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November 23, 2004

Gold = Wealth :: Cash = DEBT!
by Alex Wallenwein

You can hold a lighter under a one-ounce gold bar for hours, or until it runs out of gas. Nothing will happen. Now try the same thing with a bundle of $100 bills.

That's an apt representation of the permanence of gold wealth versus paper-wealth. (It is also what the current US administration and the US Fed appear to be doing to the dollar right now.)

For some very strange reason people think that having a lot of "money" means they are rich.

If they only knew!

What they are missing is that what goes under the name of "money" these days is nothing but debt piled on debt. The only reason people with money think they are "wealthy" - is that the law dictates that you cannot refuse this debt in "payment of all debts, public and private."

So they get to live like people of true wealth.

Who pays for that? The entire world is paying for that by increasing its risk of a total financial meltdown.

Indeed, thanks to what is know as "legal tender laws" (laws by which the government declares that paper slips with certain ink patterns on them can be substituted for real money without actually being lawful money themselves) people can actually buy things with paper, and get to call what they buy "their own." But that doesn't change the fact that what they earned and what they used to pay for those things is nothing more than evidence of a debt.

And that debt can never be repaid.

It's a strange thing to notice that, despite the old maxim that "the law never lies," the legal tender laws do lie, in a sense. For, even though the law calls paper-cash a "payment for debts, public and private," common sense tells you that debt can never be payment for anything - except maybe in some twisted legislator's or world banker's mind.

But that's how twisted the world of money has become. Ever since bankers decided to do Karl Marx' bidding (or maybe he did theirs?) and helped to utterly debauch the world's currencies, this is how things have been.

Bankers accomplished this initially through the institution of fractional reserve banking, and secondarily through divorcing the money concept from any notions of intrinsic value whatsoever. But lest we blame our problems exclusively on others, we "the People" must acknowledge that the ultimate factor in helping them accomplish this was our own laziness, ignorance, and a totally misplaced trust in elected officials.

The definition of money includes three functions: money is said to function as (1) a unit of account, (2) a medium of exchange, and (3) a store of value.

Modern fiat creation and management has utterly destroyed money's store-of-value function and replaced it with - a legally enforced lie.

Want a to know what Karl Marx meant when he called for the "debauching of all currencies"? (One of his favorite planks in the Communist Manifesto he helped write.) Here it is. You are staring it right in the face. It's a world-wide "fait accomplis."

Do you believe that Communism is dead? It is - in a way. But actually, it is not dead. It has only been discarded in its original incarnation of the same name because it is no longer needed. Why not?

Communism is no longer needed Because it has fulfilled its only real purpose: the utter debauching of all currencies in circulation!

A very good argument can be made that all of the other so-called aims of communism were just a ruse - red herrings to ensure that people's attention was turned elsewhere while the real fraud happened right under our very noses. And now it's too late

- or is it?

Legal tender laws are the lynchpin for the subversion of the money concept by organized officialdom. They state that you cannot refuse to accept paper-cash in return for something you offer to sell, or in settlement of a debt.

But what they do not say, however, is that you cannot accept anything else in payment if you and your buyer agree, or if you and your seller agree (if you happen to be the buyer in a transaction.) So the door to real money is still wide open.

And that is the way out of this conundrum.

The Way Out

If you and the other party to a transaction agree, you are free to accept or offer whatever you want in the exchange. This is called the right to contract, and it is constitutionally protected - at least here in the United States.

As the dollar completes its inevitable descent into the netherworld of official shenanigans, you and I are left to try and figure out what we can do to protect what we have worked for all of our lives. If we stay within the confines of what is considered "normal" and "safe" by most investors today, we find ourselves up a certain creek without a manual propulsion device - and what will happen to us will be neither "normal" nor "safe."

Just consider the following:

1. Retirement funds already had to be bailed out by "the gub-mint" - that means, by your tax dollars, and this will become quite a regular occurrence in the years to come.

2. Interest rates are so low now that people who "save" have become the butt of jokes at the water fountain at work. "Stocks and bonds is where it's at, buddy!" is the usual mantra and, if you are a little bit more nimble than most, maybe some currency trading or other forms of speculation will be what occupies your mind.

3. As a result of an unprecedented, credit-fueled real-estate boom in the past decade, real estate is enormously overvalued these days unless you can buy it at fire sale prices in an area where even a recession will still see considerable development.

4. Stocks have never re-touched their high from late 1999, and continue to knock their head against a declining ceiling.

5. Long bonds are in danger of total subversion by our esteemed Fed governors who have vowed to buy long term US debt instruments (treasuries) into eternity if conditions should require it (i.e., if already low interest rates, paired with reluctant demand, make further credit-binges impossible) . As a result, the Fed must buy long-term treasury debt to put a lid on long rates so that the economy can be prevented from going into cardiac arrest.

The latter is called "monetizing the debt, which is nothing new, except that it hasn't really been done on a large scale where long term treasuries are concerned. If the Fed really does that, the money supply will balloon out of proportion (the money to buy this debt will simply be "printed" - created out of thin air and then loaned to Congress in return for interest payments).

In the face of a shrinking or stagnant economy, this will cause price inflation across the board. Unfortunately for our banker-geniuses, that price-inflation will undermine real demand for bonds (inflation eats up the fixed future returns on treasuries as the currency's buying power decreases over time), which will force the Fed to buy even more bonds if it wants to succeed - and that will drive this vicious cycle even deeper into the ground.

Add to that the by now famous "euro vs dollar" effect (international dollars returning home as the world dumps dollars and buys euros), and you have a very nice recipe for a US economic disaster. Let the whole mess bake in the oven of competitive currency devaluations, and you get a delicious lump of "recession pie" in record time.

It's literally a "passing of the baton" from the former world-economic engine (the US) to the new one - China!

Is it a coincidence that the new economic power house is still nominally communist? What a scathing irony it is that this nominally "communist " new China is currently a lot freer economically than we are here in the US - thanks to decades of intrusive over-regulation of all aspects of our lives in this country. (Did you know that communist China has had an income tax only since 1980, and still has no inheritance tax?)

After you carefully consider the alternatives that paper-debt instruments masquerading as "money" provide to the owning and saving and spending of real gold, please go ahead and make up your own mind.

While the power-cabals that surround and permeate international politics and banking subject Americans to the monetary version of Chinese water-torture (a painfully-slow death of your own currency), you have the means for escape at your disposal, right here, right now: a private, parallel, physical gold, silver, and maybe copper, bullion currency.

A Private, Parallel, Physical Bullion Currency

Yes, I know. You heard me say that before.

A few people are currently in the process of creating a system that will make it commercial suicide for merchants and service-providers to NOT accept either this new physical (or existing digital) private bullion currencies for their goods and services in the future.

Once a large chain store company does accept this private currency - actual physical gold and silver - from its customers, and once customers have an easy, safe, and most of all convenient way of exchanging their paper-debt into real wealth (not science-fiction, just a matter of logistics), a nuclear-style chain-reaction will be set in motion.

Before long, no merchant or service provider will be able to afford not to accept and offer this alternative. Soon, as the dollar keeps being inflated out of any semblance of value, people will demand to get paid in bullion by their employers, which will force employers (not by force of law but by the desire for commercial survival) to offer bullion payments to their employees. This can be done per online gold transfers to eliminate worries of getting robbed on the way home on pay-day.

Government fiat can then freely compete with real money. I know, I know. It will be no contest for fiat - but at least they will have a chance to prove that the theories they have so far imposed upon all of us by force of law can hold any kind of water.

If their theories are correct, then all of us "gold-fanatics" will have egg on our faces and the governments and bankers of the world can triumphantly (and at last truthfully) proclaim that their way is best. But if not, then they are out of the money-business and the freedom loving people of the world will be truly ".. free at last."

Will the forces of paper give up so easily, though?

Probably not. They will fight. They will crank up their propaganda machine.

They will make you believe that earning, saving, and spending bullion is "unpatriotic", that it amounts to "aiding and abetting terrorists" (an appropriate trial-balloon has already been launched when it was announced by all news outlets that Bin Laden promised "gold" to terrorists doing his bidding) or that people who use bullion are "tax cheats" because gold-cash can be hidden easier from the government than paper-cash (especially after the introduction of universal RFID tags in bank notes).

That latter one will be an exceedingly interesting debate, though, because it is becoming more and more widely known that the US government itself is and has been the greatest "tax cheat" in history - by deceiving people about the true nature of the income tax.

The forces of make-believe may also resort to outright force: confiscations, legal and administrative harassment, etc. - but so what? Since when has freedom ever been "free"?

Maybe in the past we could get away with sending our young ones into battle to stay free, but this "war" will be fought closer to home. It will be fought right in your living room where the TV blares, at the newspaper stand where headlines command obedience to a deceptive system, in the workplace where your co-workers will think you are nuts until they see their own stash of cash dwindle to nothing in buying-power (by daily comparing prices in cash vs. gold at the supermarket check-out counter.)

If we are not willing to incur that little bit of an inconvenience (after all, we are not sacrificing our lives in doing this), then we do not deserve to live in even a nominally "free" country. Maybe then we should just invite Fidel Castro to come in and rule us. After all, didn't he get the Nobel Peace Prize some years back? Communist dictators and dead Palestinian terrorist figureheads are all the rage these days, it seems.

But then again, maybe the world's central banks are much more pro-gold than they have let you and I suspect so far?

We know this much: If they had really tried to sell gold into the ground and "kill" it forever, if they really had such an aversion and such a lack of use for gold as they have tried to convince us during the nineties, they would have sold all of that "dead weight" many, many years ago.

But they did not.

In fact, all of them were able to hold on to quite considerable portions of their gold. Maybe they shifted it around a lot. Maybe the gold has changed hands from one group of central banks to others. And, even if they did sell it all: the more gold is in private hands, the better, in my view. Let "the basturds" eat their paper!

The Switches Are Set

Undoubtedly, the switches for a much lower dollar, and thereby much higher gold, have officially been set. The last bit of confirmation we needed for that was contained in Greenspan's remarks last week that other nations may not be willing to finance our deficits forever and may want to switch out of the dollar into another currency.

• The Russian central bank has announced that it's euro-stash grew from 10 percent to a whopping 30 percent of official reserves between mid-2003 and now.

• China says it wants to jettison dollar-assets and buy other assets. It has used some of its dollar-surplus to acquire Canadian gold mining properties of late.

• India, too, says it wants out, and India is super-rich in gold.

• Argentina has boosted ("diversified") its reserves by 40 tons of gold since the beginning of this year.

• The gold price in euro-terms show signs of taking off.

• Muslims have long advocated a return to gold. They now have the gold dinar in place. They don't need to buy dollar-debt to stay competitive with their exports as the Asians do - because their product (oil) has no competition.

• The Bank of Japan has allowed its officials to remark that they, too, want to shift more assets to something other than dollars.

• The ECB has so far resorted only to verbal intervention and has resisted the member-nations cries for lower rates to prop up their underperforming economies.

• The Chinese are moving closer to their WTO deadline for letting their currency float. They will likely do it in stages, so they are forced to start rather soon.

All of the signs are now pointing in the same direction. The question is:

Why?

Why is there all of this official agreement right now? It tends to make me somewhat suspicious.

• Is it because they want to shake out the dollar-shorts (and gold-longs) once and for all by making the trader-herd stampede right into this new trap and then reverse course, swallowing all of their anti-dollar (and pro-gold) betting-power?

• Is it because the world has agreed to let the dollar fall by the wayside?

• Is the US "in" on this game, or are they fighting it by pulling a Judo-trick on the euro?

• Is the US power structure just helplessly watching this process, and then trying to "save face" by faking agreement when they really have no other choice?

• Is this tacit agreement evidence that the euro's structural pro-gold nature is now coming to the fore as anticipated? (No, the euro is not "backed" by 15% gold. It simply values its gold at market levels rather than the stupid "official" US gold price of roughly $42.222 per ounce).

• Have the world's central bankers un-hobbled the gold price as a necessary (albeit painful) condition for being able to drive the dollar into the ground?

Questions, questions. These are hard questions to answer without more evidence where things are moving. But however that may be, currently at least gold is moving, and moving very fast, and in the right direction.

During last winter, gold shares were pulling the gold price up, then peaked first, and soon started dragging it down. So far this year, physical buying is still leading the shares. That tells me that this year's buying is far less speculative even though the acceleration is even steeper than last year's. Gold has cleared the formerly almighty $430 hurdle with nary a whimper of resistance.

And something tells me it will get steeper, yet.

The G-20 nations - incredibly including the Europeans - have just expressed the equivalent of 'no concern' over the falling dollar. We may see $500 gold before the year is out!

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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