serious problem for “The Fed” and for the those who would continue to run the printing presses to “create” money from thin air. When the USA’s greenback (fiat) dollar loses its “Worldwide Currency Reserve” monopoly to a group of other nations offering gold supported currencies, the USA will face a day of immediate economic collapse. Sure, most of the national debt will go away with the failure of the US Dollar, but so will the remaining wealth of those who hold dollar-denominated assets. They will all find themselves destitute.
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    Gaddafi simply bit off more than he can chew over the switch from dollar-denominated oil agreements to gold-backed securities that may be leveraged or sold to acquire oil. His own people will in time throw their shoes at him (a big insult in the Moslem world) and then will likely snuff out the lives of Gaddafi and all his supporters and henchmen, as well as probably also all his immediate family. And the Obamacrats and the Obamacans in D.C. know why…but for the most part the American people do not.
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    Thank you for this article. Too bad most Americans either don’t read anymore, or can’t really understand what they read when they try. History has always been important; monetary history records and reports the motivational skeleton (wealth accumulation and power) of the body politic and continues to do so.
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    I just wonder how many Americans don’t yet realize that those folks living under Gaddafi and the other dictators that the USA has either tolerated or supported for decades are not looking for democracy…they are looking for a way to afford financially to feed, clothe and house their loved ones, and growing more desperate in that effort each and every day. “The Fed” in the USA is not blameless for helping in the creating the civil wars in so many far off lands, nor is Mr. Obama or his cronies; but Americans in general won’t do much about all this until the chaos explodes on Main Street USA.
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    You did provide considerable food for thought in this writing.
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    Thanks again for this eye-opening and informative article.
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    Respectfully submitted,

    Thomas Avery Blair, EA

    Reply
  3. La Vola Robindeaux

    I guess the Fed will have to find all that bullion that disappeared from the bowels of Building 7 before the order to “Pull It” was provided. Should we also mention all the records for pending investigations being conducted by the SEC that included guess who’s family?

    Apparently the evidence was substantial, ergo adios Building Bldg.7, lots of gold bullion and the ability of deniability. Like Abe Lincoln said, “You can fool some of the people all the time, and all of the people some of the time, but you can’t fool ALL OF THE PEOPLE ALL THE OF THE TIME.” Let’s pray this is in fact the case.

    Reply
  4. Stan

    One way of countering Khadafi’s use of gold coins to buy oil, is to return to the gold standard, and allow gold to seek its own level. At approximately $1500 an ounce, backing the dollar with gold would strengthen the dollar and effectively counter the Khadafi’s requirement to buy oil with gold coins.

    Reply
    • Bill Haynes

      Stan,

      Do the math on the trillions of dollars outstanding vs. 261,000,000 ounces of gold. If gold were redeemable at $1500, it would be gone in months as CBs around the world presented dollars for gold as was the case when Nixon closed the gold window August 15, 1971. To keep dollar holders from redeeming, the official price would have to be somewhere around $5,000 to $7,500 an ounce.

      Reply
      • Stan

        During Nixon’s presidency the price of gold was much lower than now. Also, instead of backing every outstanding dollar, release gold backed dollars gradually to supplement, similar to what Khadafi is doing relative to the purchase of oil with gold coins. This would preserve the gold supply, since gold is being purchased now with dollars anyway! Why would gold purchases go up higher than the purchasing rate now? Why are governments and individuals now not depleting the gold supply with fiat dollars? Is the price to high? What would be the difference if the outstanding dollars maybe used to purchase gold now at $1500/ounce, and when the dollar is backed by gold? Also, the money supply would be contracted eventually, since dollars buy more products when backed by gold, and bank accounts would be worth more, reducing the need to print more money by the government. The risk of inflation would be reduced since the dollar eventually would compete well with Euros as well as Khadafi’s gold coins.

        Reply
  5. Dawn Fotopulos

    Andrew McGuire provides interesting comments on what the new Gold and Silver Exchange in China will do to the PM market. He believes it will shift the price discovery from the paper to the physical market, finally shaking out the monstrous short positions overhanging the market for so long. Eric King covers it here:

    Having just returned from Beijing and Xi’an, it’s clear China is overbuilt and over levered. However, no culture appreciates the enduring value of gold more than they do and on the scale they represent. In my humble opinion, I think McGuire is spot on. This new exchange with vaults in Hong Kong, London and New York, will be the game changer. Few people are paying attention to it.

    Reply
  6. steve

    My way of thinking says that there is little difference between earning $3/hr and paying $3 for a haircut and earning $12/hr and paying $12 for a haircut. The difference that makes any sense is earning more and spending less in order to save some for later. Inflation is only everybody trying to get more before the spending levels increase to match the gain in earnings. Big problem for me is that the spending levels increase and my retirement check keeps getting cut each year. I am going in reverse financially even after 35 years of doing all I could to save for the future. What really makes a difference in the value of the American dollar is the amount of faith people put into the value of the dollar. If we all believe the dollar is solid and sound then everyone will trust the wisdom of spending or loaning giving us all a more positive economy. Gold and silver right now are more trusted, but even they have values that change daily. I do not believe there is enough gold and silver in the USA to cover the number of dollars in circulation today.

    Reply
  7. Ben A Rowned

    While I find this article enlightening I also find it ironic in that the root evil in the whole process is greed and self-interest. Khadafi is a maniac, a madman. But not necessarily stupid. He obviously thought he could succeed where Saddam failed (when he tried to convert to Euros from Dollars for selling oil). He was targeted because he threatened the very basis for not only the US but many other western economies. I think that’s entirely plausible.

    Here’s the irony. Bill’s business is precious metals (Gold). It certainly seems it’s in his financial interest to see the price of gold rise. So I need to question the real reason for the article. Is it to expose a ‘wrong’ being perpetrated by western super-powers or is it to increase his own personal net worth? Maybe a little (or a lot) of both?

    Reply

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