The Dollar Dies in Nine Days Gold is the Only Reserve Currency

The world’s most powerful banker openly admits he doesn’t understand gold prices.

And in nine days, there’s a good chance he’ll need a crash course, as the U.S. dollar dies a dramatic death.

Ben Bernanke told the Senate Banking Committee in July that “nobody really understands gold prices and I don’t pretend to really understand them either.” He also chastised fellow central bankers for stocking up on gold and collectively losing $545 billion since 2011.

Central banks own about 18% of all gold ever mined, will add an estimated $15 billion this year, and have expanded reserves by 20% over the last two years. Over the same period, gold prices have slumped about 30%.

Bernanke shouldn’t be so quick to judge his peers…

After all, if our deadbeat elected officials can’t get their act together in a little over a week, he’ll be at the helm as the U.S. dollar drives far greater losses overnight.

The Backbone

The Lehman Brothers collapse imperiled the global economy with a $517 billion debt when it all went down, leading to global recession and a crippling credit crunch.

The $12 trillion of outstanding government debt is 23 times larger.

As bad as things got when a handful of corporations at the heart of the global finance became illiquid, a U.S. debt default will strike a dire blow to every nation and business worldwide.

This is due to a flaw in global finance that was exposed during the credit crisis: Shadow banks and repurchase agreement markets (or repo markets) have grown exceedingly large. When the economy is healthy, they boost liquidity for corporations, banks, and investment firms that want to use collateral to create secured, short-term financing. But when the economy turns, the opposite occurs…

Many of the counterparties of Lehman Brothers discovered the collateral they thought was backing their loans wasn’t available at all. After all, virtually all of it was rehypothecated and used to guarantee other deals.

In turn, the entire market was spooked. Everyone went into triage mode and started ditching exposure to these securities through fire sales. Prices dropped, spurring more selling, and the decline was reinforced.

Then, for a while, these deals dropped off. Once bitten, twice shy.

Source