Duality of value is a funny thing.
If you have a gun pointed at me and I have an identical gun pointed at you, they (the guns) are worth the same. Yet, if I am wearing a bullet-proof vest, my gun has more worth. Not much, just a little more. Strategic location! In 1933 dollars outside the US were worth their weight in gold. Yet, inside the US they were not. The same dollar had a dual value dependent on location.
Oil, gold, minerals and one's bank account can all have dual values based on their strategic location. Another form of duality exists for most things. Gold has a jewelry value and a monetary value. Its price is reflected in the degree of total demand generated from each value. In fact everything we own has our personal sentimental worth and a "monetary" value. After 1980, oil also reflected this different duality.
In the late 60's and early 70's some US strategic leaders were beginning to understand the "monetary value" of oil. It was becoming clear that local oil reserves, not gold was the real backing behind the robust US economic engine. Like gold today, oil back then was worth a whole lot more than the amount we were paying for it.
It was recognized that even though the old (gold) money system of the 60's had priced oil favorably for the US, its (US) oil reserves were running out at that price. We needed a higher price for oil in order to build local reserves. At the very least, we needed higher prices to discover higher cost reserves located in the "Strategic Americas" (both north and south).
The potential (indeed, it was reality at that time) for the Middle East to continue producing reasonably priced oil for gold (dollars) stood in the way these needed higher prices. In order to resolve this, we moved off the gold standard (1971) and onto the oil standard. Again, in hindsight it was a masterful play. You see, in duality, oil in the Middle east was worth more than other oil if it could back the dollar in world settlement.
The US had already placed it's currency on an oil standard years before (in practice anyway). They were expanding the money supply directly in relation with the increased production of goods that modern oil use was providing. Of course they ran away with the process as is always the case. Gunning the debt money supply and justifying it by extrapolating growth at ever increasing rates. Dollar creation overran the ability of the gold exchange standard to balance it. Still, in all fairness, the old system was built on a much slower creation of production efficiencies and couldn't accommodate this modern surge of wealth (and debt). Let's face it, the world has no precedent for the last 30 years of growth.
After 1971, the value of the gold backing lost, was found in oil. In reality, the value of oil to the world economy was increasing much faster than value of gold lost from dollar default. Even at the higher prices per barrel the need and demand for oil proved to be a far superior "monetary backing" for the dollar than gold. As long as the majority of oil producers agreed to receive dollars for oil, the stage was set for a renewed surge in growth the world over.
During the '70's, dollar price inflation was bad, but by no means did we see the "runaway price inflation" that should have come from a reserve currency without gold backing.
In practical theory, oil now backed the dollar as world oil payments were settled in dollars. In return, gold now backed oil from a US guarantee of an open market for the metal. Over time, a portion of oil dollars could be replaced with real gold through actual physical purchases or in participation with evolving world gold banking (paper gold). Even though the dollar gold price had surged, the higher oil prices were allowing a percentage of those dollars to be converted back into gold at the old gold/oil rate. [Note: After the gold window closed, dollars surrendered for gold REMAINED in circulation!]
Slowly, the old dollar holdings (prior to 71) were effectively being used to reclaim gold. The expansion of the world dollar money supply was seen as reflecting the more modern importance (value) of oil in the economy. As long as growth in the production of economic goods outstripped dollar price inflation, the dollar could be expanded to match the unrealized value held in oil.
Again, "strategic location" of the world's major oil reserves was the backbone behind this "duality" in oil's value. Gold in Fort Knox could not back the dollar anymore, because the US had shown that they could just withdraw it from backing. In fact, the entire validity of backing ANY currency with a fixed gold amount was in question with this new age of "super nation blocks". For it to work again, gold and the reserve currency backed by it would have to reside in different "power blocks" to guarantee delivery. That wasn't going to happen. Indeed, with supply of the world's major oil reserves being controlled outside the US, the dollar was now backed more effectively by a commodity that could be used to devalue it (through the oil price) should the money supply run wild.
[See The Judgement of Value. This is key. If I print dollars, the judgement of value of those dollars belongs to whomever I offer them to. Under the gold standard, the value of the dollar was set by the printer himself. An unstable and unsustainable system!]
This system [of EXTERNAL backing] came into balance, as the value received from oil by the goods producing world outran the loss from price inflation initially created from rising oil prices.
Today, the situation is changing in a much more dramatic way.
Throughout the 80's and 90's, an increasing dollar reserve base impacted the economies of foreign nations as the US dollar trade deficit and the debt that represented it expanded without relief. After over three decades of non-stop foreign dollar inflation, the dollar float has become so large that any transition from dollar settlement into "Other" settlement will permanently remove it from reserve status. These events we will witness and document will be the "Facts" of a dollar fall from grace.
The strong US economic success [is best expressed] in our SOL (Standard Of Living). Dollar exchange rates, interest on dollars, stock market values, home values all represent what an American "can buy" if they decide to spend their wealth. Not what they presently have as owned wealth, paid up 100% [or liquidated 100%]. This leveraging of dollars created an "illusion of savings" that in effect allowed a high SOL.
In other words, we lived high on the hog because our equity values and savings don't really exist. Time has transformed the entire dollar system into a giant "futures contract" that only represents the wealth we could obtain in partial "future purchases". Just like the gold market, we mostly trade paper wealth and call it real. Yet, if a large percentage demand for delivery ever happened, the contracts would fail. Yes, our wealth and economy status is really based on us cashing in and buying just a little at a time. If we didn't, the illusion would be exposed.
Our present dollar economy is "super leveraged" not just into the future of US goods production, but it also completely depends on future foreign fulfillment to produce those real goods. Truly, most of our present sizeable financial wealth is little more than a function of the "acceptance of dollars overseas" by others.
In reality, if this foreign reserves chart was ever forced into reverse, no amount of real US goods production could be bought using present dollar price rates.
Foreigners could never spend their dollars at a rate that matches our SOL values. Indeed, some of the biggest players now know it! It's all an illusion that has spanned 35+ years from the loss of the gold standard and it's about to be tested.
Indeed, even now the paper gold market expressed a major "duality" in real value depending on the strategic location of it's contracts. Some leveraged gold banking backed with Euroland guarantees is today far superior after the Euro success. [See Deutsche Bank and the ECB] (I think this concept is hard on most people. Still, it will look much different after the train wreck that is coming.)
Going further into the duality of values, Oil prices today are on the rise and doing so in total conflict to perceived marketplace function. It's no mistake as to why this dollar price rise is happening now. Just as a high gold price would expose the dollar by presenting it's true past inflation (world dollar money supply growth), a rising oil price exposes the US economy to the super leverage it contains. Especially if one can grasp how that economy was built on oil backing through dollar settlement. Once the threat of a dollar crash is made possible by high oil, expect big oil to run elsewhere for settlement for international trade. Perhaps run is not a good word? Let's just say a transition will begin that shows the world the trail ahead.
But the market has yet to fully grasp the impact of these events and still bids contract gold at par.
Our [FOA and ANOTHER] stance is and always has been that the world will be using paper digital currencies for the rest of our lifetime. I for one, have never heard any official voice his stance that we will move back into a gold standard. Their direction has always been to keep a reserve currency system and strengthen it with a free physical gold market trading in the background. In none of our meetings have we heard where a fear was expressed that the governments will lose control of digital currencies and give it (control) back to gold. That is simply not going to happen, no matter how severe a down turn the loss of the American dollar system creates. Believe it.
The dollar system is failing as we move into another stronger (relative to fiat currencies) money system. The future will see us all using digital currencies, for better or worse. Therefore, by logical extension if I must use a reserve currency of account, I move into one that has the best strategic ability to survive and denominate my assets. In addition, the Euro's creators are restructuring the gold market to the physical bullion holders advantage. This is the only reason I "Walk In The Footsteps Of Giants". They created this bullion path and the world will follow in due time. Therefore, my position of Euro assets and physical gold. Mostly (because I am American), I lean to gold for this transition.
One can take the radical position that the world financial system is going to end without the dollar. You can also say that the Euro will fail as this process evolves. One can buy gold for these reasons only and still prosper, whether your grasp of politics leads you to this conclusion or not. Our sole reason for writing is a private commission to share official directions and perceptions with the average citizen of the world. Nothing else.
Still, stand alone logic and history promote that the world will lose the present system to paper inflation and move into another as it has done before. With this, gold will bankrupt the outgoing system as hyperinflation runs through it. In a broader view, all total dollar dependent economies (Canada, Mexico, Japan, etc.) will share this fate.
This view gives you no facts only our perceptions from the builders of the future. We offer only the events as they occur for our proof. Indeed, strong events are ahead on this gold trail we all walk.
- FOA paraphrased by FOFOA