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THE FEDERAL RESERVE AND THE CAMPAIGN FOR SOUND MONEY

Wednesday, August 22nd, 2012

By Mark Rogers

We noted here that the Federal Reserve of the United States has always conducted its own audit.

This could be set to change. Mitt Romney has recently on the campaign trail demanded independent auditing of the Fed. And in July 2012, the House of Representatives voted for “A Bill To require a full audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks by the Comptroller General of the United States before the end of 2012.” (H.R. 459)

The support for the bill was decisive, the vote being 327 in favour to 98 against. It is interesting to note how close was the Democrat vote: 89 in favour to 97 against. The extra one making up the 98 against overall was a lone Republican, the Republicans otherwise voting 238 in favour.

The Democrat vote in favour was something of an achievement given that the Democratic leadership in the House tried to whip all members to vote against. Senate majority leader, Democrat Harry Reid has asserted that he will not permit a vote in the Senate, even though he thought it a good idea in 1995. However, he could be out-manoeuvred: Senator Rand Paul (the son of Representative Ron Paul who has been championing this cause since 1983) has sponsored a companion bill in the Senate which has twenty-two cosponsors. The Presidential elections later this year may well provide a momentum that outwits Sen. Reid and forces a Senate vote.

However, there is reason for caution: Constitutional Tender, for one, thinks that there is little likelihood of this getting past the Senate anytime soon.

But all is not lost. The Constitution of the United States of America states, Article I, Section 10: “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” Which means that Federal Reserve notes are unconstitutional, and States’ laws that have been passed to make them legal tender were passed in defiance of the above Article. This also means that the lifeblood of the Fed’s notes, quantitative easing, is also unconstitutional and therefore illegal. And the individual States have the power to act as Utah has and start remonetizing gold and silver through similar schemes.

This may well be the most revolutionary movement since the separation of the American people from the British Crown. The tendencies towards big government for so long unchecked – and striking at the heart of the Constitution – may at last be confronting a resistance that modern politicians do not expect to happen to them: the end of rule by political elites despising traditional methods of financial sobriety, in favour of ordinary people armed with gold!

We will be keeping a close watch on developments: while gold purchases are down in both India and China, while speculation as to China’s intentions about backing the renminbi with gold in order to become a rival to the dollar are still speculations shrouded in uncertainty, ordinary Americans are returning to the gold standard in a movement that is likely to prove unstoppable.

For a very thorough account of Utah’s sound money policy please go here.

MONETIZATION OF GOLD IN THE U.S.A. – NOW!

Friday, August 17th, 2012

We saw here how the gold standard is likely to make a return, and specifically how it could be managed. We took a look at how Iran and China have been conspiring to revive payment in gold for bulk purchases of Iranian oil, a pseudo-return to gold as a currency, pseudo, that is, if it remains a means of payment for a limited period of time and limited to a single commodity. We have also speculated about the possibility that China may be planning to launch the renminbi as a reserve currency backed by gold.

We also saw here how sensible Greeks are forming credit unions and devising alternative currencies.

In the U.S.A., however, States are going for the real thing: under way is a revival of gold (and silver) as legal tender, and the pioneer is Utah and the Utah Gold and Silver Depository.

The move is in deliberate protest at the Federal Reserve’s monetary policy. Republican state representative Brad Galvez, sponsor of the bill, is quoted as saying: “If you’re mad about government debt, ditch the cash.  Spend your gold and silver!”

The Utah Gold and Silver Depository states:

“On March 25, 2011 history was made when Utah Governor Gary Herbert signed into law Utah HB317 thereby monetizing precious metals in the form of Gold and Silver American Eagles and United States numismatics (rare coins dated 1792 to 1964) in the state of Utah. The Utah Gold & Silver Depository was founded on the belief that every citizen of the global community has the fundamental right to legally create, preserve and store wealth. To meet the global demand for safe, secure transactions and storage, UGSD has developed a number of depository account options from which a customer can choose and tailor to best meet that customer’s needs and goals.”

The idea is that citizens who wish to monetize their gold and silver will lodge it in an account with the Depository which will then issue them with electronic money in the form of a debit card, which stores the dollar equivalent which is debited against the gold and silver which backs it. A simple idea, but one with radical implications.

The Fed can hardly claim that this sort of thing, especially if it starts to spread to other states, will undermine its authority – the Quantitative Easing it has been indulging is already doing that!

See here also for the Sound Money Act.

CONFESSIONS OF A LAW AND ORDER ANARCHIST

Sunday, June 3rd, 2012

By Mark Rogers

This is not an oxymoron. It is unfortunate that we live in an age when it is perfectly possible to link these concepts in this way.

I have been writing for GoldCoin.org for six months now, and thought it might be an idea to try to summarise my outlook, or, as they say, where I “come from”.

I come from Hong Kong. And that simple statement has coloured my entire political outlook. Indeed, during my childhood and youth in the colony I suppose I scarcely had one beyond the knowledge that we were free, especially as we also knew what was just across the border.

I will go further and say that Hong Kong was the freest polity in the world during the twentieth century. We were certainly exceptionally free of politicians in the modern sense of the word. There was an elected Legislative Council, which was little more than a local government authority charged with managing the basic public amenities, and although there were occasional attempts to politicise it, they never got anywhere.

Hong Kong: no welfare state

And there was no poverty, though there were of course poor people: but poverty as it exists in places like India and South America simply didn’t exist in Hong Kong, indeed, beggars were exceptionally uncommon. The government may have contributed, for example, small grants to schools for one-off purposes – the provision of new text books, perhaps – but there was no welfare provision on the scale that we have become accustomed to in Europe – and which is all but destroying the latter.

Medical treatment was freely available to all who needed it, whether they could pay for it or not. All doctors were private, and the hospitals were chiefly operated by missionary or religious organisations. The latter provided very expensive private ward treatment for the wealthy, which in turn subsidised treatment for those who could contribute either a fraction or nothing of the cost. There were also imaginative schemes run out of hospitals, such as the despatch of teams of nurses into the low cost housing or squatter hut areas, to discover those who needed treatment, to administer it for as long as necessary and to try not to hospitalise patients (unless they needed surgery) on the grounds that people got better more quickly surrounded by friends and family.

Community Chest

Chinese families were strong, partly as a result of tradition, and partly reinforced by the greater solidarity brought about by family losses as a result of the persecutions of Mao’s China. These bonds in turn produced an exceptionally strong philanthropic disposition on the part of Hong Kong’s rich, which in the course of time resulted in the setting up of The Community Chest. This brilliantly conceived idea, originating in such business organisations as The Rotary Club and The Lions, was based on the Chinese sense of “face” and the need not to lose it. Practically, it was designed to collect on a regular basis routine charitable donations into one fund which then was able to distribute those funds according to the immediate needs of all the regular charities, thus ensuring that at any given time the most pressing needs of any given charity did not go underfunded.

The face came in thus: regular lists of the names of donors were published in the paper of record, The South China Morning Post, in descending order of generosity, but without publishing the amount. Hong Kong’s wealthy knew pretty well how much they were all currently worth, and could therefore calculate the likely donations of their business rivals from their position in the list – and could therefore work out how much more they ought to give to try to outdo their rivals!

The immense commercial success of Hong Kong

This depended fundamentally on two things: its harbour and, in its modern history, its Financial Secretary, Sir John Cowperthwaite. He certainly did not suffer interference gladly:

“Asked what is the key thing poor countries should do, Cowperthwaite once remarked: ‘They should abolish the Office of National Statistics.’ In Hong Kong, he refused to collect all but the most superficial statistics, believing that statistics were dangerous: they would lead the state to fiddle about remedying perceived ills, simultaneously hindering the ability of the market economy to work. This caused consternation in Whitehall: a delegation of civil servants were sent to Hong Kong to find out why employment statistics were not being collected; Cowperthwaite literally sent them home on the next plane back.” (From an obituary which can be found here; there is another, fuller one, here.)

The economic success of the colony was also, of course, underpinned by the English Common Law. And the legal system operated in an unusually “pure” form; unencumbered by having to cope with government intervention at every level of private and public life, the lawyers and judiciary were able to work on the basic principles of the common law, precedent and equity. This was complemented (especially in the rural areas of the mainland and outlying islands) by recourse to native law and custom where either the parties requested it, or the magistrate thought it more appropriate. There is a marvellous account of life as a Magistrate in the rural New Territories of mainland Hong Kong: Myself a Mandarin, by Austin Coates (Frederick Muller, London, 1968, subsequently reprinted, Heinemann Asia, Hong Kong 1980; Oxford University Press Hong Kong 1987; and Oxford Paperbacks 1988).

The Law and Order Anarchist

This background, filled out over the years by my reading and my experience at close quarters of the British welfare state (the family courts, where the state is especially intrusive), has given me a deep distrust of welfare as a political process. Indeed, in the light of my observations and recollections of Hong Kong, the Welfare State seems to me to be truly the oxymoron: in order for the political class to establish and administer welfare systems, they must have onerous tax regimes which end up destroying the financial base upon which the welfare systems depend. Better by far to leave people alone to look after themselves, as indeed they did, through friendly associations, credit unions and the like (all of which flourished in Hong Kong) before the welfare state took over.

So, the problem with the modern polity is that by increments, state intervention destroys wealth creation and so destroys the ability of governments to “look after” people and equally destroys the ability of people to take care of themselves, until, reaching the very nadir of intervention (Nazism and Communism), huge numbers of people are themselves destroyed.

Another lesson from Hong Kong is that the legal arrangements come first and must be based ultimately on respect for property and freedom of contract. If the state takes over the administration of private life – from business and manufacturing, to education and health, to sports and the arts, and all other private spheres – then the legal basis of society is eroded, and, amongst other things, governments themselves become harder to render accountable.

I am, therefore: an anarchist when it comes to the size of the state; a liberal – and how sad and revealing that that once robust concept now has to be qualified – a liberal in the nineteenth century Gladstonian sense, because I believe in freedom; and a conservative because I do not believe that freedom is an abstraction: it must be embodied in institutions, which of necessity are anchored in their histories, and the most important of these is the law: historically the Anglosphere’s Common Law is the most productive and protective of individuals and their livelihoods.

The Border between Freedom and Tyranny

This must have happened when I was eight or nine. It was the time of the Cultural Revolution. Those who could, fled to the border with Hong Kong; the government’s policy was that anyone who crossed the border was welcomed (as had been the policy at the time of the Great Leap Forward in the 1950s and the revolution itself in 1949). The border was composed of a closed off portion of Hong Kong’s territory which consisted largely of villages and their fish farms, and then the river which constituted the border itself. In this low lying district, there was a hillock on top of which was the Police Border Post.

My father had some influence and was able to wangle a visit to this Post one midnight, taking me with him. In that part of the New Territories there were hardly any lights: all was black, with a few stars and in the greater distance the high and remote mountains of southern China dim against the horizon.

The ordinary soldiers of the Red Army border patrol had been assisting refugees to escape across the river during the daytime; when word of this got back, Peking sent in the teenage Red Guards to stop it.

As we stood on the Border Post, we could see far to the east and the west along the length of the river, little flashes of light, flicking on and off, on and off, like fireflies. But they were not fireflies: they were flashes of torchlight – under the cover of darkness, the old soldiers of the border patrol were still assisting their fellow Cantonese to escape.

Those little golden glows, flicking ever so swiftly and surely on and off, guiding people to the freedoms of Hong Kong: work and prosperity and a sense of human dignity, the opposite of all the socialisms that have destroyed human purpose so often throughout the twentieth century – and still threaten. Hong Kong, the moral and political gold standard.

Gold: The Terminator amongst currencies: “I’ll be back”

Tuesday, May 15th, 2012

Some thoughts on the return of gold as a means of exchange from L’Or et L’Argent (the original article may be read here).

Payment for Iranian oil in gold

More than a trend, there is a strong signal being sent: gold is returning to the markets as a currency of exchange. Thus, China, the largest importer of Iranian oil, follows in the footsteps of India and avoids the embargo imposed on Iran by choosing to pay for crude oil in gold. Because it decided to continue with its nuclear program, Iran saw sanctions imposed by the United States in late 2011. The oil embargo, which will take effect in June, prohibits payment for Iranian crude oil in international exchange currencies (Dollars, Yen, Euros…). Soon after, the European Union announced that it was also going to apply the embargo which will take effect in July.

Gold returns in trading

Although Iran does not represent a large percentage of oil imports to the US and to the EU, the same cannot be said for India and China which between them account for 40% of imports. India, which has a large demand for oil, has chosen to maintain its commercial trade with Iran by paying its bills in gold.

Recently, Forbes magazine reported that China was also intending to avoid the financial sanctions imposed on Iran by buying its oil with gold. China, the largest producer but also the largest consumer of gold, already imports huge amounts of the yellow metal (its imports tripled in 2011, to 428 tons). Such a decision will only amplify the economic effects on the price of gold.

Gold: exchange currency and political weapon

Gold, which is increasingly returning to the mechanisms of means of payment will also take a more political dimension and become a real weapon of war. These events confirm the most bullish gold market for years. In the same way that investors made wise choices by betting on gold since 2007, this also goes for today’s investors, when they will see the ounce crossing the $2,000 mark in the next few months.

 Gold has recently been undergoing a consolidation period – its price is below the value that in reality it should have. It is therefore the right time to strengthen one’s positions on gold, before the summer. Moreover, because of the presidential elections in the US next November, uncertainty over the economic future of the country will undoubtedly cause a new rush on gold… which will not stay at the current level of $1,640.

TAX, DEBT AND THE PRICE OF WELFARE DEMOCRACY

Monday, May 14th, 2012

By Mark Rogers

Welfarism undermines democracy: this is one of the manifest lessons of the eurozone crisis, and is seen in many ways, the most recent being the Greek elections in which the fissiparous nature of the political system was dangerously apparent, with the running being made by minority parties with unrealistic and self-aggrandizing agendas. Instead of there being any attempt at shrinking the state, more, and more aggressive, groupuscules want more of the same: “Syriza’s idealistic economic programme calls for providing students with free meals and doling out pensions equal to final salaries. Mr Tsipras says the state should hire 100,000 more workers to help reduce unemployment.” (The Economist, May 12th 2012). Is this “idealism” or ignorance (though the latter is, of course, the handmaid of the former)? After all one of the things that brought the Greeks to their knees was the number of people entitled to government largesse.

When the Greeks received the first bailout from the Germans, Papandreou publicly thanked the German government and people for their largesse and acknowledged that as a result the Greeks would have to do some serious cleaning up, starting with an attempt to find out how many people worked for the government. They didn’t know! This is welfarism with an insouciance.

Democracy and accountability

The idea that democracy is a device to hold government to account implies a responsible, independent citizenry and limited government. One of the things that the government is to be held accountable for is limitations on its growth. The welfare state, instead, thrives on factional interests which seek to carve out niches for themselves at the expense of others, with the state as overlord and facilitator – and therefore at the mercy of being captured by the bolder interest groups.

The Founding Fathers of the American Constitution wanted to strike the right balances between majorities and minorities, while recognizing both that majorities could become tyrannous and that minorities could descend into factionalism. The balances that the Founding Fathers sought were to prevent majorities from dealing with minorities in the old-fashioned European way – i.e. simply eliminating them, whether through exile or execution. This meant allowing minorities a functioning place within the body politic accommodating their ways where they were beneficial without creating vested interests which might put the public order at risk.

While it is self-evident that the Constitution of the U.S.A. has not prevented the growth of big government or the gradual assimilation of the American people to welfarism, it is also clear that modern government’s most serious derogation from constitutional principle is the emergence of the centralized state as a faction in itself. Large civil services become an end in themselves; the purveyors of welfare form a huge vested interest group, averse to change that may damage their own position however it may benefit the taxpayers who fund them.

While it is usual to equate freedom with democracy and welfarism with fairness, in fact there is no logical or historically necessary connection between freedom and democracy, nor is welfarism necessarily fair. In fact, the larger the state’s involvement in wealth distribution, whether it is by cash transfers, or manipulations of the educational and health systems, the more that the least admirable moral qualities are promoted in the welfare state: envy and greed.

Entitlement

The welfare state encourages the vice of entitlement, actively encouraged by the administrators of the welfare state – through education, through multiculturalism and through the benefits system. If bankers are thought to be too quick to justify their salaries, it is only done in the language of the welfare state which all are encouraged to use. (An aside on bankers: while, as has been maintained here, here and here,their remuneration is an utterly inadequate basis for the crisis, bankers at least operate in a world of more immediate accountability: recently shareholders have risen to the task of curbing pay in relation to poor performance.)

Envy in the East?

I grew up in Hong Kong (my political and economic gold standard). That there were exceptionally wealthy people was well-known, but they tended not to live celebrity lives and had risen to their riches, in many cases from extreme poverty, through hard work and good judgment. That everyone had a chance to better themselves to the extent that they were prepared to work for it because the tax system was simple and equitable, meant that envy was at a discount in Hong Kong – people tended rather to admire the rich because they were hard working and philanthropic, and because each and all had the opportunities open to them to advance to similar riches. A breeding ground for hard work, thrift and imaginative enterprise rather than envy, greed and carping.

GOLDEN ENCOURAGEMENTS

Thursday, May 3rd, 2012

By Mark Rogers

While there is much speculation that there are moves afoot in some countries to rein in the private ownership of gold (see here and here), it is encouraging to read the following story (originally posted at L’Or et L’Argent) about how Singapore is opening up its markets to gold. This is yet another move in the free Asian economies to strengthen their positions, a welcome strength in view of the economic turmoil in the developed world and in China, whose economic future seems very uncertain.

Given that the following article points out the strong position of gold in Hong Kong, readers might like to read this fascinating account of gold dealing there; amongst other interesting points is the note that the Chinese Gold and Silver Exchange Society is the world’s oldest gold dealing exchange. Gold and stability could have no sounder exemplification than the growth of Hong Kong as one of the world’s strongest economies throughout the twentieth century and still leading the way in the new millennium!

Singapore’s move comes in tandem with growing speculation amongst gold observers that there is a slow but sure momentum building up to a return to the gold standard. The financial turmoil in Europe and the erosion of the US economy is fundamentally a crisis of paper money and cannot continue without a major shift towards the kind of stability that a properly backed currency provides. This shift will come either when the relevant governments realise that such a resolution of their problems needs to be carefully managed – or it will be forced upon them if they continue to do nothing other than roll the printing presses, which will in the end precipitate a catastrophe of an order such that even they will not be able to deny the obvious.

I shall in the very near future be posting reviews of Detlev Schlichter’s Paper Money Collapse and James Rickards’s Currency Wars, which contain detailed analyses of how our present woes are the inevitable result of fiat money, and, in Rickards’s book, an outline of how a return to the gold standard should be managed.

Meanwhile:

Singapore bows before Gold

The world’s fourth largest financial centre is seeking to open itself to the gold market. Thus, it has decided that tax cuts will apply to precious metals including gold.

The Finance Minister Tharman Shanmugaratnam confirmed a month ago that an exemption would be made to the 7% tax rate, hitherto applied to gold and all other precious metals, in order to encourage growth in trade negotiations and in particular as an incentive for producers to participate in the market.

Singapore will thus be able to compete on an equal footing with other neighbouring markets open to the gold trade, the most important being Hong Kong where producers prefer to sell their bullion – free of tax. It is evident that having to pay a 7% tax in Singapore discourages investors. This measure is completely logical and fair since no kind of taxes should be applied to a safe haven investment – the latter being basically currency.

This reduction will be initiated as of next October – which prompted certain declarations to be made at the time this measure was made public, for example, `that an important producer has expressed a particular interest in opening a factory in Singapore in the light of the announced tax change’ and furthermore that there will be more gold trading companies present in the country.

Gold has risen sharply and this is why there is so much competition between countries which are putting in place strategies to meet current requirements. If Singapore wishes to compete with its Asian neighbours who have a significant advantage, it will be extremely advantageous for it to adopt this fully justified initiative which will enable the gold market to benefit from a fall in tax or an exemption. By maintaining high taxes, Singapore has risked putting off all potential investors – the latter being welcomed with open-arms in Hong Kong and Japan.

The BRIC attack: A major political event

Friday, April 27th, 2012

Translated from an original article by Charles Sannat, Director of Economic Studies, AuCOFFRE.com, Paris

The Fourth Summit of the BRIC nations, a major political event.

This is a huge story and yet has gone largely unreported by the major western media. On the 29th of March in New Delhi, the Fourth Summit of the BRIC nations took place (Brazil, Russia, India, China).

“The BRIC nations (Brazil, Russia, India, China and South Africa) should no longer use the US Dollar in their bilateral exchanges. That is what was decided on Thursday the 29th March, 2012, during the Fourth Summit of leaders of these five nations in the Indian capital”.

Source: algeriedz.info and rian.ru

The following was decided during this meeting: an essential step was taken towards a “multipolar” global monetary system. March 29th 2012 will undoubtedly not be the date remembered in history as marking the end of the era of the Dollar. Nonetheless, the change is major.

Towards an overhaul of the IMS

We are entering a phase of disintegration of the International Monetary System as we know it. Our monetary system dates back to the Bretton Woods agreement of 1944 which was brought to an end by the Jamaican agreement of 1976 (this ended the gold standard).

So what will happen now? Stock markets are starting to fall because the issuing of European bond funds is doing badly or is disappointing (depending on your degree of optimism about the outcome of this policy), which is the case for Spain and now Italy.

What one must understand is that according to the current economic system it is the surpluses of some which finance the deficits of others, thus creating a balance. In other words, western countries are in a chronic deficit which has been, and I stress has been, financed by the major Asian exporting nations on the one hand (China and India) and the oil-producing nations on the other.

For the last few years, nobody was lending to western states (by this we mean the US and Europe) which now find themselves in an irreversibly compromised situation.

It is this lack of external funds which is pushing the central banks, the FED and the ECB to massively intervene in the markets. The only option that remains for us is indeed the use of the printing press and the creation of money with all the negative consequences that follow.

Though this Fourth Summit of the BRIC nations is a founding step towards the overhaul of the IMS this is certainly not the ultimate goal.

Ground-breaking events in international relations

Discussing the topic of the monetary system without mentioning the political dimensions would be a mistake. The future International Monetary System will be shaped by the international balance of power and alliances between the major players in the context of the fight for access to energy and agricultural resources and in the broader sense to raw materials. A strong axis is taking shape amongst the BRIC countries, and Iranian diplomacy is also far from insignificant.

The trans-Atlantic relationship remains strong despite the strains and divergences. Lastly, one should not imagine that the United States of America will let their status as world leaders slip away without a colossal “fight”. American policy has always been based on a simple concept: “America First”.

We are thus entering a new phase in the current crisis:

In 2007, the subprime crisis led to a financial and stock market crisis.

The financial crisis led to an economic recession.

The economic recession lead to massive state intervention in the form of stimulus packages which resulted in massive debts for these states.

The debt crisis can only lead to a major monetary crisis.

The monetary crisis (which is on its way) will lead to the restructuring of the International Monetary System.

And… the manoeuvres have already begun. The global repercussions will be deeply felt, as the International Monetary System is to the global economy what tectonic plates are to geology. We are touching upon the essential part. The tremors will truly be felt.

Will you be ready?

GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS?

Tuesday, April 17th, 2012

By Mark Rogers

Is there a necessary connection between gold coins and politics? The short answer is: yes. Undoubtedly over the course of the last century, and beginning fairly early on, gold became, and still remains, a highly controversial political subject. The most influential economist of the century, John Maynard Keynes disparaged not just the gold standard but the metal itself: he thought wealth creation a sort of secular sin, and considered those who saved to be selfish. In 1933, President Roosevelt banned the private ownership of gold, and passed measures to confiscate privately held gold – something that may be about to occur in places as widely diverse as the European Union, Turkey and Vietnam, with a suspicion that the same is afoot in China.

Not surprisingly, these animosities towards gold have gone in tandem with the creation and expansion of the Welfare State, the political entity that is utterly bankrupt and is the prime cause of the financial crisis.

So, yes indeed gold, whether in the form of collectable coins or other types of investment, is very political indeed, but not just because it is seen as a store of selfish wealth, or, as its enemies derisorily call it, “hoarding”.

Ray Vicker in The Realms of Gold (published by Robert Hale, London, 1975) makes this very important point:

“The deeper one gets into monetary matters, the more one realizes that the whole argument about gold’s monetary role, or its inability to perform it, involves fundamental emotional attitudes toward man and his environment.

“Not only technical monetary systems are at odds when the chrysophilites and the chrysophobes argue money. This is cash versus credit. Sound versus easy money. A balanced federal budget versus deficit spending. Rugged free enterprise versus government economic management. A black-and-gray world versus utopia. The belief in sinful man meeting the conviction that man is essentially good. The idea that progress only comes through individual gain clashing with the contention that communal efforts spell forward movement.”

Gold, therefore, is not only a measure of prudence, it is also the summation of the political arguments of the last century – and even a repository of some of the profoundest truths of human existence.

Those who invest in gold are, in the long run, realists, as the following account by Vicker of what happened in the 1960s and 70s makes clear:

“When sense and nonsense are being evaluated the chrysophobes must explain how come they erred so much in the 1960s when they were denigrating gold and claiming that it was on the way out. It was in the 1960s and early 1970s that the great monetary battles involving gold were fought, with few people in the United States realizing what was happening even after the dollar experienced two devaluations. Briefly, the dollar, which had been ‘as good as gold’ for so long, no longer was as good as a thirty-fifth of an ounce of gold. And many people were discovering this fact.

“These people were termed ‘speculators’ through the monetary cyclones which erupted. Actually, they were ordinary businessmen, bankers and others who had sense enough to protect their assets. In politics, whenever anyone disrupts a pet project of the party in power, it is customary to tack some derogatory term onto the disrupters. The word ‘speculator’ has enough of an unsavoury connotation that it appealed to those in government who saw themselves as ‘defenders of the dollar’, though they couldn’t see the easiest method of preserving the whole system – a doubling of the monetary price of gold.”

Therefore, however unlikely it may seem on the surface that a numismatic website should feature regular political commentary, the central role that gold plays in human affairs means that its political and economic aspects need constant analysis.

WHAT IS MONEY?

Friday, March 16th, 2012

By Mark Rogers

At the end of the post on the U.S. Federal Reserve’s non-existent gold I quoted C.H.V. Sutherland on paper money, which he points out  “is not money at all, in any true sense, but an extension of credit”, hence “credit currency”. The latter term now of course encompasses electronic money, the device which makes quantitative easing so much easier.

The idea that paper or electronic money is really nothing more than an extenstion of credit, a promise to pay, raises an interesting point: to borrow money is in effect to take out a mortgage on the paper credit you hold and earn, that is, to extend credit on the basis of credit currency earnings is to extend credit on credit.

This raises the issue of trust that lies behind such a system to the level of the most important practical as well as moral feature of that system, and potentially compromises any sense of value that the monetary system embodies.

This post is by way of reflecting on some basic ideas about value and how it arises and what systems best embody it and allow it to function. These are introductory ideas merely, and the examination of this problem will continue in later posts, embracing history and anthropology as well as economics.

Hernando de Soto (whose work has already been referred to here and here) makes the interesting claim that we are only beginning to understand the nature of money, what brings it into existence and what supports it. His work in the extra-legal economies of the developing world has thrown up this question in sharp relief. His discovery that the poor, some 87% of whom live and work outside any formal legal structure, are camping on assets worth trillions (the value of which cannot be realised because of the absence of workable legal systems that realise title to those assets), raised the question of how assets are dissociated from their potential value.

There would appear to be a formula that runs from assets to value to capital to money, and that the jump from the first to the second of these, which in turn gives rise to the latter two, is a jump over a very large gap. That jump is taken very much for granted in the developed world because we do it all the time without necessarily realising it, so secure are our legal arrangements; but the gap effectively immobilises the poor in developing economies. They have assets in the form of unrealisable savings, which renders them, therefore, essentially worthless.

There is an interesting anthropological speculation arising from the idea that without property there can be no money system: that is if the formula suggested above turns out to be a true and fruitful one, then the common understanding that things such as cowrie shells and cattle were a form of pre-currency is a misunderstanding of the functions of money. That is, they may have been no more than a more highly stylised form of bartering and possibly, again against previous understandings, a less efficient one, not a rationalisation that led in time to formal money currencies.

If money only arises against a property system, and that in turn is the result of the development of formal legal systems, there can be very little connection between any system of bartering and formal money. The idea that money is a realisation of value inherent in property means currency is the result of a property holding system which, to be realisable, must have clear title. Then, on the basis of that title, the value of the asset can be ascertained and then realised as capital which then has a representational form as currency. That is, money as a representation of value, as a means of realising that value and being a store of that value is the result of a legal system that can render property fungible – that is, that the asset can be more than one thing.

This, of course, means that property is a form of savings, and that savings are therefore at the root of money. As we have seen in earlier posts, savings have been under attack throughout the twentieth century, with Keynes as a cheerleader of that attack, an attack which has been redoubled recently with quantitative easing and with measures against the purchase of gold being enacted in Europe. Even George Bernard Shaw saw through the paper money promise and recommended the purchase of gold! 

The failure to realise the necessity of savings and their wider functions in a workable economy is at the root of the financial crisis.

Those wise Cantonese grandmothers in Hong Kong understood the vital nature of savings – and, moreover, the best way to store them as gold.

IRAN AND GOLD

Wednesday, March 14th, 2012

By Mark Rogers

In Gold in Iraqi Kurdistan, we mentioned the Iranian government’s facilitation of gold exploration in its Kurdish province. The mining of gold at Sari Gunay was abandoned in 2007 by Rio Tinto, because the mine was not commercially viable being apparently too small at a mere 16 tons. Proven reserves of gold in Iran are some 220 tons, with an annual production of about 2 tons. In January 2011 it was reported that Rio Tinto was to sell its 70% stake in Sari Gunay, having failed to dispose of it earlier when a deal with a Chinese investor fell through.

While this little venture has collapsed, there is some interesting news out of Iran – which may help explain certain mysteries about the Chinese purchasing of gold.

In February 2012, the question was raised as to how much gold the Chinese central bank was purchasing: Did China’s Central Bank Buy 139 Tonnes Of Gold In The Fourth Quarter?  In the last quarter of 2011 “China’s imports from Hong Kong, which account for the majority of its overseas buying, soared to 227 tonnes in the last three months of 2011 … That compares to demand of 191 tonnes for gold jewellery, bars and coins … Since China does not allow the export of gold, there was a domestic supply/demand gap of about 139 tonnes during the last three months of the year and central bank purchases likely accounted for some or all of that gap.”

The fact that the Chinese Central Bank prefers to go about the purchase of gold on the quiet, only revealing the size of its purchases long after the event, helps explain the uncertainty over the surge in buying at the end of last year. There is another intriguing fact, though, which may cast light on this purchasing  in the not-too-distant future.

In order to continue to facilitate its export of oil and minerals, “Iran’s central bank governor said on Tuesday [28 February 2012] Tehran was willing to accept gold as payment for its oil as sanctions imposed by the United States and Europe hamper the country’s financial institutions and force its trading partners to seek alternative ways to settle transactions.” (Full Reuters’ story here.) So a very interesting game is being played out, with results that are far from clear both for Iran and those who continue trade with it. “Iran used gold and oil to pay for shipments of grain earlier [in February], according to European grain traders. It has also used currencies such as the yen or the rouble to pay for grain imports, thereby skirting the need to employ either dollars or euros.”

And this is, potentially, where China comes into play. Although it is the world’s largest producer of gold, its mines cannot keep up with demand. Hence the Central Bank’s purchasing. The Reuters’ report quotes Ross Norman, CEO of the bullion dealer Sharps Pixley as saying: “China interestingly enough is under-resourced in terms of its gold reserves but, not withstanding that, it’s also the world’s biggest gold producer so presumably it’s got the ability to fund any purchases from Iran that it needs to put through. What the Iranians are saying is that there are other financial mechanisms out there for those who want to transact.”

Does this help explain the Chinese Gold Rush?

THE CHINESE GOLD RUSH

Thursday, February 23rd, 2012

By Mark Rogers

This street 观前街 Guan Qian Jie, in Suzhou, near Shanghai, is full of Gold shops

This street 观前街 Guan Qian Jie, in Suzhou, near Shanghai, is full of Gold shops

During the seven days of the Chinese New Year’s holidays, people have bought 3.62 billion yuan’s worth (0.5761 billion dollars) of gold in Beijing, 15.5% more than last year. It was also reported that just two shops in Beijing during this same period managed to shift 1.5 tonnes (GoldCoin.org Chinese source). At GoldCoin.org we have previously reported on the expansive buying of gold in China in our article “Chinese queue at malls to beat Bernanke’s inflation with gold“.

John Stepek, editor of Money Week, recently pointed out that “Chinese citizens don’t have many options as far as saving their money goes – you can’t get an above-inflation return from your bank account, and the local stock market is a casino.”

What is happening? And why is it happening?

As with the eurozone, the flight – on this scale – into gold indicates extreme economic uncertainty and a desire to shore up one’s savings in the only real safe haven. Yet isn’t China supposed to be an economic powerhouse? Isn’t Beijing planning to float the renminbi (yuan), in an attempt to replace the dollar? Isn’t the Chancellor of the Exchequer actively working with the authorities in Hong Kong to make “sure that London is the western trading centre for the Chinese currency”, turning “the City into an offshore trading centre for the renminbi” (The Financial Times, 16 January, 2012)? The renminbi is about to become fully convertible this year – isn’t it?

Well, perhaps not: “capital account liberalization looks off the table … At the moment, the transfers out of China are manageable, but then again the economy has only begun to falter. No officials, even ones less obsessed about control than Beijing’s, would open up a capital account in a quickly deteriorating economic environment. Therefore, events are working against Zhou Xiaochuan [Governor of the People’s Bank of China], and so is Chen Deming, the boss of the Ministry of Commerce. Chen has tenaciously defended the interests of exporters by blocking currency liberalization, and with the country’s trade surplus set to decline—to about $150 billion last year from $183.1 billion in 2010 and $196.1 billion in 2009—it is unlikely that Chen will now let central bank reformers get their way. … If Beijing opens the currency wall and the markets are not ready, flows of investment cash could—and probably will—lead to a catastrophe. At this time, it will take years to get China’s banks and markets in shape for unregulated flows of currency. So don’t expect capital account convertibility this year or even next.” This is the analysis of Gordon Chang (author of The Coming Collapse of China, and Forbes contributor, here: “China says Yuan will be fully convertible soon”).

Declining demand for Chinese exports

Certainly the Chinese economy gives plenty of reasons for this degree of pessimism. One of the most important indicators of China’s burgeoning woes is the troubled eurozone: Europe was China’s biggest export market, but Europe has practically ceased importing. The immediate consequence of this is that recession is perceptibly looming in China, indeed there are, for example, reports that China’s steel industry is seriously struggling with the potential closure of many mills (The Economist, Jan. 23-Feb. 3, 2012). Add to this the optimism expressed at the recent Davos summit by American business leaders that the coming on stream of shale gas in the United States is going to dramatically reduce manufacturing energy costs there, thus enabling American manufacturers to repatriate production.

So does this explain the Chinese flight into gold?

Inside a typical gold retailer in Suzhou, China

Inside a typical gold retailer in Suzhou, China

See a previous article on Goldcoin.org called “1 Billion to buy gold as Chinese gold rush grows” for some facts and figures.

The figures are certainly impressive – not to say astonishing. But is it certain that these figures represent only concerned citizens anxious to preserve their wealth? The active encouragement of the People’s Bank of China, referred to in the cited article, that “1 Billion Chinese citizens buy gold as a way of preserving and protecting their wealth against inflation, economic crisis and the falling values of major currencies” could bear another interpretation: namely that the Chinese authorities are contemplating at some future tipping point to announce a patriotic handing over of individual gold holdings to the state – i.e. confiscation.

Moreover, let us look again at the declared intention of that same People’s Bank of China to make the renminbi fully convertible this year. The massive purchases of gold may have yet another interpretation: as a means of supporting the value of the renminbi when it floats in spite of the problems that both Mr Chang and Mr Stepek discuss in their articles cited above. And that raises another enigma.

China remains, politically, a Communist state, and remains fundamentally unfriendly to the Western powers – witness its recent active unwillingness to censure the Syrian butchers. That it has liberalised its economy since the reforms of Deng Xiaoping, and that this has opened trade barriers and brought prosperity to millions of Chinese is not to be doubted; but this has all taken place in terms of a closed political system that holds the whip hand over the economy, “state capitalism” interpreted in the interests of the Chinese Communist Party, that is, a fascist-corporatist economic model.

This raises intriguing possibilities in terms of those thousands of purchasers of gold. For while there are corporations that clearly function under the rubric of the Chinese State there are many more enterprises that appear to be private corporations but are in fact shells for the State (the Chinese corporate structure emulates in many ways the systems of incorporation that for a long time successfully hid the fact that ultimately it was the shameless and cruel King Leopold II of Belgium who owned the Congo Free State). And just as this operates at the corporate level, so may it operate at the individual level: there is simply no way of knowing how many of those individual or smaller-scale enterprises who are buying up gold may in fact be agents of the state.

A Chinese Gold Standard?

Remember that according to the World Gold Council and GFMS reports, China is the World’s largest producer of gold and is second only to India for gold consumption (but catching up fast). No coincidence here either!

So to answer the questions raised at the beginning of this article: What is happening? We don’t actually know. And why is it happening? One shudders to think….
…. But then imagine if one day the Chinese government “requires” private investors to place their gold in the People’s Bank for the good of the Nation – the national gold stock would swell considerably – maybe enough to back the Yuan with a Gold Standard and thus achieve its ambition to be the World’s Reserve currency?

A young investor contemplates the potential of gold

A young investor contemplates the potential of gold

GOLD STORAGE, THE HONG KONG WAY

Sunday, January 15th, 2012

I returned home to Hong Kong after undergoing my last two years of schooling in the UK; I quickly found employment and after work (six days a week) and on Sundays, I began to explore areas of Hong Kong that I had never visited during my childhood and adolescence.

One of the consequences of the several waves of refugees from communist China (the revolution itself, the Great Leap Forward in the 1950s, the Cultural Revolution in the 1960s) was the rapid accumulation of informal dwellings on the mountainsides. These shacks were made out of anything handy: packing crates, corrugated iron, planks. They were incredibly hardy edifices: typhoons capable of lifting a battleship, blowing it out of the harbour and impaling it on a rocky island in the South China Seas, would leave the squatter huts crowded onto an exposed side of the island at the harbour mouth intact!
As a child I had always been fascinated by these places: they embodied escape, freedom, the mastering of adversity; they had an air of romance and adventure. Yet I had never visited one: this was something I remedied as I explored Hong Kong anew during 1975.

What I discovered was remarkable. First of all, these places were orderly and clean, the natural drainage of the mountainsides enabling the latter. The homes were sturdily constructed despite their flimsy materials. What was truly astonishing, however, was the discovery that the expensive cars parked at the foot of the hills belonged to the owners of these huts! This was not all: the informal lifestyle of the hillsides meant that the hut doors tended to be left open: there were always a few children or an ancient grandmother (whom we shall meet again) to keep an eye on things. Through these doors I glimpsed the good life inside: the huts had all the conveniences – fridges, deep freezes, television sets, electric fans, air conditioners, electric lighting: the hills were ablaze with electricity, all legally installed.

This lifestyle reflected a dominant desire among the Hong Kong Cantonese: the ambition, if not for themselves, then for their children to emigrate to one of the Anglosphere countries, far from China, which had caused them such grief. This being so, many prosperous people simply did not want to spend on property. The millionaire who lived on the hillside above us had built himself a house – it was in the style of a mansion, to accord with his status but was really very modest: what was the point of investing in substantial real estate when you might have to abandon it?

Portable Purchasing power?

The personal or family memory of enforced flight also gave rise to the idea that if you were going to have to pick up and go, then property should be portable. The wealthy of Hong Kong are unusual amongst the world’s richest in that they spend more of their money on jewellery and watches than any other type of investment and/or luxury good, mansions and yachts coming right at the bottom of their priorities – only a tiny percentage bother with these things. The desire for wealth in a safe and portable form surely means that the idea of putting their assets into gold coins would appeal to the wealthy, economy-stimulating entrepreneurs of Hong Kong.
Enter Grandma: while I was exploring the shacks and shanties, I saw the most revealing thing of all: the family wealth of these entrepreneurs was stored in gold – in Granny’s teeth: the fillings were so abundant that their mouths gleamed with gold!

by Mark Rogers

Crisis, what crisis?

Wednesday, November 2nd, 2011

The G20 in Cannes is in crisis as its host President Sarkozy remains distracted by the Greek referendum announcement and the implications for his cunning Franco-German solution, hatched with best chum Chancellor Merkel to the European debt crisis.
The G20 group accounts for 80% of global wealth but also brings together huge differences in perception of where the world is at.

The Chinese have 3 Trillion dollars to help out the troubled western economies if it chooses. But then the Chinese are a nation of savers, hard earned cash they earn from long days of toil, often in self-enterprise ventures, is regularly put aside as investment for their future. On average the Chinese put aside 25% of monthly income for a rainy day. However their view of our crisis is somewhat different as one guy likened it to “ a bankrupt wealthy old man asking a poor man for money”. Some Chinese also remember the past experiences of decadent Western capitalism and imperialism. As Holly Williams from Sky News said “They don’t see why they should invest their hard-earned savings to help out economies and people to continue to have much more than they ever have had or ever will.

It is worth remembering that the average Chinese citizen lives below the poverty line and the new found wealth and middle class does not benefit the majority of China’s population – just like every other country you may care to analyse. The distribution of wealth always remains top heavy to keep our governing powers in the manner they’re accustomed and the bankers with enough profits to pay for it as well as their own hefty bonuses.

If you want to know to whom all the “money” has been paid that has resulted in this planet-sized debt then look no further than Goldman Sachs, their lawyers, all ex-heads of state and the personal fortunes of other prominent world politicians over the last 40 years, the Federal Reserve, the history of the Rothschild fortune and the IMF.

Will this debt ever be properly accounted for or ever paid back? No and No.

That’s why China does not want to lose value of its accrued wealth to the whims of US or European debt. Both lack a credible and coherent plan. Obama and Sarkozy have both got one eye firmly on domestic matters as they prepare for re-election next year.

Greek Tragedy?

The joke is they were all so smug thinking they’d sorted out a plan to buy time with Greece and then Papendréou goes and drops a bombshell with his referendum offer as a democratic gesture to the Greek people – oh yeah!
Trouble is he doesn’t actually care because he has nothing to lose and he knows what is coming as we wrote in “Greeks prepare a coup d’état ?”

He has taken this opportunity, his last on the European and G20 stage, covered by the world’s media, to play centre stage and enjoy his moment. He was called before the Headmaster and Headmistress of the Franco-German alliance, to explain his unilateral approach to life and to discuss the question that will be put on the referendum.
He indicated that sovereignty of Greek affairs remained the jurisdiction of the Greek parliament and its decisions are binding before all others and not open to outside interference. So not your average pro-European stance!! As I’ve said he’s got nothing to lose and knows what is coming.

US upgrades priority on plans for Iran airstrike

I also heard that the US and therefore by default the UK as well are bringing forward their plans to conduct air strikes on Iran. Seems they’re centrifuges are back in business as is the possibility of producing weapons grade nuclear material. Looks like they’ll hit their not-so-secret secret mountain production facilities. Intelligence reports backed up by International Atomic Energy Agency gives this story more than usual credibility. The word on the street is that Obama is nervous.
Israel says report proves “we told you so” for years that Iran posed a significant threat to its existence.

UK General strike will paralyse a nation

In the UK a massive general strike looks set to take place at the end of the month over public sector pension reform plans. The nation could be brought to a standstill with a 3 Million walkout planned. Negotiations between the Government and Trade Union leaders are not making any progress even if there is an improved offer on the table. The taste of austerity is always bitter.

Silvio doesn’t want to spoil a party

Finally Italy rushed out a message on the eve of the G20 to announce a package of austerity measures no doubt to comply with some previous handshake and just to make sure drinks with the others went well in Cannes! We’ll believe them when they’re implemented, successful and have brought about the desired effect.

Ever wondered why the announcements of “new improved measures and offerings to us all” from politicians always get great airtime but we rarely see a “results show” – then again fixing figures is a way of life for some so don’t settle for less than “seeing is believing” proof.

Crisis, what crisis?

So the world, its economies, all nations and globalization are working fine and there’s nothing to worry about – fine – and remember in this case do nothing, just enjoy every moment of a beautiful daily life.

If you thought for one minute this may be in jeopardy would you insure against it? Just like you would a car against an accident so you can afford to replace it if necessary, or against a fire so you could rebuild your home?

How do you insure yourself against a crisis?

Transform some of your wealth into an inflation-proof, crisis-proof physical asset to protect yourself against devalued or worthless currencies, loss of income and employment, contagion, bank collapse and debt default.
The problem with hindsight is that it’s too late to take preventative action. Only acting before the event gives insurance cover so find out about owning gold and gold coins as a real alternative for a safe place to store wealth.

Gold demand mid-year review

Sunday, July 31st, 2011

We are late July and it is time to look at the gold accounts for the first half of 2011! Hinde Capital Fund Management conducted a study in June 2011 entitled “A Golden Renaissance, Precious Metal Dynamics ” which confirms the upward trends in physical gold (but not in “paper gold”).
Another analysis conducted by Goldsphere Edmond from the Rothschild Fund also confirmed this rise in demand in countries with a strong geopolitical risk despite stagnant mining production.
We were expecting a correction in the Gold Trend this summer and yet just the opposite has happened.
The Eurozone and American debt crises have helped this push upwards which has not been this significant since the beginning of the century.
Gold has risen an average of 19% per year since 2001. It is now facing an unprecedented demand.
Since the United States imposed the dollar as the world’s reserve currency and then subsequently flooded the market with it to increase consumption, the dollar has been heavily devalued. Their ability to stifle the price of gold has waned and globally investors have sought to ditch large reserves of weakening dollars for something safer. These investors initially thought the Euro may be the path to take but they got it wrong again and are now flooding into the only sure refuge which is physical gold. It is incredible how so many of these high flying know-it alls seemed oblivious to the obvious risks in the Dollar and then the Euro. Do they really research their options or just deal over expensive meals and golf holidays. Could they not see the blatant crisi of Sovereign debt affecting the major economies of the world? One has to ask what they have been doing for the last ten years and how apparently well-informed intellects make such poor judgments? (Must be the constant intoxication of self-appreciation, greed, drugs and alcohol)

A steadily increasing demand since 2003

Particular strength can be found in emerging nations where the demand for gold is rising to the detriment of the Green-back: 12% for India and 21% for China. Also, Mexico has filled its coffers of 93 tons of gold in the 1st quarter of 2011. Asia accounts for 62% of the demand, some of it cultural such as in India, but also other countries now active in the market are seeking to catch up for lost time (private investment now allowed in China) but also because “Governments wish to increasingly diversify their foreign exchange reserves and to disinvest from the US dollar or other currencies in trouble” (Option Finance Agency, France).

Other sectors such as jewellery are also in high demand (+ 55%) despite the rise in the price of gold (+ 3.1%). For this first half of 2011, the demand increased overall by 25%.
The paradox is that the demand for investment is still low, which proves that the course gold has nothing to do with any speculative flows. Indeed, it is also estimated that there is a mass of net flows out of “paper gold” (such as ETFs) equivalent to 55 tonnes. Overall, investments in gold are less and less by speculators, which is positive for the gold price trend. The attraction of a safe haven and sure value during these difficult and uncertain times is populating the gold investment market with serious investors, both private and institutional. This is hardly surprising when one calculates the increasing risks attached to most other forms of investments (which are largely based on owning bits of paper and have proved catastrophic to large funds in recent years).

Physical gold, a healthy investment

This study also shows that despite a growing demand, mining production did not increase accordingly and in fact was virtually stagnant. Recent fears have also surfaced that South African mines will be closed by strike action.

Another surprising finding is that gold sold by individuals to be recycled is steadily declining. This shows that the masses wish to hold on to something of value and also that they are fed up with being ripped off by those crooks who run incessant TV ads.
Even in Greece and despite the crisis, gold plays its role as a life insurance and safe haven since it is often kept in the home. Despite the attractive gold prices Greeks will not sell that they already have and they are still likely to buy more as a protection for their future survival.
Finally, another unexpected discovery, physical gold investment is disconnected from gold shares (the gold shares represent only 1% of world market capitalization). This disconnection is partly explained by the increase in the costs of production for mining companies and the difficulties encountered by countries which are politically unstable (Burkina Faso, Côte d’Ivoire).

“Khrysos (Gold) is the child of Zeus, neither moth nor rust devoureth it; but man is devoured by this supreme possession” (Pindar, c. 522-422 BC).

Gold companies should eventually be seen as worthwhile value but for the moment it is physical gold that is benefiting from investment because it is a real, tangible asset that you own and not just a promise.

On Goldcoin.org we have always preferred physical gold to “paper gold” for many reasons, but if one were to cite a single reason it is that the providers/suppliers of  ETFs (Exchange Traded Fund) can fail themselves as a Company which means you lose everything as you do not own a specific piece or pieces of gold, they do. On the other hand, if all ETF holders asked to recover in physical form their investment in gold, it would be impossible because they have sold more ETFs than they have Gold– sound familiar? It is the equivalent of Fractional Reserve Banking but applied to gold because these providers work and think like banks – and we know where that type of mentality led us to!!
Unbelievable Shallow Arrogance
Finally, as we approach the eve of the US debt deadline it is worth paying note to the despicable behaviour of so called elected democratic representatives who would be chastised in primary school for the same childish squabbling. Worse still is listening to them speak as they grandstand before the world’s media playing out their silly games. They sound like caricatures from the Simpsons with their phony accents and voices and yet we are to believe these are the best the “greatest nation in the free world “has to offer – I pity regular Americans who are governed by such an inconsiderate bunch of self-interested marionettes. Here at Goldcoin.org we have previously discussed the true nature of these politocrats in “Conspiracy, Collusion and Con-men – Why don’t they want you to buy Gold?”

As they push ever closer to the deadline it seems that they actually want the US to default and let’s face it so should we all – it’s about time the Fed and the Financial giants got their come-uppance by losing everything so we could start again and hopefully with something better- honest would be a start. Their brinkmanship may just backfire as the markets decide to take them down anyway even if they agree!
We have previously referred to this in “Financial Meltdown and Black Swans – Myth or Reality?” .
Should the Dollar collapse, which is an increasing possibility even when they introduce QE3, Americans and the rest of us should prepare for hard times not yet witnessed by most of the generations alive.

To give you an insight we suggest  reading “The chaos of a currency collapse” and multiply the effects by millions!

The stage is set for the Chinese Yuan to take the place as the World’s Reserve currency and the American politicians are doing their best to make sure it happens!!

The strengthening demand for physical gold investment is no accident as more and more regular folk know they need to protect themselves before the chaos and crisis ahead.
Don’t miss the opportunity, buy some gold now as insurance against losing everything when the Wall St bell falls silent!

The chaos of a currency collapse

Thursday, June 16th, 2011

Last month Belarus witnessed the effects of a collapsed currency when the Government cut the rouble’s value against the US dollar by almost half. Previously 3155 roubles would buy a dollar but in the blink of an eye they decided 4930 would be needed. This was not even the reality because perception of the collapsing currency meant the situation was even worse as people scrambled for foreign exchange on the black market where you needed at least 6000 roubles to buy a dollar.

So what sparked this crisis?

President Lukashenko had promised to raise public sector wages by a third during his election campaign, which he duly carried out. This was sustainable only because of the support Belarus received from Moscow in terms of loans. However, as fears grew about the country’s finances, support from Russia waned and even near neighbours from the EU didn’t fancy the risk thus sparking a sharp drop in confidence in the currency.
To exacerbate the problem there was a shortage of foreign exchange currencies, dollars or euros, in the country.

The consequences of a collapse

Shelves quickly emptied of food and any "tangible asset" that would hold value better than their currency

Wide spread panic broke out as the economy effectively became paralyzed and people suddenly realised their currency was of diminishing worth. Shops were quickly emptied of everything that could be bought. Everyday food was snapped up at “luxury” style prices as people thought of survival but also they also bought electric goods like toasters, microwaves, canned goods and virtually anything that was for sale as they rushed to convert their currency into “any tangible assets” that were not losing value as quickly as their roubles.
The empty shelves throughout the towns seemed eerily reminiscent of the Soviet controlled days.
Shoppers knew that anything they could purchase could be more useful as a form of barter than the diminishing currency in their purses and wallets.

The human cost was quickly evident from the stories of employees sent on unpaid leave as companies also struggled to cope and comprehend the impact. Andrei, a computer company employee explained how he queued for a week in Minsk trying to buy dollars but didn’t even get one. “In just one month, I have been made bankrupt, the entire country is bankrupt” he said, adding that “even during the Soviet collapse we never suffered such a nightmare”.

There are many more stories of hardship, families without food or the means to buy any, shops without stock for them to buy even if they had the means.

Dmitry who is a 48 year old factory worker explained how he closed his bank account to get out 5 Million roubles in cash so he “could buy something before my money turns to dust”.

Tensions are growing as many people blame the President for mismanaging the economy.
Staple food supplies are now hoarded but people feel anxious that unrest is starting that could spill over into conflict at any time.
Revolution is always more likely when the population are starving.

Which country is next?

This may all seem so far away from wherever you are reading this but the causes of currency collapse may be closer to your doorstep than you think.

How many countries are in deep debt and reliant on support loans and bailouts right now?
Greece, Ireland, Portugal, Spain, Italy, Japan, USA, Belarus and virtually all of Eastern Europe and the Euro zone (only they never put it in the headlines!)

What happens when the support cannot be maintained?
Currency Collapse.

It could be the US Dollar, the Euro, the Yen who knows?
But even if it isn’t your currency that collapses what will be the knock on effects in every developed country if one of these currencies collapses?
The same as in Belarus.

Globalisation has been the buzz word for expanding Capitalism but it also means that economies are now inextricably linked and inter-twined to such an extent that when one sneezes they all catch a cold!

Remember the level of Sovereign Debt is spiralling out of control in the US, Greece, Ireland, Portugal and others are close behind such as Spain and the UK. Austerity measures in all countries are hurting normal folk badly – they are losing their jobs, suffering pay freezes, inflation and pension erosion. Social unrest and industrial action looms large across Europe and this will itself impact the recovery and debt repayment. This has already started in Greece, Portugal, Ireland and large scale protests in the UK are gathering momentum with the Autumn likely to be the boiling point of anger.

The discontent and despair of regular folk is understandable as they are bearing the brunt of all the hardship and it just isn’t fair.
Politicians spout their practiced rhetoric about how to fix things but the reality is they just don’t care that much as they are not the ones affected. They have means to isolate them from the hardships and many of them are actually responsible for producing the mess. How can they care about regular people or preach what we need to give up when they don’t – ever met a poor politician? Enough said!

There is now even talk of a “sub-prime” type problem in China because of over-indulgence in property speculation, leaving huge swathes of developments empty or under-occupied and therefore leaking money and ready to default.

We need more than lip service!

Mainstream news outlets are all controlled by self-interest groups (private and Governments) and they never provide the whole story about global economic frailty as there would be worldwide panic if they told the truth. The situation right now is on a knife edge and the next Belarus is not far away. Politicians won’t admit it but then again they won’t suffer like the rest of us as they’re all rich enough and well connected to see out any storm. They care too much for their own popularity to be honest.
Posh boys and rich kids rule the world and their assets are well protected in advance.

Remember what happened when panic struck in Belarus, people bought any tangible asset they could because it would maintain value better than their currency.
This phenomenon is happening daily – your bank account is the best place to keep currency if you want it to devalue!

Currency is not a means of preserving wealth because it has no inherent value especially when confidence is lost – then it is just a piece of paper.

The only real money available is a tangible asset that maintains its value whatever happens to printed bits of paper currency – and that is gold!

A lesson on Money and currency

We need to understand the difference between money and currency as one is real and the other a promise. Money can be defined as a medium of exchange and a store of value and until fairly recent times was in fact coins made out of precious metal with an intrinsic value or for ease of use, notes backed by precious metal.
Money, when considered as the fruit of many years’ industry, as the reward of labor, sweat and toil, as the widow’s dowry and children’s portion, and as the means of procuring the necessaries and alleviating the afflictions of life, and making old age a scene of rest, has something in it sacred that is not to be sported with, or trusted to the airy bubble of paper currency. Thomas Paine (1737 – 1809)
Currency is still a medium of exchange but is not a store of value as it only derives its value by government degree or “fiat”. It’s value is based on the issuing the authority’s guarantee to pay the stated (face) amount on demand, and not on any intrinsic worth or extrinsic backing. All national currencies in circulation, issued and managed by the respective central banks, are fiat currencies.

A days wages in Germany 1923

The problem is that fiat currency runs the risk of central bankers printing too much and causing large inflation or worse. The more that is printed the more the currency is debased just as the Fed is doing now with the dollar. This has been going on for decades with central banks indiscriminately creating money to cover expenditure and ever increasing debt. There are examples throughout history and in the 20th Century most of us are aware that in Germany in 1923 it would take a barrow load of Deutschmarks to buy a loaf of bread but an ounce of gold could buy a reasonable house and one dollar was worth 4 trillion marks.

This irresponsible printing of money has eaten away at the value of the world’s reserve currency the USD dollar and dollar based assets, to such an extent that they have lost 82% of value since 1971, the year the US cut links with the gold standard. The GBP has fared even worse that the USD losing around 85% of value since 1971. There are many illustrations of then and now and how owning gold with intrinsic value would have more purchasing pro rata than currency. E.g the latest model Cadillac Eldorado would have taken 180 ounces of gold at $42.02 to pay the showroom price of $7,546. This same 180 ounces is now worth over $200k and would buy two Cadillac convertibles with enough left over to fuel to first service. In the UK an average family car cost £1000 around 60 oz of gold and now the same would cost £17000 around 23 oz of gold. The 60 ounces would have bought the same family car for you a sports car for your wife and a hatchback for your son or daughter. Gold retains its purchasing power year after year.

Not long ago the gold standard imposed monetary discipline on countries as they had to hold enough gold to cover the money in circulation but this all changed with the Jamaica agreement in 1971 when the decision was taken by President Nixon on the 15th August 1971 to suspend the direct convertibility of dollars into gold, the keystone of the financial system created in July 1944 (the Bretton Woods Agreement). On the 1st October 1971 the general assembly of the IMF asked the board of trustees to study and propose a comprehensive reform. This would be adopted by member States during a meeting held in Kingston (Jamaica) on the 7th and 8th January 1976, and included a set of provisions which put an end to the reign of gold. The US money supply in 1971 was $776 billion and quickly became an upward curve which rose dramatically over the last decade where the US money supply doubled from below $7 trillion to $14.3 trillion indicating that spending is out of control.

The US National debt is now greater than this!

The US though still likes to play the rich kid on the block and bizarrely gives aid to those supporting its debt as a report in the Daily Mail of London illustrates:
The U.S. is providing hundreds of millions of dollars of foreign aid to some of the world’s richest countries – while at the same time borrowing billions back, according to report seen by Congress.

The Congressional Research Service released the report last month which shows that in 2010 the U.S. handed out a total of $1.4bn to 16 foreign countries that held at least $10bn in Treasury securities.

Four countries in the world’s top 10 richest received foreign aid last year with China receiving $27.2m, India $126.6m, Brazil $25m, and Russia $71.5m. Mexico also received $316.7m and Egypt $255.7m.

And yet despite the massive outgoings in foreign aid, the receiving countries hold trillions of dollars in U.S. Treasury bonds.

China is the largest holder with $1.1trillion as of March, according to the Treasury Department.

Brazil held $193.5bn, Russia $127.8bn, India $39.8bn, Mexico $28.1bn and Egypt had $15.3bn.
Maybe it’s just additional interest on the debt to keep them sweet!

Greece figures predominantly in the spotlight and unrest is growing – will the Government have to mortgage the Acropolis and Parthenon or even sell them off to pay their debts?
Clearly they can never work their way out of this debt because they would have to increase GDP by 12% a year for 30 years in order to grow their way out of debt.
The Sovereign Debt crisis is well and truly out of control and the only solution will be to default on the debts and devalue currencies.

As discussed in the example of Belarus, chaos ensues when currencies collapse and regular folk suffer badly as they don’t see it coming or refuse to believe it could happen to them.

Be warned: A currency collapse is coming near you.
Be prepared: don’t put faith in bits of paper which have no inherent value.
Protect yourself: Invest in tangible assets that hold real value at all times, especially during a crisis.
Remember: Real money has inherent value, it is worth something because of what it is not because of what is written on it.
Now you know why people buy gold to protect themselves from crisis – it always holds value and is the only real money.

In summary:
Currency is not money and its value can be changed by monetary policy makers
Currency can be created and printed at will with no substance to support it
• Currency depreciation in value is accelerating with subsequent loss of purchasing power
• National debt is increasing to disastrous levels with threat of sovereign debt default
• Confidence in the USD is waning and its use as a reserve currency is under threat
Countries and investors are shedding their dollar assets
Central Banks are diversifying into gold and out of dollar assets
Smart investors are diversifying their portfolios with a proportion of gold
• The value of gold has been consistent in retaining its purchasing power
Gold is insurance for your wealth
• Gold is the only real money

I rest my case!