The above story is quite some news. The collateral on the worlds' huge debt bubble that is so highly washed in dollar-based interest rate derivatives is dissapering fast. The growth potential of collateral reached an all-time peak in 2006 (as the IEA admitted in its 2010 report that conventional oil reached an "all-time peak"). This is the start of a long contraction. There has been much touted allegations by the IMF filtering into the news about China apparently set to exceed the US GDP output in a few years. This won't happen through growth alone. This will happen because the US will likely contract at a faster pace than China, while China continues to contract more slowly (there are some government policies there that have enacted some limited controls on the degree of hot money and price inflation, as well as greater investment in renewables and in land-based assets around the world without military expenditure). The real test now is....can the rich countries deal with the constant circle of debt that is pretty much playing like a game of "pass the parcel" throughout all the sovereign debt nations in Europe to America and back again and beyond. The debt cannot be paid back in a world that has past peak growth and peak oil - especially when the notional value of interest-rate derivatives exceeds that of over 20 planet earths. Again, think about it. 20 planet earths worth of debt. Most of this "wealth" does not even exist, yet many people are being made to pay for this leverage-fraud. No prosecutions are forthcoming and as the people remain apathetic, there doesn't seem to be much prospect for that.
In the light of this insane mess, and in a global system that remains highly-interdependent, that moves rapidly with considerable complexity - what is to be done? Many nations from the Latin American Bolivarian states (with their Sucre Nova asset-based proposals) want to throw off the shackles of the influence of the fraudulent dollar contagion in order to achieve more economic security and stability in this post-peak oil world. There are issues about control over the remaining oil and many other resources - and that ties in with US operations and policies after 9/11. Just look at Afghanistan, Pakistan, Iraq, East Africa, Yemen and now North Africa. Oil is indeed, liquid-hegemonic power and whoever sits on it will call the shots in a world where few nations want to default on all their debt. If they refuse to pay it back or refuse to follow austerity plans or even threaten to enact monetary reform altogether then this could be one of many triggers that could ignite conflict or the rupturing of existing treaties.
Ultimately, we are in a situation where energy security, food security and resource-security matters most. We could well be entering an era of asset-based money as opposed to debt-based money (credit-controlled economy). Will people be able to handle this?
This situation in the near-future (nobody knows when) is something that I would also regard as a test for the Austrian-economic thesis on precious metals price mechanics in a future asset-based economy. Murray Rothbard often asserted that the amount of silver or gold should not have any neccessary deflationary impact on the general economy, he stated:-
"Money performs its function by being a medium of exchange; any change in its supply, therefore, will simply adjust itself in the purchasing power of the money unit, that is, in the amount of other goods that money will be able to buy. An increase in the supply of money means merely that more units of money are doing the social work of exchange and therefore that the purchasing power of each unit will decline."
My critique of this statement is that while it may be true that the purchasing power is greater in such a situation - there will be far less holders of gold and the capital will likely circulate in fewer hands. The result is a situation where the nations' wealth becomes far too locked-up amongst networks of gold investors. For more on the issue of metals currencies, I refer readers to a blogpost I wrote back in 2009 (http://hozturner.blogspot.com/2009/09/ron-paul-and-misguided-push-for-gold.html).
A real free-market solution would advocate a mixed basket of currencies that don't stick to a rigid metals paradigm. Things like agricultural goods as an example represent easily produced assets that can become a vital part of a range of asset-based currencies. A mixture of voluntary democratic credit institutions could manage the flow of a variety of currencies that are not so much pegged to the dollar. Money really should actually represent real wealth, rather than just speculative debt. However, true wealth is not simply found in heavy metals. Wealth is represented in a whole variety of things we take for granted and in my view - the best wealth lies in voluntary community interactions and connections. People really do matter.