Cheap Gold: The Bankers Unintended Gift

By: Alex Wallenwein | Mon, Jun 21, 2004
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Gold is the friend of "the great unwashed" (you and me). It is a tyrant only to despots - or to those who aspire to be such.

As noted by Professor Fekete in his essay on the gold-demonetization hoax, Former Fed Chairman Paul Volcker said it best - although he hardly appears to have appreciated the irony of what he was saying at the time.

In 1971, after Nixon took the dollar of the international gold-exchange standard, the G-7 nations ostensibly "de-monetized" gold. Volcker explained at that time that gold was "tolerated" only as long as it acted as a benign constitutional monarch, but was "dethroned" as soon as it started to act up as an absolute ruler.

Interesting, isn't it, that rulers want nobody and nothing to control them, while they want to absolutely control everyone else.

In other words, this is the age-old story of arrogant earthly rulers telling their subjects their own version of the first commandment: "Thou shalt not have other gods beside [us]."

Gold is indeed a terrible tyrant - but only to those who want to tyrannize others with impunity. In essence, the G-7 nations in 1971 were staging a coup d'etat against gold's legitimate economic rulership, i.e., its control of their endless inflationary monetary schemes.

In doing this, the monetary powers of the world arrogated to themselves the privilege of telling you and I what shall, and what shall not be, so-called "money." It is evident that this decree originally came from the bankers. It was carried out by their paid-for politician-henchmen under the hook of supposedly giving the State "unlimited borrowing power." Find out who is collecting the interest payments in this arrangement, and you will know who rules whom in this world of ours

Before 1971, that which we regard as "money" today was literally a promise to pay in gold. Now, as Prof. Fekete notes, what we are by law forced to accept as "money" is really nothing but a broken promise to pay.

Chew on that for a while, please.

In refusing to honor their payment obligation, and in getting their political lap dogs to pass "legal tender laws", bankers have substituted their own empty promises as the alleged "payment" of those very promises. Put in other terms, this is the same as a restaurant owner saying: "My promise to feed you shall fill your belly" - and then collecting real value from you for that "favor."

A promise is neither food in your belly nor actual value in your bank account. The trick that makes it all work for them is the fact that you and I really don't care - because they have rigged the legal environment in such a way that we can actually take one of their broken promises and buy "stuff" with it. That's their version of "manna from heaven."

If you are appalled at your leaders' lack of morality in creating this phony scheme by which they rule you and control your very life's savings, consider this irony:

In forcing you to accept a broken promise as "payment", and by forcing you to use it as such, they have given you an enormous gift, a literal windfall profit: You can take their worthless promises and simply buy that which they have tried to deny you in the first place: real value - gold!

As an added bonus, they have given you the gift of exceedingly cheap gold - by artificially jacking up the price of their monetary spawn through coercion and legal trickery. You can literally take advantage of this bonus gift in order to completely side-step the effects of their attempted tyranny. You can buy LOTS of gold with their empty promises. Here is the kicker:

If you do this, their "deception" works entirely in your favor - at their expense!

Some unintended "manna" from them to you - except that this one may ironically be from the real creator of manna - in spite of their best efforts. Think about it.

The problem is that we are too dumb, too conditioned, and too intimidated to take advantage of this wondrous gift

Are you still depressed when the price of gold dips?

You really shouldn't be - but you are. Why? Because you are not sure that the price of gold will climb in the near future. You are afraid of another long, drawn-out bout of "gold price manipulation" - and so you complain. You complain about the injustice of it all, but fail to see the unbelievable opportunity to buy more and more at virtual fire-sale prices. To say it in the words of a famous but often misunderstood middle-eastern wood worker of yore: "O ye of little faith!"

But you don't like faith. You want certainty. You want profits, riches, "money in the bank"- not a religion. You do believe in the superior monetary quality of gold, but you fear the machinations of your rulers.

The sad truth is that your fear is the very power on which your rulers build their empires. So, in order to dilute that power a little bit, here - once more - are some of the reasons why your rulers' powers are in truth waning - despite all appearances to the contrary:

If you are an American, please note that your rulers have completely overextended themselves. They themselves have borrowed too much - from you, from your neighbor, and from the rest of the world. They are like dope-pushers who have sampled too much of their own product - debt. They are as hooked as you are. You and other nations buy their treasury debt (an economic form of crack cocaine) like there's no tomorrow. If you and those nations ever stop buying their debt, your rulers end up in withdrawal pains of the worst sort. They may even get a heart attack.

The operative word here is "cold turkey."

If that happens, they must buy their own debt to keep long-term interest rates from exploding sky-high. If they do that, they explode the US money supply - since the only way they can "pay" for their own debt is by creating even more already broken "promises to pay" - out of thin air.

But the public (no longer just you and I anymore) is on to them now. The public knows that prices are rising everywhere. So your rulers feel the pressure to "do something about it" at the very same time as they feel an irresistible compulsion to dip even deeper into their own stash of dope. They are caught! Trapped in their own addiction game.

What to do ... what to do?

That's easy. Their recipe: just fake a phony economic "recovery" at home (by forcing short-term interest rates to emergency-level lows for an extended period) so people can feel more confident and keep buying cheap foreign goods. That will make the foreign countries that produce those goods become hooked on their export revenues from the US and force them to buy US treasury debt to keep their own currencies low against the dollar. In this way, long term interest rates are kept low here at home (because treasuries remain in artificial demand) and the relative value of the dollar is propped up - for the time being.

The problem on the horizon is this: Japan recently said "Nope, Homy don't play that" and slapped the little party hat off that child's head. (If you've ever watched the comedy show "In Living Color" on TV around 1990 you know what I mean). In doing so, the BOJ abruptly stopped buying US treasuries in March. Japan's own economy is now recovering - and the other Asian nations that got rich off the voracious US consumer are now the ones buying Japan's goods. It's no longer mainly the US. So the yen no longer has to be kept so low versus the dollar - which means they can allow the dollar to fall further.

Ouch!

That's one big former 'dope addict' who cleaned up its act already! What if others follow? Like China, for example?

Because of Japan's recovery, Japan's demand for imports is up, and it can thus take up some of the slack experienced by other Asian exporters if Americans can no longer afford to buy their stuff as a result of the falling dollar. If this keeps going on, these US monetary 'dope dealers' might just be out of business - and might be condemned to consume their own crack. Bad news for that broken promise we call "the dollar." What guarantees all of this to eventually come to pass (before too long) is the relentlessly growing US current account deficit. That thing just keeps getting bigger and bigger, no matter what the Fed, the administration, or anyone else does.

In recent history, against all economic 'wisdom,' we have seen that, if the dollar rises, the deficit grows. If the dollar falls - it grows, too.

Likewise, whenever the economy grew, so did it. If the economy shrank - is still grew.

If the US consumer buys foreign imports, that deficit grows. If the US consumer does not buy foreign imports (because he can't afford it due to high rates and too much debt) - it still grows (because then he won't be able to buy the more expensive American goods either, causing the economy and stock markets to dive, which means foreigners will no longer invest in the US to finance this deficit).

Can a sustained dollar short squeeze-driven forex rally bail your rulers out of this?

Nope.

The higher the dollar, the lower the COMEX paper-gold price will go at first, to be sure - but a higher dollar will only exacerbate the trade imbalance by causing US consumers to buy more foreign goods. And we already know what a mammoth trade imbalance does to a fiat currency.

The bottom line: Your rulers are, indeed ...

TRAPPED!

The only thing they can do is buy time, but they have 'bought' a lot of time already (on hock, of course, what else?) and time is getting more and more expensive as its supply gets shorter and shorter. To put it in economist slang: "The marginal (additional) cost of (each additional unit of) time 'bought' in this way approaches infinity."

What does that mean for gold? You already know what it means. So, don't get depressed by occasionally dropping or stalling paper-gold prices, please.

Instead, use them.

Buy more!

There is an old saying that goes: "You can tell a man's worth by who his enemies are." The same thing applies to gold. The worst enemies of gold are obviously the world's top bankers (with a few exceptions) and their law-making political henchmen. Those are the same people that force you to accept and use as payment their already-broken "promises to pay."

That alone should tell you the real value of gold. If it's a threat to them, it must be good for you. To them, gold is a 'tyrant' indeed. To you, it's a savior. The irony is that their futile attempts at deposing this 'tyrant' are making gold more available to you than it would otherwise be.


 

Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
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