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The price of gold has been trending higher as of late and, as a bearing importer, that has me worried.
While a lot of talk has been bandied about that gold is a “barbarous relic”, a lot of people think it is a good store of value and it is shiny. And, unlike today's currency can't be printed or created by typing on a computer. So, what is money? Is it the fiat stuff we have had for the last 40 years? Or is it the shiny stuff we used for the 4,000 years before that?
The fact of the matter is, the U.S. dollar has been used as the world's reserve currency since WWII. That is a weighty responsibility but it is also an “exorbitant privilege” as was decried by the French.
Why is it such a privelege? Because dollars are used to buy everything from German cars to Saudi Oil, people are happy to accept dollars as payment rather than things (like gold or food or cars). This means we can print all kinds of dollars that flow out into the world and cause inflation in other countries but not here. It is called “exporting inflation”.
Other countries holding U.S. treasury bonds instead of gold also means that we can run huge budget deficits year after year. Guns or butter? Let's have both. We can borrow it from the Saudi's, the Japanese and the Chinese.
But lately things have started to change. The Chinese are dumping their U.S. treasuries. The Saudis are blackmailing us, saying they will dump their treasuries if we pass a certain piece of legslation. The Japanese are still willing buyers but their economy is not what it once was.
The Chinese and the Russians seem to be buying and holding a lot more gold. They have come up with alternatives to the U.S. SWIFT banking system. And now China has set up a precious metals exchange where Gold and Silver can be traded in Yuan.
What does this mean? It means that the dollars days as the world reserve currency may be coming to an end soon. The exorbitant privelege the U.S. has enjoyed for so many years may be going away. If it does, we will be paying much, much more for our imports and all of that inflation that we exported...it will be coming home to roost.
I hope I am wrong, but now might be a good time to stock up on inexpensive ball bearings while we can.