THE YELLOW BRICK ROAD ...
Symbolism of Wizard of Oz Characters ... Yellow Brick Road: The Gold Standard
Dorothy: Everyman American - wholesome, plucky and levelheaded Dorothy’s Ruby Shoes: Originally silver and representing a silver & gold standard
Scarecrow: Farmworkers unsure what to do or with no ‘brain’ but supporters of Dorothy Tin Man: Dehumanized Industrial workers in rusting Plants with no ‘heart’ - or work
Lion: Politician Wm Jennings Bryan who backed silver – a great roar but lacking ‘courage’ Toto: The dog is a play on the word “teetotaler” – many Populists were also Prohibitionists
Wizard of Oz: US president or Mark Hanna (Republican leader) – a charlatan and much manipulated Oz: Also an abbreviation for ‘ounce’ - the standard weight measure for gold or silver Wicked Witch of The West: Oilmen and Railroad Barons Wicked Witch of The East:Wall Street bankers in NY
Good Witch Glinda of the South: Populists had good support in the South
Winged Monkeys: Native Americans or Chinese railroad workers, exploited by West Emerald City: Greenback paper money, exposed as fraud – also Washington Munchkins: Ordinary citizens of the East enslaved to the bankers
Reserve Currencies Reserve currencies have come
and gone throughout history, from the Roman denari, to the Venetian ducato in the Renaissance period, the Dutch guilder in the 1700’s and of course there’s sterling, gold and the dollar. However, fiat currency unbacked by gold (or others) are limitless and eventually the sound of printing presses can be heard and the resultant debt burden grows until arithmetically it can never be paid off. History tells us these cycles are endlessly repeatable. Bretton Woods was devised
precisely to prevent the sort of unrestrained leverage and debt creation that we suffer today and the solution would seem to be to remove it from political meddling. Given that we are unlikely to ever have politicians who have the courage to give us what we need (rather than what we want) it would seem prudent to link money to perhaps a basket of commodities – or possibly to have a number of reserve currencies and not primarily one. The latter is sensible but probably unworkable – the network effect is such that one currency will tend to predominate over lesser ones. The solution to today’s economic problems is not, in my opinion, to head back down the yellow brick road and reintroduce a gold standard, although it might play a cameo role in the solution. The gold market is insufficiently large to sensibly play that role by itself. At a recent UBS seminar their
28 September 2011
analysts suggest that central bankers will gently diversify their assets from US treasuries and dollar holdings. UBS added that, increasingly, central bankers are looking at holding hard assets / commodities. The bank asked the 80 central bank reserve managers at the seminar for their perspective on the outlook for the dollar as a reserve asset and less than 30% thought it would hold the central position that it does today. A few said they would be adding gold to their portfolio and in a shift in strategy NONE of the managers surveyed suggested they would be sellers of gold in the next few years. In a report released by the IMF in Q1 2011 on the composition of foreign exchange holdings it showed that dollar holdings fell 1%, while Euros fell 5%.
Bretton Woods was devised precisely to prevent the sort of unrestrained leverage and debt creation that we suffer today
A key issue today – just as it was in 1944 – is the rights and
responsibilities of creditor and debtor nations. Something that was hotly debated between Henry Dexter White of the US with JM Keynes in bat for Britain. Meanwhile, the US has shifted from being the world’s largest creditor nation in 1944, to its largest debtor nation today. In 1942 JM Keynes conceptualized and the UK proposed that
the IMF introduce the Bancor, a supranational international currency used for trade and exchanged by barter. It could play a parallel role as the global reserve currency and it would be backed in part by gold and other hard commodities. In 2008 the governor of the People’s Bank of China has suggested Special Drawing Rights at the IMF as an alternative solution. Whatever the solution – gold, Bancor (backed by gold), SDR’s
or even silver slippers – the time has come to put global reserve assets on the IMF agenda. The world was at a seminal moment on the creation of the BrettonWoods Agreement – it was at one again when it collapsed – and it is arguably there again today. •
Ross Norman is CEO of London-based Bullion Brokers SHARPS PIXLEY.
www.sharpspixley.com
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