The Consequences Of “Worthless Cash”

Authored by Louis-Vincent Gave via Evergreen Gavekal blog,

“Lesson: In the real world, ninety-nine cents will not get you into New York City. You will need the full dollar.”

– Bruce Springsteen, Born to Run (back when people wanted to get into NYC, rather than out of it)

“The desire of gold is not for gold. It is for the means of freedom and benefit.”

– Ralph Waldo Emerson

INTRODUCTION

Prior to the Great War, the gold standard* reigned supreme. However, when World War I broke out, most countries abandoned this standard to pay their military expenses with printed money, which devalued their currency. The United States, which was a rising world power at the time, remained off the battlefield for the first two years of the war and became an important supplier to the United Kingdom, France, and other Allied Powers. As a result, the United States became the lender of choice for those that bought US supplies in return for foreign bonds – and gold. When the Great War began in 1914, the British pound was the world’s leading reserve currency. However, five short years later, and the US dollar replaced the pound as the world’s leading reserve currency.

In the decades that followed, the United States once more supplied the Allies with weapons and other goods for World War II. The United States was again paid largely in gold, propelling it to hold the vast majority of the world’s most precious metal in its coffers. This precluded a return to the gold standard by almost

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