Genuine optimism about the future in the midst of the unfolding global financial crisis is a tall order. An abrupt reversal of fortunes for international free market capitalism has stunned advocates of the wisdom of markets to reward success and punish failure. The unprecedented growth of crony state capitalism in response to the global crisis is troubling for advocates of free markets and liberty world over. On the other hand, the advent of digital gold currency (DGC), the secure high technology gold money available over the Internet portends a bright future. Indeed, the future of DGC as the world's emerging reserve currency is growing brighter by the day.
Simultaneous with the accelerating acceptance of DGC, central banks around the world have stopped selling gold for the first time in decades. They are now net buyers, and they are buying hundreds of tons of the precious metal. This seismic shift in gold markets was not the idea of the central bankers. The central banks are merely following Mr. Market's lead. Slowly but surely, behind the scenes, a new world reserve currency is making its debut. Markets and not governments are the driving force. The evidence suggests that central banks and the governments they represent are losing control of their best-laid plans for fiat money monopoly, and now anticipating the manifest destiny of gold.
In fact, a review of the evidence suggests that it is state capitalism in its death throes, not free market capitalism. The forces of true free market capitalism are at work. Vast new innovative industries are in the works to counter the destructive and doomed forces of legislated mediocrity that now drag state capitalism toward its day of reckoning.
The world is not merely in a global debt crisis, it is an economic, political, social and even a spiritual crisis. The crisis threatens to quench the human spirit, but the human spirit will prevail. A closer look suggests that right and good are actually winning the battle for ideas, supplying the vision that is even now creating a remarkable new future for human affairs.
The fading notion that government can achieve what unfettered human action can achieve in a free market is laughable to any producer. Roosevelt's New Deal interventionism has reached its climax. It is bankrupt, evident to all with eyes to see. The emperor wears no clothes, and the world is growing tired of his pompous attitude. Sixth century Greek philosopher Heraclitus said, "Every trend must go too far and evoke its own reversal." The trend toward state capitalism and government intervention was required to reach its current stage in order to trigger its own violent reversal. Its time has come and gone. The pendulum of hope in change that comes from overreaching politicians has reached its zenith, and the vast energy it has stored up for its reversal of fortunes will astound the world.
The reach for universal healthcare in the U.S. may well represent the top tick for the age of state capitalism. Here in 2010, there is a clear sense that a fundamental trend change has occurred. Like the handwriting on the wall seen by King Belshazzar, "You have been weighed on the scales and found wanting." The empire builders of state capitalism and their managers have been weighed, and they have been found wanting by the lovers of freedom and liberty around the world.
A global political backlash against state capitalism and government intervention and the nonsense of redistributive solutions and agendas is building. It contains global political energy that will dwarf the American, French, Russian and Chinese Revolutions combined, without in any way placing these revolutions on equal moral footing. The legitimacy of the American Revolution trumps all, and is what the forces of change are offering the world. The next leg of the revolution in human freedom and liberty builds on the American Revolution, but it is global. It would have been unimaginable in years past, but technological innovation changes everything. Creative forces being unleashed will astound, driven by human action that is leveraged with radical innovation, not debt.
It is a lie. Credit is not the life blood of free market capitalism. Human action that drives innovation is the blood that runs through the veins of a free market economy. Necessity is the mother of invention, and radical world changing innovation its healthy offspring. Joseph Schumpeter, more clearly than any other great thinkers of the 20th century, grasped capitalism's innate need for the rejuvenating forces of creative destruction. He understood clearly that transformation of the economy through radical innovation is only possible during times of great crises in long wave declines. Even crises like the present, which try men's souls.
The Internet is far more radically changing the world and global economy than most currently imagine. The Internet, coupled with the power of the object oriented programming paradigm shift, local, regional and global networks, vast distributed computer systems and databases, allows global innovators to more effectively research, model and solve real world problems.
Key innovations leverage the smaller scale innovations and drive free market capitalism to new heights of accomplishment in a new long wave. Willing participants that answer their calling, find their unique purpose and make their contribution to the progress of humanity are richly rewarded in the ensuing long wave boom. The individual actors that collectively create and empower Mr. Market have been hard at work, preparing with their unique individual foreknowledge of the current global debt crisis, guided and inspired by the invisible hand.
In Wealth of Nations, Adam Smith recognized "the great mercantile republic", as the system of global commerce among merchants meeting human needs through the exchange of goods and services in the global marketplace. Voluntary free market associations for the exchange of goods in the trusted and globally recognized currency of gold were the hallmarks of Smith's republic. The rise of the Internet has expanded the merchant class to include individual actors and their loosely coupled essential roles in the global economy and markets. Individuals have been empowered as actors in ways Adam Smith could not have imagined, therefore dropping the need for "mercantile" in his global market vision for simply, The Great Republic.
James Turk at GoldMoney.com is pointing the way toward a new international currency system that revitalizes Adam Smith's republic. DGC fills a major market need by taking the gold money system described by Adam Smith, and sanctioned by America's founding fathers, to a previously unimaginable level of potential with technological innovation. DGC will ignite growth in the global economy and provide a market based check on government growth and spending by giving markets more efficient currency options. Turk's gold money operates with secure vaults for gold in London, Switzerland or Hong Kong, with accounts insured by Lloyds of London. Turk's gold money comes with sophisticated security and global transaction ability, along with Internet access from anywhere in the world. In the next wave of DGC innovation and growth, additional free market participants and sovereign states will follow Turk's bold lead.
The chart below is a favorite at LongWaveDynamics.com (LWD) for demonstrating the powerful long wave forces at work in the global economy. This chart comes from our new book Jubilee on Wall Street; An Optimistic Look at the Global Financial Crash (2009). Global markets will soon resume their headlong plunge toward long wave winter season low in the DJIA/Gold ratio in 2012 as the sovereign debt crisis accelerates. The LWD forecast is for a new low in this ratio in range of two in 2012. This drastic move, and all it implies for crisis in global financial markets, will accelerate the rise of DGC as the world reserve currency. The shifts in long wave seasons always produce radical monetary changes. Thanks to ShareLynx.com for the base chart.
Not yet recognized as such, DGC is a revolutionary innovation of the present long wave winter season. Once fully capitalized and deployed, DGC will change the world. It is paving the way for the next global long wave spring season and economic advance. DGC has the markings of being an important long wave innovation. It will affect not just global financial and economic affairs, but more importantly, it will ignite a revolution long overdue in the human spirit by allowing the protection of individual contributions to the greater good. DGC will prove to be a force that will eventually drive the entire global economy to new heights of achievement.
Sovereign states and central banks are even now recognizing that such a monetary revolution is underway in the world's currency markets. The global debt crisis has spooked the central banks and their sponsoring governments. Fiat currency regimes will remain, but sovereign states will recognize the rising tide for gold and will put the gold in their treasuries to work with sovereign DGC systems. Advocates of gold and private DGC should welcome sovereign DGC systems with open arms. DGC available on the Internet is something entirely new to the global monetary system. The combination of private and sovereign DGC is a game changer. There is solid reason to believe that Internet transparency and private DGC will keep sovereign DGC in check, keep it honest and therefore allow it to thrive.
Sovereign DGC systems will have to be well managed and constitutionally clarified to compete with their private sector counterparts such as GoldMoney.com. Obviously, certain sovereign states are better suited than others for such systems. Switzerland is a natural candidate for sovereign DGC with the Bank for International Settlements (BIS) in Basel and a long history in private global gold markets. China, India and Russia may view sovereign DGC systems as an alternative to the dollar as a reserve currency, while paying lip service to other options, such as SDRs with fractional gold backing. India has the largest private gold holdings in the world, so its citizens would welcome sovereign and private DGC services. Third party transaction companies such as Visa, MasterCard and PayPal will potentially participate in DGC innovation at various levels, eventually accepting payments in DGC just like any currency, and facilitating transactions. Of course, only a DGC bank could issue the ultimate gold debit card.
Consider for a moment the confluence of global forces at work. DGC is one of the forces rapidly making world affairs and in particular political imprudence more transparent. For the first time in history, private and sovereign DGC systems are going to produce market pressure for governments to control their spending and get their fiscal houses in order to attract capital and stimulate their economies. The emerging global offering of private and sovereign DGC will punish the fiat currency regimes of governments that do not get their fiscal house in order. It is already happening.
Advocates of a pure gold system not ready to accept this dual monetary vision of the future may scoff now, but the ability to trade out of DGC and back into a fiat currency when a sponsoring government gets its fiscal house in order is free market capitalism at work. Consider a world where the coming political changes force a U.S. Constitutional amendment for a balanced budget, and the size of government is cut significantly relative to GDP. You will want the ability to trade from your DGC account back into U.S. fiat dollars. Monetary system that includes thriving global DGC will be a free market feedback system for national fiscal and monetary policy. Most advocates of a pure gold system do not consider the implications for the rise of a gold producer's cartel, dominated by Russia and South Africa, which could damage and constrain a pure DGC system, without the countering option of fiat currency.
Benn Steil vetted just such a dual global monetary system in the article "The End of National Currency," which appeared in the May/June 2007 issue of Foreign Affairs, published by the Council on Foreign Relations, which plays an essential role in vetting U.S. policy options. Steil recognized the rise and potential of private gold banks and technology driven DGC when he wrote, "So what about gold? A revived gold standard is out of the question. In the nineteenth century, governments spent less than ten percent of national income in a given year. Today, they routinely spend half or more, and so they would never subordinate spending to the stringent requirements of sustaining a commodity-based monetary system. But private gold banks already exist, allowing account holders to make international payments in the form of shares in actual gold bars. Although clearly a niche business at present, gold banking has grown dramatically in recent years, in tandem with the dollar's decline. A new gold-based international monetary system surely sounds far-fetched. But so, in 1900, did a monetary system without gold. Modern technology makes a revival of gold money, through private gold banks, possible even without government support."
Clarification of a bit of gold's history is required to appreciate the DGC future that will revolutionize world financial markets. Gold advocates have criticized President Richard Nixon over the years for closing the gold window, cutting the dollar lose from gold backing. What critics do not recognize is that only foreign institutions and individuals could trade dollars for gold under the Bretton Woods system. It was a structure created to expropriate American gold. The U.S. spent billions rebuilding Europe under the Marshall plan after World War II. The Europeans took those billions of freshly printed dollars, said thank you very much, and promptly traded them for U.S. gold reserves. The dollar printing continued to fund the great society, and those diluted dollars were quickly traded for U.S. gold.
By 1971, Nixon was getting reports of tons of U.S. gold leaving Fort Knox, headed for foreign shores. Nixon tried to reduce the size of government and government spending to reverse the decline of the dollar and save U.S. gold reserves, but Congress stopped him. Nixon had no option. He was not attacking the dollar. When Nixon closed the gold window, he was defending U.S. gold reserves in Fort Knox for posterity since he could not stop the government spending.
Considering the possible outcomes for a path out of the financial chaos directly ahead, a clear path is taking shape. Back to the future, it is the vision of Adam Smith combined with that of America's founding fathers. The recent emergence of gold as the backup de facto world reserve currency, the advent of the Internet and the rise of DGC, are rapidly merging.
One cannot help but consider the implications of the tons of gold sitting idle in Fort Knox and the impact on the U.S. and the global economy if Fort Knox becomes the world's largest, most technologically advanced and most secure DGC vault. A friendly rivalry between the U.S. Treasury and the Federal Reserve would be in order to see who manages the best reserve currency for the next long wave advance in the global economy.
A DGC gold account ownership amendment will be required in the U.S. Constitution for U.S. sovereign DGC to compete with private DGC systems. You may doubt the potential for such a radical change now. However, the political tsunami of change coming to a voting booth near you in 2010 and 2012 will make many things possible that are now only dreams. The Great Republic will relegate government to the role of servant, not master.
One small bit of additional personal Nixon history is in order. President Nixon requested a copy of the first edition of this author's book Jubilee on Wall Street by overnight courier during an earlier time of global financial crisis. This author likes to think President Nixon would have enjoyed the new edition. The thousands of tons of gold he preserved in Fort Knox for America's future is one of the key reasons for the book's explicit optimism concerning the ultimate outcome of the ongoing global financial crash. The gold Nixon preserved for future generations of Americans is destined to play an important role in America's monetary future. It will allow the country to emerge out of the coming global financial chaos by fueling the next stage in the long wave innovation of DGC.
History demonstrates that financial and political trends often produce alteration from one cycle to the next. Things never work out the same. The process of long wave development and its impact on free market capitalism is dynamic. During the Great Depression, the politicians took gold away from American citizens. During this global long wave crisis, they may find it politically expedient to give it back as DGC.
There are fatalists who believe this author is just a dreamer, and that our collective doom is sealed. Don't drink that hemlock! That is exactly what the looters want you to believe. In the words of Ayn Rand, "Ask yourself whether the dream of heaven and greatness should be waiting for us in our graves -- or whether it should be ours here and now and on this earth." Long live The Great Republic, and cheers to the creators and innovators of DGC.