By Mark Rogers

One day.

The “sarkozy” in question? Bashing the City of London. So nothing has changed on the despising of the Anglo-Saxon economic model front, then. What else has changed as a result of the French and Greek elections?

While the Times has reported that there is a capital flight out of Greece (The Times, 8 May 2012) – which is hardly surprising – the answer to the above question is: nothing, politically.

The fireworks will be different colours after the French and Greek elections, but the unwillingness to recognise and to deal with the political death of Europe will continue: there is still no political will to recognise the failure of the euro and all the difficulties that that entails for the “union”. Not that there is much show of unity; there is little love lost on the continent for each other, but there is a determination to keep the bone of contention alive – not even the faux-radicals who have been elected to the Greek Parliament, while perfectly content to call their Northern neighbours barbarians, want to pull out of the euro! (Bloomberg here.)

“Voters shy from hard choices.” Thus Lexington in the Economist, April 28th 2012, page 42. “…voters everywhere … want many impossible things before breakfast, including low taxes and all the things that high taxes pay for.” He is, after a fashion, taking issue with Grover Norquist of Americans for Tax Reform, who concedes that the argument for small state-low tax politics is yet to be won: “Too many voters continue to like some of the things their taxes buy, such as entitlements and government jobs. If those things can be shrunk, [Mr Norquist] believes, so can their fondness for the state. Good luck with that, Mr Norquist.”

Well, Mr Norquist is perfectly entitled to point to Europe, where fondness for the state was invented and has become inbred, and in particular to Greece.

Greek voters wanted low taxes, so they simply didn’t bother to pay their taxes at all – and the tax collectors went on strike in sympathy – and they still wanted the things that high taxes pay for. A price system this is not.

The idea, fantastic as it seems, that tax collectors would go on strike against changes to their salaries would beggar belief were it not yet another strong reminder that those who advocate that the state simply pays it way out of trouble (which is what got us into the trouble in the first place) forget that the state has no money.

Even the editor of the Economist has advocated that the state in the UK should build more infrastructure (which, he says, “incidentally” provides more jobs) as a way of spending its way to recovery. This is the same Economist which considered the Socialist candidate, now victor, in the French presidential elections, M. Hollande, “rather dangerous” (April 28th) – even though he promises just such spending…

The tax collectors of Greece went on strike because they do not want their salaries cut, but in striking, i.e. refusing to do their job which is to collect the taxes out of which their salaries are paid, they are in effect cutting their incomes to zero.

The state has no money of its own: all that it spends is ultimately derived from the taxpayer: either directly, or by borrowing, which is then paid back by further despoliations of the taxpayer.

Ah! but what about Quantitative Easing? Apart from sounding like what Gargantua did after arriving in Paris, it has pretty much the same effect on the average saver: deluging the economy with printed money simply attacks the taxpayer from another angle – those who have saved see their savings and pensions eroded. Without savings, where is investment, and therefore growth, to come from?

Too much liquidity, and fake at that: QE seems to me to be essentially the government forging its own currency…

A lucid analysis from France on the logic of gold investment

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

With regard to the economy, we have just gone through a “settlement” period with the Greek crisis. But in reality nothing has been settled. As far as Greece is concerned, we have gained a few months’ respite in so far as that country remains indebted to the tune of more than 120% of its GDP and nothing indicates that a recovery in the public finances can succeed. Having said that, we shall see within 12 to 24 months.

More worrying of course is the economic situation of Spain and Portugal, with here too monumental social damage in progress and popular demonstrations which are starting to become extremely significant in the fight against austerity plans. Beware. Spain is not Greece. Spain is a great country, with a great history and Franco’s nationalism only dates back to 1975, i.e. yesterday. As any expert on Spain will tell you, that country will never accept a Greek-style humiliation. The Prime Minister has in fact called a stop to certain reforms. And he is right-wing. Spain will not be able to find a way out of the economic, financial and property crisis with a strong euro which does not correspond to the intrinsic characteristics of its economy. The same applies to Portugal.

We should not forget our own country, France. If we recall, in 2010, there were 1.42 working people for every retired person. Retirements will end up by no longer being paid for because there is quite simply no more money. The problem is not in 20 years’ time. It is now.

France is also in bankruptcy. The Court of Auditors in France, chaired by the Socialist Migot, has stated that it is necessary to dispense with indexing pensions to inflation. With real inflation of 5% per annum, in 10 years’ time a pensioner will lose the equivalent of 60% of his purchasing power. That is the reality.

Lastly, let us remember the end is nigh atmosphere at the end of 2011 (that was three months ago). One really wondered whether the euro would have survived by Christmas. What has changed since then?  One simple but basic fact. Over-indebted countries (France and Germany) became even more indebted, to temporarily save a country like Greece from immediate bankruptcy. But it is the entirety of our economic system which is in an irremediably compromised position. Nobody is able to say so. Even less the “people” behind the system. That is self-evident.

The only truth is the following: infinite growth related to mass consumption thanks to abundant and cheap energy in a finite world is a system likely to fail.

• A gold purchaser does not buy gold to speculate.
• A gold purchaser does not buy gold to get rich.
• A gold purchaser does not have a view on the financial results of the next quarter.
• A gold purchaser buys gold because he or she has a fundamental analysis of the current dead end in which the global economy finds itself.
• He or she buys gold because each serious crisis ends up by finding a “monetary” resolution that is usually painful.
• He or she buys gold because gold has been the Vera Valor (true value) for more than 6,000 years whilst the euro barely celebrates its 10th anniversary.
• He or she buys gold because before 1914 the currency was gold; because in the inter-war years those who had given up gold got to know a period of hyperinflation which led to Nazism coming to power with the disastrous consequences that we all know.
• He or she buys gold because in 1971, the dollar was no longer convertible and only the banknote plate continued to function unsupervised.
• Above all, he or she buys gold because he or she knows, and it is a historical certainty, that nothing is immaterial. During the last century we saw five different international currency systems or one every 20 years on average.
• He or she buys gold because the current system will change. Regardless whether it is in six months or six years.
• Gold buyers buy gold because they know that whatever the outcome of change, they will have simply kept the value of their assets. And it is that which will make all the difference.

Everyone else is half-witted, rendered moronic through TV and lobotomized by the eternal Welfare State. They will suffer. But this last sentence should of course not be quoted. It is OFF the record as they say. And I will not even give a small coin (out of gold) to a tramp when he goes around begging with his small sign: “May I call upon your kindness, Ladies and Gentlemen, in helping a former paper salesman by giving a bit of change to eat and help me to remain clean.” These people are ruining French people, just as with the Russian loans, or the assignats, and with each devaluation… In short it is necessary to know history and fully understand that they do not support us. The people act as compensation for the rich (banks and the system).

That’s why gold is bought.

Gold is rising I am happy. Gold is falling I am equally happy because I can buy more.
A gold buyer is always happy:-)

… and the government follows their lead

By Mark Rogers

In recent posts I have looked at what money is, what underlies the knowledge economy and suggested the role of “de-development” lying at the core of the financial crisis.

It is therefore interesting to report on how ordinary Greeks have rapidly over the course of the last few years started building informal economies, part-barter, part-alternative currency.

As reported in The New York Times, October 2011: “‘Ever since the crisis there’s been a boom in such networks all over Greece,’ said George Stathakis, a professor of political economy and vice chancellor of the University of Crete. In spite of the large public sector in Greece, which employs one in five workers, the country’s social services often are not up to the task of helping people in need, he added. ‘There are so many huge gaps that have to be filled by new kinds of networks,’ he said.”

In Volos, a fishing port in Central Greece, an alternative banking system has been established based on something called a Local Alternative Unit: its value is at par with the euro and can be used to exchange local goods and services. Members even receive books of vouchers, proofed against forgery, which can be used like cheques. (This is reminiscent of the way in which in nineteenth century Hong Kong, cheques themselves were simply circulated as currency without ever being cashed!)

“In Patras, in the Peloponnese,” continues the story in The New York Times, “a network called Ovolos, named after an ancient Greek means of currency, was founded in 2009 and includes a local exchange currency, a barter system and a so-called time bank, in which members swap services like medical care and language classes. The group has about 100 transactions a week, and volunteers monitor for illegal services, said Nikos Bogonikolos, the president and a founding member.”

The most significant aspect of the story is how the Greek government has responded: legislation was passed in the last week of September 2011 which recognised these “alternative forms of entrepreneurship and local development”, giving these groups non-profit status. In the light of the severity of the Greek position, it could not very well do anything else, but that is not where its significance lies.

Extra-legal economies are the time-honoured way in which poor and impoverished peoples have banded together to build an economy from scratch; eventually, the pressure on the legal economy, in 18th Century Britain and throughout the developing world today, which largely exists to protect the monopolistic privileges of the guilds of yore and the professional castes and trade unions of today, forces it to give way: monopoly privileges are legally rescinded, and legal protections extended to those in the extra-legal economy so that they can operate beyond the immediate locality (i.e. safely do business with strangers) and realise their assets.

It is this that the Greek government with admirable perspicacity and speed has enabled for its beleaguered citizens. The Greek government over the decades has acted as one enormous vested interest, which coupled with the incredible way in which Greece was permitted to enter the euro, reduced its citizens to these bare economies. But is there the seed of something else?

There is here the potential to wean people off the whole concept of welfarism: “‘The most exciting thing you feel when you start is this sense of contribution,’ [said Maria Houpis, a retired teacher at a technical high school and one of the Volos group’s six co-founders]. ‘You have much more than your bank account says. You have your mind and your hands.’”

An occasional series of curiosities of Gold, its history and ideas about it.

By Mark Rogers 

The Ancient Greeks had no gold.

So much has come down to us from the Ancient Greeks – philosophy, history, poetry, architecture and sculpture – that it is often forgotten that the Greeks were a relatively poor people for much of their history. What we know of the ancient Greeks was made possible by the defeat of the Persians, firstly by the Athenians at Marathon in 490 B.C., and then again in 480 B.C. when a large Greek army beat the Persians at Salamis. Without these defeats, the Greeks would have been subsumed under the despotic Persian Empire – with incalculable results not only for Greek culture but the whole of European history.

These defeats were the triumph of an agrarian and small city-state civilization, a people who struggled in fierce competition even to subsist on silver, over an Empire which at the time of its defeat had amassed a considerable proportion of the known world’s available gold; the robust determination of the Greeks not to vanish into an oriental despotism secured their victory over such a wealthy power, backed by gold.

Until then, gold had been centred on a territory bounded by Egypt, Asia Minor and the Black Sea; henceforth, gold was to move steadily into Europe, first through the agency of the Greeks and then the Romans.

But the Greeks had no gold of their own; indeed, they knew so little of the sources of gold that they were inclined, out of a sense of awe, to exaggerate the fame and riches of ancient sources such as the River Pactolus: this was the most renowned source of gold in the ancient world. Its identity now uncertain, it then flowed down from Mount Tmolus in the highlands of Anatolia, bearing vast quantities of alluvial gold, which tended to be the natural alloy electrum, “white gold”, composed of random quantities of gold and silver. In spite of Greek exaggeration, these quantities were huge enough, providing a rich source throughout the Persian and later Greek periods. Upon this wealth of gold was created the kingdom of Lydia, the most famous monarch of which was Croesus.

His eponymous (”as rich as Croesus”) wealth had a considerable impact on the Greeks. He was a sophisticated Hellenophile who went to great, indeed munificent, lengths to conciliate Greek feeling by the gold which he offered to the shrine of Apollo at Delphi – that most important of all the religious cities in the ancient Greek world, renowned for its political acumen and internationalism. Herodotus recounts that he  not only gave cups of gold and couches covered in gilt and silver, but also an immense quantity of ingots:

“He melted down a great quantity of gold and fashioned ingots from it, making them six palms [i.e. about 18 inches] in length and three in breadth, and one palm high; and their number was one hundred and seventeen. Four of these were of pure gold, each weighing two and a half talents [i.e. some 550 lbs in all]: the others were of gold alloyed with silver, weighing two talents each. And he also had made a lion of pure gold weighing 10 talents … and two mixing bowls of great size … of which the golden one … weighed over eight and a half talents. … He also sent the golden figure of a woman 3 cubits high … and dedicated his wife’s necklaces and girdles.”

Estimating that the ingots made of the alloy contained at least 50% gold then Croesus’s benefaction must have contained a minimum of 7,500 pounds of the yellow metal.

(Source for this article: C. H. V. Sutherland, “Gold, Its Beauty, Power and Allure”, 3rd revsied and enlarged edition, Thames and Hudson, London, 1969)

The worsening crisis in Greece has prompted savers to empty their bank accounts to exchange their Euros for Gold coins.
Concern is growing over the stability of the Greek banking system and of course the astronomic sovereign debt which is crushing Greece.
The Prime Minister George Papandreou may well have persuaded the parliamentarians to back further austerity measures and have won the vote from them but that will not change the resolve of the Greek people.
Greece would need 12% growth annually for at least 30 years to come anywhere near having the means to repay its debts.
How likely is that?
The Greek economy does not have the means to recover and the fact that they have secured the next gigantic loan from the EU and IMF changes little in real terms. This money will only payback the Banks’ debts and therefore not stay in Greece. Surely the only way to help the Greek economy is to inject some funding into it. The only winner in this situation is the Banks who’ll feed their greed for profits and the loan sharks of the IMF and EU who obviously take their cut of interest.
The losers are the Greek people who will still have an impossible sovereign debt blighting their future whilst falling below the poverty line from increased austerity.
On top of this the Government has agreed to prostitute the future of Greece to the lowest bidders who have the cash to buy whatever “good” state assets they have.

A decision that Greece will regret

Without a doubt this line of action will never save the Greek economy or start to rebuild some confidence for a decent future. Greece will stay in Debt for generations. The Greek people will never accept this and their strong protests are understandable. Headlines talk of a possible Greek default – Why? Greece has been bankrupt for over a year, since it first asked for a “bailout”.

The only route to recovery is to restructure the debts or simply declare the country bankrupt. This would be the best solution for the Greeks but of course they’re in a weak position and all recent decisions, including the political waffle and rhetoric, have been taken to secure the European banks that are hugely exposed to the Greek debt. Be under no illusion that the only reason for this action is to appease the power brokers that support the European Governments. The politicians including the Greek government don’t care one iota for the regular people of Greece and why would they because they are all sufficiently immune to the deepening crisis because their deep pockets are lined with personal wealth that removes them from harm’s way and any sense of reality or empathy with those suffering the effects.

The people’s retribution

The one way Greek people have of preserving and protecting their personal wealth is to opt out of the normal system and there is evidence that they have started to empty their bank accounts (maybe à la Cantona – see Eric Cantona’s French Revolution).
Firstly they are taking retribution on the Banks by weakening them and also showing their distrust for reckless, uncaring institutions.
Secondly they are storing their wealth in something tangible and much more reliable than invented currency which could devalue or collapse anytime – they are buying gold coins as they did during the Second World War because they know that this will maintain real value and purchasing power through the difficulties ahead.
Here is some evidence provided recently in the Financial Times by Kerin Hope

ATHENS — Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks.

Pledges by socialist Prime Minister George Papandreou that his government would “save the country” have been widely discounted by the public. However, parliament gave him a vote of confidence late on Tuesday night. The socialists have a six-seat majority in the 300-member house.

Sales of gold coins have soared as savers seek a safer and fungible source of value.

“When the global financial crisis started, our sales of coins to investors overtook bullion for the first time,” said Harry Krinakis, at Sepheriades, a Greek precious metals trader. “Now the sales ratio has reached five to one.”

Tomas, a computer technician, has exchanged his euro savings for gold coins: “I keep them at home just like my grandmother did in the Second World War.”
Monthly bank withdrawals were running at E1.5 billion-E2 billion in the first quarter. Last year, depositors withdrew E30 billion, equivalent to 12.3 per cent of total savings, according to the central bank. Greek deposits worth an estimated E8 billion were transferred to banks in Cyprus in 2010. But the flow has dried up this year amid fears that Cypriot banks could suffer contagion.

Andreas, a supermarket manager, transferred the family savings to Munich earlier this year. “The Swiss banks aren’t interested unless you’ve got several hundred thousand euros,” he said.

“We can’t trust the politicians to get us out of this mess [and] have to protect our families,” said Sakis, a garage owner, at an anti-austerity protest in Athens’ Syntagma Square. “A bank collapse has got to be in the cards.” He added he had withdrawn his savings and placed them in a bank safe deposit box “for security. Who cares about interest right now?”

Others put their savings into land when prices fell after Greece’s first European Union-led rescue last year. Angelos, a software specialist, bought a neighbour’s olive grove. “I grabbed the opportunity,” he said.
“A year ago I wouldn’t have considered making such an old-fashioned investment.”

It is no accident that other European countries, particularly Germany and France, have experienced dramatically increased investment in gold coins during the last three months. In France investors own more gold than the Bank of France and transactions in coins have increased by 35% (source AuCoffre.com) since January. These countries have aan historical reference to gold coin investments and their benefits so it is no surprise to witness such an increase during periods of crisis. In fact one can determine the “temperature” of concern from this rising activity and people are seriously concerned about an impending crash on the horizon that will have global significance.

Countries like the UK are rather slow on the uptake and the gold investment market tends to be reserved for the extremely well-off and well-connected. What a shame so many people are misled by false information to detract them from participating or they are just ignorant of the facts.

Anyway their loss is someone else’s gain and come the day they will be left holding bits of paper good for burning while their European neighbours use their gold coins to pay for provisions and ultimately survival!

Remember that the signs of crisis were ignored by myopian political rhetoric pre-2008 leaving millions of ordinary folk open to its consequences. The signs of crisis have been with us ever since and still they pretend all will be well and their policies are “working”.

2008 was just the prelude and the worst is yet to arrive.
Be warned and be prepared or once again you will be hung out to dry!

An investment in gold is a survival kit for your future.

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!

“A black swan is the illustration of a cognitive bias (error in decision-making or of behaviour adopted when faced with a given situation).

If one encounters or observes only white swans, one will quickly deduce in error that all swans are white and that is what Europeans believed, for a long time, before making the discovery of the existence of black swans in Australia, in the 17^th century.

In point of fact, only the observation of all existing swans may give us the confirmation or invalidation that these are indeed still white but taking the time and means to observe all swans on Earth before confirming that they are all white is just not possible.

It is thus preferable to make the hasty assumption that they are white, in the expectation of seeing the theory dropped by the observation of a swan of another colour.

Thus we create arguments by starting off with incomplete information, which leads us ending-up with false certainties.”

What is the relevance of this story to the economy and your investments?

Quite simple really. Read on and observe the trend emerging.

- The University of Texas uses gold for its cash-flow….
Important information that has gone unnoticed is that the University of Texas has just invested approximately 1 billion of its cash-flow in gold. You will find below the article by Bloomberg.

The Board members see gold “just as another money but one which cannot be devalued by an additional printing of notes”.

Interestingly, they asked to take delivery of their gold – 6,643 gold bars,  which is stored in a New York vault because of the fear of a Comex paper gold scam.

It should be noted that this university also trains economists.
So what should one think of such a strategy?  Only that more and more private individuals and institutions are starting to have increasing doubts on the continuity of the global economic system in its current make-up. It also suggests that those in the know prefer hard physical assets to “paper promises”.
Yet “experts” previously thought that this was unimaginable and impossible!

.

But that is not all. These last weeks have been exceptional in terms of alarm signals.

- Two year rates for Greece exceed 25% for the first time ever. It means that Greece is perhaps only a few days away from a re-scheduling of its debt over which inevitably world banks, starting with French banks, will ruffle a few feathers. For information purposes, it is the Crédit Agricole which is the most exposed to the Greek risk, with all banks being nevertheless concerned.
Yet “experts” previously thought that this was unimaginable and impossible!

- The monitoring of the US debt by the credit rating agency Standard and Poor’s,

For those who have not yet understood or who really do not wish to understand, the US economy remains the leading global economy. A US default in payment would lead the world into an economic chaos without precedent. Inveterate optimists tell us that they do not believe in it. The very same people who did not believe in a seism of a magnitude higher than 9, followed by a tsunami of more than 15 metres in height, coming to destroy 6 reactors of a nuclear plant… and which exposed a whole country to radiation if not making people tremble with fear over the prospect of the entire contamination of the Northern hemisphere.

Yet “experts” previously thought that this was unimaginable and impossible!

- So what else have we learnt? –  that the Morgan Stanley Bank has just made a voluntary default in payment of $3.3 billion on a 32 storey tower building which it owns in Tokyo. This repayment failure is significant because it was the largest of its kind in Japan and marked the latest fallout from a series of highly leveraged investments by Morgan Stanley, one of the most aggressive investors in worldwide property markets before the global financial crisis In short their loss seems of little importance to them because the value had plummeted and they just had to get rid of this building. What can be the motive of such a decision which is a historical first for this “venerable” institution?

Yet “experts” previously thought that this was unimaginable and impossible!

- To this we can add that CDSs (Credit Default Swaps) currently reflect an anticipation of cancellation of debt of some European countries able to reach 75% (CDSs act as “insurance” against the risk of bankruptcy).

Yet “experts” previously thought that this was unimaginable and impossible!

- And then there is China which wishes to diversify its foreign-exchange reserves and significantly reduce its holding in American dollars. Indeed, the depreciation of a currency is a means of refunding one’s debts only in devaluated monopoly currency. But it is done at the cost of the currency holder. Our Chinese friends no longer seem to want to be the guinea pigs and are looking to diversify into the Euro.

Yet “experts” previously thought that this was unimaginable and impossible!

- More dramatically, Mc Donald’s (the restaurant chain) launched a big campaign to recruit  50,000 jobs in a single day. Pathetic scenes showed to what extent the situation of many American families is disastrous. Almost 3 million people turned up to get work, some even camping the day before just to be sure of being interviewed. The situation simply turned to drama in Cleveland (click here to see video ) when a crazed driver ran over 4 people in the car park!.

Yet “experts” previously thought that this was unimaginable and impossible!

- And finally, on a lighter note, after the initiative by ex-footballer Eric Cantona even Mayors are having a go, at least the Mayor of the city of Ghent in Belgium for one, who has just taken  the decision to withdraw his funds from two banks, namely Dexia and KBC, in order to protest against the policies of these two institutions and has invited all cities to follow his example…

Yet “experts” previously thought that this was unimaginable and impossible!

It is now obvious that more than ever before how vital it is to adopt a particularly defensive investment strategy.

I invite all private investors to take their potential profits out of the share market and to quit the financial markets. Particular caution is advised with regards to all the securities of insurance companies and banks.
A share in gold of approximately 10% of the total financial assets is to be seriously considered in order to protect one’s financial assets.
It is also strongly advised to get out of bond investments, except from a speculative point of view, starting first with Euro funds in life insurance contracts. These Euro funds are overwhelmingly made-up (approximately 75%) of sovereign debt, i.e. government bonds. Imagine how vulnerable they are to default and complete collapse.

… and remember this is NOT impossible, unimaginable or unthinkable – it is highly likely to the point of being inevitable.

I do not know if you have noticed, but I find that lately we can see more and more black swans.

Yet, as everyone knows, swans are white…. until proved otherwise.

Translated and Adapted from an original article by Charles Sannat

In last nights website update resistance was listed at 1434-1444 and the high so far today is 1434.50 —- support was listed at 1419-1424 and the low so far today is 1425.50 —

London Gold Fix $1433.00

In the early action today, April gold has managed a rise above the prior session’s high but has reached the key 1435-1444 price area of resistance this week. This is the key area to watch this week. A close above 1435 would add to the bulllish potential towards 1460.

Reports that the Japanese disaster might end up costing as much as $300 billion. However, the upward track in gold and other commodity prices might be held back because of fears that containment of the #3 reactor at Fukushima has seen a setback overnight as commodities generally don’t like to see developments that could end up slowing the economy.

Talk that a Chinese gold company might be looking to acquire gold mines in other countries was viewed as favorable in today’s trade.

The Fed’s Fisher is a scheduled to speak today and yesterday he generally sounded a hawkish tone. The US Fed Chairman BERNANKE is also scheduled to speak just ahead of mid session today and some traders think he will largely countervail the dialogue from Fisher.

Gold will garner some support from a bullish price forecast from a gold company executive, who suggested that gold might have a “couple” more years of upside action before a top is formed.

While equity markets in Asia were mixed during overnight trading, stock indices in Europe are generally weaker this morning and the US stock market is a bit lower this morning. Home sales plummeted in USA — down 175 from January.

The Dollar is stronger against most of the major currencies during overnight trading, although posting a loss against the Yen. With the US dollar on the brink of NEW LOWS for the year and at a key chart point, we couldn’t help noticing that Portugal is in the NEWS headlines and the “spin” is that Portugal may be the third country that will ask for a Euro bailout. This has caused a Euro pullback and a BID for the US Dollar today. Coincidence ? Who knows anymore, but the US Dollar is higher in trading today. The Prime Misister of Greece also stated that any restructuring of Greek debt would bring on collapse of banks in his country.

Coalition air strikes have grounded the Libyan air force, but rebel forces have been unable to take advantage as fighting has reached a stalemate.

Going to the chart – Gold is up against key resistance today at the 1435 area — and this is probably the most important area for this week. A close above 1435 will favor higher towards 1444. Gold has attempted to move above this 1435-1445 area since Feb 28th so it is approaching decision time. The price pattern continues to show “capping” as Darth likes to call it —- but they can only hold it for so long and it looks like a decision point is coming in on the short term today or tomorrow. The upside still has the advantage but keep in mind that BERNANKE is scheduled to speak today and that can cause some choppy action.

Resistance for the remainder of the day is 1435-1444 and support is 1422-1426. The trend remains up.

In summary — but gold and silver are at key price points —and a close above these levels will keep the favored short term uptrend in place.

by Bill Downey

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Maybe you think it sounds extreme but daily we move closer to the real possibility that a major fiat currency such as the US Dollar or the Euro could collapse in the blink of an eye.
The mounting economic pressures mean that eventually something will have to give.
Inflation is rising.
Oil prices are rising.
Debt is unresolved.
Property prices are falling.
Unemployment is rising.
The cost of living is rising.
Wages are stagnating.
Raw material costs are almost out of control.
Energy costs are rising.
Growth is negligible (and most estimates are over-egged by floundering politicians)
North Africa and the Middle East are unstable. The knock on effects are pure guess work at best.
What will happen next?
What will be the net effect of all these things stirred up with a huge dose of uncertainty?
It’s like a tinderbox to start a Finacial Armageddon.
Just one single event could trigger an unstoppable domino effect that would lead to financial meltdown.

Don’t believe me?
What if Greece cannot keep to the rescue plan imposed on it? What if it defaults? Will a whole country go broke? And then what?
What if the Eurozone feels the knock on effect or what if another bigger Eurozone country requires a bailout?
Any of the major currencies could be put under extra pressure resulting in a run and a collapse and at any time.
The US dollar is a benchmark for the world, for oil prices, trade, banking etc.
Is it conceivable that this , the most important currency on the planet as we know it , could collapse.
Take a look at this video and decide for yourself. Impossible, Possible, Probable or highly likely?

This is a timely reminder to the fragility of wealth stored in currency or as a paper promise reliant on the success and existence of a large institution.
Wealth needs protection for survival and the acquisition of valuable physical assets that can survive a crisis is the only way. No wonder Central banks and the biggest fortunes on the planet are stocking up on Gold!

Time is running out for the dollar

Gold is linked to the US dollar and in a simple equation strong dollar = weaker gold, weak dollar higher gold price. The future strength of the dollar depends on the economic prospects for America and they are not good, therefore the dollar will weaken and gold strengthen. On top of these there are moves afoot to remover the dollar from its status of reserve currency which to date has been a factor supporting for the dollar.

Earlier I reported that Europe can no longer support its very expensive social welfare programs and the shrinking working population will not be able to support the growing pensioners with there over generous pensions and of course the ugly head of unemployment.

I also indicated that the US viewed the European situation with derision as its old fashioned ideas dictated that its time was over.  “Judge not lest you be judged” as written in Mathew 7.1 is very applicable to the American situation.

The prosperity of the USA after World War II led to an explosion of population  who were labeled the  baby boomers  and they total some 78 million. These now approach retirement and will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars.

The U.S. is bankrupt, tax, retirement benefits and health care are in a mess

Neither spending more nor taxing less will help the country pay its bills.  With a $4 trillion fiscal gap the US have three courses of action or a combination of the three – reduce significantly the benefits of the “baby boomers” – huge tax increases – print more money, which is the current policy.  Realistically printing money needs to be supported by the reduction of benefits and increases in taxes.

Additionally last month the IMF has effectively pronounced the U.S. bankrupt by stating  “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

Rather than be judgemental of Europe the U.S. should look at themselves and realize they are potentially in a worse financial state than Greece

For some time now both Russia and China have been pushing for an alternative to the dollar as the reserve currency. While the West has been forced to sell  off assets to compensate for loss or to pay off debt, cash rich China has been buying assets, in particular gold and using those assets as a form of currency to offset the increasing fragile dollar. This is all part of a long term strategy to boost their own currency the Yuan to become an internationally accepted currency.

If that was not enough in the last few weeks the United Nations report “World Economic and Social Survey 2010: Retooling Global Development” called for the creation of a new global reserve currency to replace the U.S. dollar as the single major reserve currency.
“The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” it said.
It suggested that the reserve should be based on  the existing  Special Drawing rights  (SDRs) created by the IMF to supplement member countries reserves: but with a new basket to reflect the changing weight of global economies  and include emerging countries currencies ( the Yuan) thus downgrading the importance of the dollar.
“To summarize, reducing dependence on the dollar through increased use of a created currency made up of a basket of currencies such as the SDR could be a significant step towards greater stability in the world economy,” the report concluded.

Compare the dollar to the British Empire, once the greatest the world has known, which  has now out lived its usefulness and faded into the memory of once what was. The dollar has not yet fallen that far but it is well on its way and gold will become more important and stronger as a result.

Maurice Hall

We need to go that way to avoid the rocks

The European Union is facing an economic and political crisis that threatens the single currency, exposes greed, bureaucratic strangulation, unsustainable social welfare programmes, raises questions on protectionism and the very fabric of the free market. If that was not enough, the weakness of its leaders becomes apparent and two of the giants France and Germany support a different solution. There is a very English phrase “ to muddle through” and that is what European leaders have been doing and hope they can continue doing so as not to put emphasis on radical change that can upset the apple cart either internally or externally. Muddling through depends on growth.

The European Union is still the world’s largest economy supporting over 500 million people of diverse race, cultures and languages. However, the EU is facing both an economic and a political crisis as governments and companies cannot easily borrow money and the euro wobbles. Initially the weakness of the euro was shrugged off as speculation and Anglo-Saxon conspiracy, but the real problem is that social welfare in many countries is so protected and expensive that it is strangling the economies. Europe has to grow just to maintain its welfare systems and innovation just to pay for increasing old age pensions and unemployment is not inspirational. Of the 27 countries in the EU only Poland managed positive growth in 2009, while it is true that recently many have now turned positive, but it can only be described as mediocre. Outside of Europe the perception is that the protectionist policies for citizen welfare indicate that there is no longer the guts to tackle the problems. A sick Europe benefits nobody and arguably, were it healthy, then the worst of the global crisis would be over.

It is the courage of Europe’s leaders to initiate structural reform that comes into question. As Jean-Claude Juncker, prime minister of Luxembourg, said memorably in 2007-  “We all know what to do, but we don’t know how to get re-elected once we have done it.”  Many of Europe’s problems stem from election seeking misallocation of public spending with years of subsidizing powerful interest groups, increasing civil service payrolls, early retirement schemes, job protection and unemployment benefits. Between 2005 and 2030 the working-age population of the European Union will shrink by 20m, and the number of those over 65 will increase by 40m. In Belgium only 35% of citizens over the age of 55 work. It is almost impossible to sack a person in Spain, great for those in work but for the 40% youth unemployment that it generates, it is immoral.   European leaders underestimate the realism of the voters and proposals in the UK and Netherland to raise the retirement age to as high as 70 have met with moans but no angry protest.  In France, according to an opinion poll proposals to increase the retirement age were unjust and did produce the usual French protest, few disagree that the current state pension scheme faces insolvency.

The single market does not truly exist and the EU is almost a third less productive than its American counter parts in services, because countries hide behind national barriers and so do not gain full economies of scale. Anyone who has worked in a multi national industry knows how difficult it is to get policies implemented, products introduced or to comply with a European directive that has been interpreted 27 different ways into national law. No company with any sense would open a factory or an office in France, Italy and some other EU countries, where protectionist employment laws could kill that company. I personally know of a case where a multi national company was trying to tighten its purse strings to remain solvent and Italian law forced that company to increase the salary of Italian employees and maintain periodic pay rises. In desperate times protectionism has raised its head. In France with Mr. Sakozy suggesting that French cars for French drivers should not be made in former Eastern bloc countries and the EC had to intervene to stop Germany offering incentives to a consortium proposing to buy the failing Opel company, to keep the German factories open to the detriment of more cost effective plants elsewhere.

This crisis has the ability to pull countries closer together or pull them further The key is Germany where they are furious that they have to bail out other countries until they realize that they created the situation in the first place. Germany companies have done very well and the economy has grown with exports particularly to Greece where they have risen by 130% in the last 10 years. So how did Greece pay for these exports. with loans from German banks. Therefore, it is essential that they and the French to a lesser extent rally around the single currency as they are sat on a large amount of southern Europe sovereign debt. That has been the pattern the industrious north has done well but those around the Mediterranean have been affected by the sun leaving the idyllic life but unable to pay for it. Great for a holiday but not for life, in fact Greece has become the most obese in Europe where once they had one of the healthiest diets.

The alternative approach is to a number of separatist theories with retraction from the Euro or a North South divide where the super efficient North have a strong euro and the languid south another. Which would France join?

Practically what can EU leaders do and which direction can they take and what have they done so far?  To date there have been last gasp austerity measures that may well in the short term pacify the bond market but is a risky course of action. These measures will inevitably lead to a weakening growth rate and increased unemployment. The same arguments were the difference between Labour and the coalition in how to solve the UK’s financial problems where at least there is time as the UK’s debt has the longest due date of all in Europe. Now Spain, Greece and Portugal face a log hard struggle to rebalance their economies

Markets have lost faith in the euro and the hope was that the economies of the 16 countries that use the euro would converge. The struggle to regain creditability with markets has lead to a divergence on the course to be taken by Germany and France. Germany has gone for stricter rules and discipline on borrowing and spending, sanctioning governments who fail to toe the line to the extent of freezing funds for EU mega projects and suspension of voting rights. The French favour a system of redistribution from richer to poorer members with some fiscal and social harmonization.

Germany’s proposals are unworkable, the reaction to losing voting rights is unacceptable particularly to the former communist countries where there has been such hard work to lead to democracy. Stopping funding on EU mega products where they cross boarders could penalize other countries. To redistribute, as the French recommend, to save the euro would require an equally unacceptable step towards political union.

What is the likely outcome?. It is likely to be a  form of compromise with temporary rescue packages, informal and semi formal discussions and agreements – in other words a muddle through.

It is possible for the EU to agree and force through essential legislation when it is a matter of survival. A key demand to European business is an EU wide patent that has been stuck for years over the status given languages in Spain and Italy. On 1^st July the EC forced this through to be valid in all 27 countries. Another example of the power of the EU market is where Germany was told it could not spend taxpayer’s money to protect Opel jobs in Germany without the same support to other countries. It is possible that the people understand the need for a free market economy better than their leaders where in a recent pole 73% of Germans and 67% of French said they were better off in a free market. Interestingly a greater percentage than in the middle of the boom and greater than America. We have already mentioned the need to pay for pensions and the less than feared reaction to raising the pension age. In the countries brought to the brink of disaster, the civil unrest was much less than expected and dominated by public sector workers with safe jobs. The leaders should have courage as this crisis gives the excuses for radical reform and there are hints that citizens are prepared to take there medicine.

However, the best bet would be a muddle through and hope for the growth that is needed to sustain it. An opportunity lost.

Maurice Hall

During World War II the British sovereign was the only tangible and reliable currency in Greece and they were hoarded and hidden in every conceivable place. A girls dowry would often include a cache of sovereigns.  They were parachuted in to fund the Greek resistance to the German occupation. War is a crisis but now the Greek population face the crisis of being unable to repay its debts and once again they turn to the sovereign as the currency of choice.

It is remarkable and a tribute to the sovereign that it remained legal currency long after the war due to the unstable drachma until eventually in 1965  the Greek government placed restrictions on trading resulting in many hoarders cashing in their stocks. Even so at the slightest hint of uncertainty, and there have been many, the Greeks turned to their favourite foreign gold coin.

Greece has not really had a true period of financial stability for decades and markets are wondering whether they will default on repaying their debt given past behaviour  so the uncertainties  are understandable. The population is in panic resorting to strikes and riots and fear that Greece may leave the eurozone.

Once again  have returned to their known safe haven, the sovereign, as a hedge against financial collapse causing the the demand to increase year on year and the price to rise dramatically. For weeks citizens have been queueing at Athens central bank to buy sovereigns and have been prepared to pay the highest prices. It is estimated that in the first 4 months of the year 50,000 sovereigns were sold legally and as the demand increased so did the black market  and at least 100,000 were sold illegally with price up to €300 (£252).  The uncertainty and fear has driven people to pay a huge premium of almost 40% over the current value of the gold content to protect their wealth.

Without doubt the British sovereign has been the gold coin that has world wide recognition as mechanism for survival  whether it be a financial or physical crisis – see our article “Gold sovereigns open doors”

Maurice Hall