Germans and their gold: U.S. Dollar no longer reserve currency

We Spaniards know a sickness of the heart, that only gold can cure.

~ Hernando Cortez

The mainstream media did their duty this week and duly reported that the German government was beginning the process of repatriating their gold reserves stored in Western central banks since WWII. And, that was it.

This was the biggest economic story to hit in a long time, and it was almost completely ignored. The stated motivation was a desire to have the gold back home since there was no longer a threat from a Soviet invasion.

Well, thanks to alternative news outlets like The Brenner Brief, we can explain the real reason.

This action by the Germans is a turning point in the history of the modern Western world. It is a fulcrum point in history. And, there is a reason the MSM ignored the story. It’s because the truth hurts. It doesn’t fit their narrative.

Since the Bretton Woods agreement, the U.S. Dollar has been the world’s reserve currency. This means that when countries have wealth that they want to store and be assured that they don’t lose money, they buy Dollars. The USD was also used to correct the balance of payments among countries. Instead of moving gold around constantly to facilitate this, governments deposited gold at central banks and this covered any payments needed to be made.

The Germans repatriating their gold means nothing less than the German government no longer having faith in the United States currency, and no longer believing the USD will be the world’s reserve currency in the future.

This is monumental.

Speaking as an old bond trader, the Dollar has a reserve currency bid. In layman’s terms, it means there is demand for the USD on the world market as countries buy it to store their wealth in something they believe will retain its value. If this bid goes away, there will be nothing to hold the value of the Dollar at its current levels. There will be less demand.

The Russians and the Chinese are actively working to replace the Dollar as the world’s trading currency. What will take its place? The Chinese Yuan? UN Special Drawing Rights from the IMF?

This action by the Germans is a direct result of uncontrolled and unsustainable spending by the U.S. Federal Government. It is a direct result of quantitative easing by the Federal Reserve. In Bolivia they call it printing money — here, we call it quantitative easing.

If you could pick up gold off the ground just like a fallen leaf, would there be any value? After expanding its balance sheet by $4 trillion, the Fed is making the Dollar worthless, just like leaves on the ground.

L. Todd Wood is a contributor to The Brenner Brief. Twitter: @LToddWood

Why would any foreign country expect that the Dollar will hold its value in the future? Why would they want gold at the Fed to cover payments if the USD is no longer the world’s reserve currency?

It makes perfect sense for the Germans to want their gold back. And, it’s not because they no longer fear the Soviets.

Rather, the Germans are looking out for number one.

We are entering dangerous times, my friends.

Buy gold.

This contributor’s comments do not reflect the beliefs of The Brenner Brief, its Editor or its other contributors. The opinions and advice in this column are the sole opinion of the contributor himself.

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Interview: German gold repatriation not an issue for Federal Reserve (nzweek.com)
Time To Die Or Time To Buy? (seekingalpha.com)
Germany Reaffirms the Timeless Relevance of Gold (fool.com)
Buba’s Gold (dailyreckoning.com)
Bundesbank Official Statement On Gold Repatriation (zerohedge.com)

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About the Author

L. Todd Wood - L. Todd Wood graduated from U.S. Air Force Academy in 1986 and chose helicopter flight training. An assignment to the 20th Special Operations Squadron flying MH-53J Pave Low helicopters saw him deployed globally in support of counter terrorism. His customers included SEAL Team 6 and Delta Force under control of the National Command Authority. In 1994, he left the Air Force as a Captain and joined an investment bank which eventually brought him to Wall Street trading emerging market debt. He has conducted business in over forty countries. His novel, " Currency", was published in December of 2011. Although historical fiction, it jumps to the future to deal with the national debt and its security implications. " Currency" has been endorsed by the Hon. David M. Walker, former Comptroller General of the U.S. The book has received national press and extraordinary reviews.