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.

Dr Eamonn Butler, of The Adam Smith Institute, in one of his more recent books “The Rotten State of Britain” (Gibson Square, London, 2009), gives a succinct account of the regulatory burden on Britain:

“Each year, the state requires us to fill out more than a billion forms. And each year, the government passes twenty or more major laws. It also approves around 3,500 regulations, amounting to around 75,000 pages of rules, with another 25,000 pages of explanation.” He goes on to point out that “[i]n 2009 the British Chamber of Commerce reported that the cost of regulation on businesses rose by more than  £10 billion over the year before, to a staggering £76.8 billion. That’s more than six times the 2001 figure.”

The picture painted would be only too familiar to anyone attempting to do business in the developing world – even more so. There are places where, for example, it takes nineteen years to fill out the government paper work before one can start a business, or others where the forms to be filled in, laid end to end, lengthen out to 11 miles (for more details read Hernando de Soto’s classic “The Mystery of Capital”, probably one of the most important books on economics published since Adam Smith wrote “The Wealth of Nations”, and for the same reason: he describes in clear prose exactly how a developing economy works).

The effect of all this is of course in both the developed and the developing world deeply discouraging to enterprise. People simply don’t bother – or, in the developing world, go into the extra-legal economy. But the combination of the unnecessarily complex regulatory regimes in the developed world with the economic meltdown of the financial crisis, raises an interesting question which is the corollary of the matters I discussed in the recent post What is Money?

Are we in effect in the western economies entering a phase which we could call “de-development”? As Dr Butler rightly points out with reference to the regulatory burden: “Nobody can possibly keep up with this torrent of red tape.” And that inability has profound effects on the way business is conducted: people become increasingly careless of the law – such regulatory burdens always have the consequence of bringing lawmaking and legal processes into contempt – to our cost.

For if we live in a “knowledge economy”, then the foundation of that economy is the law. Indeed, in “The Mystery of Capital” referred to above, de Soto demonstrates that all successful economies are based on knowledge – economic facts enshrined in legal documents the ultimate purpose of which is to anchor title to property, making it justiciable and thereby tradeable and negotiable. It is the legal fact that comes first: that title is ultimately justiciable means that it can be safely traded, in the knowledge that any disputes that may arise have an objective forum in which they may be peaceably settled.

It is this that government regulatory systems destroy (in the case of the west) or prevent (in the case of the developing world).

In a thoughtful and alarming analysis, de Soto’s immensely fruitful work in the developing world enables him to see with great clarity just what are the roots and mechanisms of the financial crisis: “The Destruction of Economic Facts“.

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.

An unfettered pack of lies

When we tell young people that in 1986 we were naive enough to believe the authorities who told us that the radioactive cloud had stopped at the French border, you attract, and rightly so, a few sniggers and mocking smiles.

When I tell these young students that it will perhaps be their turn in 20 years time to be the object of derision by their own children, surprise quickly gives way to incredulity and a certain amount of concern.

Let’s look again at the facts. Facts have this annoying tendency to be difficult to change although…

On 14 March 2011, a terrible earthquake ravaged Japan, following by a devastating Tsunami. Among the areas affected was the Fukushima Daiichi Nuclear Power Plant composed of 6 reactors which have since been experiencing difficulty. Chernobyl only had a problem with 1 reactor. We can therefore summarise the situation as Russia 1, Japan 6.

Since 14 March, the information provided by the Japanese authorities has been very limited, perfectly controlled and little short of the communication methods we used to see in the former USSR.

Let’s recall the accident at the Swedish nuclear power plant in 2006. The operators almost lost the nuclear reactor in less than 30 minutes owing to a fault in the cooling circuit allied to an electricity power failure (which really takes the biscuit for a nuclear power plant which is supposed to produce electricity), which was in turn linked to maintenance work. The safety systems (to keep things simple the back-up generators) were simply not turned on. A catastrophe was assured in 30 minutes this being the time needed for the start of fusion within the core of the reactor according to the articles and the experts who were at the time in agreement about the seriousness of this incident. For 15 days, the cores of the nuclear reactors in Japan have no longer been truly cooled…..but of course this does not cause any problem.

There is smoke escaping on virtually a daily basis from one or other of the damaged reactors, but of course this does not pose any problem.

The drinking water in Tokyo is from time to time unfit for consumption but the next day when the shops have run out of bottled mineral water and the entire population can no longer be supplied…the water becomes drinkable again. The sad alternative is to either let the population drink irradiated water or to die of thirst.

In brief, this accident which is jeopardising the “survival” of nuclear reactors potentially risks being more serious than the accident at Chernobyl. As stated by the Japanese prime minister: “the situation at Fukushima is unpredictable”.

But let’s get back to our little retrospective. Check it out for yourselves by calling on your memory (you will see that this works well) or by searching the internet for all the podcasts for this period which are to a large extent still online).

On Tuesday 15 March the European Commissioner for energy stated that it is “the apocalypse”.

Financial markets across the planet are in free fall. The mega crash is fast approaching and it risks making the subprime crisis in 2008 seem like a mere trifle.

The next day, on Thursday 17, there was a great change in how information was broadcast and managed. A helicopter took off with some buckets of water to pour onto the smoking reactors “trusting to luck” (look back over the videos to understand the accuracy used).
Thanks to these wonderful images, the Press unanimously spoke with effect from Thursday of “Glimmers of hope at Fukushima “. The markets are rebounding, the main thing is safe (our money).
The Japanese can calmly go on exposing people to radiation.
Using the following link you can see around ten good definition aerial photographs of the various buildings at the Fukushima power plant. They are not very reassuring.

On Friday 18, some tankers from the Tokyo fire service also arrived to hose down the smouldering ruins which, I remind you, officially did not explode. In fact there were huge explosions witnessed by the entire planet, but they were not serious. Obvious they were just controlled degassing activities (hydrogen) which exploded but nothing to be alarmed about, the reactors are fine, honestly!. Thanks to this, the Press were unanimously able to lead with headlines such as “Encouraging Progress at Fukushima”!
I advise you to read the report entitled, “the Battle for Chernobyl” which provides an exhaustive clarification on the risks and challenges faced by the ex-Soviet empire in order to limit the extent of this nuclear catastrophe. It is important to note that hundreds of helicopters, thousands of armoured vehicles and more than 500,000 men were used to construct the sarcophagus around the damaged reactor. At Fukushima the problem is multiplied by six. How are they going to deal with it?

It is therefore certain at the time that I am writing these lines. We are faced with an unfettered pack of lies which we are forced to watch powerless as it unfolds. Except for the fact that the internet exists today and we have more chance to keep ourselves informed. We are experiencing a real Chernobyl 2 !!

Multiple under-estimated economic consequences

Is there any hope left? Doubtlessly there is, and being an optimist by nature, I want to believe that solutions can be found. Nevertheless, the official radioactive pollution is now spread over more than 100 km. Tokyo, the capital, is situated less than 250 m from the Fukushima nuclear plant. The entire North of Japan has been substantially affected, not to mention all the areas which have been wiped off the map by the double whammy of the earthquake and the tsunami.

The French government has just set up a special unit in order to plan as best as possible for the shortage of components which will certainly affect France starting from April leading to certain production stoppages and probably measures of technical unemployment in certain industries.

Apart from the losses in human lives, the cost of this double catastrophe (natural and nuclear) is far from being known and is certainly currently be played down. The last assessment talks about more than 28,000 who are dead or missing. There is more than 350,000 left without shelter in the North-east of Japan, 70,000 people have been evacuated within a 20 km radius around the plant. Between 20 and 30 km, 136,000 other people are waiting to be evaluated after being confined to their homes for more than 15 days.

Japan as the second largest economy in the World (or the third according to how China is classified) is a vital link for globalisation. Japan is heavily affected and faces a number of major challenges:

- A nuclear catastrophe which is absolutely not being overcome and which may eventually lead to a drama in the event of any worsening of the situation in one of the affected reactors.

- debt of more than 200% of GDP (by means of comparison, France has a debt ratio of around 80% to GDP whereas that of “bankrupt” Greece is 120%). At the time of the Kobe earthquake, the debt ratio of the Japanese state was only 85% of GDP (this was in 1995). The reconstruction effort risks leading to an unsustainable increase in this country’s debt which will speed it towards unprecedented economic difficulties. On 15 May 2010, the alarm bell was also sounded by the IMF and the rating agencies on the non-sustainability of Japanese short-term debt.

- Industry virtually at a standstill. The Japanese are the inventors of the Just in time methods which, even if they have convinced the World, demonstrate their limitations in the event of catastrophes. The consequence of the total absence of any stock is the halting of numerous production activities leading to massive shortages on supermarket shelves which still remain empty at the present time. No more water, less and less food, major power cuts which no longer make it possible to manage stocks of fresh or deep-frozen products.
With regard to the major international companies the example of aircraft manufacturer Boeing is striking with Japanese companies building 35% of some models of aircraft.

- A currency value which is spiralling upwards. The massive purchases of the Japanese yen and companies who are liquidating their overseas assets in order to repatriate them to cope with the National reconstruction effort have propelled the Yen towards an historical high. Added to the “natural” appreciation of the currency is major market speculation on fund repatriation forecasts.
The consequence is that a currency which is too strong triggers a significant decrease in exports, given that a brutal increase in the value of the currency cannot be offset by an increase in productivity especially in a country ravaged by a natural catastrophe of this size. Nevertheless, in the medium term and bearing in mind a expansionist monetary policy, the Yen should find a more acceptance exchange rate.

- Japan is a country with a very heavy population density. Many people but not many habitable spaces. On average, the price of real estate is the most expensive in the World. Banks therefore there have particularly large outstanding real estate loans. In the region of Fukushima, more than 70,000 people have already been evacuated. In Ukraine, next to Chernobyl, the town of Pripiat is still a ghost town 25 years after the explosion of the reactor. There the banks did not have any loans. There were only 45,000 inhabitants. What will become of bank debts in this case? How will the losses (because they are large) be managed? Might we again face a major international banking crisis as the extent of the Fukushima nuclear catastrophe appears? Imagine the extent of the impact on real estate debts in the event of the evaluation of Tokyo which houses 35 million people…..a situation which it is quite simply unimaginable from a financial perspective. The economic system could not cope, or would cope with great difficulty. Perhaps this is why the situation in Fukushima is no longer alarming after 17 March 2011.

- Japan is an aging country, whose current population of 127 million has been decreasing since 2005 and is set to be halved between now and the end of the century to reach 60 million inhabitants.
But how can these debts be repaid without economic and demographic growth, Mechanically and mathematically, the less the number of inhabitants the bigger the total debt per head of population.

- The Fukushima nuclear accident has revived the fear about nuclear power. In the United States, no nuclear reactor has been built since the accident at Three Mile Island in 1979. After Chernobyl, there has been no further development of any nuclear power plant in USSR, the same will be true of Japan after Fukushima. In German 7 reactors have already been halted because they were deemed to be too dangerous.
The only rapid and credible replacements for energy in the short-term are Gas and obviously Petrol whose prices might be propelled to highs in the coming weeks. Economist are agreed, however, that a barrel of petrol whose price exceeds 120 dollars leads the World economy into a recession. As at 4 April the price of a barrel of petrol was still rising and seemed to have sustainably settled at over 110 dollars.

Towards an acceleration of changes which are already being felt

It is therefore to be feared that all of the cumulated factors discussed present a global systemic risk to the global economy which might be hard to redress in the aftermath of Fukushima and the slow agony of this nuclear cataclysm being witnessed in Japan. Perhaps we are witnessing the premature disappearance of a Nation, of the slow dawn on a Empire.

You wanted to save money in the short-term despite the life of mankind, you will lose mankind and you will lose money because there is no wealth without mankind.

Indeed, even oysters risk deserting our New Year’s dinner tables. Affected and decimated by a mysterious illness, our producers have ordered spats from Japan in Sendau. Japanese producers are also lacking our oysters.

It is still not time to make the tally. Having said this, the Fukushima accident may well be the signing of the death warrant for the nuclear industry which is a dangerous industry and about which we neither know how to manage the dismantling work nor how to manage waste and whose costs are not taken into account in the operating prices for this energy which is more expensive than people think when all this indirect costs are included. This is not to mention the price to be paid in terms of a catastrophe which are quite simply unbearable both in financial terms as well as in human suffering. The “‘homo economicus ” will have to learn another form of sobriety.
From Peak Oil to the depleting of raw materials, from the challenges faced by agriculture in feeding our planet to the sharing of water (threatened resource) the World is changing.

The Japanese cataclysm will undoubtedly hasten these changes.

Translated from an article by Charles SANNAT

Gold has always fascinated with its attractive, brilliant and glistening appearance but also because of the intrinsic properties of this precious metal. No wonder that it has played an important role in history since its discovery. Thus, for many people, gold has been at the heart of their culture, such as the Inca civilization which referred to gold as the “perspiration of the Sun”. They bestowed gifts in gold, made statues of gold, wore gold and in fact gold was everywhere around them. But in addition to this cultural role, gold very quickly acquired another role: that of Money.
While currency wars and devaluations are very much a thing of today, we have taken a trip back into the past to look at the origins of one of the first real currencies… and who knows, one that may again take its place again in the near future as a trusted, true exchange of value.

Money, a concept born of necessity

Before money existed, goods were traded in a form of exchanges and bartering. Livestock such as oxen, horses and sheep, commodities like wheat, fruit & vegetables, wood, silver and of course gold were all traded against each other depending on needs (demand) and availability (supply). However, there was an obvious difficulty that would arise which was how to equate the value of items to each other. There needed to be a reference value so that prices could be agreed upon and defined as quantities of this “stable” known value. There was also the problem of giving change or what to do if you only had enough to buy half a sheep and we’re hungry!

A popular and plausible hypothesis by Hauser* was that as gold was also being traded against various goods, its weight was used to agree an exchange. Soon people realised that gold could easily be divided into different weights which equated to multiples of its value and therefore the value of other commodities. This led to the concept that of weights of gold were indeed useful “units of value” and quickly prices for oxen, sacks of wheat etc became equivalent to a certain weight of Gold.
Naturally gold started to become a reference point for the exchange of all goods particularly because it was easily divisible and impossible to fake.

The birth of gold coins

In Egypt, gold was exchanged against goods in the form of rings which had fixed weights and therefore different multiples of value could be used for pricing goods. Elsewhere however, gold stayed in the form of ingots for a long time but their weights were often variable and trading was tedious because of these discrepancies. Weight variations meant that trades were seldom a direct equivalent to the goods being traded and so much haggling ensued.
In search of something more convenient, reliable and safe, small gold discs of a fixed weight were made and each one had a value struck on it. They were easier to carry around and allowed trade to be more flexible, retail as well as wholesale.
Thus the first gold coins were born and indeed the first recognisable currency. This took place around 700 BC according to Erik Chanel.

Whilst gold was not the only metal used for coins – silver has been widely used as well- gold, however, was the ideal metal because of its unique combination of properties such as: it is stainless, rustproof, divisible, malleable, ductile and of course rare, which made it from the outset a symbol of riches.

Is Money as good as Gold

We have previously mentioned the Gold Standard on Goldcoin.org which has several meanings depending on the era.
The Gold Specie Standard was a system that associated units of money to gold coins in circulation or when lesser metal coins drew their reference of monetary value from a circulating gold coin.

The Gold Exchange Standard was when circulating coins made of various metals such as silver and copper drew their reference monetary value from a fixed value of gold independent of their own metal value.
Finally, there was the Gold Bullion Standard which did not involve circulating coins. This was when governments had agreed to sell gold bullion at a fixed price in exchange for a quantity of circulating currency. In other words, each unit of currency effectively had a value related to gold. This allowed the mass introduction of paper currency, which was easily transportable and practical for payments.
It was also the mechanism which allowed banks to not only look after your gold deposits as they had previously but led to the credit creation system, fractional reserve banking, loans and mortgages. The problem here was that greed got the better of bankers who realised they could lend more than they had in Gold reserves and print paper money whenever they wanted as long as nobody caught them out. Sound familiar.
If you are interested in the story of money, banking and the credit crisis have a look at this video when you have a chance. It’s very relevant to our current problems.

Without Gold, Money as Debt

Anyway, the Gold Bullion Standard ended in 1971 when Nixon felt the strain of expenditures from the Vietnam War and he effectively untied the value of the dollar to gold. This also effectively untied all the other currencies which had been part of the Bretton Woods Agreement to form the IMF (International Monetary Fund) in 1944.

Paper is worth as much as Paper!

So nowadays currencies are not “covered” by a relationship to gold or a fixed unit of reference so they can be extremely volatile, easily devalued and printed at infinitum. The problem is that today’s money is based on pieces of paper that are printed with a value but there only real value is the piece of paper they are printed on. Currency value comes from economic confidence. When there is none the currency becomes worthless and it is not because the central bank has printed a number on a piece of paper that it becomes meaningful.
What actually counts is whether anybody will accept the paper in return for goods or services or dare I say it an oxen or two. We’re back where we started. The value of currency has to be real and cannot be created otherwise it will not be accepted.
Much of the problems we face today are because an excess of credit has led to an excess of debt. Pressure on currencies causes devaluation which in turn decreases the value of assets, investments and therefore wealth.
This is causing people to look for ways of protecting their wealth outside of paper money. This brings us full circle to gold which has proved through the ages to be the best safe haven for value.
The choices today are to own a physical asset that will always maintain its value i.e. Gold or to invest in the labyrinth of debt ridden, financial institutions whose products are heavily advertised but rarely realised for the poor customer. They spend more on marketing their wares than they do in paying out customers at term. Remember HSBC charging 80% over the 32 year term of a pension fund leaving some poor old retired guy broke. He’s in no position to fight back especially with the expensive legal eagles they can afford with his hard earned money!

Should we return to a Gold Standard?

Unfortunately, that is virtually impossible because there isn’t enough gold to go around. There are only 20m3 in the world and about another 100,000 tonnes in the ground. There would have to be a huge devaluation of currencies to restart the Gold Standard and of course it’s unpopular with Central banks as they would have to behave properly.
We referred recently to the state of Utah and how people are taking the matter into their own hands because they require more certainty about the money they earn and spend. The dollar has failed them and so they are now looking at creating their own Gold currency which will maintain value better than the greenback.
It would seem we have turned full circle and more and more people are turning to Gold because it offers a safe haven for their savings and is an insurance against instability.
Gold coins are an excellent investment vehicle and more and more people are turning to the value of gold. Gold coins are actually worth more than their weight in gold because they have a dual leverage. The gold content of the coin increases in value with the spot price and the premium (added value) of a coin increases with demand. During a crisis or unstable economic conditions the premium of certain coins can rise more than 40% irrespective of the spot price.

Gold as a future currency?

Gold as a currency of the future may seem far-fetched but given the state of paper money and the interest in Gold who knows, it is already being planned as an alternative stable money in certain places. Even if gold coins do not re-enter circulation they are being used as a more certain tangible investment.
Some of the most popular coins for investment are those commonly sought the world over such as the Krugerrand, The British Sovereign, The American Eagle and the French Napoleon.
These are a way of preserving your wealth and savings in something of real, timeless value.

* H. Hauser, Gold, Vuibert & Nony publishers, Paris, p.307.

Invest with trepidation because most traditional ways like savings accounts, property, government bonds, shares, hedge funds etc are inevitably taking a risk by sharing someone else’s debt. Your investment helps them create even more credit and therefore fictitious money. This credit enters a worldwide cycle that continues to spiral upwards. World debt is out of control and nobody has an answer to “if” it can ever be paid. The so-called strongest economy in the world, the US, currently has an annual budget requirement of $3.5 Trillion. US Government income is $2 Trillion annually and this could decrease with decreasing tax revenues caused by unemployment. It therefore borrows $1.5 Trillion just to stand still.
Who is lending them this money?
What is it guaranteed against? (is it guaranteed?)
How much interest are they paying?
Can they afford the interest?
Can they ever afford to repay it all back?

Writing the questions is the easy part but finding coherent answers, well…
Truth is the US is fabricating at least $1.5 Trillion a year to balance their books and the money markets are complicit in this deceit as it’s also in their interest to carry on fictitious “credit trading” which is still making them money. One has to also imagine the amount of interest being paid for this level of debt and not forget that this significant amount has to be added to the annual deficit, therefore compounding it’s enormity.

There is not enough money in the world to cover current World debt and it’s increasing daily (as is the interest due on all of it).

World annually budget deficits are estimated at $6 Trillion a year.
Where is or who has this amount of money available to lend?
Historically paper money is created in line with National Gold reserves so all money should have a gold equivalent. This is no longer the case because the world needs $6 Trillion a year to stand still and cover it’s deficits but annual world production of gold only equals $100 Billion.
Every time we “invest”, pay our mortgage or simply put our salaries in the bank we are encouraging this cycle and allowing more debt to be created to apparently pay off the current debt. This is like paying off a credit card bill including interest with another credit card that has even higher interest. The first debt is paid by creating a second even bigger and more costly one.

Why would anyone want to invest in this?

Probably because their choice of options is limited to traditional methods by the very people creating the debt.
What they don’t want you to do is withdraw your money from the cycle because that hurts them. They don’t really care if your investment makes money eventually, just like pensions are eroded with excessive management fees & middle men commissions.
BBC’s Panorama recently revealed how HSBC took £99,900 from a £120,000 pension pot ie. 80%. Obviously their only interest is getting your money now and making excessive amounts themselves. We’ve seen too many examples of their excuses when honest folk realise a lifetime of paying in = heartbreak and “sorry” at term because their investment has evaporated in the system of debt.

Everyone except the Brits are doing it!

So where is the sanctuary for my money?
Well plenty of Central Banks, Corporate investors, Private fortunes and populations across Europe are turning to Gold. Why? Because it’s real, physical gold and at term will still be there and worth something. It is also NOT somebody else’s debt and therefore NOT reliant on some fund or company staying in business for however long. Gold is a real, tangible asset that has been valued by humans for over 6000 years. We can’t invent gold we have to mine it. There is a limited world supply and increasing demand year on year. Industry needs it, Dentists need it, Jewellers need it and Bankers need it to guarantee their currency and circulating money supply.

The truth is the World is bankrupt but nobody wants to admit it!
It’s time to hold on to your valuables to survive the next crisis and Gold has and will always be valuable.

Strangely enough the US has a big problem here because there is $15 Trillion in the banking system and only $0.35 Trillion of gold reserves to back it up.Technically there should obviously be $15 Trillion of gold. This means that if every dollar was taken back to the bank to be cashed in against it’s value in gold $14.65 Trillion would be worthless!!! Do you now see the problem? Even the less mathematically proficient can see this problem is so big it’s maybe impossible to fix – ever!
The economic model for this is simple and is based on GREED.

Gold is not somebody else’s debt!

If you really want to preserve personal wealth in a durable form for the future then the choice is simple:

1. Invest into the Black Hole of World debt?
2. Invest into a debt free, real, physical asset that you control and can manage how you wish?

Don’t be fooled by thinking that you can’t do something because you’ve never done it before or because the option is made difficult by those who wish to profit from you.

Gold is Good
Debt is Bad
Gold will still be real
When the paper debt’s been had!

It is true that the value of Gold can go up and down but remember we live in a different world since the sub-prime and Banking crises. Observe the trends in Gold prices over the last ten years at http://www.kitco.com/charts/livegold.html and judge for yourself!

References:
Thanks to Jason Hommel at

http://www.24hgold.com/english/news-gold-silver-low-inflation–massive-gold-rise-.aspx?article=3160143892G10020&redirect=false&contributor=Jason+Hommel#Commentaires1_tableCom

BBC Panorama “Who took my pension?” 04Oct 2010

http://www.smartmoney.com/compoundcalc/

When Nixon broke the link between gold and the dollar the world did not stop turning.  The economy rebounded and prices dropped. There was a lot of dissatisfaction about price controls and other things.  However the economic recovery happened and the president was triumphantly re-elected.

Nixon however didn’t put an end to the love affair between gold and the Americans.  Gold had never been in such high demand for decorations or jewellery.  The link between man and this precious metal is seemingly not ready to break.

Gold contacts on computer chip

Gold still plays a central role in our daily lives.  This metal, which was discovered in Ancient times, is a key component of modern technology. It is an unalterable metal and an excellent conductor of electricity.  Each year the electronics industry uses 200 tons of gold. In this highly technological age, if you told an engineer or an electrician that they would have to do without gold they would explain to you that a large part of the IT, audiovisual and many more industries would have to stop, at least until an alternative to gold could be found.

Scientists themselves are looking at gold in a new light.  We know that its medicinal properties have been studied for a long time.  The Chinese are credited as being the first to use gold for medicinal purposes around 2000 BC.  It was not until the late 19th century or early 20th century that chemistry was used to design drugs containing gold.  The German bacteriologist and Nobel Prize winner, Robert Koch for example discovered that TB causing bacteria could be killed using a mixture of gold, aurous cyanide.

Pure gold inner ear insert

Before antibiotics were discovered, gold based drugs were an important weapon against disease.  Compounds containing gold are still used to treat certain forms of rheumatoid arthritis.  With current laboratory research, technicians are interested in manufacturing new soluble gold compounds to treat viral infections but there are also some soluble forms which are capable of killing cancerous cells which we have been able to test in recent years.  These products are not yet at the clinical experimentation stage and there is still a lot of work to be carried out on the chemistry of gold which is an active research area.  However, gold possesses a high degree of resistance to bacterial colonisation and because of this it is the material of choice for implants that are at risk of infection.

Further studies are underway to prepare for the next gold rush.  But this time, in space.  Rocks more than 4.5 billion years old, contain ten times the concentration of gold that can found in any mineral on earth and there are millions of rocks like that in space, in what are known as near earth asteroid belts and in the main asteroid belt.  For Jim Benson, there must be a way of collecting this extraterrestrial gold: “We could envisage launching a space rocket to one of these near earth asteroids between Earth and Mars and landing smoothly on it.  The first time we would certainly be able to take a sample and analyse it.  But on the next mission we might be able to bring back some of the rock or even use a space tug to bring a relatively small near earth metallic asteroid into the earth’s orbit where we could process it at a lower cost.  An incredible challenge but it will be possible not too far into the future.  Fortunes and empires could be built and I think for many generations to come.  Space offers infinite resources with no boundaries.”

If you believe Benson, one single asteroid could produce 80000 billion dollars worth of gold.  But like King Midas, who turned everything he touched to gold, when there is a considerable amount of gold to be had, the magic doesn’t work anymore, it’s finished, done.  And yet all throughout history the fascination in gold has never waned.  When the Romans found gold in Spain or when the Spanish carried out operations in Peru, all the gold that was discovered was used.  The discoveries of the 19th Century brought production levels to unimaginable levels, but gold has not lost its value.  We always want more.  The obsession with gold has been constant since the dawn of time.

Gold has pushed men and women to carry out the most extreme acts, of cruelty, bravery or beauty.  For thousands and thousands of years, owning gold has been of the utmost importance to become not only rich but also powerful.  Gold has survived all civilisations.  It was a central part of religion and the arts.  The economy of nations relied on gold, for better or for worse.  If one day we discretely gathered up all the gold of the USA, UK, Germany and France and we threw it into the sea, the economy would not stop.  Life would continue but in hard times we turn to gold.  Gold is something special.  It is not a product manufactured by man but by nature which is why we have confidence in it.  It is your insurance for a rainy day.  Gold is capable of surviving disasters.  Indestructible and universal, it has incomparable power.

Sovereigns of England and France were to thought to have  the God given power of   healing by touch and they  practised this power to cure sufferers of Scrofula an unsightly tuberculosis commonly known as the “King’s Evil”.In France it was called the “Mal De Roi” . The ceremony and cure was a “laying of  hands ” by the monarch and the touching piece was the talisman of the monarch healing power.

Gold Angel

This developed into crossing the sore of the sick person with a Gold Angel, which was a currency piece that portrayed the Archangel Michael slaying the dragon. This was good overcoming evil and the gold itself stood for purity.  The Angel which became known as a « touching piece » was then worn around the neck until cured. It was believed if the touching piece was removed the disease would return. The sovereigns of the House of Stuart also used the ceremony to help bolster the belief in the ‘divine right of kings’ . The practice peaked with Charles II touching over 100,000 people; but it was discovered that a good number of people were not sick but were attracted by the gold. It was a considerable drain on Royal Coffers.

Maurice Hall

In the early stages of its youth, the Earth was partly in fusion.  The heaviest elements, such as iron or nickel, migrated towards the core over several tens of millions of years and drew other heavy metals that had an affinity for iron with them. Given this, why do we still find gold, platinum or palladium on the earth’s surface? Shouldn’t it all have been drawn into the Earth’s centre by the iron?

According to research work conducted by Professor Gerhard Schmidt at Mainz University, in Germany, it is probable that the principal rare metals, such as platinum, gold or iridium, arrived on Earth in iron meteorites. It is even possible that most of this metal was the result of the collision between the Earth and Theia, a little planet the size of Mars, which resulted in the moon being formed.

Professor Schmidt presented his results at the European Planetary Science Congress EPSC) at Munster, Germany, September 21^st to 26^th 2008.

Could eggs be a useful currency?

Let’s imagine it’s 2018. The western world has gone through years of deflation then the flame returns as massive inflation repeating what happened in Germany in 1923.

John was still selling luxury yachts on the Côte d’Azur in 2008. Following the financial crash and the economic crisis that followed it, he now rears a few chickens on a farm on the outskirts of a small town in the Auvergne. In this article, he talks to us about his most recent discovery in a world where every day brings its new rules. He explains to us the characteristics of a good currency.

I arrive in the village square which is already full of people and a lay out my farm produce at my feet: pairs of chickens with their feet tied together and baskets of pats of butter wrapped in leaves, lying on a base of fresh and smooth eggs. I have some concerns because the Euros, which we usually use in the country, they have been refused by everyone since the State started issuing them willy-nilly. The screens where you enter the amount for a credit card transaction are no longer big enough to display the amounts that have to be paid for our everyday requirements. We are now a country without currency. What’s going to happen?

I think I will get the old Sovereigns out from their hiding place behind the bookcase, tomorrow…