For those ofyou looking for knowledge, I would recommend you listen to Eric King’s latest interview with Jim Rickards.It is perhaps the most important interview he has ever done.

In this interview is mentioned a little known paradox entitled the Triffin Dilemma.The dilemma is this:A global reserve currency must function as a currency of last resort.No national currency can adequately do this without destroying the economy that underlies it.In other words:The tendency for a global reserve currency is to build up in international reserves.This is highly inflationary and potentially hyperinflationary for the country of origin.As foreign countries build up reserves, money is pulled out of circulation of the country of origin.In order to keep the mechanisms of industry moving, more currency needs to be created by that country of origin.This is inflationary, increasing the amount of currency floating around, thus decreasing the worth of any individual currency unit that is a part of that float.The result is for countries that use the currency for their international reserves to hoard yet more and pull yet more out of circulation, increasing the need for the country of origin to print yet more money for use by the citizenry not only domestically but internationally as well.

Having the world’s reserve currency as one’s own currency confers a tremendous advantage at the outset for the reserve currency’s home country, but over time this advantage is completely reversed as that home country continues to trade strength for increasing weakness.All countries are at the mercy of the world’s reserve currency producer at the outset, whereas that producing country, the country of origin, will be entirely at the mercy of all other countries by the end.

By this it must be understood that eventually such a system created out of thin air will return to thin air.Eventually one of the involved countries of enough size and stature will essentially say, in the immortal words of Roberto Duran, “No mas.”By their actions, they will simply opt out of the game, realizing that the functionality of the currency no longer confers a benefit that outweighs the potential of a total collapse in confidence that ultimately must come when the functional supply of any material is stretched too far.James Turk, I’m sure did not coin the phrase, but nevertheless, he is fond of stating it quite eloquently that “no tree grows to the moon.”There are indeed limits to any system, including one based on continued currency supply expansion.

What Triffin understood is that when a world reserve currency is not backed or based on a neutral currency, it would eventually have to fall apart.There are only two truly time-tested neutral forms of money, and those are gold and silver.Perhaps this was the point that Ferdinand Lipps continually tried to beat into our heads before he died.There is no definitely defined answer as to why gold and silver are money and have always been money.They just have always functioned that way, and they have done it well.

Perhaps the Triffin dilemma points out why such entities must exist in all civilizations that would possess market economies.“Necessity is the mother of invention;” it has been said.Gold and silver became what they became because they were needed.Without them, civilization could not survive, because commerce could not survive.

Why do we, the denizens of the twentieth century not perceive this? Is it because we are, as are all who labor through life in arrogance, convinced that our epoch is the most important, the time of greatest change and improvement, the pinnacle of social advancement? If only we could think for a minute that perhaps our time is only the necessary stepping stone for the true age of enlightenment that will come after ours.If only we could envision that our role to play is just a set-up for something truly great that is to follow disaster. If only we could understand that perhaps our children’s generation’s most important role will be to pick up the pieces our generation is about to leave strewn all about with our reckless behavior and poor understanding.

The Triffin paradox elucidates quite nicely the fact that a national currency cannot function as both a national currency and an international reserve currency.One function will, by needs, destroy the other function.This is what is happening to our beloved U.S. Dollar right this instant.Indeed, it has been happening for many decades now, but the acceleration of the process is what is important to key on here.

No cancer is a danger until it starts interfering with essential bodily processes.Inflation is likewise not a danger as long as the underlying economy it is connected to continues to function, people have jobs, prosperity, real or imagined, continues and the social structures stay intact.Since inflation is the remedy always involving a strained monetary system in crisis, when inflationary processes no longer are able to remedy the situation, one can fairly well understand that trouble is a brewin’.Trouble is most certainly a brewin’ for the U.S. Dollar right now, and all of us are right in the middle of it.How interesting it will be to see how it all ends. All the best, Bull