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Musings Report 2022-50 12-9-22 The Problem of Gold, Oil and Global Trade
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The Problem of Gold, Oil and Global Trade
In a world awash in fiat currencies and money loaned into existence, it's natural to look back in time to the eras when gold and silver--tangible forms of exchange and stores of value--were the foundation of global trade.
The Roman Empire, for example, traded its gold and silver for gemstones mined in India.
The use of precious metals in global trade is easy to comprehend: everyone understands these scarce metals are valuable, and will retain their value, so they are a useful means of foreign exchange.
The value of gold and silver as measured in other goods (wine, grain, gems, etc.) will vary from region to region, of course, as scarcity (supply) and demand set the market value of everything, including gold and silver.
What few who call for a return to the use of gold and silver for foreign trade forget is that when Rome's silver mines were depleted and expenses for defense soared, there wasn't enough left to trade to other nations.
Global trade dried up and dwindled to a whisper of its previous volume.
In ancient times, every trading nation/empire was largely self-sufficient in essentials. Trade was generally limited to luxuries the wealthy desired and could afford: silk, gemstones, etc.
Trade in grain, wine, lumber and other commodities was paid with surpluses in other commodities. For example, Egypt traded its grain surplus for Rome's surplus in wine.
Gold and silver might have played a role in the reconciliation of this trade, but in the macro-economic flow of trade--what we now call the current account--surpluses were exchanged and netted out to small trade deficits or surpluses.
In other words, large trade imbalances funded by gold and silver vanished once there was no longer enough surplus gold and silver to fund the trade deficit.
Once the surplus gold and silver is gone, trade deficits cannot be sustained and trade ceases.
This was what happened to the U.S. when it encouraged its European and Asian allies to expand their exports to the U.S. at the expense of the domestic economy in the 1950s and 1960s:
Once the U.S. was running large, sustained trade deficits, its gold was transferred overseas as payment. The day when the gold was gone, transferred to fund trade deficits, loomed large and the U.S. had no choice but shut down the gold standard in global trade and settle its trade in U.S. dollars.
The U.S. had a compelling strategic reason to boost the economies of its allies as a defensive measure against the threat of Soviet influence and military might.
Trade served geopolitical and strategic priorities. It was no longer a narrow matter of finance or economics. It was essential that the U.S. find a way to sustain large trade imbalances for as long as it was strategically necessary to do so.
This changed with the collapse of the U.S.S.R. in 1990. The motivation for running massive trade deficits switched from strategic necessities to maximizing corporate profits: By shipping production overseas, corporations lowered their costs, put pressure on domestic wages and pushed their profits into the stratosphere.
Now the situation is changing again. The national defense implications of a near-total dependence on foreign nations and entities for essential commodities is now pressing.
Geopolitics and strategic necessities are starting to crowd out corporate profits as the only priority that matters in global trade.
The big difference between the old days and the present is that now nations are dependent on commodities that they can't pay for with surpluses from domestically generated commodities.
If these nations don't have the gold to pay for essentials, they collapse. If no one can pay for the essentials, the exporters of oil, grain, etc., will have few customers for their surplus oil and grain and they will collapse as their revenues from exporting commodities collapse.
Returning to the gold standard in global trade won't resolve these structural imbalances of essential commodities, trade deficits and an inability to pay for essentials such as oil and grain with some other surplus commodity of equal value on the global market.
These limitations are the reason the world abandoned the gold standard in global trade in the 20th century.
Some other system will have to emerge that resolves the limits of both a debt-based financial system and the gold standard.
Highlights of the Blog
The Monopoly - Labor "Let It Rot" Death Spiral 12/8/22
The Bubble Economy's Credit-Asset Death Spiral 12/5/22
Best Thing That Happened To Me This Week
The knee I stressed resurfacing our driveway is finally hurting less. Yea for patience and natural healing.
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
She risked everything to expose Facebook. Now she’s telling her story. (Technology Review)
Finland PM Sanna Marin says Europe is ‘not strong enough’ without the US -- strategic necessities, trade deficits, commodities....
Assessment of the Extra Capacity Required of Alternative Energy Electrical Power Systems to Completely Replace Fossil Fuels. --long but important... magical thinking doesn't cut it....
Apple’s Chinese dream is over--and every other corporation dependent on single-source production, too...
Finite Feeding Frenzy (via Mike S.) -- food scarcities....
Why Are Oil Prices Crashing? (Art Berman)
Leaks in net zero -- as someone pointed out, mining coal also uses millions of gallons of fresh water... there are no consequence-free, easy options other than reducing consumption....
You get the internet you deserve: The race to the bottom is on and the IoS is about to get S'ier (via Pete W.) -- GIGO writ large: garbage in, garbage out...
"Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible." Francis of Assisi
Thanks for reading--
charles |
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