Wednesday, April 08, 2009

Buy Gold and Silver! (Part 1)

A photo released by the Dorotheum auction house in Vienna shows a gold coin measuring 53 centimetres (21 inches) in diameter and weighing 100 kilograms (220 pounds). The largest coin in the world will go on sale on June 25, 2010. Photo/Dorotheum/Lukas Schaller
Sears and Kmart to offer cash-for-gold service
Brad Dorfman and Frank Tang
May 17, 2010
CHICAGO (Reuters) - Sears Holdings Corp (NasdaqGS:SHLD - News), which expanded its layaway program to help cash-strapped consumers pay for purchases during the recession, is now helping its customers exchange their jewelry for cash as gold prices soar.
The new service, available at the jewelry departments of Sears and Kmart stores, allows customers to send their gold and silver items to Pro Gold Network, a company that buys precious metals from consumers.
Pro Gold makes an offer on the gold or silver and the consumer can choose to accept the offer or have the items returned, free of charge, Sears said.
Sears provides the shipping envelop and also helps consumers track the items via websites or a toll-free customer service number.
Sears has seen sales pressured over the past two years by the weak economy and has also lost sales to discounters like Wal-Mart Stores Inc (NYSE:WMT - News) and electronics retailers like Best Buy Co Inc (NYSE:BBY - News). The company did say, however, that sales improved in the first quarter.
In 2008, it expanded its layaway program as a way to help cash-strapped consumers pay for goods.
Advertising from companies offering gold recycling services had reached a fever pitch in late 2008 due to a global economic crisis, as the price of gold climbed above $1,000 an ounce in a flight to safety.
Last week, gold has soared to record highs at just below $1,250 an ounce as jittery investors fretted over sovereign risks and inflation.
Bullion is still far away from its inflation-adjusted record at over $2,200, analysts said. In 2001, gold was trading at just $250 an ounce.
Euro collapse fears spark panic buying of gold
By Sam Fleming
14th May 2010
Fears that the euro is heading for collapse have prompted panic buying of gold coins and bars.
Austria's mint, which makes a bestselling gold coin, has warned it may run out of stock as investors seek a safe haven from Europe's threatened currency.
And banking giant UBS reported its sales desks are 'exceptionally busy' coping with heightened demand for coins and small bars, much of it coming from Germany.
Swiss refinery Argor-Heraeus estimates demand for small gold bars and minted products has jumped tenfold since the start of the year.
The news came as the euro took another fall amid fears that the £640billion EU/IMF rescue plan hatched over the weekend would fail to secure the single currency's future.
Against the dollar, the single currency fell under $1.254 - not far from the 14-month low of $1.25 it struck a week ago.
Marcus Grubb, of the World Gold Council, an industry body representing miners, said there was anecdotal evidence of a sharp increase in purchases of coins. '
'There has been a spike in demand for physical products in the past week or so,' said Mr Grubb.
'Scepticism about the euro has been strongest in Germany. Retail investors are voting with their feet and buying gold coins. They are concerned about the currency.'
The price of gold traded at $1,233.95 a troy ounce yesterday, shy of the record $1,248.15 it hit on Wednesday.
Gold is seen as a safe haven when there are fears that paper currencies could lose their value.
At the height of the banking crisis in 2008, the U.S. mint suspended sales of popular Buffalo and American Eagle coins because of a flood of demand.
More recently money-printing programmes in the U.S. and Britain have fuelled fears of inflation, and these have now spread to the euro area.
This week the European Central Bank announced it would purchase government bonds, in a move similar to the Quantitative Easing policy undertaken by the Bank of England.
Meanwhile some economists are warning that Greece remains headed for a debt default, and that its woes could spread to other eurozone countries, threatening the future of the euro.
Portugal and Spain are seen as particularly vulnerable because of their heavy debt loads.
Yesterday the Portuguese government said it will cut wages of top officials and temporarily raise taxes in a bid to narrow its budget deficit faster than previously planned.
The government approved increases in value-added, personal income and corporate taxes, Prime Minister Jose Socrates said.
This comes just a day after Spanish public sector workers were hit by wage cuts and a pension freeze, prompting strike threats.
The EU on May 10 unveiled a program of loans and ECB bond purchases in a despearate attempt to stop the Greek debt crisis from engulfing the currency union.
Edel Tully of UBS said in a client note: ‘As long as confidence is under threat in Europe, gold should continue to be on the receiving end of elevated physical demand as money look for a safe home.’
Central Banks Stashing Away Gold at Brisk Pace
By: Dan Weil
Thursday, March 25, 2010
Central banks around the world added 425.4 metric tons of gold to their reserves last year, the biggest increase since 1964, according to the World Gold Council.
That represents a 1.4 percent gain to put their holdings at 30,116.9 tons in total. The increase was the first since 1988.
Central banks in India, Russia and China were among those boosting their gold reserves last year, as the precious metal jumped 24 percent, hitting a record of $1,226 an ounce in December. “There’s clearly been a renaissance of gold in central bankers’ minds,” Nick Moore, an analyst at Royal Bank of Scotland, told Bloomberg.
“It’s not just been central banks taking on gold, but a general shift for physical gold in the investment sector.”
Many are now singing gold’s praises, with the precious metal up about 3 percent so far this year.
Central banks now possess 18 percent of all gold ever mined.
“Gold is quietly, at the edge, becoming the world’s second reservable currency, supplanting the euro and rivaling the dollar,” money manager Dennis Gartman wrote in his Gartman Letter, obtained by Bloomberg.
“The trend shall continue months, if not years, into the future.”
David Skarica, editor of The Gold Stock Adviser, tells that central banks will continue to buy gold.
“The next lot sold by the IMF (International Monetary Fund) will go to China’s central bank,” he said. “The IMF has a supply overhang.”
Banks Buying Back Gold

Silver will be the New Gold
Gold Price to reach record highs this year, says GFMS
Wednesday 8th July 2009 A leading precious metals consultancy claimed today (July 8th) that Gold Prices should comfortably break the $1,000 per ounce mark by the end of the year.The yellow metal reached its all-time high of $1,030 per ounce last March and has since passed the four-figure again on two further occasions before quickly falling back.
However, GFMS chairman Philip Klapwijk has explained that ongoing concerns over the state of the global economy - plus subsequent inflationary worries - should see investors continue to Buy Gold in the remainder of 2009.
Speaking at GFMS' annual Gold Survey in Beijing, he commented: "The price may have pulled back a fair bit from the February highs but that was largely just the market's reaction to jewellery demand crumbling and scrap booming. "We believe that it's far from game over for investors. The gold price in the coming months could easily re-attain the $1,000 mark and is likely to push up towards a fresh record high before the end of the year."
Those comments come after Don Dion, publisher of the Fidelity Independent Adviser newsletter and founder of Dion Money Management, explained that gold is an excellent portfolio diversifier.
"If you believe that inflation concerns are unfounded, gold is a good way to diversify your portfolio with an investment that has traditionally performed well when other sectors of the market have done poorly," he wrote on
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Central banks reported to be net buyers of gold in January
By Ovid Abrams, Tuesday, March 10, 2009
NEW YORK -- Central banks, which have been net sellers of gold in recent years, were net buyers of an estimated 1.1 million ounces in January, according to the latest Market Alert by the CPM Group, the New York-based metals consultancy.
The world's central banks were both buyers and sellers, but the quantity bought outstripped what was sold.
Ecuador is estimated to have purchased 920,000 ounces of gold in January, Venezuela bought 240,000 ounces, and Russia purchased 130,000 ounces, after having bought 310,000 ounces in December.
"Ecuador's government has run into severe political and economic problems, and has a dollarized economy, using the US dollar as its currency and thus not having many monetary tools, such as being able to issue money that other central banks possess," CPM noted.
France was the largest seller of gold in January by 40,000 ounces and 10,000 ounces, respectively.
"It seems highly unlikely that such large net purchases of gold by central banks will continue," said CPM. "However, those central banks that have been selling gold for much of the past two decades have sold most of what they wanted to sell. Others are buying small volumes and considering larger purchases, in the face of the financial crises and currency market volatility they have faced over the past year."
World in mad rush for Gold coins
Commodity Online
17 January 2009
NEW DELHI: Forget equities and other investment options, the world is now in a mad rush for gold coins. If reports emerging from all corners are any indication, gold coins have witnessed a surge in demand following the global recession. According to analysts, investors are set to make a dash for gold coins now because of the slowdown. According to a gold coin dealer in US, he has witnessed a sharp increase in people purchasing gold as a result of the economic recession. David Bernhardt of Engle’s Coin Shop in Indianapolis told TV channels that more customers have been buying $950 US Mint gold bullion coins in a bid to diversify their investments. Many people in Indiana are putting their money into gold rather than stocks and bonds. Data from the US Mint indicated that almost 1.2 million gold coins were sold last year, nearly triple the number purchased in 2007. The mint reported last autumn that supplies of many gold coins were depleted as a result of an upsurge in demand. Meanwhile, Royal Canadian Mint has launched its first gold coin designs for 2009, including a coin commemorating the opening of Canada’s first commercial coal mine in Port Morien, Cape Breton in 1720 and the tenth anniversary of Nunavut, the country’s newest territory. Generally, gold bullion coins come in 1 oz, 1/2 oz, 1/4 oz, 1/10 and 1/20 oz. sizes. Most countries have one design that remains constant each year; others have variations each year, and in most cases each coin is dated. A 1/10th oz bullion coin is about the same size as a U.S. dime. A 1 oz. gold bullion coin is about the size of a US half dollar.
Gold and the New Era, The Financial Times They Are A'changin'
By: Darryl R Schoon
Jan 13, 2009
Change is never easy and extreme change is the most difficult of all - Twelve years ago, the esteemed Financial Times in an editorial announced The Death of Gold; and, in 2004, another contributor to FT noted, the end of gold as an investment has come a little closer.
Recently, however, on January 5, 2009 the Financial Times published David Hale's There Is Only One Alternative To The Dollar. Long-time subscribers to FT may be surprised to find that alternative to be gold—or, then again, they may not be surprised at all.
Prevailing and commonly-held beliefs do not have to be right. They merely have to prevail and to be common; and in the 1990s, the prevailing and common belief was that gold as an investment was dead. But as in the Bible where Jesus and Lazarus arose from the dead, so, too, in this new millennium, has gold.
The Assassination of Gold - The Miracle of the Resurrection
The question, what caused gold's resurrection, cannot be considered without first considering, what caused its death. If the truth be someday known—for today it isn't—gold did not die of natural causes in the 1980s and 1990s. Gold was murdered.
The most successful murders are done in plain sight. If hidden, suspicion naturally arises. But if done in daylight and in plain view, the murder instead can appear to be a result of natural causes, much to the delight and relief of the murderers.
Like the assassinations of Julius Caesar, JFK and Robert Kennedy and Martin Luther King. the murder of gold was planned and carried out by a conspiracy of powerful men: and, like most conspiracies, power and profit were the underlying motives.
Also, like most conspiracies, the conspirators were other powerful men who viewed the power of others as a threat to their own. The more power and profit at stake, the greater the incentive to act.
Usually, and certainly in the case of the above, the guilty are never brought to justice although sometimes a convenient patsy takes the blame; instead, the assassination successful, the conspirators are rewarded with the continuation of their power and later rewarded with more.
This is true with political assassinations and it is certainly true in the case of gold. One of the central figures responsible for gold's demise in the 1990s is none other than Lawrence Summers, now about to take yet another seat at the table of power as the newly appointed incoming US Secretary of the Treasury.
This is not to say that Lawrence Summers actually wielded the knife in the death of gold or helped bury the body—that was done by Goldman Sachs, JP Morgan Chase, Barrick Gold, and Anglo-Gold Ashanti, etc. Mr. Summers was only responsible for supplying the written reason to do so.
Those overseeing the modern global economy are not ignorant men. In fact, the very opposite is true. They are instead highly intelligent and very quick. They tend, however, to be too quick for their own—and our collective—good.
Intellect is a “heady” gift in more ways than one. One of its failings is that the intellect has great difficulty in differentiating between the truth and what the ego surmises or wishes to be true—for when the ego's interests are involved, the intellect is the last to detect fraud, the possibility of profit further distorting the process.
In 1988, Lawrence Summer co-authored a curious paper, Gibson's Paradox and the Gold Standard, a paper that posited among other things, an inverse relationship between the price of gold and the return on financial assets such as stocks and bonds
The willingness to hold the stock of gold depends on the rate of return available on alternative assets. We assume the alternative assets are physical capital and bonds.Summer's assertion of an inverse relationship between the two is somewhat akin to believing the power of men is inverse to the power of women. That the rise of one is threatened by the rise of the other (perhaps the reason for Summer's later dismissal as President of Harvard University over his belief that women are intellectually inferior to men).
In Gibson's Paradox and the Gold Standard, Summer's theory of the inverse relationship between the price of gold and the price of paper assets was like the smell of blood to the barracudas of Wall Street and The City, a smell that was as irresistible to them as is the scent of lilacs in the springtime to the rest of us.
The idea that when the price of gold falls, the price of stocks and bonds rise, was too good to be always true (though it is often true in fiat systems); but, nonetheless, the idea was far too tempting for the financially dissolute and easily tempted to resist.
In the economically distorted era after 1980 when it appeared that money aggregates no longer affected the rate of inflation (an apparency best explained by Peter Warburton's extraordinary book Debt & Delusion, see, Summer's thesis in 1988 found fertile soil; and with greed as the fertilizer, gold's demise in the next decade was effectively sealed.
When Summer's thesis caught the attention of the investment community, it added fuel to a fire already well in progress. Central bankers had been trying to suppress the price of gold since the 1970s in order to protect the “value” of their suddenly fiat currencies after the US dollar—and consequently all currencies—went off the gold standard. Now, they had powerful allies.
Believing that if the price of gold went down, the prices of stocks and bonds would rise, investment bankers put their considerable resources behind the central banks' war on gold; and, as a result, in the 1990s investment banks were to reap billions in profits, the price of gold was to collapse, central banks were to lose most of their reserves of gold and the markets would give rise to largest bubble in history.
The next decade was to reveal far more destructive consequences of what central banks and investment banks had set in motion. In the new millennium, the central bankers' search for monetary control and investment bankers' search for profits was to result in the collapse of the very system that had given rise to both.
In 2000, the bubble created by the mixture of central bank policy and investment bank greed collapsed; and, in their attempt to resuscitate the markets, the US central bank drastically cut interest rates to 1 %—and with the assistance of investment bank subprime CDOs—reflated the markets by creating yet another bubble, the largest bubble in history, the 2002-2007 US real estate bubble.
The collapse of the 2002-2007 US real estate bubble worsened an already bad situation, causing the collapse of confidence in global markets, the loss of trillions of dollars of wealth and more importantly, the freezing up of credit, the lifeblood of capitalism (in truth but a poor plasma substitute for gold and silver, gratis of central banks).
As a result, attempting to undo the damage they had done, US central bankers have now again cut interest rates—this time to zero—and preemptively bailed out their co-conspirators, the investment banks with taxpayer money in a last ditch effort to save themselves and the system by which government and bankers jointly profit.
The Expansion of the 1980s and 1990s - The Myth, The Truth & The Consequences
Between 1980 and 1999, the price of stocks had skyrocketed as the price of gold dropped. In January 1980, the price of gold was $850 per ounce. In December 1999, the price of gold was only $290.
In August 1982, the Dow was at 777. In December 28, 1999 the Dow was 11,453. The campaign of central banks and investment banks to lower the price of gold and thereby raise the price of paper assets had succeeded, but at a tremendous cost.
Over time, the distortion of free markets by central bank credit and government policy intervention prevented investors from ascertaining the actual valuation and risk of assets, a distortion that was to later prove fatal to both the markets and to the economies upon which they depended.
The increase in US stock prices between 1982 and 1999 was not caused by US economic expansion as measured by GDP (gross domestic product). What was heralded as the greatest expansion in this history of capitalism was but an engineered bubble, a bubble whose collapse set in motion yet another bubble whose current collapse is now in the process of destroying global wealth at an unprecedented rate (Warburton's Debt & Delusion points out the causal role of central bankers in these bubbles).
The Wise Man Built His House on a Foundation of Rock, The Foolish Man Built His House on a Foundation of Sand
In economic terms, a foundation of rock is a system of money with intrinsic value such as gold or silver; whereas a foundation of sand is a system such as paper money based on credit backed by personal, corporate, or government IOUs.
As in finance and as well as in matters of faith, a foundation is discovered to be of rock or sand only in times of stress. In good times, all believe their foundations to be of rock. In bad times, the truth becomes known.
Market Distortion, Political Cover & Social Consequences
I have friends both conservative and liberal who remember fondly the political careers of those who professed the beliefs they each hold dearly. Conservatives nostalgically remember Ronald Reagan, the “great communicator”, who ably voiced their frustrations and hopes while liberals fondly remember Bill Clinton who did for them what Reagan did for conservatives. What both choose not to remember is the damage each man did to all of us.
The economic collapse and carnage now in progress could not have happened without policies enacted under both Reagan and Clinton. Reagan devotees who are free-market advocates conveniently forget that Reagan created the plunge protection team that now intervenes and distorts markets prices with unrestrained impunity while Clinton supporters assiduously avoid the knowledge that Clinton knowingly signed the Graham-Leach-Bliley act repealing the safeguards of 1933 Glass-Steagall Act designed to prevent another depression.
I care little for what each said. I care about what each did. The political process in America is now so compromised by power brokers that “the will of the people” is but a convenient slogan, used by those in power to achieve their selfish ends; and until the American people wake up to how they are kept in ignorance in order to be used by those in power, the downward spiral of America will only continue to accelerate with the fate of the world in the balance.
Just as the quality of restaurants reflect the tastes of their patrons, so too does politics today reflect the awareness and demands of the electorate. Up until now, the American electorate has only asked that their fears and concerns be voiced. When that is done to their satisfaction, they care little about the subsequent actions of those they voted for.
If restaurant fare were to be compared to the US political process, the menu, while quite tempting and accordingly high-priced would actually be composed of slop, doled out to those who demand little and settle for far less—the American electorate. Once elected, politicians work for the lobbyists who provide them with more funds to again solicit the votes needed to for re-election.
We did not come to this junction by accident nor will we arrive at another by the current route. The destruction of America 's economy happened in plain view of Americans and yet the political process failed to prevent what all could see was happening.
The present process serves those in power. This is not to say that all politicians are compromised. It is to say that all politicians must work within a compromised system, a system that encourages politicians to lie to an electorate that will punish them at the polls for telling the truth.

La vérité est morte. Bientôt, ce seront également les mensonges.
The truth is dead. Soon, so too, will be the lies.
We are in the midst of a systemic breakdown, a breakdown not confined to the economy, politics or other now failing systems, e.g. healthcare, education, etc. Such breakdowns always occur at the end of eras, when one epoch gives way to another. Such are the times in which we live.

The Future
Give me back the Berlin wall, give me Stalin and St Paul. I've seen the future, brother: it is murder. Things are going to slide, slide in all directions Won't be nothing. Nothing you can measure anymore. The blizzard, the blizzard of the world has crossed the threshold and it has overturned the order of the soul - From The Future, lyrics by Leonard Cohen, 1992
We are at a great gate in history. What brought us here will not take us to another destination. If we want change, we must want the change that will bring the change that we want. Sound bites and slogans until now how been sufficient for most. In the future, when food, water, and shelter become more important, the difference between sound bites, slogans and the truth will become more apparent.
These historic times have been predicted by some just as the current economic collapse has also been predicted. Though predicted only by a few, such predictions are the only road maps we have in these consequential times.
In the 1990s, American historians William Strauss and Neil Howe made the following prediction in The Fourth Turning published in 1997:
The next Fourth Turning is due to begin shortly after the new millennium. Around the year 2005, a sudden spark will catalyze a crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation, and empire.
Yet this time of trouble will bring seeds of social rebirth. Americans will share a regret about recent mistakes -- and a resolute new consensus about what to do.
The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.
The risk of catastrophe will be very high. The nation could erupt into insurrection or civil vio lence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and efforts -- in other words, a total war .
David Hackett Fisher in The Great Wave (published 1996) and Buckminster Fuller in The Critical Path (published 1981) also predicted this current crisis and collapse. In the early 1900s, Ludwig von Mises predicted the collapse of today's credit-based economies; and, more recently, John Exter in the 1950s and 1960s warned of the same as did Antal Fekete and others.
Those surprised by current events are now in charge. Expect accordingly.
Why Gold?
Lawrence Summers, Ben Bernanke, Alan Greenspan, Henry Paulson, et. al. achieved their positions in the current power structure because they serve those who profit by the current system of credit, paper money and paper markets.
The present system was built on a monetary fraud, paper money backed by irredeemable promises circulating between savers and IOUs. This system primarily served the interests of bankers and government. Bankers profited by loaning and charging interest on money they did not have and governments were able to spend money that did not exist.
Gold and the gold standard are the barriers that stood in the way of bankers and government; and, as such, gold and the gold standard were dismantled and discarded in the bankers' search for more profits and in governments' search for more power.
Now, at the end of this remarkable era, the longest running confidence game in history built on the false promises of paper money is coming to an end. No fiat money system has every lasted in the history of man. It has been hubris to believe this time it would be different.
We are between two eras. One epoch is ending and another has not yet begun. This crisis predicted by Ludwig von Mises and Antal Fekete was also seen as perhaps the gateway to a better world by David Hackett Fisher and Buckminster Fuller.
In The Fourth Turning , William Strauss and Neil Howe wrote:

.. this time of trouble will bring seeds of social rebirth. Americans will share a regret about recent mistakes -- and a resolute new consensus about what to do.
The regret and consensus has not yet happened. When it does, a new America will rise on a new foundation, perhaps this time one of rock instead of sand. When the new America appears, regrets about the old will pass.
Professor Antal Fekete will be presenting a series of lectures on March 27, 28, and 29 th in Hungary on the topics: “Great Depression II”, “Is There Life After Backwardation?”, “Basis, Contango and Backwardation: Beginning and Advanced”, “Will The Gold Standard Be Released From Quarantine?”, and “The Vaporization of the Derivatives Tower”. I and others will be speaking at the event. Those interested in attending, please contact .
These are significant and increasingly difficult times. We are in these times together and community will become increasingly important. Faith, gold and silver will help in the transit to the other side of the abyss.
Merrill Lynch says rich turning to gold bars for safety
Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies.
By Ambrose Evans-Pritchard, 09 Jan 2009
Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. "People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs," he said, referring to exchange trade funds listed in London, New York, and other bourses.
"They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands," he said.
Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.
The metal should do well whatever happens. If deflation sets in and rocks the economic system it will serve as a safe-haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value. "It's win-win either way," said Mr Dugan.
He added that deflation may prove the greater risk in coming months. "It's very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait."
Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3pc will offer a real return of 4pc a year, which is stellar in this grim climate. "Don't start selling your government bonds," Mr Dugan said, dismissing talk of a bond bubble as misguided.
He warned that the eurozone was likely to come under strain this year as slump deepens. "There is going to be friction as governments in the south start talking politically about coming out of the euro. I don't see the tensions in Greece as a one-off. It is a sign of social strain in countries that have lost competitiveness."
Red Alert: The Backwardation of Gold
By Antal E. Fekete December 9, 2008,
December 2, 2008, was a landmark in the saga of the collapsing international monetary system, yet it did not deserve to be reported in the press: gold went to backwardation for the first time ever in history. The facts are as follows: on December 2, at the Comex in New York, December gold futures (last delivery: December 31) were quoted at 1.98% discount to spot, while February gold futures (last delivery: February 27, 2009) were quoted at 0.14% discount to spot. (All percentages annualized.) The condition got worse on December 3, when the corresponding figures were 2% and 0.29%. This means that the gold basis has turned negative, and the condition of backwardation persisted for at least 48 hours. I am writing this in the wee hours of December 4, when trading of gold futures has not yet started in New York.
According to the December 3 Comex delivery report, there are 11,759 notices to take delivery. This represents 1.1759 million ounces of gold, while the Comex-approved warehouses hold 2.9 million ounces. Thus 40% of the total amount will have to be delivered by December 31. Since not all the gold in the warehouses is available for delivery, Comex supply of gold falls far short of the demand at present rates. Futures markets in gold are breaking down. Paper gold is progressively being discredited.
Already there was a slight backwardation in gold at the expiry of a previous active contract month, but it never spilled over to the next active contract month, as it does now: backwardation in the December contract is spilling over to the February contract which at last reading was 0.36%. Silver is also in backwardation, with the discount on silver futures being about twice that on gold futures.
As those who attended my seminar on the gold basis in Canberra last month know, the gold basis is a pristine, incorruptible measure of trust, or the lack of it in case it turns negative, in paper money. Of course, it is too early to say whether gold has gone to permanent backwardation, or whether the condition will rectify itself (it probably will). Be that as it may, it does not matter. The fact that it has happened is the coup de grâce for the regime of irredeemable currency. It will bleed to death, maybe rather slowly, even if no other hits, blows, or shocks are dealt to the system. Very few people realize what is going on and, of course, official sources and the news media won’t be helpful to them to explain the significance of all this. I am trying to be helpful to the discriminating reader.
Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold. I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington ― contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of ‘musical chairs’. Those who have no gold in hand are out of luck. They won’t get it now through the regular channels. If they want it, they will have to go to the black market.
I founded Gold Standard University Live (GSUL) two years ago and dedicated it to research of monetary issues that are pointedly ignored by universities, government think-tanks, and the financial press, centered around the question of long-term viability of the regime of irredeemable currency. Historical experiments with that type of currency were many but all of them, without exception, have ended in ignominious failure accompanied with great economic pain, unless the experiment was called off in good time and the authorities returned to monetary rectitude, that is, to a metallic monetary standard. It is also worth pointing out that the present experiment is unique in that all countries of the world indulge in it. Not one country is on a metallic monetary standard, under which the Treasury and the Central Bank are subject to the same contract law as ordinary citizens. They cannot issue irredeemable promises to pay and keep them in monetary circulation through a conspiracy known as check-kiting. Not one country will be spared from the fire and brimstone that once rained on the cities of Sodom and Gomorrah as a punishment of God for immoral behavior.
In all previous episodes there were some countries around that did not listen to the siren song and stayed on the gold standard. They could give a helping hand to the deviant ones, thus limiting economic pain. Today there are no such countries. If you want to be saved, you must be prepared to save yourself.
You cannot understand the process whereby a fiat money system self-destructs without understanding the gold and silver basis. The Quantity Theory of Money does not provide an explanation, because deflation may well precede hyperinflation, as it appears to be the case right now.
For these reasons I placed the study of the gold and silver basis on the top of the list of research topics for GSUL. These can serve as an early warning system that will signal the beginning of the end. The end is approaching with the inevitability of the climax in a Greek tragedy, as the heroes and heroines are drawn to their own destruction. The present reactionary experiment with paper money is entering its death-throes. GSUL has had five sessions and could have established itself as an important, and even the only, source of information about this cataclysmic event: the confrontation of the Titanic (representing the international monetary system) with the iceberg (representing gold and its vanishing basis) as the latter is emerging from the fog too late to avoid collision.
Unfortunately, this was not meant to be: GSUL has to terminate its operations due to a decision made by Mr. Eric Sprott, of Sprott Asset Management, to terminate sponsoring GSUL, saying that “results do not justify the expense.”
I sincerely regret that our activities did not live up to the expectations of Mr. Sprott, but I am very proud of the fact that our research is still the only source of information on the vanishing gold basis and its corollary, the seizing up of the paper money system that threatens the world, as it does, with a Great Depression eclipsing that of the 1930’s.
Let me summarize the salient points of discussion during the last two sessions of GSUL for the benefit of those who wanted to attend but couldn’t. The gold basis is the difference between the futures and the cash price of gold. More precisely it is the price of the nearby active futures contract in the gold futures market minus the cash price of physical gold in the spot market. Historically it has been positive ever since gold futures trading started at the Winnipeg Commodity Exchange in 1972 (except for some rare hiccups at the triple-witching hour. Such deviations have been called ‘logistical’ in nature, having to do with the simultaneous expiry of gold futures and the put and call option contracts on them. In all these instances the anomaly of a negative basis resolved itself in a matter of a few hours.)
In the commodity futures markets the terminus technicus for a positive basis is contango; that for a negative one, backwardation. Contango implies the existence of a healthy supply of the commodity in the warehouses available for immediate delivery, while backwardation implies shortages and conjures up the scraping of the bottom of the barrel. The basis is limited on the upside by the carrying charges; but there is no limit on the downside as it can fall to any negative value (meaning that the cash price may exceed the futures price by any amount, however large). Contango whereby the futures price of gold is quoted at a premium to the spot price is the normal condition for the gold market, and for a very good reason, too. The supply of monetary gold in the world is very large relatively speaking. Babbling about the ‘scarcity of gold’ reflects the opinion of uninformed or badly informed people. In terms of the ratio of stocks to flows the supply of gold is far and away greater than that of any commodity. Silver is second only to gold. It is this fact that makes the two of them the only monetary metals. The impact on the gold price of a discovery of an extremely rich gold field, or the coming on stream of an extremely rich gold mine, is minimal ― in view of the large existing stocks. Paradoxically, what makes gold valuable is not its scarcity but its relative abundance, which evokes that superb confidence in the steadiness of the value of gold that will not be decreased by a banner production year, nor can it be increased by withdrawing gold coins from circulation. For this reason there is no better fly-wheel regulator for the value of currency than gold. The same goes, albeit to a lesser degree, for silver.
Here is the fundamental difference between the monetary metal, gold, and other commodities. Backwardation will pull in stocks from the moon as it were, if need be. The cure for the backwardation of any commodity is more backwardation. For gold, there is no cure. Backwardation in gold is always and everywhere a monetary phenomenon: it is a reminder of the incurable pathology of paper money. It dramatizes the decay of the regime of irredeemable currency. It can only get worse. As confidence in the value of fiat money is a fragile thing, it will not get better. It depicts the paper dollar as Humpty Dumpty who sat on a wall and had a great fall and, now, “all the king’s horses and all the king’s men could not put Humpty Dumpty together again.” To paraphrase a proverb, give paper currency a bad name, you might as well scrap it.
Once entrenched, backwardation in gold means that the cancer of the dollar has reached its terminal stages. The progressively evaporating trust in the value of the irredeemable dollar can no longer be stopped.
Negative basis (backwardation) means that people controlling the supply of monetary gold cannot be persuaded to part with it, regardless of the bait. These people are no speculators. They are neither Scrooges nor Shylocks. They are highly capable businessmen with a conservative frame of mind. They are determined to preserve their capital come hell or high water, for saner times, so they can re-deploy it under a saner government and a saner monetary system. Their instrument is the ownership of monetary gold. They blithely ignore the siren song promising risk-free profits. Indeed, they could sell their physical gold in the spot market and buy it back at a discount in the futures market for delivery in 30 days. In any other commodity, traders controlling supply would jump at the opportunity. The lure of risk-free profits would be irresistible. Not so in the case of gold. Owners refuse to be coaxed out of their gold holdings, however large the bait may be. Why?
Well, they don’t believe that the physical gold will be there and available for delivery in 30 days’ time. They don’t want to be stuck with paper gold, which is useless for their purposes of capital preservation.
December 2 is a landmark, because before that date the monetary system could have been saved by opening the U.S. Mint to gold. Now, given the fact of gold backwardation, it is too late. The last chance to avoid disaster has been missed. The proverbial last straw has broken the back of the camel.
I have often been told that the U.S. Mint is already open to gold, witness the Eagle and Buffalo gold coins. But these issues were neither unlimited, nor were they coined free of seigniorage. They were sold at a premium over bullion content. They were a red herring, dropped to make people believe that gold coins can always be obtained from the U.S. Mint, and from other government mints of the world. However, as the experience of the past two or three months shows, one mint after another stopped taking orders for gold coins and suspended their gold operations. The reason is that the flow of gold to the mints has become erratic. It may dry up altogether. This shows that the foreboding has been evoked by the looming gold backwardation, way ahead of the event. Now the truth is out: you can no longer coax gold out of hiding with paper profits.
If the governments of the great trading nations had really wanted to save the world from a catastrophic collapse of world trade, then they should have opened their mints to gold. Now gold backwardation has caught up with us and shut down the free flow of gold in the system. This will have catastrophic consequences. Few people realize that the shutting down of the gold trade, which is what is happening, means the shutting down of world trade. This is a financial earthquake measuring ten on the Greenspan scale, with epicenter at the Comex in New York, where the Twin Towers of the World Trade Center once stood. It is no exaggeration to say that this event will trigger a tsunami wiping out the prosperity of the world.
Antal E. Fekete is a renound professor of Mathematics and Statistics at the Memorial University of Newfoundland. He is a sought after expert in monetary science and gold. He currently resides in Romania.
The Value of Silver vs. Paper Money
Backwardization Of Gold And The Upwardization Of Gold And Silver Prices
By: Darryl R Schoon
Dec 08, 2008
Systemic crises are caused by the inability of systems to respond to stress. When systems can no longer adequately respond, systemic collapse ensues. We are currently witness to the end of a system of paper money based on credit and debt, a system now in the final stages of collapse.
The Coming Destruction of Paper Money is Going to Make Sherman's March to the Sea Look Like a Sun Shiny Day
In Sherman’s “march to the sea”, a military campaign that broke the back of Confederate resistance during America’s Civil War, according to Wikipedia, the Union general, Sherman, applied the principles of scorched earth, ordering his troops to burn crops, kill livestock, consume supplies, and destroy civilian infrastructure along their path.
The American South, preferring to see the war in terms of a conflict between the industrial North and the agrarian South instead of over slavery, never forgave the North for Sherman’s “scorched earth” campaign and its victory.
This Southern resistance lasted for one hundred years, from the end of the American Civil War in 1865 to the 1960s. But in the 1960s, societal change swept through America and the resurgent issues of civil rights and women’s liberation set in motion a massive Southern backlash that sent the Democratic Southern voting bloc into the welcoming arms of the Republican Party.
This new alliance, composed of Republicans and former “Dixiecrats”, shifted the balance of power in America for the next fifty years; and consequently consolidated economic power in the hands of America’s financial and corporate elites in the Republican Party.
The concomitant unraveling of the wealth and power of the elites and the Republican Party in 2008 is not coincidence. Another more powerful shift than even the 1960s is now underway and current power structures and economic elites are being swept away in its presence.
This shift is not yet over. It has only just begun. While change happens in increments, sometimes those increments are seismic in scope instead of imperceptible and constant. Such are the changes in motion today. When they are over, the world as we know it will be gone.
It’s getting worse very quickly…It’s like an avalanche in that it gains momentum. And that’s what we’re in right now, so it’s a real crisis.Arnold Schwarzenegger, Republican Governor of California, December 1, 2008
Buckminster Fuller in his book on mankind’s future, The Critical Path (1981), called this crisis, the Twilight Of The World’s Power Structures. And just as Fuller predicted, the world’s economic power structures began to fall. Communism collapsed in 1991 and now in 2008, Capitalism is following in Communism’s footsteps.
All managed markets—whether managed by government allocation as under Communism or by government sponsored central bank credit as in Capitalism—are doomed to failure. The triumph of free markets over managed markets is coming.
When Systems Collapse Resistance is Futile
Hope that recent political changes can resuscitate the system of central bank credit and paper money is futile. The new economic team appointed by President-elect Barack Obama is but a resuscitated version of the old team, the very ones responsible for the present system and its fatal problems.
From the November 28, 2008 Wall Street Journal:
Thanksgiving Cheer From Obama He's assembled a first-rate economic team By Karl Rove
Mr. Obama … picked as Treasury Secretary Tim Geithner…Mr. Geithner has been a key player with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke in confronting the financial crisis. Every major decision in the rescue effort came only after the three agreed.The National Economic Council director-designee, Larry Summers, is another solid pick. Mr. Summers has been an advocate for trade liberalization, he was the Clinton administration's negotiator for the financial deregulation known as Gramm-Leach-Bliley…Obama appointee Lawrence Summers’ 1999 support of the Gramm-Leach-Bliley bill is indeed noteworthy as Gramm-Leach-Bliley repealed the Glass-Steagall Act, specifically passed in 1933 to prevent another depression.
Clinton’s signing of the Gramm-Leach-Bliley bill in 1999 directly led to the financial deregulation responsible for the decimation of financial markets in 2008. Former Bush advisor Karl Rove is right. Acknowledgment is due both Summers and Clinton for their collective contribution to today’s “free” falling markets.
It is no coincidence that both Lawrence Summers and another Obama appointee, Paul Volker have been instrumental in the past in the manipulation of the price of gold, the very indicator that bears witness to the false promises of paper money.
In 1988, Summers co-authored a paper, Gibson's Paradox and the Gold Standard, wherein he postulated that by fixing the price of gold, interest rates could be stabilized; an assertion as absurd as believing fixing the temperature of thermometers can prevent global warming.
Clever boysFar too cleverFor their own goodAnd others
Summers’ confederate (def., one who assists in a plot; an accomplice) in the war between paper money and gold on Obama’s “team of hope”, Paul Volker, is best known for his courageous raising of interest rates in 1981. Volker is less known for his remark that it was a mistake not to have earlier “managed” the price of gold.
Volker, Geithner, Summers, et. al. are all insiders in the imploding system of paper money. Appointing Volker to head the President’s Economic Recovery Board may raise the hopes of the desperate but it will do nothing to stem the tides of change.
When systems fail, even those as able as Confederate General Robert E. Lee cannot prevent their collapse; and, when the present system fails—and it will fail, it will result in a far better world—a world in which we will again be free from slavery to debt, imposed by a conspiracy of bankers and politicians.
The Backwardization of Gold and the Upwardization of Gold and Silver PricesThose fortunate enough to attend the final session of Gold Standard University Live in Canberra, Australia (attendees from Europe, North America, South Africa, Asia as well as Australia and New Zealand), heard Professor Antal E. Fekete explain the origin and significance of trading the basis with respect to gold and silver.
Professor Fekete recently posted his article, Red Alert: Gold Backwardization!!!, in which he alerted readers that for the first time in history the cash price of gold is higher than the nearest futures price, indicating that buyers value the present physical possession of gold more highly than future possession.
Professor Fekete stated that when gold recently moved into backwardization on December 2nd, a historical line had been crossed, a line which signified whether or not the present system could be saved. Now, according to Professor Fekete, with gold in backwardization, it cannot.
While the war between paper money and gold and silver is still being waged, according to Professor Fekete the outcome is no longer in doubt as the present system is now beyond redemption. This has profound implications for the future price of gold and silver and for gold mining shares.
In the last Great Depression, the shares of Homestake Mining, the world’s largest gold mine, went from $4.19 in 1929 to $495 in 1935, paying a $56 dividend that year. In the coming depression, gold and gold mining shares should do just as well—and, after the onset of the depression, just imagine what they will do during hyperinflation.
The Coming Capitulation of Paper
Physical gold and silver, whether in hand or in the ground will be the last refuge for the trillions of dollars still invested in paper assets. With an estimated $27 trillion of wealth already lost this year, the day is coming when the last believers in paper assets will finally look to gold and silver to preserve their dwindling wealth.
But when that day comes, those owning monetary metals will not exchange their gold and silver for paper money at any price, i.e. permanent backwardization; and the last believers in paper assets will be stuck with now worthless government issued coupons which previously had passed for money.
The recent historic backwardization of gold is a clear indication that sometime in the future a state of permanent backwardization will occur—and on that day, the world will finally be free from the tyrannical slavery of central bank induced indebtedness.
Freedom, oh freedom Someday we will be freeFreedom, oh freedomHow sweet that day will be
Lunatics in Charge of the Asylum: Gold, Greed and Deceit
By Frosty Wooldridge September 25, 2008
By watching America’s financial meltdown, the lunatics took possession of the asylum in the past week. What amazes taxpayers stems from the fact that the people who brought us this “1929 Crash” crisis in 2008, think they can solve it by taking even more money that doesn’t exist! Whether Treasury Secretary Paulson begs for a $700 billion bailout or Mr. Bernanke cajoles Congress—American taxpayers foot the bill. Taxpayers foot the bill like friends buying a bottle of Jack Daniels for a 16 year old alcoholic while giving him the keys to their cars.
Americans enable more corruption, financial anarchy and the cartel of Congress.
I spoke with Colorado economist and humorist Michael Folkerth, author of “The Biggest Lie Ever Believed” with his website.
“We are living in historic times, ugly history, but history all the same,” Folkerth said. “One of my readers asked me to simplify what is happening with our monetary and banking systems to Mikeronomics.
“In the words of the King of Simple, Wall Street (including banks) had legal gambling debts that were considered too large to cover. Our leadership said, “No problem, we’ll tax the public to pay your debts and you can get back to what you do best; gambling with other people’s money.”
“I have written for years that Wall Street is nothing more than Las Vegas on steroids. They drain the life blood out of American companies to a point of sending them into bankruptcy or moving off shore.
“Once all the damage was done here in the U.S., they have moved their money and investments to such places are Communist China, Korea, Brazil and India, stating that we must compete in a global world. Hogwash! (that is an economic term)
“Our economic woes didn’t materialize overnight; they began around 1970, when our insistence on exponential growth in GDP collided with physics. The monetary system and matter-energy systems no longer balanced.
“The matter-energy system (all that is real and tangible) must balance with the monetary system (the man-made creation of money). This was the case prior to 1970 as can be seen here.
“While it is absolutely imperative that these two systems balance, the growth of the matter-energy system is constrained by a finite-physical barrier. The monetary system, being man-made, is not. To complicate matters even further, the monetary system grows exponentially or geometrically, due to the power of compounding interest. These facts make the two most important underpinnings of our economic system incompatible. A condition that cannot long exist; and it didn’t.
“This balance of our two most important aspects of our economic system is a well known requirement. A requirement that has been acknowledged nearly since time began. To keep the man made monetary system from running amuck, it was kept in check by requiring a physical element be provided prior to the printing of currency, that of silver and gold. In this way, a semblance of balance was thus possible. Gold from the finite system was required to match that of the creation of paper currency which is infinite. Good plan!
“Around 1970, that balance was no longer possible. The necessity of creating an exponential growing supply of money to match that of compounding interest coupled with the desire to grow population and GDP, was no longer achievable when constrained by the waning supply (and cost) of the physical check and balance of gold….unless that is, the rules could be changed. Bad plan coming up!
“In 1971, America went off the gold standard forever. Now that the pesky constraint of a physical check and balance for the dollar was removed, money could be printed in ever increasing quantities and resource depletion and population growth were non-issues; temporarily. The wisdom of centuries was thrown out the door in lieu of greed, power, false wealth and trying to fool Mother Nature. We would soon learn that Mother Nature is one mean Mother.
“The massive amounts of paper money that could be produced by simply “monetizing debt” opened the door for some of the most elaborate forms of gambling ever perpetrated on the American people (it was your money in the game). Clever inventions such as “fractionalized banking, credit default swaps, derivative trading, short selling and a hundred other legalized scams brought forth the gamblers, fraudsters and profiteers to shear the willing flock on a daily basis.
“But these gamblers and fraudsters are not the shell game hustlers of the dingy city street corner; these shysters are America’s most elite and shall not be chastised as they have the full backing of the best government that money can buy. Don’t believe me? Look at who is paying the gambling debts.
“However, physics trump human rule makers every time and in the most severe manner. The new system of debt accumulation (rather than balance), lasted a mere 38 years.
“During those 38 years of our ill conceived imbalance with nature, the following has occurred:
1. Our funded National Debt has increased from 371 Billion to the current need for a ceiling of $11.3 Trillion, an increase of 3045% over 38 years, or an average of 80.14% per year. As a benchmark, the National Debt increase for the 20 previous years was 69% or 3.45% per year.
2. The U.S. went from the world’s largest creditor nation to the world’s largest debtor.
3. Oil production in the U.S. decreased by 40% and consumption increased by 40%.
4. The total amount of dollars in circulation has risen from approximately $500 Billion to more than $10 Trillion or a 2000% increase. And backed by what? Taxes!
“To this point, I have been speaking about the funded National Debt. I have not included the unfunded debt or the private debt. America’s unfunded debt (promises made for government retirements, Social Security, Medicare etc.), run the number up to $75.1 Trillion.
“And then there is the private debt of some $42 Trillion which rounds up America’s total debt to $117.1 Trillion. This is equal to $386,091.00 for every child in the U.S. After all, that is who we expect to pay for our exploits against balance is it not?
“The U.S. has reached what I refer to as the “maximum debt level.” The monetary system of debt has become greater than all matter-energy collateral on earth from a balanced perspective. The imbalance has become so great, that just one week ago; our entire monetary system nearly collapsed…and should have. And will!”
Mike Folkerth offers a short-course in economics. Our president remains clueless and the corrupt ‘Cartel in Congress’ bows to the corrupt Federal Reserve while we pay the bills.
One of my sources said realtors, mortgage lenders and the like provided no-down-payment to some five million illegal aliens and minority poor without any investigation as to their identities or ability to pay their monthly mortgages. With nothing invested, they lived in those homes long enough to skip out when the bankers chased them down for not paying their mortgages.
Who holds the bag and ultimately pays for all that corruption? You do! As more millions from Mexico moves into the USA, the more we imitate Mexico. Corruption becomes the norm! Yippee ki yea!
Gold: The Leading Indicator of Systemic Financial Collapse
By: Darryl R Schoon
Mar 17, 2008
Falling Dominoes Rising Gold - The failure of Windows Vista to improve upon Microsoft's accepted standard is an indication that an era is ending. Another indication—just as obvious and far more significant— US central bank credit is no longer automatically able to create economic expansion. Suddenly, cheap credit does not produce growth. An era is over.
The Economists' Great Conundrum
Credit, Growth & the Great Depression
Putting more gas in a stalled engine doesn't work
…since August, when the real estate sector began to turn ugly, the Federal government – i.e., Joe Taxpayer -- has doled out nearly $1 trillion in direct and indirect support to the credit markets in a so-far failed attempt to unfreeze them.
Rick Ackerman, Rick's Picks, March 16, 2008
Credit, like steroids, can be classified as a performance enhancing drug. When introduced into an economic system, its effects are obvious and, in the beginning, positive. Like steroids, however, over time its effects become less positive and underlying problems more apparent and, in the end, are often fatal, e.g. deflation and the Great Depression.
The End of an Era
In 2008, we are at the end of an extraordinary era of credit set in motion by the Bank of England in 1694. Debt-based money, sic capital, issued by the Bank of England allowed England to tax its present and future citizenry ad infinitum in order to embark on its highly successful quest of global dominion known as imperialism.
As long as the captured wealth of conquered nations offset the costs of war, England 's treasury and empire expanded. But by the end of the 19th Century, England 's expansion ended and the keys to its kingdom were transferred to its surrogate successor, the US
In 1913, banking and business interests transferred the English model of debt-based central banking to America . That year the US Federal income tax and the US Federal Reserve Bank became law and life in the US has never been the same.
Prior to the introduction of the Federal income tax and the Federal Reserve Bank, the lives of Americans were generally free from individual and collective debt. After 1913, everything changed
Seventy years later, in 1983, Nobel Laureate Buckminster Fuller made the following observations on the growth of US indebtedness:
Throughout its first 127 pre-World War I years, the U.S. government often had no national debt. World War I left the U.S.A. with a national indebtedness of $33 billion. The U.S.A. banking system went truly bankrupt in 1929, but the New Deal's 1933 Bank Moratorium postponed recognition of that fact
Since then the moment of acknowledgment that the U.S. government itself is financially bankrupt has been postponed first by further- and further-ahead postponements of the payoff dates for U.S. notes and bonds and by successive votes of the U.S. Congress to increase the national debt limit. By "money accounting" (in contradistinction to real-wealth accounting), the U.S.A. is now realistically bankrupt.
Since Nixon became president, the U.S.A. has been unable to pay even the interest on its national debt, let alone reduce the principal. Before Nixon, Congress assumed tax underwriting of ever greater interest-bearing on ever more postponed and greater national debt limits. For all the Nixon years and all the years of his successors the president has had annually to file a negative budget, meaning the U.S. cannot even pretend to be able to pay the interest on its indebtedness.
The implications of US debt cannot be underestimated; for just as global investors were once blind to the underlying credit worthiness of subprime securities, today, they are just as blind to the actual creditworthiness of US debt, sic US Treasuries.
Subprime Treasuries Backed by the Full Faith and Credit of the US
What's the Cost of Ink?
(Not much unless you're buying it in cartridges from Lexmark, Hewlett-Packard, Epson or Canon)
If, as Buckminster Fuller wrote, the U.S.A. has been unable to pay even the interest on its national debt, let alone reduce the principal and therefore is realistically bankrupt , its credit rating should reflect that unfortunate state.
But as long as US debt is rated AAA by the same agencies that gave AAA ratings to subprime mortgage-backed CDOs, US treasuries will continue to enjoy the same demand highly rated subprime securities once received. However, nothing lasts forever, not even collective denial.
What happened to AAA rated subprime CDOs will happen eventually to AAA rated US Treasuries. Values vanish overnight when risk is repriced and its effects are swift and draconian. This is what is happened to banks and hedge funds now invested in AAA mortgage backed securities.
Peloton Partners'ABS hedge fund achieved an 87 % return on equity in 2007 and on January 24, it was named the best Euro Hedge fund for 2007; but in February 2008, only one month later, the fund was declared insolvent and its assets seized. The same quick deleveraging will likewise happen someday to those now invested in US Treasuries.
That day will come sooner rather than later. The end of the credit era is near. The citadel of credit itself is under attack. The prime banks, the primary dealers used by the Fed to feed credit into the system are themselves now in trouble.
The Domino Theory Redux
Bailing Out Bear Stearns
The decision by the Fed to bail out Bear Stearns is tantamount to Britney Spears bolting from rehab—it is now clear the Fed has no intention of cleaning up the mess. Instead, it's aiding the perpetrators.Matthew Lee, Executive Director of Inner City Press, regarding the Fed bailout of Bear Stearns states: The Fed has hit a new low with this, they did nothing to protect consumers from predatory lending and now their response is to bail out one of the most notorious enablers of predatory lending …Investment banks such as Bear Stearns were the alchemists who invented the now toxic brew of subprime mortgage backed securities that investors will no longer buy. What the banks didn't expect is that they would get caught holding the bad debt. They assumed the AAA rated debt they kept was better than what they sold to others. It was—but it still wasn't safe.
To their collective surprise, banks holding billions of dollars of illiquid AAA rated mortgage backed securities are exposed to billions in losses. But, now, the US Federal Reserve has come to their rescue. This is because investment banks, sic prime banks, such as Bear Stearns are the very center of the mechanism by which the Fed feeds credit into the system. The citadel of credit is in danger.
The collapse of Bear Stearns is only the tip of the iceberg. Banks such as Morgan Stanley, Citicorp, Lehman Brothers, UBS, Bank of America, Wells Fargo etc. are all exposed to this rapidly imploding pool of mortgage-backed securities.
The Bankers' Begging Bowl
Bankers from Morgan Stanley, Citicorp, and UBS along with Bear Stearns have already made the rounds of sovereign wealth funds in Asia and the Middle East , asking for sufficient capital to remain solvent. All received promised infusions of billions in capital albeit at very high rates; e.g. 9 % - 11% but now one of them, Bear Stearns, involved in a now questionable $1 billion investment by China's CITIC, has fallen. Which bank will be next?
Bear Stearns was temporarily rescued by the US Fed via a loan through JP Morgan Chase. This is because the US doesn't have a sovereign wealth fund of its own. Fifty years ago the wealthiest nation in the world, today the US is the world's largest debtor—its wealth now composed primarily of liquid pools of debt fed by a printing press.
Gold—The Leading Indicator of Systemic Collapse
Against this background, gold again broke the $1,000 per ounce price level. One year ago, gold was in the mid-$600 range. Now, it's 50 % higher, a remarkably accurate measure of the rise in systemic stress in global financial markets.
Today's era of credit is built on a foundation of debt. The longer credit-based systems exist, the more debt is created, debt which must be serviced and retired (or rolled-over ad infinitum as the US hopes). The cycle of credit begun in England in 1694 has almost run its course; the mountains of debt created in its wake are increasingly unstable and are about to collapse.
The rising price of gold is the market's bet credit markets are in deep trouble. They are. You can bet on it—and should (and soon)!
Re: Financial Collapse: Buy Gold?
Don't be Afraid, Buy Gold
By: Peter Schiff
May 30, 2008
As the price of gold has taken some lumps since it crashed into the symbolically significant $1,000 per ounce mark back in March, those on Wall Street who had consistently underplayed its potential on its way up are now assuring its continued retreat. According to these gold market spectators, prices have risen solely as a result of financial panic, and now that the fear has apparently subsided, gold's gains will evaporate as well.
I have been buying gold and gold stocks for myself and my clients since 1999 and not once did I buy out of fear. In fact, from my perspective the only fear I've observed in the gold market is from those who have been too afraid to buy.
While fear may from time to time play a role in creating price spikes in gold, the underlying bull market has been driven by solid fundamentals. Those who have been too afraid to buy simply do not understand the underlying dynamics and have instead decided that the market is irrational. As a result, gold continues to climb the classic wall of worry as any dip in its otherwise upward trajectory causes the speculative investors to jump ship.
Gold's ascent from less than $300 an ounce to its current level was, and is, being driven by those who prefer it as a store of value to the paper alternatives offered by governments. As the Federal Reserve's dollar debasement policy kicks into high gear and other central banks around the world are forced to follow suit to maintain their pegs against the dollar, the rational choice for long term investors is gold. Thus, the decision to buy is not rooted in fear but reason. On the other hand, the decision not to buy is not only rooted in fear, but ignorance as well.
Those oblivious to gold's warnings instead place their trust in government-supplied statistics. Based simply on flimsy CPI reports, these observers believe that inflation is nowhere in evidence, and that the flight to gold is therefore unwarranted. Yesterday's GDP report provides the latest illustration of this dynamic. The government was able to present an annualized first quarter growth rate of .9% based on an assumed annualized rate of inflation of only 2.6%. In other words, inflation in the first quarter of 2008 was the lowest first quarter inflation in the last four years. How such a claim did not elicit howls of laughter is beyond me. The government previously reported that in the years 2007, 2006, and 2005, annualized first quarter inflation rates were 4.2%, 3.4% and 3.9% respectively. Does anyone, besides Fed governors and Wall Street economists, really believe inflation so far in 2008 is 33% below the average rate over the past three years?
Many of those who place their faith with government figures and dismiss the movements in gold believe that inflation is not a problem so long as wages are not rising rapidly. The fact that wages are lagging other prices merely means that inflation is that much more problematic for average Americans. Ironically, what is overlooked is that wages are in fact rising, just not in America. They are rising in the nations that produce the goods that we consume, and those higher costs are indeed being passed on to Americans. However, recent action in the bond market suggests that a few more people are getting wise to the government's con. This week, yields on long-term treasuries hit new highs for the year, with the yield on the ten year up 90 basis points from its March low. While the Pollyannas on Wall Street attribute this move to the strengthening U.S. economy, those of us buying gold know it's more likely a long overdue increase in inflation expectations.
Getting the Truth about America's Gold Reserve
By: Devvy Kidd, June 19, 2007
© 2007 -
There's no question America is in a dark and dangerous period of history. The world's banking cartels have had their way for centuries, manipulating, strangling and raping the wealth of nations with America at the top of their agenda. For those of us who own gold, we fully understand the importance of owning it to protect us from the machinations of truly evil men. GATA (Gold Anti-Trust Action Committee), has been on a relentless crusade for quite some time to expose the manipulation of gold by the Masters of the Game. It is only by exposing the evil doers can we hope to prevail in our fight to free our nation and our people from financial slavery and bondage.
Few things get me excited these days because most of the news is bad, although we are seeing victories. But, when this latest move by GATA came to my attention, I was ecstatic. Oh, make no mistake and I say this from experience: the battle will be fierce because I have fought on the FOIA battle ground on other issues. The federal government will lie and commit fraud protect their secrets. If you think that's a strong indictment, nothing less is the truth if you have done the research. This is GATA's new press release:
GATA Will Demand Truth About U.S. Gold Reserves, June 14, 2007
"Constitutional scholar, writer, and lawyer Edwin Vieira has been retained by the Gold Anti-Trust Action Committee Inc. to lead an inquiry into the disposition and possible impairment of United States gold reserves. Dr. Edwin Vieira, author of the monetary history of the United States, "Pieces of Eight," is a graduate of Harvard College and Harvard Law School and a renowned spokesman for sound money.
"Consulting for GATA, using the federal Freedom of Information Act, and retaining a Washington-area law firm, Vieira will seek to compel the U.S. government to disclose records showing how much gold is in the government's custody; who owns it; whether it has been leased or otherwise made available to foreign governments or gold market participants; and whether the policies and practices behind the use of U.S. gold reserves have been meant to influence the price of gold.
"GATA, a non-profit civil rights and educational organization founded in 1999, has published evidence that central banks and government financial agencies, including the U.S. Treasury Department and Federal Reserve, work together, usually surreptitiously but sometimes openly, to rig nominally free gold markets as part of their general program of controlling international currency exchange rates. That evidence includes the transcript of the meeting of the Federal Reserve Board's Federal Open Market Committee on January 31, 1995, which confirmed the U.S. government's participation in gold swaps, exchanges of gold with other governments so that gold might be introduced into markets without being easily traced to the originating government.
"Because gold is a measure of all currencies, government bonds, and the value of labor, a free gold market is crucial to the freedom of all markets and, indeed, to honest dealing and personal liberty throughout the world," GATA Chairman William J. Murphy said. "As the nominal holder of the largest official gold reserves in the world and the issuer of the primary world reserve currency, the U.S. government has much to answer for here. No one is more expert in these issues than Ed Vieira, and all GATA wants is the truth. In a democracy that should not be too much to ask."
"In addition to hiring a Washington-area law firm, Murphy said, GATA's demand for the U.S. government to produce information about its gold reserves probably will lead to litigation under the Freedom of Information Act. So, he added, "We now will be especially grateful for financial contributions to underwrite our legal campaign for the truth." <>
"GATA is recognized as tax-exempt by the U.S. Internal Revenue Service and contributions to it are federally tax-deductible in the United States. Contributions may be sent to: Gold Anti-Trust Action Committee Inc., c/o Chris Powell, Secretary/Treasurer, 7 Villa Louisa Road, Manchester, Connecticut 06043-7541 USA"
I have been privileged to meet Bill Murphy; the folks at GATA are great people. Their choice in retaining my friend, Dr. Edwin Vieira, to file and fight this FOIA (Freedom of Information Act) is one smart move. Edwin is a regular contributor to NWVs, a brilliant writer with a legal mind sharp as a razor. When I say fight, there's no doubt in my mind the feds will stonewall, lie, obfuscate and do everything in their power to keep this information from we the people. However, Edwin Vieira is a very formidable adversary.
Back in December 2000, I wrote a column titled, "From Riches to Rags in 34 Days" where I wrote the following: "My good friend, Harvey Gordin, is a former Wall Street player (29 years). Harvey owns El Dorado Gold and he keeps me well informed of what's going on in the world of money and the manipulation of gold. A funny thing has been going on that I discussed with Harvey: How come during the election cycle, Mr. Gore, all his mouthpieces, including the boob tube "experts," kept telling America that Billy's administration brought America the strongest economy in 50 years, yet once Gore conceded, we have the media and politicians telling everyone Bush is facing a recession and that it's his greatest challenge? What? In about 34 days the economy has gone from riches to rags, just like that? What hogwash."
The truth is that you cannot have a "strong, robust economy" that is based on debt because debt is not prosperity. A nation's monetary system cannot and will not survive under a fiat currency such as we've had shoved down our throats since 1913. This is why so many of us own gold. We know history has a nasty way of repeating itself. This brings me to a recent column which just came out titled, It's Official: The Crash of the U.S. Economy Has Begun by Richard C. Cook. This column has flooded the Internet. Cook's so called solution to the monetary crisis facing this country is dangerous. In his column he states:
"Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone."
A return to FDR's New Deal? Has Mr. Cook never read history? FDR deliberately and with malice of forethought issued the edict: "We desire the Japanese to strike first." His New Deal so alarmed many, two newspapers had the courage to call it for what it was: Arthur Henning of the Chicago Tribune said, "The New Deal will bring the Communist Party within striking distance of overthrow of the American form of government..." Mark Sullivan of the Buffalo Evening News: "This may be the last presidential election America will have. The New Deal is to America what the early phase of Nazism was to Germany..."
How about this statement Cook makes in the same column: "Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II." A worldwide depression led to WWII? Can he really be that naive? I was appalled when I read that, even though I had already been to Mr. Cook's site and read one of his speeches, The Basic Income Guarantee and Monetary Reform: A Tale of Two Ideas, where he mentions William Jennings Bryan. William Jenning Bryan, Secretary of State for the United States, should have been indicted for fraud. On May 31, 1913, he concocted a resolution declaring the Seventeenth Amendment to the U.S. Constitution as ratified when he knew it clearly was not. The damage Bryan did has been horrific and he should be soundly comdemned.
Cook goes on to say in this speech: "The election of 1980 was a watershed in U.S. history. It was a takeover of the policy apparatus of government by the extreme right-wing. This affected every aspect of American politics and culture. Those of us who remained in government but still believed we had a positive role to play in supporting the progressive aspirations of the American people thereafter kept a low profile..... believe that today we are finally seeing the pendulum swing back in the direction of more progressive attitudes as the conservative ideology crashes into ruins. I believe that today we are finally seeing the pendulum swing back in the direction of more progressive attitudes as the conservative ideology crashes into ruins.
"After a generation of conservative rule, and in spite of three years of a balanced budget at the end of the Clinton presidency, public finance in the United States today is in crisis, if not total collapse. A quarter century of politics devoted to the dismantling of social welfare programs, privatization of public assets, huge tax cuts for the wealthy, continuing export of manufacturing jobs, deregulation of the financial industry, and gigantic expenditures on the war machine have eroded the ability of the federal government to do anything meaningful about income security."
Pray tell me how Clinton had a balanced budget when the national debt at the conclusion of during his term was $5.7 TRILLION dollars? How do you balance your budget when you're $5.7 TILLION DOLLARS in the hole? This is just more propaganda. In one of Cook's columns on solving the monetary problem, he writes: "The remainder of the total societal gap between production and purchasing power would be filled by a non-taxable National Dividend of two types. One would be a cash stipend paid to all citizens which would also serve the purpose of eliminating poverty by providing everyone with a basic income guarantee."
Tell me Mr. Cook: Where in the U.S. Constitution, specifically Art. 1, Sec. 8, which gives Congress the power to steal from the people's treasury to pay a stipend to all citizens for any reason and his convoluted "basic income guarantee"? The welfare clause? If that's your justification, Mr. Cook, you are way off base. "Progressive" is another one of those words used by "liberal Democrats," but in reality, their political ideology is communism. I submit to you that Cook's ideas are dangerous and should be discounted. I would also encourage you to read two columns I wrote to better understand "progressives" and their agenda. It is only by learning the under pinnings of the evil being thrust upon us can we hope to save our beloved republic.
I further submit to you that Edwin's words in one of his Monographs on Money, says it all:
"There is no need, moreover, for Americans to tax their brains to devise some new, supposedly "ideal" systems of money and banking, because the constitutional systems the Founders enacted are, both politically and economically, good ones. As explained above, constitutional money and banking are, for all intents and purposes, free-market money and banking, with a particular form of money (silver and gold coins based on the "dollar" as the unit) fixed for the government."
There are dozens of columns and news articles coming out everyday on the Internet about the rise in foreclosures, bankruptcies, lay offs and other indications of just how bad the economy really is. Of course, the controlled dominant media also, at the same time, puts out news items about how good the economy is, retail sales are up, they're down and round and round. I've written about this coming crisis for years. If you would like to speak with an expert on owning gold, give Harvey a call at El Dorado Gold; 1.432.264.7869. Protect your assets because the government won't and you can "take money to the bank on it." You and your family's future will depend on it.
I hope you will support GATA's efforts with Dr. Vieira to expose the chicanery and deceit that has been going on far too long. Please take the time to read the links below from the real experts on the issue of our monetary system. I have read each and everyone over time, along with Edwin's historical tome, Pieces of Eight (Revised). This is how I have learned over the past 18 years. I've had to give up the "good times" because I wanted to know the truth and I needed to learn about central banks and our monetary system in order to understand the bigger picture.
Comments on Gold Confiscation and ETFs
by Christopher Laird,, April 6, 2006
I have gotten a flurry of emails on and off about confiscation of gold and or silver bullion.
The position of the Prudent Squirrel Newsletter is to be in physical assets in your possession, not much in electronic/stock accounts. The philosophy also includes a paid off house, and other real assets in your possession. The premise is that physical possession is key when markets are crashing/illiquid, and if you have possession, you don’t have to worry as much about getting your hands on your money by having to sell it into a crashing/illiquid market. You don’t have to worry about frozen accounts in a banking/financial crisis- you already have your hands on it. To me, possession is not only ‘9 tenths of the law’, it is the best protection period.
Now about confiscation. The US had gold confiscation in the 1930s in the Great Depression. We had gold and silver coin currency in circulation, ie a gold dollar. The US instituted mandatory conversion of gold dollars into fiat dollars, i.e. they wanted all the gold coin USD currency back in the hands of the US government. Ultimately, they only got a relatively small fraction of it back. The rest was hoarded here and abroad.
Safe deposit boxes were also attached by the US government, and citizens were allowed to keep about 100$ of gold coin, the rest was confiscated (converted into paper dollars) by the US government. This is a scary proposition. When depositors went in to open their boxes, they were not permitted to do this in privacy, but in the attendance of a government agent, who would buy any gold from you with US dollar paper money.
At that time, one of the motivations for collecting the gold coin was that the US wanted to deficit spend during the depression to stimulate the economy and do government hiring programs that proliferated under Franklin D. Roosevelt. Many of our highways today, bridges and infrastructure, and the Hoover Dam, were built with deficit spending. Also the massive Tennessee Valley Authority.
When we had gold coin, that restricted the government’s ability to deficit spend, so that was one major reason why the gold US coin was confiscated by law. They were also afraid of gold hoarding, ie flight out of the US currency, and so gold bullion was also confiscated.
There is one major difference between today and then, that is: we do not have gold US coin currency now. In other words, one of the prime motivations to confiscate gold in the 1930’s is not now at work today ( to get back the US gold coin in circulation). The other risk, however, that of flight out of the US dollar into gold hoarding, still remains in effect.
To get around flight out of the US dollar, the major issue to the US government would have to focus on is the currency markets because they have the size and liquidity to do the job. The US government would probably institute foreign exchange restrictions, i.e., freezing the conversion of electronic accounts into other currencies, IE if they are already denominated in US dollars, then they would probably be forced to stay in US dollars.
The amount of gold bullion available is a very very small fraction of the total assets available to change US dollars into. Foreign currencies would be the prime objective for converting out of the US dollar, and gold would be a very small part of this equation.
Therefore, I do not see gold being the main target of foreign exchange restrictions as it was in the 1930’s. However, the US can indeed confiscate anything they feel threatens the stability of the US dollar with laws already on the books.
Electronic gold accounts would be a major target of these foreign exchange restrictions however. These are liquid alternatives to USD accounts, but again, the size of these things is literally a drop in the ocean of USD accounts world wide. One of the largest gold ETFs has about $6 billion in gold. By comparison, there are probably a total of well over $50 trillion dollars in USD denominated markets like the US stock market, plus all the insurance and financial instrument accounts that are like quasi cash. Lots of money market funds, bond funds, stock accounts, derivative accounts, being denominated and more or less convertible into US dollars upon their sale, would have to be converted into Forex markets to deal with the size and volume. These have enough liquidity to handle the trillions of dollars that would seek haven from any USD crisis. (I am including gold ETFs and so on in Forex because gold is money).
The only real way that US dollars could be washed in a currency crisis would have to be into other foreign currencies that have the size and liquidity to be able to handle the volume of US money that would seek haven. The gold stocks, the gold ETFs and gold bullion are a very very minute fraction of the market size and liquidity that would have to be available. For this reason I do not foresee gold being the number one target of the US government in a currency crisis. Foreign currency exchange would be the main and first target.
To make a comparison of the relative liquidity of gold alternatives to foreign currencies I will make a basic calculation relative to bullion. If gold ETFs have at present several hundred tons of gold, the largest has $6 billion dollars worth now, and if there is only one trillion dollars seeking haven out of the USD into that ETF, that gold ETF would have to obtain about 200 times the gold they have to convert $ 1 trillion into gold. This is not going to be possible.
Given the fact that there is far less that 100,000 tons of gold in foreign and US central banks, even if they were to sell all of it to support the US dollar, they would never come close to achieving this. There is just not enough metal to make it possible, and in a crashing US dollar market, by far most people/entities would be forced into the other alternative of another more solid foreign currency.
If we were to consider the actual gold bullion in the hands of private individuals, that gold would just become unavailable for any USD price until the USD either stabilized or crashed into nothingness. As a matter of fact, I believe that gold bullion in general will become unavailable for any USD price in the event of a real serious USD crisis.
What is my point? Gold bullion is not going to be a feasible alternative to flight out of the US dollar because there is not enough of it to make a market. It will all just become ‘not for sale’. The other main alternative would have to be other decent foreign currencies to flee into, because of the size and liquidity required. The US would have to institute currency exchange restrictions like Argentina did a few years ago, where they prevented people from taking out pesos (allowed a very low monthly withdrawal), and froze bank accounts.
Now, it is possible that the US would seek to get the gold bullion from the citizenry, but that would not be the major source of pressure on the USD in a real crisis, that would come from the Forex markets and the US would have to freeze all US dollar denominated accounts to deal with that. Gold would be a very small secondary issue, and would not be the first that had to be dealt with. I do believe however, that larger gold depositories would be subject to freezes/attachments. Also, I do not foresee that having these depositories out of the country is going to do much. The US, Japan, and Britain are very closely aligned monetarily, and will cooperate in a real USD crisis and lock up large gold depositories under their jurisdictions.
It is my opinion that a few hundred or few thousand ounces in one’s personal possession will be a very small issue to the US government, particularly since it will not be necessary to call in gold coin US currency since we abandoned this long ago.
There is another issue. Since gold is non traceable, it is possible that the US government would seek its control for security issues. In fact, there are stories out that some large gold ETFs are vehicles of choice for non legal money. That is not the ETF’s fault, but it does put a spotlight on them in this regard. It may be possible that transacting in gold bullion would be too dangerous in a security alerted world. In that case, gold would have to just be kept for a later time, and not spent.
A New Gold Seizure: Possibility or Paranoia?
Part 2 of 2
Dr. Edwin Vieira, Jr., Ph.D., J.D. March 2, 2006,
Obviously, no sane individual would voluntarily turn in gold or silver at confiscatory rates of exchange--or at least no sane individual not terrorized into compliance. So, just as in the 1930s, politicians bent on a seizure of gold and silver today would turn immediately to the force of "law"--or, more realistically, to the law of force:
•The first step would be to keep all gold and silver subject to the Treasury's ready grasp, by outlawing their exportation and setting up strict inspections of travellers for the precious metals at, and other barriers to the metals' transportation across, this country's borders.
•The second step would be to impose on all Americans mandatory reporting to the Treasury of all gold and silver physically within their possession or subject to their control within the United States, and of all interests, legal or equitable, that they might claim in the precious metals wherever situated. Individuals would be required to disclose not only their own possession or control of actual metal, or any interest therein, but also any attempt by a family member, business associate, friend, neighbor, or acquaintance to conceal the latter's possession, control, or interest.
•The third step would be to rake the precious metals into the Treasury. Within the banks, all safe-deposit boxes would be "frozen," their contents subjected to inspection, and nothing contained therein removed without license from the Treasury or (even more likely) the Department of Homeland Security. Any gold or silver discovered in the boxes would be seized--with payment of nominal compensation if the contents had been properly reported prior to inspection, or outright confiscation without compensation (that is, forfeiture) and prosecution of the holders if no timely disclosure had been made. Outside the banks, all holders of gold or silver (or of any interest, legal or equitable, therein) would be required to surrender the metal (or their interest) to the Treasury by a specified date. If the gold or silver were situated outside the United States, the owners would be required to repatriate it for seizure. Again, holders of gold who reported it to the Treasury prior to surrender would receive nominal compensation; whereas any who failed to report their holdings would, upon discovery thereof, suffer forfeiture of the metals, and then prosecution.
•All these requirements would be enforced with the most brutal of sanctions. During the 1930s, those who withheld their gold faced $10,000 in fines and ten years in prison. With depreciation in the purchasing power of currency and inflation in the sadism of public officials since that era, the minimum penalties for attempted evasion of some future gold and silver seizure might easily rise to $250,000 in fines and 25 years in prison. Detection, too, would likely exhibit barbaric tactics rarely witnessed in the 1930s, but now becoming commonplace with America's increasingly para-militarized "law enforcement": namely, SWAT teams rampaging from house to house under color of search warrants the "probable cause" underlying which would be as gossamer thin as the compunctions the ninja-clothed gunmen would feel about shooting down anyone who might offer the least semblance of resistance, real or imagined.
In short, a new gold and silver seizure would be conducted on the scale and with the ferocity of a veritable war of financial terror directed against every common American. For, indeed, the life or death of the bankers and their political puppets would be at stake as they never really were in the 1930s. After all, under the economic conditions of the 1930s the Federal Reserve System could probably have survived a relatively short-term "suspension of specie payments" without a gold seizure, if Roosevelt had not imposed the crackpot economic nostrums of his New Deal upon the country, prolonging the Depression until World War II. In a future crisis, however, unless the bankers and their political cronies could quickly "stabilize" the System by creating a new currency with some genuine economic and especially political credibility, the whole rotten pyramid of banking-cum-political power might collapse overnight from its elephantiasis of public and private debt, with disastrous consequences for the Establishment.
In keeping with its true nature, any future seizure of gold and silver would undoubtedly be labelled a "war measure" (albeit, of course, without identifying the American people as the politicians' and bankers' real enemies). To ape the precedent of the 1930s, and to lend the seizure a contemporary legal veneer, such a characterization would be necessary. In 1933, Roosevelt began the sequence of events that culminated in the original gold seizure by "freezing" all gold in the banks, under color of the Trading with the Enemy Act--a "war measure" from World War I quite inapplicable in peacetime, but which Congress immediately amended to whitewash Roosevelt's usurpation of power. Today, the applicable statute provides that
[d]uring the time of war, the President may * * * investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities * * *.
Title 12, United States Code, section 95a(1)(A). That the President may exercise these powers only "[d]uring the time of war" also applied under the Trading with the Enemy Act; but that meant nothing to Roosevelt, who successfully pretended to employ that Act in time of peace. And it would probably not deter any future President, either, from twisting the present statute to his malign purposes whenever the Establishment demanded it.
Moreover, the limitation would not be hard to finesse, rhetorically at least, inasmuch as all too many Americans have become used to being told--and apparently to believing--that their country is at "war," even without a declaration of "War" that the Constitution requires under Article I, Section 8, Clause 11. So, what the Establishment obviously intends to be a never-ending "war on terror" would surely be held to qualify as "[d]uring the time of war," especially if a monetary and banking crisis arose coincidentally with a widespread use of gold and silver by Muslims as their media of exchange.
Yet, if a seizure of gold and silver could--and in a dire financial crisis probably would--be undertaken to save the Establishment's bacon, with what likelihood would it succeed, even to the limited degree that Roosevelt's gold seizure succeeded in the 1930s?
Unfortunately, the likelihood is not insignificant. The occasion for a seizure would be a monetary and banking crisis so severe that it threatened the continued existence of the Federal Reserve System, the solvency of the Treasury, and even the functioning of the entire domestic economy. In such a situation, a nationwide financial panic would ensue, probably worse than anything experienced during the 1930s. Unlike the 1930s, though, when millions of Americans possessed gold or silver coins and were familiar with the sound money that regularly passed from hand to hand as wages and salaries, and in the consumer economy, today relatively few Americans hold monetary gold or silver in any form, or understand anything at all about money and banking. So without personal experience, knowing nothing relevant to the problem facing them, and unable to evaluate the situation critically, in a severe crisis many Americans would likely believe anything they were told by public officials and the big media--especially if these sources of propaganda, misinformation, and disinformation emphasized that their prescriptions were the only way to restore the economic stability masses of people desperately desired.
Doubtlessly, too, politicians, the big media, and other of the Establishment's mouthpieces would employ their tried and true "divide-and-conquer" strategy, to turn Americans against one another. In the run-up to a seizure of gold and silver, public officials and the media, following in the cloven hoofprints Roosevelt laid down during the 1930s, would broadcast hysterical attacks against "hoarders"--that is, individuals who wanted to retain their own gold and silver as private property. Inasmuch as in a financial crisis those Americans who had shown the foresight to acquire silver and gold would be better off than those who had not, such political defamation would play on envy, greed, and other vicious emotions to divert the attention of the unfortunate many from the people who had actually caused their misfortune to their innocent, but less unfortunate neighbors. Americans who possessed gold and silver would quickly be demonized as "unpatriotic" if they dared to keep their property for themselves, when public officials and bankers needed it to "stabilize" the monetary and banking systems, restore credit, create jobs, et cetera. Suffering the fate typical of unpopular messengers who bring bad news, those holders of gold and silver who had openly criticized the Federal Reserve System, had spoken up for the restoration of constitutional money, or had predicted a monetary and banking crisis as the inevitable consequence of the politicians' and bankers' fallacious policies would be branded dangerous "extremists."
And if the crisis could somehow be blamed on the Islamic world--as surely it would be were it to break out even coincidentally with Muslims' adoption of the gold dinar and silver dirham as their media of exchange--then the Establishment could paint the seizure of Americans' precious metals as an integral part of the "war on terror," and could thereby condemn the holders of gold and silver as "enemy sympathizers," "traitors," or even "enemy combatants," with all the life-shattering consequences such labelling would entail. Conveniently forgotten, just as it was during the 1930s, would be that the Constitution protects every American in his possession and use of gold and silver as media of exchange, and requires the General Government and the States, and all public officials who "shall be bound by Oath or Affirmation, to support th[e] Constitution" under Article VI, Clause 3, to make gold and silver coin the only official money and legal tender throughout this country.
For Americans who did not possess gold or silver to turn on those who did would be exceedingly myopic--because, in a sufficiently severe monetary and banking crisis, gold and silver would not be the bankers' and politicians' only targets. The public debt of the United States amounts to tens and tens of trillions of "dollars," the private debt of American businesses and individuals umpteen trillions more. All the gold and silver possibly subject to confiscation by the Treasury could never prop up this pyramid of financial profligacy, were its foundations to crumble. Huge amounts of other valuable assets would be necessary, on the economic strength of which the Federal Reserve System could create credible "reserves." Securities such as stocks, bonds, investment funds, pension funds, and other varieties of income-producing paper would doubtlessly provide irresistible temptations for bankers and politicians desperate to acquire real wealth for the creation of a new fictitious currency to keep the Ponzi-scheme of American political central banking in operation. And, ominously, the statute licensing the President to prohibit the "hoarding * * * of gold or silver coin or bullion" also applies to "securities." Title 12, United States Code, Section 95a(1)(A).
What about real estate, businesses, even private homes? All these, too, are assets that the Federal Reserve System could use as "reserves" on the basis of which to emit currency. Can anyone believe that, in a crisis threatening the Establishment's continued domination of this country, the same type of Justices who excogitated the Supreme Court's Kelo decision could not concoct some theory that combined "eminent domain" with "securitization" and "monetization," so as to license the Treasury to seize such properties at miniscule prices for the purpose of emitting paper currency "backed" by the much higher free-market value of the property? In the early 1700s, John Law "coined the soil of France" in his wild paper-money scheme. Why, in the course of a financial crisis, could not the Federal Reserve System claim the power to "coin the soil" of America? And with an even more catastrophic result?
In the 1930s, gold was seized to form "reserves" for the emission and redemption of FRNs. But the Federal Reserve System may emit FRNs on the security of essentially ANY asset satisfactory to the regional Federal Reserve Banks and the Board of Governors. So, in the future, on the precedential strength of Roosevelt's gold seizure ANY asset could be seized for that purpose. That is, no American's property, of any description, is safe as long as the Federal Reserve System remains in operation, subject to catastrophic failure. The process may start with a seizure simply of gold and silver. But the immense gravitational force of the financial black hole the Establishment would need to fill would soon expand it to a seizure of whatever valuable assets could be grabbed.
To be sure, at some point in such a wide-ranging expropriation of assets even the dullest American would have to wake up. So, right from the start, the seizure would probably go beyond the two precious metals, to take in all of the four metals of freedom under constitutional government: namely, gold and silver, steel and lead. When real money is being seized, firearms too will be targeted. Perhaps even earlier.
Which is why returning the States to gold and silver as their media of exchange--immediately, if not sooner--is so important. See For no seizure engineered by the General Government and the Federal Reserve System can constitutionally reach precious metals the States are using for their own governmental purposes. And with this must come a revitalization of "the Militia of the several States"--in as many States as possible, and certainly in those States that incorporate gold and silver into their financial operations. Such is the only plan this author can imagine that might yet salvage something worthwhile from the mess the Establishment has created in this country, when the house of cards comes tumbling down. In the final analysis, everything depends upon depriving the Establishment of its "divide-and-conquer" strategy. To prevail in the struggle for national self-preservation, common Americans must neither divide themselves nor let themselves be divided over secondary, indecisive issues. Unless Americans unite to reassert their control over the two great powers of government--the Power of the Purse (constitutional "Money") and especially the Power of the Sword ("the Militia of the several States")--they are lost, and with them this country, too, irretrievably. But if Americans can firmly grasp these powers in their own hands, all else will follow. As to these matters, then, every American should take heed of Benjamin Franklin's warning, that if we do not all hang together, we shall every one hang separately.
Jones on Gold and Silver
The Gold Confiscation Issue: History And Future Predictions
J. Kent Willis, AGAPI Financial LLC, 2004
No subject related to gold is more debated than the possibility that gold may again be confiscated by the US Government during times of economic crisis. The very mention of this topic to the die hard "gold-bugs" causes them to panic, lose sleep, overload their blood pressure monitor and question the wisdom of their gold investments. Prophets and pundits of every ilk have written endless elaborate essays at both extremes suggesting "they will never do it" or "it's a slam-dunk guarantee that they will". As you can imagine, this issue may be the single largest deterrent to purchasing physical gold coins as protection against economic catastrophe in the wake of a US dollar collapse. We will examine the arguments in detail in this section. We will present both sides of the issue in all their bombastic glory without bias and help you decide for yourself. But, unlike a good mystery novel, we will tell you the ending now:
Absolutely no one knows what the US Government will do during times of complete economic and civil chaos. If the worst-case financial scenario unfolds (a complete collapse and repudiation of the US Dollar by our foreign creditors), every previous court ruling, law or custom can be changed by a single stroke of an ink-pen at the bottom of a Presidential Executive Order (PEO). We pray that this does not occur. Since any intelligent and sober-minded financial advisor will admit this, they have to frame their advice along the lines of probability and relative risk. With a cloudy crystal ball, we proceed…First, A Little HistoryNotice we said in the first line of this section above "…may again be confiscated…" What? Again? When did they do it? Why? Not many of us were alive in the early 1930's. Unless we are familiar with the history of the issue, we would know little about it. Dozens of books have been written about the causes of the stock crash and ensuing worldwide depression. While it is well beyond the scope of our study but very much related, we will try to provide enough background information to frame our discussion.
During the absolute bottom of the gut-wrenching depression which followed the collapse of the US stock market on 24 October, 1929 ("Black Thursday"), President Franklin D. Roosevelt was elected. He called Congress into an emergency session on March 5, 1933, less than 1 day after his inauguration. The House and Senate quickly passed the rather noble sounding law titled:
"An Act To Provide Relief In The Existing National Emergency In Banking, And For Other Purposes"How lovely at first glance. If you didn't know what it really meant (as most of the US public certainly did not), it sounded like magnificent medicine for the current sickness of the depression. Everyone agreed that there was a national emergency. So some new rule or law to provide "emergency relief for the banks", has to be a good thing, right? Citizens always look to their government for help in times of distress. Even when their own government was much more a part of the problem than the solution in the first place.
This paved the way for sweeping, unparalleled confiscation of private property from law abiding citizens in the history of the United States. President Roosevelt wasted no time in flexing his new muscles. He signed Executive Order 6102 on April 5th, 1933 and Executive Order 6260 on August 28th, 1933. Order 6260 revoked and superceded 6102. These laws in short order made it illegal (a federal crime with outrageous penalties of a $10,000 fine and/or 10 years imprisonment) for any law-abiding US citizen seeking to protect his wealth by simply possessing physical gold coins or bullion which were lawfully, abundantly and freely in circulation! Can you imagine that? Our Government made it illegal to do one of the only things that would have guaranteed economic survival for American citizens wise enough to save a portion of their wealth in gold during one of the darkest economic chapters in our history. Keeping gold would have immediately almost doubled their purchasing power at a time when they would have needed it most. Franklin Roosevelt blew out the only candle available to ordinary citizens struggling woefully in the dark days of the depression. Amazing. U.S. citizens, if they had been allowed to own gold, would have automatically almost doubled their money a few months later. How? Well, Just 8 months later, new Federal legislation known as the Gold Reserve Act of 1934 enacted on 30 January, 1934 revalued gold versus the dollar. The official price was raised from $20.67 USD per ounce to $35.00 USD per ounce. Actually, we all know that gold is the immutable standard. The dollar was devalued. A 20 dollar gold coin could have theoretically been exchanged for 35 paper dollars. This would have help the unemployed and financially ruined citizens of this nation far more than the confiscation of their only possible source of legitimate, honest wealth. I have little doubt that FDR truly "believed" that is his innumerable PEO's, edicts, sweeping changes in the banking industry, public works projects and such were just what America needed. It is also painfully clear that he did not understand free-markets, or the ultimate implications of his price control policies. Use "Google" to research and read his "9 Excerpts From His January 15th, 1934 Press Conference". Also research the excellent archives of the University Of California at Santa Barbara collectively known as "The American Presidency Project". Then you will quickly realize that he must have simply signed PEO's almost carte-blanche; PEO's that were crafted carefully behind the scenes by the true "kingmakers" who, unlike FDR, knew exactly what they were doing.
We should clarify the terms of "confiscation". The US Government did not send armed soldiers house to house to search for and seize gold without compensation. Gold coins that were turned in were exchanged for legal tender Federal Reserve notes (paper money) on a dollar for dollar basis. A $10 gold coin was taken and the presenter given a $10 bill. Gold bullion was evaluated for its purity or fineness and compensated at a rate of $20.67 per ounce of fine gold. This was the official US government figure for what one ounce of gold was "worth" or "priced at" in dollars. Arbitrary? Yes. But it was the gold-dollar exchange rate of the long standing, so-called gold standard. Exchanging gold in other than common coin form was a little trickier because it required assay/testing and some delay between the time the citizen turned it in and payment was made. History is missing on most of the details. However do not forget, with legislation enacted shortly thereafter, all agents the U.S. Secret Service as well as U. S. Customs Officers were specifically authorized to seize gold for violations of the Gold Reserve Act of 1934. Only the U.S. gold that escaped these ever-growing-longer-arms of the law made it safely to oversea bank vaults.
At any rate, this was a terribly bad trade to the financially knowledgeable, but not really understood by most Americans. They had no clue what had just happened. The law required all citizens to turn in to the government via the banks almost all gold US and foreign coins, bullion (bars, nuggets, dust, etc) and gold certificates within a few weeks after the order was issued. Gold Certificates were a special class of US paper money ("legal tender notes") which could be exchanged for US gold coins upon demand by private citizens at most banks. Only notes clearly marked as gold certificates had to be surrendered. The paper "gold claim" is rather odd; it merely represented a claim on physical gold. The US Government simply could have issued orders to the banking system to refuse to trade the paper for gold coin if presented after the infamous May 1, 1933 date. The paper could have continued to circulate at face value.
There were some exceptions to the rules. Special licenses were available from The Secretary of the Treasury via the Federal Reserve banks for certain professionals who used gold in the normal course of their business such as artisans, jewelers, dentists, etc. They were allowed to have only "reasonable" quantities on hand, i.e. they couldn't hoard large quantities of it either. Each US citizen could legally keep a total of $100.00 face value of US gold coins or US Gold Certificates. A family of four could have kept $400.00 face value of coins and so on. Banks could continue to deal in it with other banks for international settlement with additional controls and regulation, and store it for others. The wealthy financiers could still play with it in most every manner. Gold mining, refining and exporting companies could of course still deal with it. Just plain folk like you and me couldn't, at least not "legally".
There were also exceptions if the coin was considered to have some nominal numismatic or coin-collector type appeal. It was likely exempt if it was rare or unusual and typically was sold/traded for a measurable premium over the net gold value. This was vague and subject to interpretation. Many of the coins which have great coin collector appeal to us today and sell for much more than the value of the gold that is in them were considered too common at that time to qualify for exemption. Many were melted. May their atoms rest in peace.
What is the legal basis for the Presidential Power Manifested In An Executive Order?A common clause inserted in the text of essentially every PEO is "By virtue of the authority vested in me…". FDR's edict is no exception. He specifically cited the "War Powers Act" of 6 October, 1917 and its revisions which were promulgated in March, 1933. As I recall, a large number of Texas Republicans who believed that even as late as 1994 this Emergency Act was still in effect were nigh unto seceding from the Union at one time. (That issue is a whole other can of worms!). The 1917 law was also Titled "National Emergency In Banking Relief And Trading With The Enemy Act". Fifteen long years after the original national emergency of the time (WWI) was clearly over, the law was still very much alive. Constitutional scholars have many times debated the nature of many such executive orders. When do/did they officially expire? If they were not officially rescinded, what exactly is their legal status and judicial import at any point in time? This was the gist of the Texas Republican Committee complaint in the mid 1990's. I will leave that discussion to the legal experts. Emergencies conveniently always last much longer in the eyes of authorities than they do in the heart and minds of the people under their protection. If you carefully read the text of FDR's gold confiscation PEO you would wonder when it would end. The White House released a public statement on April 5, 1933 that contained the following: "…The order is limited to the period of emergency. The chief purpose of the order is to restore to the country's reserves gold held for hoarding and the withholding of which under existing conditions does not promote the public interest".
It was only many years later that US citizens holding gold coins and bullion would be in the "public interest". These Presidential Executive Orders making it illegal for private citizens to own gold were in effect for 40 years until they were revoked by, you guessed it, another Presidential Executive Order (11825) on 31 December, 1974. What a lovely late Christmas gift from Gerald R. Ford! Americans were free to do whatever they pleased regarding gold coins and bullion again. May it ever be so.
Back to the source of the authority. We are not constitutional experts, but here is our understanding as good citizens who study our constitution earnestly. The President, under Article II of the Constitution is granted very broad powers, including primarily:
a) Wield Executive Power.
b) Serve as Commander In Chief of all the Armed Forces.
c) Grant Officer Commissions in the Armed Forces.
d) Convene Special Sessions of Congress for reasons he deems fit.
e) Enforce/Ensure as the "Top Cop" that federal laws are obeyed.
f) Receive Foreign Ambassadors.
g) Grant pardons (except for impeachment) and Stays Of Execution to convicted felons.
h) Appoint officials to many, but not all, lower positions, i.e., Cabinet members, etc.
The President must share power with The Senate and House of Representatives in some matters. The Senate must also participate in approval of treaties with foreign governments, appointment of Ambassadors, and selection of higher level court judges. Federal legislation enactment requires Congressional approval. Article II deals with powers of the Executive Branch. Clause 1 of Section 1 clearly states that the President has "Executive Power". Item "a" above was the source for matters like FDR's PEO's. Prior to WWI, executive orders were often used for relatively minor acts of state for often unremarkable matters. After the War Powers Act of 1917, this changed drastically. But the number of PEO's increased as well as the importance of the issues unilaterally enforced via use of the PEO. WWI frighteningly impacted essentially every facet of US trade with the world, international policies, existing treaties/agreements and as a consequence, directly and brutally impacted the US economy. The War Powers Act was very much exactly the right legislation need for the uncharted territory filled with the horrors of WWI. The huge concentration of power in the hands of the President, while legitimate if carefully wielded, was supposed to be temporary. Much like the sunset clauses in the current Patriot Acts I and II. Yet, long after the guns fell silent and the bombs no longer rained from the sky, the power of the Act rested quietly, ready to strike again on a moment's notice.
What is even more significant is that most Americans are not aware of the following fact: The 1917 War Powers Act contained explicit language that EXCLUDED American citizens from the sharp teeth and effects of the legislation. FDR convened a Special Session of Congress in 1933 to remove that clause. Consequently every law abiding US citizen was subject to its decree. This permitted the President to declare a "national emergency" for just about any reason. In less than 40 minutes, with no debate, this travesty was ratified by the House and the Senate. The gold confiscation edicts were born from the illicit union of Mother Fear and Father Hubris in the midst of the depression.
Well, what happened to the gold?
Many Americans dutifully turned in their meager holdings. But not everyone. Many simply ignored the order, assumed the risks and stashed them away knowing that gold was more valuable than the paper given in exchange. Keeping it literally meant the difference between living or dying for some. There are not significant historical legal records of US citizens being fined or imprisoned for failing to comply. This was the bottom of the depression and average citizens did not have large quantities of gold. Many were jobless, bankrupt and barely surviving; selling pencils and apples on the street corners as so often depicted in the old black and white newsreels from that era. But wealthy businessmen, bankers and society elites did own considerable gold. They obviously did not turn in their gold. How do we know? Most of the US mint made gold coins that were in circulation at the time ($2.50, $5.00, $10.00 and $20.00 denominations, but mostly the 10 and 20 dollar coins) were simply shipped off in bags by the thousands to European banks (primarily in Switzerland and Great Britain) for anonymous safekeeping, far away from the reach of US authorities. They simply sat there in darkness and dust buried at the bottom of bank vaults. When gold ownership was again legalized for US citizens in 1975, tons of the coins appeared back on the US market. Many coins thought long since melted appeared, looking as fresh as the day that they were made. Many coins that were thought to be numismatically rare (meaning that only a few examples have survived and were priced very highly) turned out to exist in quantities of hundreds, even thousands. To this day there are still occasionally large hoards of US and foreign gold coins likely hidden during the 1930's that are available to collectors and investors coming onto the market. But rest assured, as a dealer I tell you in all honesty that most small US and foreign gold coins (about 1/10 ounce up to 1 ounce weight) usually disappear as soon as they come on the market. They slip quietly back into the hands of the wise who prefer to store their excess savings in something other than paper.
And Now, The Future Through The Cloudy Crystal Ball
(A) Reasons to Resurrect The Demons Of Confiscation:
The US Government has done it before. Legal precedent, no matter how dubious and dishonest, is very powerful. If (when) the US Government is forced to again back the US dollar in a credible fashion this may be the determining factor. This is an even greater possibility if in fact, as GATA proponents claim, that most of the American citizen's gold has been sold or leased to suppress the price for the past 20 years. I am certain that the price has been "officially" suppressed for quite some time. The anecdotal and "weird market behavior" evidence is overwhelmingly aligned with such an assumption. The reasons that the price must be suppressed along with the methods likely used to accomplish such are clearly obvious to all but the most economic and politically naïve. Why might the dollar be backed again by gold somehow? Will the dreams of the true hard-money patriots be realized? Well, if it's only a dream, I don't want to wake up! Many other extremely knowledgeable experts, including Jim Sinclair, et al., have dealt with the manner in which gold might be restored to her rightful place as the indisputable standard whereby all national currencies are judged. The only squabbles will be just how worthless any given currency is relative to gold and what ratio of paper to reserves will be internationally tolerated. Nations will still be free to debase their currency for any crisis du jour. But gold will raise her lusty voice, point out the return to folly, and quickly determine just how many of those paper impostors you have trade for an ounce of her. She's doing that now anyway. The likely mechanism used to once again add real flesh to the skeleton of the dollar will be the restoration of the Federal
Reserve Gold Certificate Ratio. Uncle Sam will need a great deal of gold to implement a workable solution even if the price of gold soars to levels well in excess of $1,000/ounce because there are trillions of incorrigible little dollars running amok on the planet. Do the math; it will scare the bejeebus out of you. Hopefully, the US government will lawfully acquire the needed gold reserves from the open, unmanaged market to supplement whatever official hoard that she retains. This market includes financially savvy citizens who may be happy to part with their real gold at much higher prices in exchange for paper that might actually be worth something again, at least for a little while. Unfortunately, this can likely only occur after the visceral repudiation and dissolution of the IMF in her present incarnation, notwithstanding the frightening re-emergence of the Islamic Gold Dinar. Do not dismiss this as folly. The Gold Dinar and her little brother the Silver Dirham are coming with a vengeance that will crush those that underestimate its chances for success. The foundation for their success is both already laid and guaranteed; it is the hollowed out core of the once mighty US dollar. Nature abhors a vacuum; gold in some primordial fashion will once again fill that hollow space. (The Dinar is the subject of another long-winded, bloviating research paper which is also in the pipeline-stay tuned).
(B) Reasons To Leave The Demons In Their Graves:It would be a mistake to repeat the folly of FDR. It's un-American. It's illegal. It's immoral. It's unjust. Citizens can legally hold gold in their IRA. Citizens can buy and hold all the gold they want provided they follow the laws when purchasing and the tax rules when taking profit. Gold ETF's are now available for US investors. It would be the ultimate in hypocrisy for the United States to be constantly bringing democracy and free-trade by force to every nation of the world while at the same time destroying the freedom of her own patriotic, law abiding and peace loving citizens who know full well that gold and silver are the only righteous and lawful money of the US Constitution. And so on, ad infinitum…
SummaryAs we mentioned at the outset, so we say again: No one knows what will happen. Not even the Great MOGAMBO! No financial advisor can accurately judge your perception of this risk or to what extent your fear/confidence regarding the outcome of this fundamental issue should have on your portfolio structure. I am NOT your financial advisor. What is right for me may not be right for you. But I know what I believe will occur. I have positioned myself accordingly.
A simple procedure for you would be to decide FIRST just where YOU are on the continuum from "head for the hills" or "everything's gonna be just peachy". If you believe in the "end of the financial world as we know it", just purchase actual gold coins with paid for savings, using no margin or debt. Don't foolishly tap Home Equity credit lines or anything like that. Don't play your own mini-version of the interest rate carry trade; thinking it will be easy to pay back those loans and interest with skyrocketing US dollar gold prices. Foolishness has killed many. Greed has killed everyone.
If you believe that physical gold will be once again be taken from citizens but still want to participate in gold's historic price rise, play the risky paper games of buying shares of the new ETF's with uncertain custodial controls on the gold that supposedly backs the shares. Or, chase stock promises of well-run, non-hedged gold explorers and producers. Avoid the miners heavily invested in places where the strength of the national currency relative to the dollar and "resource nationalization" issues are of concern. Talk to your trusted personal advisor, CPA, or accountant about the risks which exist for any type of investment. Maybe dial up your family attorney. Theory, meditation, jaw-boning, and even pounding away all night on the keyboard in gold-bug chat rooms won't solve your problem. Sleep on it. Two nights. Then act.
Why Silver is Ready to Double
Gold and Economic Freedom
by Alan Greenspan [written in 1966]
This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.