“There just won’t be enough gold coins to go around,” said Gail Tverberg, known for years on the Oil Drum as Gail the Actuary, at the ASPO-USA conference in Washington, DC last week. “If you have gold, maybe you can find somebody who will sell you some piece of land. But otherwise it will have very limited use, unless you have some certificates that will go with it for denominations we need. And you need a safe place to keep it too.”
As the Great Recession drags on despite attempts by Washington and big business to repair the economy, dealing with America’s high levels of government and private debt becomes more challenging. For that reason, these days, it’s not only fans of Ron Paul who worry about the future of the US dollar and seek a revived gold standard to avoid potentially catastrophic inflation.
Experts at the ASPO conference shared concerns that both peak debt and peak oil posed a grave threat to the world’s fiat currencies, especially the Euro and the dollar. But they disagreed on whether to go bullish on gold or not.
“I think that each government will essentially have a local currency,” said Tverberg. “They won’t be as interchangeable as they are today. Maybe the US will break up into regions, each with its own money. You’ll find yourself making more local purchases, but there won’t be many choices about what you can make with the materials only in your area.”
Local scrips and outlawed gold
Nicole Foss, who blogs on finance at The Automatic Earth, agreed that as the dollar becomes less and less reliable, local currencies are a promising way to preserve liquidity. But she advised that local money should have demurrage built in, making it lose value over time, so there’s no incentive to hoard cash, as large corporations are doing now with the dollars they hold, failing to invest their massive capital stocks to create jobs.
It’s perfectly legal for communities to put out their own money in the United States, and several local currencies already circulate, including the most famous, Berkshares in western Massachusetts, along with lesser known scrips such as Detroit Cheers, Ithaca Hours in New York and Plenty in North Carolina.
While more communities consider printing their own money, at the ASPO panel Foss said she worried that the federal government may try to shut these programs down in the future. National governments in general find local money to be a threat to the centralized financial system where big businesses can skim something off the top, she said.
“And gold — governments will likely outlaw private ownership of gold. Gold is now in a bubble. I see it coming down to $600 an ounce. And in the next five years, you won’t be able to get even the lower spot price. But after 20 years it will hold its value. Before owning gold you have to have no debt and you should have access to cash for your own existence.”
Even brushes can be money
Dmitry Orlov, author of Reinventing Collapse: The Soviet Example and American Prospects, agreed that local currencies have a bright future but thought that they will vary in quality. This means that you may have to bear a serious loss to convert one form of local money to another. Orlov also thought that it will be difficult to secure wealth in a post-peak future that may lack banks or much of any modern financial infrastructure at all.
“Don’t let anyone know what you have, obscurity becomes more important than security, you might use gold coins to bribe local officials. Or your hobby can become a source of wealth.” For example, during the transition period from Soviet rule when the Ruble suffered severe inflation, businessman Boris Berezovsky traded special brushes that were widely popular. “Fly under the radar,” Orlov advised.
In the end, money, whether gold or a local currency, is only what enough people say it is.
“Money is an agreement. It is not a thing,” said Richard Vodra, vice president of Spire Investment Partners. “As long as everyone agrees that something is money, then it’s money.”
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