thedailybell.com / By Hugo Salinas Price / January 23, 2013
To argue with Ambrose Evans-Pritchard is risky. He is well informed, he has traveled much, writes well and has a sharp intellect. Yet I must affirm that he is mistaken in some of the opinions expressed in his recent article at The Telegraph , “A new gold standard is being born, “January 17, 2013.
In the article he refers to the “(old) gold standard dynamic at work with all its destructive power, and the risk of sudden ruptures always present.”
I take it that he refers to the pre-WW I gold standard, and the financial chaos that broke out in 1930, to Which he refers as “the destructive power” of the gold standard. That chaos should not be attributed to the gold standard as it existed but to the previous expansion of credit in violation of the rules of the gold standard. The pain of the 1930s was the correction Which the gold standard imposed upon the financial diddling with credit expansion Which the Powers had adopted, what was “destructive” what their policy of credit expansion beyond savings. If you stick your finger in the fire, do not blame fire for its “destructive power”, just refrain from doing that.
Ambrose writes: “. The global system is supple It bends to pressures.”
Actually, there is no “global system” There is at present only a global process .
A system has, by definition, parameters . A system is like a billiard table with no pockets. The parameters are the boundaries of the table Which beyond the billiard balls can not move. The parameters of a system Ensure its stability and endurance through time.
A process, on the other hand, has a beginning, a mid-point and at end, like cooking a steak, or like a firecracker. You light a firecracker, then you have the explosion as the powder Ignites instantaneously. The process ends when the exploding gases collapse. A process does not endure.
From Bretton Woods (1944) to 1971 the world had a system, albeit a defective and fragile There was a system which parameter could not be violated: The U.S. solemnly promised to redeem dollars held by foreign central banks for gold at the rate of $ 35 dollars per ounce. That was a system that held world credit expansion down to a modest rate up until 1971, when Nixon decided to renege on the promise. (See graph of “International Central Banks, excluding gold.”)