last nite i was thinking about what exactly has enabled the USD fiat system to defeat gold over the last few decades since the 1970's after we depegged. i think the answer is
digital dollars.normally when we talk about the relationship of fiat to gold, we talk in terms of paper dollars that are printed out of thin air. yes, a piece of paper is lighter than an ounce of gold so naturally we'd prefer to carry those around. and in the Money is Memory paper, we refer to this as a technological advance. but really, it's the digitalization of those dollars that has made gold obsolete.
as you know, 93% or so of the USD monetary base is digital dollars. with these digital dollars and the digital debt that can be instantly leveraged from them, the Fed can instantly transmit them round the world to put out dollar debt crises. all it now takes is a few strokes on a keyboard along with the Internet and the money can be there. the Euro swaps extended to the European banks back in 2008 come to mind. this ability to digitally transfer dollars in the form of swaps or loans to those regions before a true crisis can get off the ground is what allows the Fed to put out financial crises before the local price of gold can skyrocket and enforce sound money principles. before digital dollars existed, the local price of gold would go up in a crisis causing gold from outside the country to start moving into the region to satisfy the extra demand and arbitrage away price differences. with time and with a little contagion, worldwide prices of gold could rise as well. unfortunately gold, being from the physical world, can't find its way quick enough into a crisis zone nowadays simply b/c of its weight and bulk. digital bailout dollars are too fast. what makes it even worse is that most gold is tied up in NY and London because of the physical bulk security needs and convenience for countries and institutions. but even major countries like Germany can't seem to get at their gold stores at the Fed when they want to. thru stalling tactics, the Fed can buy itself time to provide alternative bailouts or assistance to countries or regions in trouble and when the will is there, they can digitally transfer dollars in the form of loans or swaps to recipient countries instantaneously. and now, after all these decades, a moral hazard has built up and countries even expect a certain level of digital dollar bailout as Argentina recently tried to negotiate. this further takes the pressure off the gold price. but as we've seen, the problem is that the digital dollar system has become very political and corrupt.
the point i am trying to make is that gold has already been defeated by a digital currency. it's just that the gold bugs can't conceptualize that. they continue to talk in terms of "paper money" and "printing" in relationship to a scarce, heavy, beautiful hunk of metal. these terms are holdovers from an age gone by. these physical constructs in their minds serve to embed their misunderstanding of what's been happening. they misunderstand what's causing their frustrations. digital money is already here folks and it's working; just not ideally.
when viewed from this perspective, Bitcoin suddenly makes alot of sense. it is an even better digital money than the digital dollar that is not effected by politics or corruption. and it can easily compete with the digital dollar through the efficiencies it brings, as it eliminates intermediaries, inflation, and costs. it even works at the level of the individual where digital dollars can't compete. and most importantly, it removes the Fed.
sorry if these concepts are already obvious to some but i don't recall it ever having being put exactly this way.
