Other Hegemon Currencies Failed--Then What?

Thu, Nov 14, 2013 - 12:34am
I was curious. Over time in the recent past, other hegemon currencies failed, but those countries managed to hang around, even still today.
So, what happened to those folks in those countries who lost the “exorbitant privilege?”
Here is a chart showing different currencies, that were dominant at one point in the recent past. From my historical understanding, this era is referred to as the mercantilist era, and had to do with international trade following the discovery that the world was indeed round.
So, let us ask: why was such currency at the time the hegemon?
Mercantilist banks cleared transactions in the dominant currency at the time. Duh. Makes sense. Who wanted payment in something that had no value? Which bank wanted to loan value and be repaid in something not presently in demand? Since the strong banks in the dominant countries set the terms of transactions, it was natural for transactions to be cleared in the currency of the dominant trading regions or countries of the time.
But still, it nags me that each and every one of those currencies were not fiat, but real, tangible coins, or they were bills, that is, paper claims upon gold / silver specie. So, one holding a paper bill could exchange the bill for the real deal. Unlike the situation today, and unlike since 1971 when Nixon closed the gold window. So those currencies, the hegemons of the time, were not pure fiat, like today. Even that being the case, what is the lesson to learn?
The reserve currencies of the time enjoyed their prominence based on real flows of goods, and as those flows were altered, the dominant currencies changed as well. Aha, this makes sense. But still, what happened at the end of the hegemon reign?
Importantly, and questions I have had for a long time include these: if those hegemon currencies all eventually failed, then why did the countries still exist? What happened to the citizens of the countries that had the former dominant currency? What happened to their way of life? Did they end up third world countries? What happened to their living standards? Did they recover? If so, how, and what brought it about?
I am starting to think I figured it all out. I am starting to think it is not that complicated. I am starting to think that the answers are so obvious, so as to be ignored, because the answers to these questions really do not matter.
So let’s get to the point.
Unlike those from the mercantilist era, the world’s dominant currency today, the dollar, is nothing but a fiat currency. https://www.wisegeek.com/what-is-fiat-money.htm
Since this is a web site devoted to exploring the end of the great Keynesian experiment, naturally, questions arise about just that, what happens when it ends?
Plenty of intellectuals extol fiat currencies as being a good thing, including even being important and necessary, like, for example, an esoteric exposition that only Pining could like [sorry buddy, but you are the professor]. Take this intellectual effort from these guys, from an article I plucked at random during a google search:
Look at what these European intellectuals say:
“Not only the central bank of the hegemonic country can act as a lender of last resort to its own banks, but also it can do it for the state, and the national government has the ability to stimulate global, not just domestic, effective demand.
Further, the risk that the hegemon would be unable to expand demand globally, because it is forced to maintain a fixed ratio of currency to an external asset is [non-]existent. It is true that foreign countries and agents may show unwillingness to hold dollar denominated assets, but, as in the domestic case, the Fed can always monetize debt.
Again, as in the closed economy case, this only would be inflationary and lead to a run on the dollar if there is currency substitution on a massive scale, which would require a credible alternative to the dollar. 
And that leads as to the current crisis and the euro, which was hailed by some as a possible alternative to dollar hegemony. It is important, however, to emphasize, that even if economic agents substitute the euro for the dollar, the United States still would not have its ability to import curtailed, since most American imports are invoiced in dollars, including commodities. Essentially, that means that the United States would still not have a balance of payments constraint. In this sense, it is the ability to determine that key commodities and particular contracts are settled in dollars, not the specific currency reserve holdings that determines which currency is dominant.”
So, let me translate some of this ivory-tower thinking and relate it to what JY said earlier in the week, as well as relate it to events in the middle east and recent developments about Iran.
First, they say it is a good thing to be able to print at will and not be restrained to a gold standard, because it means that the issuer of the fiat can bail out the banks, the governments, and on a GLOBAL basis! This is a good thing, according to these intellectuals. Since when is moral hazard a good thing, though? Maybe I missed that class in college.
This paragraph just absolutely blows me away with its imperiousness:
“Further, the risk that the hegemon would be unable to expand demand globally, because it is forced to maintain a fixed ratio of currency to an external asset is [non-]existent. It is true that foreign countries and agents may show unwillingness to hold dollar denominated assets, but, as in the domestic case, the Fed can always monetize debt.”
Did you catch that? They say printing can go to infinity because there is no tie to assets, like gold. I.e., QE to infinity. Like what Mr. TF said would happen. Hmmm . . .
Did you see the rest? Other countries may show “unwillingness” to hold dollar denominated assets, but . . . the Fed can always monetize debt.” WTF!! Let’s do this slow. So, if other countries don’t want our treasuries for their balance of payments, which means that either those treasuries are not purchased at auction, or the countries holding them exchange them for real assets, say, like the JPM building in NY with the huge underground gold vault, then those treasuries are not valueless, no, not at all, because the Fed will simply print more dollar bills and exchange those worthless treasuries with zero term, zero coupon debt notes called the US dollar!
They say that this poses no inflationary problems, either: “Again, as in the closed economy case, this only would be inflationary and lead to a run on the dollar if there is currency substitution on a massive scale, which would require a credible alternative to the dollar.”
See, they imply that inflation could only occur if there was a credible alternative to the dollar. Meaning, if folks LOST CONFIDENCE in holding dollars, and turned to something else. You know, something tangible, which holds its value, does not erode, is rare, is divisible, is interchangeable, you know, gold or silver. And on this point, they are accurate. Under no circumstances can there be any credibility lent to the concept that gold and silver are currency substitutes for fiat dollars.
This last little part is what ties it together with what JY wrote about China taking over Africa, and which zerohedge and other sites have informed us about regarding Saudi Arabia telling Mr. Obomber to invade Syria, and which Iranian developments show that the USA is soon about to lose its ability to force transactions to be cleared in terms of dollars. Here is the kicker, and the concept to keep in mind for the immediate future: “it is the ability to determine that key commodities and particular contracts are settled in dollars, not the specific currency reserve holdings that determines which currency is dominant.”
So there it is. It is the “ability to determine that key commodities . . . are settled in dollars . . . [that] determines which currency is dominant.” So, it comes down to power to control the transactions’ currency. Who controls the transaction, controls which currency is dominant.
So, adding it all up, if the USA loses the ability to control that transactions are denominated in dollars, then the USA loses its hegemon, and some other currency takes over.
We are seeing that right now, in real time. It is only a matter of time before the world’s commodities contracts are settled in something other than the dollar. When that happens, the dollar will be as valuable as whatever uses that little, colorful piece of paper has.
What evidence exists of that? Plenty.
JY mentioned the Chinese invasion, economically, of the continent of Africa. Soon, China will be the resource rich producer of goods and services, with ITS citizens and subjects the source of commerce, and from which economic power the mercantilist banks will emerge. We have all seen and read and heard that China is separately negotiating international trade agreements priced in terms other than the dollar.
We have heard, seen, and read plenty of stories of how certain of the middle east countries have benefitted from US military protection in exchange for requiring oil purchases to be priced in dollars. The Saudia Arabia mess about Syria has blown wide open that Obomber is just a Saudi Puppet bowing to his masters and trying, desperately <cough, false flag, cough> to incite a war in Syria in order to get Saudi gas pipelines routed through Syria to feed Europe.
And now, the US has been exposed as being a patsy to Iran, and the French surrender afficionados have had to come to our rescue as having the only backbone in the group to stand up against the absurd surrender terms?
And it is the Russians who are staunchly advocating peace, who took in a US national to protect him from the murderous USA spying agencies trying to silence his whistleblowing of massive, illegal spying, of USA citizens and EVERY SINGLE WORLD LEADER!?
This is crazy talk. But, it is very much fact, and very much happening right now, in real time.
Is everyone preparing, or not?
Connect the dots, and view things with an open, clear mind. Then, putting the anger aside, reach a rational conclusion of the steps to take to prepare, and do so, accordingly.
Oh yeah, and the answer to the initial question, is simple yet profound. Those people, of the regimes who were the hegemons of the time? Well, they went on living, as the economically powerful nations elsewhere rose and faded away, like the ebbing of the tide. Life just went on. Just like ours will, only differently.
Enhanced by Zemanta

About the Author


silver66 · Nov 14, 2013 - 12:46am


CL put together very nicely. Right there in front of us, well laid out


boomer sooner · Nov 14, 2013 - 1:10am

Firrrrst! Sorry had to do


Sorry had to do it.

Dire, I say.

Thanks CL.

Add: I was at a customers home today and we started talking about economy and the dollar. He had no idea what the term 'fiat currency' stood for. I pulled out a paper dollar and explained, then pulled out a '23 Peace dollar out of my pocket. Just happened to have a $5 Mt Rushmore in the truck. His eyes started to shine. This person is successful (currently building a mid six figure home mostly with cash, taken him 3 years) and travels throughout the country as an independent insurance adjustor. Blew my mind he had no idea. The sheeple are closer than you think. I still believe he does not grasp what is happening to the good ol' US of A.

Spartacus Rex · Nov 14, 2013 - 1:10am

@ CL - Speeding Up the Learning Curve

Have you yet had a chance to read G. Edward Griffin's Book The Creature from Jekyll Island (1994, presently in 5th edition) or perhaps even Gertrude Coogan's work "Money Creators" from 1935 (available for free online)?

Hagarth · Nov 14, 2013 - 1:46am

Today marks the day

that another light bulb came on. Syria is of great consequence, Saudi royals own a % share of the Federal reserve (thanks to Mr. Comiskey Nov 13, 2013), the Russians attempt to make them happy if the US cannot, plus Syria is taking far too long for comfort as the Royal family starts its internal squabbling for Lead Hand on the Saudi Arabian sandy beaches. Whomever can get the Syrians ousted or have them change their minds to allow access to Europe is going to be the winner. The machinations for pleasing the Saudi Royal family has been ongoing, a deal will be struck but with what country?

Sure the Fed is a marker that can be used by whomever pleases the Saudis the most, the Syrian government is toast, now its just a matter of time before the greater powers manage to do them in. No one wants the FED around anymore, do they? If so why has the government of the USA stripped mined the entire country, its values, ethics, manufacturing, and most of all trust. IF one country could influence the Saudi hierarachy to sell its share off or to vote a certain way that would undermine the USD or confidence for even a short bit of time the upper hand could be leveraged, changing the chess board and messing up years worth of planning. 

boomer sooner · Nov 14, 2013 - 1:56am

How is someone who is not

How is someone who is not paying attention going to recognize that the digits on a screen are becoming worth less when the digits are not getting smaller. It is one thing to go to the grocery store and pay cash vs plastic. My wife has no idea how much more our feed bill is this year compared to 2 years ago (30%+). I see not only in myself, but in my children, that when a $100 bill is in hand you are less likely to break it rather than a piece of plastic that has $100 credit. Went to Waly World tonight to pick up some hunting gear and purchased some butt cartridge holders that I would probably not have purchased if I had not whipped out the plastic. ( Yes, I pay off monthly, but JPM gives 1% back, and that turns into shiney 2x per year (20-40 oz per) for free, then fishing and boat flips). My question is when do the masses begin to realize, oh $hit! Looking at Germany in the 20's it took appx. 4 years to really accelerate. So from what we see as D day, will it take 4+ years for the $ curve to go vertical (down) or have we already started the climb (due to monitizing the debt). Sorry if confusing, I'm a dollar in dollar out person, net happens to be what is left, not what my account conjures up at the end of the year. Yes, I majored in accounting at Hicksville higher ed, so much for public university.

Spartacus Rex · Nov 14, 2013 - 2:03am

@ Hagarth

Re: "IF one country could influence the Saudi hierarachy to sell its share off or to vote a certain way that would undermine the USD or confidence for even a short bit of time the upper hand could be leveraged, changing the chess board and messing up years worth of planning. "

Gee, how about I move to nominate Canada & you second that motion?

Seriously, China is already attempting making such a move, and that is why the U.S. has sooo many Military Bases in the ME. Change horses in the middle of the stream? Only if Saudi Arabia wants to be turned into glass parking lot overnight!

boomer sooner · Nov 14, 2013 - 2:12am

A great link in the comments

A great link in the comments of CL's first link. Back to basics.


Quantifying the effects of the collapse of the Roman Empire is not an exact science. But from the start to the finish of the first millenium AD, according to the economic historian Angus Maddison, the economy of Western Europe shrank by around a quarter, and that of Italy itself by nearly half.

What this meant for Britain has been spelt out by the Oxford historian Bryan Ward-Perkins. After the Romans left in 410 AD, the archaeological record suggests that the economy slumped to a much more primitive level than on their arrival nearly 400 years earlier.

The reason is clear enough. The more complex and specialised an economy becomes, the more helpless its individuals are in the face of breakdown. The Romans introduced a higher level of complexity to Britain, then took it back home again.

Spartacus Rex · Nov 14, 2013 - 2:58am

Hope versus Gold – Place Your Bets

Gary Christenson | November 13, 2013

The inevitable conclusion of this article by Gary Christenson is that, over the long term, money supply, debt, and prices will increase until there is a systemic reset or crash. What will endure throughout the inevitable inflation, deflation, and crash? Gold and silver will endure. Paper assets are only as good as the collateral backing them, and many of those assets could vaporize in a systemic reset. Physical gold and silver will survive and maintain their value, while the dollar and Treasury Debt may lose a good portion of their value and purchasing power.

The BIG Perspective is shown on the following “Point & Figure” chart from Ron Rosen. This type of chart plots price on the “y” axis while the “x” axis shows time but without uniform distance between years. The long term trend has been up since 1970 and 2001, while the intermediate trend has been down for the past 26 months.

gold price 1970 2013 money currency

The following are logarithmic charts of the official U.S. national debt, gold, silver, and crude oil for the past three to four decades.

US national debt 1970 2013 money currencygold price 1978 2013 money currencysilver price 1978 2013 money currencyoil price 1970 2013 money currency

Clearly the long term trends are up. Why? 

  • A debt based paper currency system must expand to survive! 
  • The Fed needs an increasing money supply and more debt.
  • Congress and the administration aggressively spend money, borrow money, and increase the national debt. It will take a real crisis to change this – much worse than a phony debt ceiling crisis.
  • The financial industry wants to churn more paper assets, debt, derivatives, and volatility to increase their profits.

Is your strategy based on hope or change?

Hope is not a good basis for an investment plan. Hope is not a viable foundation for a political philosophy or for the actions of a government. Hope will not pay the bills, reduce the debt, or return sanity to an out-of-control spending process.

Ask yourself how well these are working:

  • We spent the rent money on lottery tickets and booze. We hope something good happens soon.
  • We spent a few $Trillion on useless wars in the middle-east. We hope it helped.
  • We spent $17,000,000,000,000 more than our revenue. We hope it is not a problem.
  • We sold or “leased” much of our accumulated gold and sent it to China. We hope nobody noticed and that it will not matter.
  • We hope to increase taxes and reduce benefits while increasing consumer prices and we hope to keep the people happy and voting for the incumbents. (This is also change.)
  • We hope to actually pass a budget real soon. (Congress has not passed a budget in the past five years. Did anyone notice or care?)
  • We hope to reduce the deficit real soon.
  • We hope the Federal Reserve and the politicians will make it all better.
  • We hope that hope and change will begin to work real soon.
  • We hope we don’t have another stock market or bond market crash.

As for “CHANGE” – it can be positive or negative. Not all change is good. We “HOPED” for better government and we received Obamacare. Was that a positive change?

Gee, we hope that the 10 Million or so people whose insurance plans will be cancelled and who will be forced to purchase new health insurance policies at much higher rates are okay with the change, increased deductibles and the increased costs. We hope they don’t get upset or angry or think someone lied to them.

Gold and Silver! 

Dr. Phil says that the best predictor of future behavior is relevant past behavior. Using that thought it seems clear that:

1) The official national debt will continue to exponentially increase like it has for more than four decades.

2) The dollar will continue to decline in purchasing power like it has for the past 100 years.

3) Gold and silver will continue to (erratically) increase in price like they have for the past 40 years.

4) Gold and silver will hold their value and purchasing power like they have for 5,000 years.

5) Government deficit spending and borrowing will continue.

6) There will be another budget crisis, and another, and another.

7) Politicians will talk, make promises, and become much wealthier while the middle and lower classes find their expenses increasing far more rapidly than their incomes. We will re-elect those politicians.

8) Hope and change will continue to produce what they have so far – nothing but more debt.

9) Gold and silver will outlast hope, change, paper money, treasury debt, and political promises. Most people do not and will not understand why!

So, place your bets!

paper vs gold 2013 money currency

Most people will stick with what they know – paper currency, debt based paper assets, political promises, hope and change, and reality television. The choice is yours, but you will have a better financial future and more peace of mind if you invest in something real and valuable.

More to consider:
Created Currencies … Are Not Gold!
We Have Been Warned – Part 3
What You Think Is True Might Be False and Costly

GE Christenson | The Deviant Investor 


Spartacus Rex · Nov 14, 2013 - 3:01am

Paul Craig Roberts: What Is The Real Agenda...?

What Is The Real Agenda Of The American Police State?

Paul Craig Roberts

In my last column I emphasized that it was important for American citizens to demand to know what the real agendas are behind the wars of choice by the Bush and Obama regimes. These are major long term wars each lasting two to three times as long as World War II. Forbes reports that one million US soldiers have been injured in the Iraq and Afghanistan wars.https://www.forbes.com/sites/rebeccaruiz/2013/11/04/report-a-million-veterans-injured-in-iraq-afghanistan-wars/ RT reports that the cost of keeping each US soldier in Afghanistan has risen from $1.3 million per soldier to $2.1 million per soldier. https://rt.com/usa/us-afghanistan-pentagon-troops-budget-721/ Matthew J. Nasuti reports in the Kabul Press that it cost US taxpayers $50 million to kill one Taliban soldier. That means it cost $1 billion to kill 20 Taliban fighters. https://kabulpress.org/my/spip.php?article32304 This is a war that can be won only at the cost of the total bankruptcy of the United States.

Joseph Stiglitz and Linda Bilmes have estimated that the current out-of-pocket and already incurred future costs of the Afghan and Iraq wars is at least $6 trillion.

In other words, it is the cost of these two wars that explain the explosion of the US public debt and the economic and political problems associated with this large debt.

What has America gained in return for $6 trillion and one million injured soldiers, many very severely?

In Iraq there is now an Islamist Shia regime allied with Iran in place of a secular Sunni regime that was an enemy of Iran, one as dictatorial as the other, presiding over war ruins, ongoing violence as high as during the attempted US occupation, and extraordinary birth defects from the toxic substances associated with the US invasion and occupation.

In Afghanistan there is an undefeated and apparently undefeatable Taliban and a revived drug trade that is flooding the Western world with drugs.

The icing on these Bush and Obama “successes” are demands from around the world that Americans and former British PM Tony Blair be held accountable for their war crimes. Certainly, Washington’s reputation has plummeted as a result of these two wars. No governments anywhere are any longer sufficiently gullible as to believe anything that Washington says.

These are huge costs for wars for which we have no explanation.

The Bush/Obama regimes have come up with various cover stories: a “war on terror,”
“we have to kill them over there before they come over here,” “weapons of mass destruction,” revenge for 9/11, Osama bin Laden (who died of his illnesses in December 2001 as was widely reported at the time).

None of these explanations are viable. Neither the Taliban nor Saddam Hussein were engaged in terrorism in the US. As the weapons inspectors informed the Bush regime, there were no WMD in Iraq. Invading Muslim countries and slaughtering civilians is more likely to create terrorists than to suppress them. According to the official story, the 9/11 hijackers and Osama bin Laden were Saudi Arabians, not Afghans or Iraqis. Yet it wasn’t Saudi Arabia that was invaded.

Democracy and accountable government simply does not exist when the executive branch can take a country to wars in behalf of secret agendas operating behind cover stories that are transparent lies.

It is just as important to ask these same questions about the agenda of the US police state. Why have Bush and Obama removed the protection of law as a shield of the people and turned law into a weapon in the hands of the executive branch? How are Americans made safer by the overthrow of their civil liberties? Indefinite detention and execution without due process of law are the hallmarks of the tyrannical state. They are terrorism, not a protection against terrorism. Why is every communication of every American and apparently the communications of most other people in the world, including Washington’s most trusted European allies, subject to being intercepted and stored in a gigantic police state database? How does this protect Americans from terrorists?

Why is it necessary for Washington to attack the freedom of the press and speech, to run roughshod over the legislation that protects whistleblowers such as Bradley Manning and Edward Snowden, to criminalize dissent and protests, and to threaten journalists such as Julian Assange, Glenn Greenwald, and Fox News reporter James Rosen? https://www.nytimes.com/2013/05/22/opinion/another-chilling-leak-investigation.html?_r=0

How does keeping citizens ignorant of their government’s crimes make citizens safe from terrorists?

These persecutions of truth-tellers have nothing whatsoever to do with “national security” and “keeping Americans safe from terrorists.” The only purpose of these persecutions is to protect the executive branch from having its crimes revealed. Some of Washington’s crimes are so horrendous that the International Criminal Court would issue a death sentence if those guilty could be brought to trial. A government that will destroy the constitutional protections of free speech and a free press in order to prevent its criminal actions from being disclosed is a tyrannical government.

One hesitates to ask these questions and to make even the most obvious remarks out of fear not only of being put on a watch list and framed on some charge or the other, but also out of fear that such questions might provoke a false flag attack that could be used to justify the police state that has been put in place.

Perhaps that was what the Boston Marathon Bombing was. Evidence of the two brothers’ guilt has taken backseat to the government’s claims. There is nothing new about government frame-ups of patsies. What is new and unprecedented is the lockdown of Boston and its suburbs, the appearance of 10,000 heavily armed troops and tanks to patrol the streets and search without warrants the homes of citizens, all in the name of protecting the public from one wounded 19 year old kid.

Not only has nothing like this ever before happened in the US, but also it could not have been organized on the spur of the moment. It had to have been already in place waiting for the event. This was a trial run for what is to come.

Unaware Americans, especially gullible “law and order conservatives,” have no idea about the militarization of even their local police. I have watched local police forces train at gun clubs. The police are taught to shoot first not once but many times, to protect their lives first at all costs, and not to risk their lives by asking questions. This is why the 13-year old kid with the toy rifle was shot to pieces. Questioning would have revealed that it was a toy gun, but questioning the “suspect” might have endangered the precious police who are trained to take no risks whatsoever.

The police operate according to Obama’s presidential kill power: murder first then create a case against the victim.

In other words, dear American citizen, you life is worth nothing, but the police whom you pay, are not only unaccountable but also their lives are invaluable. If you get killed in their line of duty, it is no big deal. But don’t you injure a police goon thug in an act of self-defense. I mean, who do you think you are, some kind of mythical free American with rights?

Further reading:















SS121 · Nov 14, 2013 - 3:17am

Where Silver fits into all of this....

The U.S. Dollar is the cornerstone of the World Fiat Currency (WFC) system and can not be replaced. The European academics said as much in their paper .


This paper suggests that the dollar is not threatened as the hegemonic international currency, and that most analysts are incapable of understanding the resilience of the dollar, not only because they ignore the theories of monetary hegemonic stability or what, more recently, has been termed the geography of money, but also as a result of an incomplete understanding of what a monetary hegemon does.

But even if it is the cornerstone, hegemony, or 'reserve currency', the U.S. Dollar is still just one of 180 or so other fiat currencies that are all strung together by Central Banks, exchanges, and international trade practices into what is functionally "ONE" World Fiat Currency (WFC).

What happens to all fiat currencies, even world-wide ones? They are always destroyed as Silver and Gold naturally return to their monetary role in the hearts and minds of whatever people the fiat currencies have been foisted upon. Which in this case, is pretty much "everybody".

Only Silver and Gold are Money

Spartacus Rex · Nov 14, 2013 - 3:42am

Simon Black: Senior bank executives explain how...

Senior bank executives explain how US dominance is declining…


November 13, 2013

By the early 4th century AD, the Roman Empire was suffering tremendous turmoil, including plague, barbarian invasions, deep recession, civil wars, coups, etc.

Much of this had been brought on by Rome’s utterly dismal economic condition.

The government simply did not have enough money to sustain its operations, let alone pay for all the generous welfare programs needed to placate the population.

So as you could imagine, they decided to make up the difference by debasing the currency.

Roman coins were being debased so rapidly that they eventually lost credibility as a medium of exchange among the merchant class. As a result, the empire’s once vast trade network practically collapsed.

With such an abrupt decline in commerce, the government’s tax revenue also declined. In 301 AD, things got so desperate that Diocletian stepped in with a ‘solution’.

First, he blamed evil speculators for all the inflation, imposing the death penalty on some of them.

Then he issued what is arguably the dumbest law in the history of the world– his now infamous Edict on Maximum Prices, which imposed price controls for a thousand goods and services from wine to clothing to wages.

Of course, any high school economics student can tell you that price controls don’t work. And they didn’t work for Diocletian either.

The long-term effect of the law was devastating. Inflation and shortages soon prevailed. And there was a mass exodus of rich and poor alike who fled the empire seeking a better life elsewhere.

One could argue that this was the straw that broke the camel’s back for Rome.

Ironically, Diocletian was actually attempting to ‘reform’ the system, not to send Rome over the cliff. Yet this is one of countless historical examples of how the road to ruin is almost always paved with good intentions.

Just like Diocletian, our modern politicians continually make attempts to ‘fix’ things. Yet their attempts fail miserably, typically making the situation worse.

Two of the most destructive laws recently passed by the US government, for example, are the (1) the Dodd-Frank Wall Street Reform and Consumer Protection Act and (2) the Foreign Account Tax Compliance Act (FATCA).

Like Diocletian’s Edict, these laws are attempts to reform the system. Yet the results have been disastrous. In particular, they’ve destroyed one of the last competitive advantages that the United States has today: the dominance of its banking system.

The US banking system is really the foundation of the global banking system; an international wire transfer from, say, Thailand to Colombia will pass through one or two of the big Wall Street banks before reaching its final destination.

Nearly every bank in the world relies on the US banking system. It’s critical.

Yet each of these laws creates debilitating, onerous regulations that foreign banks are required to follow.

It’s the height of arrogance that the US government expects to be able to regulate and control foreign banks.

But the only thing the laws are really doing is accelerating the creation of a new standard for international banking– one that minimizes US influence.

As I’ve been on the ground here in Singapore for the last several days meeting with a number of bankers, this is becoming very clear.

Many senior bank executives have explained to me that they are rapidly expanding their regional ‘corresponding bank’ relationships. They’ve also told me how non-US dollar cross border trade is really taking off.

In other words, Asia is beginning to declare its financial independence by establishing its own system to avoid the US banks. Places like Singapore and Hong Kong are becoming the primary settlement and correspondence centers, rather than the US.

All of this substantially reduces US power and influence. So like Diocletian’s Edict, these ‘reform’ laws have had the exact opposite effect as the US government intended.

Foreign banks are complying for now. But quite soon, the United States will end up losing one of the few remaining jewels of its global financial dominance.

by Simon Black


Spartacus Rex · Nov 14, 2013 - 3:58am

Bitcoin: A Currency the Fed Can’t Figure Out by Jeffrey Tucker

Now, this is sheer entertainment. The Chicago branch of the Federal Reserve has addressed the great monetary question of our day. A researcher has taken a detailed look at the prospects for market-based crypto-currency, with a special focus on Bitcoin. It concludes that Bitcoin is not a viable replacement for the dollar. The report includes some dark hints that should it ever become so, it should probably be crushed.

What’s funny and fascinating is to follow the thinking here. What you discover is the greatest act of Freudian projection I’ve ever seen in a Federal Reserve study.

Bitcoin keeps going up in value relative to the goods and services it buys. That’s a pretty weird and unprecedented thing.

“It is hard to imagine a world,” says the unimaginative study, “where the main currency is based on an extremely complex code understood only by a few and controlled by even fewer, without accountability, arbitration, or recourse.”

Blink, blink. This is the Fed talking here. Talk about complex. When the Fed governor speaks in Congress, he (soon she) speaks in such a blithering array of econ-babble that no one dare respond, for fear of seeming ignorant. It’s like the first day of an Intro to Physics class. The professor asks if there are questions, and everyone sits in terror.

In a half-century of this nonsense, only Ron Paul ever really dared to ask serious questions of the Fed. The main way the Fed avoids questions is to blind people with crazy statistics and complex analysis. One might say that the Fed’s management of the dollar is based on “extremely complex code understood only by a few.”

But no, this is what the Fed says of Bitcoin, an open-source protocol that anyone can download, examine, and critique, a currency that has its every single transaction logged in a public ledger in the cloud. Never in history has there been a more transparent money.

It gets better. Here is another example of the Fed “criticizing” Bitcoin. Recall that no government agency created Bitcoin. It was an invention of one person or team that wrote up the protocol for a perfect money and dumped it on an obscure Internet forum. Eight months later, it obtained a market value. Since then, it has grown and grown and is now being used all over the world. It has a market capitalization of $4.5 billion, and the exchange rate to the dollar shows ever increasing value.

This has all been accomplished without any third-party sponsorship or support from the state. That’s a bit embarrassing for an agency that claims to be absolutely essential for the management of the U.S. monetary and global empire. We could never abolish this wonderful institution!

So how does the Fed account for Bitcoin? “Bitcoin is free of the power of the state,” says the report, “but it is also outside the protection of the state.”

Scary! The writer presumes that everyone believes the state has been protecting the dollar! If you assume that 100 years ago, when the Fed was created, $1 dollar was worth $1, today it’s worth less than 5 cents.

In contrast, Bitcoin keeps going up in value relative to the goods and services it buys. That’s a pretty weird and unprecedented thing. In other words, if you hold Bitcoin, you actually see your wealth grow even without investing. That is the way sound money works. It is what the Fed decries as “deflationary,” a word that only means it gets more valuable.

The Fed assures us that “throughout most of Western history, the state has involved itself in money. At a minimum, the state has used money as a coordinating device, usually supporting its value by accepting it in the payment of taxes.”

You think being taxed feels like being robbed. The Fed says no. You are being taxed so the dollar will continue to have value. This is a restatement of the “valor impositus” position from the Middle Ages — a great lie from kings that they are the reason anything is right about the world.

It gets even weirder. The report adds, “One main function of money is to free a debtor from his or her obligations, tying money to an essential state function, the administration of justice.”

But actually, the effect of the Fed has been exactly the opposite. There is no way that the government could have racked up a crazy and unpayable $17 trillion debt without the Fed promising to print enough money to bail out the system no matter what. In fact, the whole reason the Fed was created in the first place was to allow the government to go into debt without facing market-based consequences.

In other words, the Fed has not freed us from debtor obligations, but rather imposed vast obligations on us and many generations to come.

The Fed offers one more big criticism of Bitcoin. Here again, the jaw drops. Prepare yourself for this broadside: Bitcoin has “a status of quasi-monopoly in the realm of digital currencies by virtue of its first-mover advantage.”

Yes, a quasi-monopoly. Maybe that should be considered better than the full-blown monopolistic cartel that the dollar represents. What’s next? The Federal Trade Commission needs to get in there and break it up? That would be a very amusing thing to watch.

Bitcoin is called the “honey badger” of currencies for a reason. Its march proceeds regardless.

There has never been a currency more resistant to control by government than Bitcoin. It lives on a distributed network. The feds could take down a trillion copies of the ledger, but it could live again as long as one copy survived. It is exchanged person to person, with no third-party involvement, making it even more resistant.

Plus, the use of cryptography to guarantee the integrity of transactions makes it almost impossible for outsiders to access the identity details behind transactions.

Indeed, this is the whole reason for the structure of Bitcoin. It was made to be state resistant. It was made to thrive without the intervention of a central bank. It has no single point of failure. Therefore, of course, it is driving the elites just about bonkers.

But if this is the best the Fed can do, the future is rather bright. I can’t think of any less plausible criticism than for the Fed to criticize Bitcoin — which the market has been free to accept or reject — as a secretive, complex, and cartelized system.

Meanwhile, Bitcoin is called the “honey badger” of currencies for a reason. Its march proceeds regardless. The supposed bubble and bust of this last March is already looking like growing pains. Even if you bought at the top, you would have already seen a 50% return on your money.

Bitcoin will continue to be misunderstood, smeared, attacked, and denounced. But you know what? Bitcoin just doesn’t care. Every month that goes by, it gets more popular, more useful, more accessible. Someday it could be the new world reserve currency, and it will leave these stuffy researchers in Fed palaces crying into their morning cappuccinos.


Jeffrey Tucker
for The Daily Reckoning

Ed. Note: On matters of money, the Fed’s hypocrisy knows no bounds. But what did you expect? Of course the Fed had to denounce Bitcoin, and for the very reasons it so vehemently supports the U.S. dollar. But nothing lasts forever, and when the tide changes on the current world reserve currency, you’ll want to be prepared. Signing up for the FREE Laissez Faire Today email edition is a good start. Every day Laissez Faire Today readers are treated to the most important essays on liberty and freedom the world has to offer. And it is completely free to sign up. Start getting your daily issues today, right here.

Original article posted on Laissez Faire Today


mac · Nov 14, 2013 - 4:49am

French w/o Napoleon

"...the US has been exposed as being a patsy to Iran, and the French surrender afficionados have had to come to our rescue as having the only backbone in the group to stand up against the absurd surrender terms?"

Really? Is this real, I thought the French refused to go long and it was the French and Saudis who broke up an agreemnet.

The war mongering French have a very large jewish population, too. Maybe they have bought their politicians too, whatya know!

Hagarth · Nov 14, 2013 - 5:02am

@Spartacus Rex Too many times

have I heard the glass theory. It doesn't work as an argument. Seriously you think the Saudis haven't managed to pick a few of their own fission trinkets. 

Having the Kaloti refinery up and running 6 months after the Hong Kong Merchantile Exchange opens is enough of a marker to see where the world is headed. There is enough reason to believe the Saudis are leveraging their wealth into a new system for them to survive, and with outside help they will achieve their goals. Using the FED to understand the machinations of what is the future was a good idea, but ultimately they know one day the USA will leave them to the dustbowl they were raised in. How does that play into their future? Only with partners are the Saudis going to keep their land and wealth, US bases dot the ME for this purpose, General Wesley Clark even declared it in an interview. 

Video unavailable

The Chinese already have the other foothold at the FED, they really don't need Saudi support its the Turks, Russians and Indians that would gain the most from dealing with the Saudi Government. Just saying whom ever manages to deal with Syria gets a prize because this sets the stage for the next Kingship.

· Nov 14, 2013 - 5:02am

Outstanding piece, CL

" Those people, of the regimes who were the hegemons of the time? Well, they went on living, as the economically powerful nations elsewhere rose and faded away, like the ebbing of the tide. Life just went on. Just like ours will, only differently."

That is classic.

Sorry to pollute the thread, but since this (among many) made me laugh out loud, I thought our Canadian and any non-Tweeting friends would especially appreciate it -- BTW, no need to log in, just go to this link:

Know why Rob Ford's really on front page of WSJ? Goldman, CITI, and are fighting for the right to hire him as chief party planner.

Yves Smith, from Naked Capitalism (and you know, I am ashamed to admit this is the first time I realized the double entendre of the proprietor being a female economist)

Given the # of reg violations + scale of fines paid across the bank, please explain why the board hasn't been replaced by livestock? 5h The NSA would like to thank all the volunteers in its experiment. Your contributrions have been duly noted and logged


Is paying $900,000 annually to Wen Jiabao's daughter a cost-effective way to buy influence in China? https://j.mp/18uCeOu

"Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank.

But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions." DealBook, NYTimes

Unfortunate the fail will have absolutely no impact on their financial robberies but at least it allowed for folks a space to vent..

Oh my, the fun just never stops. Apparently over 80K Tweets went out with the hashtag.

Is it time for Jamie to take one for the team? Or is it bigger than just that, is the FRB potentially being thrown under the bus to (somehow) legitimize an ever bigger central bank? Between the WSJ story from Huszar, this debacle and routinely occurring revelations about banks and .gov, is there a point where this begins to register with the general populace?

"See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda."—Greece, N.Y., May 24, 2005

Catapult The Propaganda
Urban Roman · Nov 14, 2013 - 6:43am

An interesting detail of Bitcoin

The architects of BTC were attempting to make, from the ephemeral world of the internet, an adamantine little token that could not be corrupted by counterfeiting. A token that would therefore be constant, like a coin, as it passed from one hand to another.

The interesting detail is this: at the center of all the cryptographic authentication and verification, is a little string of bits, of 0s and 1s. It is called the 'nonce'. Your Bitcoin daemon, at its very heart, is verifying nothing at all.

Hammer · Nov 14, 2013 - 7:09am

Oooh, this is gonna

Oooh, this is gonna sting……….click link for video Obama's law professor on his failures as president 2 hours ago Brazilian Roberto Unger is a leading political philosopher and an advocate of progressive politics. He has taught at Harvard Law School for about 40 years and US President Barack Obama was one of his students in the 1980s. Asked why he moved from welcoming Obama's election in 2008 to calling him a "disaster" for the Democratic party, Mr Unger told HARDtalk the president had failed to "come up with a sequel to Roosevelt's New Deal" of the 1930s. https://www.bbc.co.uk/news/world-us-canada-24931239

Hammer · Nov 14, 2013 - 7:11am

Here is more from the guy

Here is more from the guy

Robert Mangabeira Unger - "Beyond Obama"
ag1969 · Nov 14, 2013 - 7:47am


I had an "Oh Shit!" moment this morning. My nephew is a Marine who was at Camp Pendleton. I spoke with my brother and my nephew is OK. I did not know he had left Camp Pendleton a week ago, but waking up to that news was pretty shocking.

I hate the fact that my Nephew, whom I love dearly, is a Marine. I respect the hell out of the courage that kid has, but I also know what he is fighting for and it tears me up. A very strange world we live in. I wish the best for my nephew and all the kids just like him in the military.

TreeTop Dweller · Nov 14, 2013 - 8:20am

Is It Really That Simple?

Big Daddy Hemp switches from Kitco to to GoldSeek.com and we go green for the A.M session?

Should have switched from kitco a long time ago!

Congrats TFMetals!

Occasnltrvlr · Nov 14, 2013 - 8:24am

Algos Driving the 10-Year

Chalk one up for the Jackass:

DayStar · Nov 14, 2013 - 8:26am

RE: What Happens Next?

The history to which you compared the demise of the dollar were instances of currency change within the same western civilization. These were not changes where a change of the entire political infrastructure caused the change of reserve currency status, such as happened the fall of Babylon. Then you have comparable currency crashes, because alien regimes took over, and that is what is happening in America. We are facing a hostile take over, and the results will be more comparable to Babylon in 539 BC when Babylon fell in one night to the Persians that came in under the wall than to the Dutch guilder losing reserve currency status. Like in Babylon, we can expect the victors to attempt to impose total control after they reduce us economically. 


ag1969 · Nov 14, 2013 - 8:45am

It looks to me like Canada...

...is anticipating a big increase in the silver price. A 2014 1 0z silver coin with a $100 face value.

Composition: fine silver (99.99% pure)
Finish: matte proof
Weight: 31.6g
Diameter: 40mm
Edge: serrated
Face Value: 100 dollars
Certificate: not serialized
Mintage: 50,000
· Nov 14, 2013 - 9:13am

This is terrific!

First of all, CaL, great post!

Everyone should be sure to check out this post from Jesse: https://jessescrossroadscafe.blogspot.com/2013/11/registered-gold-by-individual-comex.html

Gold stocks broken down by depository and shown graphically. Very good stuff.

achmachat · Nov 14, 2013 - 9:18am

Turd... your link

it makes me furious!

This is not some kind of conspiracy theory! The numbers are out there, right in the open for everybody to see!

More than 60 owners per ounce of gold. So what would happen if just 1/60th (!!!) wanted "their" gold in their own vault?

tmosley · Nov 14, 2013 - 9:24am

I tend to find myself

I tend to find myself disappointed with Western perspectives of history. If one were to look back JUST A LITTLE further than that classic chart showing world reserve currency and JUST A LITTLE further afield, one would find that there was, in fact, a hegemonic state that had a fiat currency. That is, China, under Mongolian rule--the aptly named Yuan Dynasty.

The Yuan Dynasty, like the USA, was militarily unassailable. There was no nation or group of barbarians capable of taking over China. Like the USA was until 1975, it was illegal for non-governmental officials to possess gold within the borders of China--Marco Polo recounted this--gold was exchanged at the border for "flying money", which was the second instance in history of a fiat paper currency, and the first where said currency became legal tender. Unlike the USA, they also prohibited the possession of silver.

So what became of this unassailable hegemon that conquered the world all the way to the gates of Europe and Africa? They collapsed in a civil war after three bouts of hyperinflation. Their fiat currency regime was the longest lived in human history, lasting some 59 years. Afterwards, they remained on a metal standard until the modern era. Lesson learned, it seems. At least for a while.

Money printing fuels war and conquest, and leads to destruction and collapse. Hard currency fuels growth and production, and leads to prosperity.

Also of note is that the resulting civil war lead to a loss of 22 million Chinese, or 25% of their population. Lessons from history need to be learned lest we meet a simiar fate.

ancientmoney · Nov 14, 2013 - 9:27am

Re: this is terrific . . .

I know when the manipulation ends on comex exchange. When the ratio of stocks to open interest is infinity:0

Should be there before Dec13 is over.

tyberious · Nov 14, 2013 - 9:47am

Great Post CL.

Spartacus Rex thanks for the Gary Christenson charts!

Great way to start my day guys!!

Thanks All!

· Nov 14, 2013 - 9:56am

@tmosely That's interesting


That's interesting about the Flying Money. Thanks for mentioning it.

kardnul · Nov 14, 2013 - 10:01am

Excellent write-up CL

"This is crazy talk. But, it is very much fact, and very much happening right now, in real time." ---------------------------------------------------------------------------------------- In the last 30 years, we have seen the Russian and Chinese political and economic structures implode, only to reinvent themselves as emerging dominant forces on the global scene, while it appears our system is about to take its turn of imploding. Prepare accordingly indeed.

Notice: If you do not see your new comment immediately, do not be alarmed. We are currently refreshing new comments approximately every 2 minutes to better manage performance while working on other issues. Thank you for your patience.

Become a gold member and subscribe to Turd's Vault


Donate  Shop

Get Your Subscriber Benefits

Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

Key Economic Events week of 12/10

12/11 8:30 ET Producer Price Index
12/12 8:30 ET Consumer Price Index
12/13 8:30 ET Import Price Index
12/14 8:30 ET Retail Sales
12/14 9:15 ET Industrial Prod. and Cap. Utilization
12/14 10:00 ET Business Inventories

Key Economic Events week of 11/26

11/27 9:00 ET Case-Schiller home prices
11/27 10:00 ET Consumer Confidence
11/28 8:30 ET Q3 GDP 2nd guess
11/28 10:00 ET New home sales
11/29 8:30 ET Personal Income and Spending
11/29 10:00 ET Pending home sales
11/29 2:00 ET November FOMC minutes

Key Economic Events week of 11/19

11/20 8:30 ET Housing Starts
11/21 8:30 ET Durable Goods
11/21 10:00 ET UMich Sentiment
11/21 10:00 ET LEIII
11/21 10:00 ET Existing Home Sales