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Charles W. Kadlec: Put gold at center of reforming world monetary system
Time To Reform The International Monetary System
By Charles W. Kadlec
Forbes magazine
Wednesday, November 10, 2010
http://www.forbes.com/2010/11/10/currency-monetary-policy-china-opinions...
A funny thing happened on the way to the G-20 meeting in Seoul, South Korea, this week: The world's growing dissatisfaction with U.S. policy toward the dollar has derailed the Obama administration's proposal to elevate trade balances as the reference point for currency values. Instead of asserting America's traditional leadership role, President Barack Obama is confronting calls to replace the United States -- and the dollar -- as the center of the international monetary system.
The no-confidence vote led by China, Japan, and Germany and supported by Brazil is the direct consequence of the Obama administration's embrace of a Nixonian, weak-dollar policy as it struggles to resuscitate the U.S. economy. Blaming the Chinese renminbi-dollar exchange rate for high U.S. unemployment is eerily similar to the claims made by President Richard Nixon when, in 1971, he promised that suspending dollar/gold convertibility and an 8.5% devaluation of the dollar would make American labor more competitive.
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Prophecy to Become Coal Producer This Year
with 1.5 Billion Tonnes of Resource
Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen.
For Prophecy's complete press release about its production plans, please visit:
http://www.prophecyresource.com/news_2010_may11.php
Like President Nixon, Treasury Secretary Timothy Geithner claims that the United States supports a strong dollar. But just as in the early 1970s, the U.S. is unabashedly following an easy-money policy at home while letting the dollar fall on international currency markets.
With the world's monetary system tethered to the dollar, this mix of U.S. policies led to the great, global inflation of the 1970s. No wonder the scramble is on to find a permanent replacement for the dollar.
The surprising answer may turn out to be a gold standard designed to reflect the realities of a 21st-century global economy.
World Bank President Robert Zoellick, writing in last Sunday's Financial Times, broke a sound barrier among the leadership of the Group of Eight industrial countries with regards to restoring gold to a central role in a new, international monetary system. Such a system, he wrote, "is likely to need to involve the dollar, the euro, the yen, the pound, and the renminbi. ... The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."
Zoellick's proposal should be considered for several reasons.
First, the leading alternatives to gold would represent a grand new experiment in operating the international monetary system, introducing yet more uncertainty into a developed world struggling to recover from financial crisis, and a developing world attempting to cope with an unstable dollar and hot money flows.
No single currency has the credibility or liquidity to displace the dollar. The sovereign debt crisis among E.U. countries limits the euro's role, while lack of infrastructure and liquidity -- and political risks -- rule out the renminbi. And the central banks of Britain and Japan have not shown themselves to be particularly skillful in providing a stable currency within their own economies.
A basket of currencies, codified in an elevated role for the IMF's Special Drawing Rights as an international medium of exchange, would face an extraordinary number of technical and pragmatic obstacles. Who would be empowered to decide the appropriate quantity of SDRs in the world? What agency would conduct the equivalent of open market operations? Empowering a new panel of men and women to manage the world's currency system would raise more questions than it would answer, potentially triggering yet another currency crisis.
Patching up the current system of floating exchange rates will not provide a solution. Floating exchange rates have simply failed to fulfill their promise of addressing global trade imbalances. For example, since 1967 the dollar has been devalued by 72% against the euro and 75% against the yen. Yet net exports have gone from a modest surplus in 1967 to a $390 billion deficit -- equivalent to 2.7% of GDP -- in 2009. Given this history, the claim that greater currency flexibility can be used to reduce trade imbalances, or that if the Chinese would allow the dollar to fall by 20% or 40% against the renminbi the U.S. economy would be stronger and the unemployment rate lower, is simply not credible.
Finally, the longer the floating exchange rate system has been around, the more frequent and more intense the international crises. The 1970s were marked by oil shocks of 1973 and 1979, the 1980s by the Latin American debt crisis and the stock market crash of 1987, the 1990s by the Mexican peso crisis and the Asian currency crisis, and now the 2008 international financial crisis, the European sovereign debt crisis, and the threat of a currency war.
During the Bretton Woods era of the 1950s and 1960s, the dollar was a reliable means of exchange. It delivered stable prices, facilitated the post-World War II economic "miracles" of Western Europe and Japan, and helped a 20-year period of 4% growth in the United States. The different results between that era, in which the dollar was linked to gold, and the growing uncertainty and instability of the past 40 years, show that it was gold, not the dollar, that provided the vital ingredient for a growing world economy, price stability, and modest trade imbalances. Restoring gold's role as the key reference point therefore should be at the top of the G-20's agenda for reforming the international monetary system.
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Charles W. Kadlec is a member of the Economic Advisory Board of the American Principles Project, an author, and the founder of the Community of Liberty. He can be reached at charles.kadlec@communityofliberty.org.
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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property
Company Press Release, October 27, 2010
VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:
-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.
-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.
-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.
Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface. "The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."
For the company's full press release, please visit:
