Wall to All

Sometime stories of a sometime scribe who sometimes writes

QUANTITATIVE EASING

 

The Haynes-Wall Manual of Paupery

 

any underlined text is hyper-linked to further information!

24/09/2008: The sudden collapse of Lehman Brothers in August 2008, shook the denizens of London’s financial sector to the core. Billions were wiped off share prices overnight and tens of thousands of jobs were lost or compromised.

 (keep reading. This is for YOU!)

The mood in the financial front lines was dismal. Not only were bankers affected but, in downstream activity, people all across the capital felt the effects of economic meltdown at once. Lehman Bros. was an investment company which had been a huge player, lending to our high street banks and to a great extent controlling the financial market.

Not only did Lehman employees lose their jobs but thousands of individuals offering services to said employees lost a livelihood in a classic ‘Domino' effect. A fitness specialist who ran aerobic classes for employees at the bank, had his monthly income drop by £200 overnight; his car was not paid for; he had a large mortgage. A tailor with many clients working at Lehman’s lost over a hundred customers overnight.

Many small businesses which operated on credit were never paid! Even those who didn’t own businesses (or did not even work in the "city") were affected by the collapse of Lehman’s. Credit suddenly became harder to come by or unavailable. High street banks had no money to lend. Mortgages became very difficult to get as banks were no longer willing to take risks. Belt tightening began to happen all over London and the effect of this was felt out in the shires. The fear was that this was the start of a down-turn. However, by judicious use of smoke,  mirrors and Chinese labour, the UK government managed to hoodwink its citizens.

 Well! To a certain extent anyway.

 https://research.economyandmarkets.com/X195R731

  (Harry Dent is neither a J.K.Rowling nor a D.Adams character!)

 

 The Americans have been muddling money for decades. 

 

15th August 1971, President Nixon decreed that the $US (dollar) could no longer be redeemed in gold anywhere on earth. Up to that date and back to 1933, $35 in paper currency dollars could redeem 1oz. of gold on international markets. Mostly in fact almost exclusively such 'redemption was in the gift only of governments and what are termed 'financial institutions'. (Lehmans was a 'financial institution'!)

 

Before 1933, the dollar was valued at 1/20oz of gold. A $20 bill could buy a “Golden Eagle” which, for all practical purposes, contained 1oz of gold. In 1933, the US called in all the gold, gave the people 20 paper dollars per ounce of gold surrendered and then devalued the dollar to 1/35 oz of gold by decree. At a stroke, the right of a US resident to cash in paper for gold on demand was removed.  Nixon’s 1971 decree extended that worldwide and since then the entire world has effectively been on a ‘fiat’ paper money system.

Paper money is not redeemable in gold or silver in any country on earth. Notes can be swapped for other notes or converted to another paper currency and those notes are worth only the paper they are printed on and sometimes not even that.

The word ‘fiat’

is Latin for

 ‘belief’... or... ‘trust’.

With the whole world on paper, each country relies on its own and other economies being trusted globally.  Such trust is being tested in the 21st century and the waters are largely uncharted.  However, what can be honestly stated is that, since 1971, one global financial crisis after another has occurred entirely as a result of paper money systems. 

Your money is worth no more or no less than your trust in the economy that prints it! Any country moving to a ‘fiat’ paper currency, eventually prints more and more paper until it becomes worthless. Think Zimbabwe 2008 and 2016. Think Greece 2010.Think UK 2018?

 Click on this hyperlink for a laugh.

 UK 2017

 Total Bollocks.

 UK 2017

 Reality Starts Here

The UK National Debt is heading for £5trillion

 

written as ... five million million pounds...

 or

£5,000,000,000,000

 

and is expected to pass that figure

 

before 2017 is out. 

 

Mainstream UK media headlines Dec.2015 were reporting fake news  

on Britain's record national debt, which they said had passed £1 trillion.

The real news was much worse.

the real national debt is heading for £5trillion.

 Factoring in all liabilities, including state and public sector pensions,

and rounding the total UK population to about 65,000,000.

  The national debt is almost £80,000 for every person in the UK. 

 Printed paper bears no relation

to the real or imagined wealth of a country

or its ability to pay off external debt

This can result in ‘hyper-inflation’ which can destroy a nation's economy and impoverish its people as was demonstrated in Iceland in 2009. Iceland, being Iceland, came through and jailed the wankers who [almost] brought that wonderful country to its knees.

 

 

 During each crisis, the ‘solution’ has been to print more paper.

(9/11 is US speak for 11th Sept. 2001).

After 9/11/2001, the Fed increased US ‘liquidity’ by $200 billion. Just before the re-opening of the New York Stock Exchange the following Monday, the Fed lowered interest rates by half a point. By the end of the month, rates had dropped another half-point.

 It went unnoticed that seven cuts had already been made in 2001 pre 9/11,

none of which had anything to do with Al Qaeda or Twin Towers.

Ordinary people did not even notice the cuts or adjustments at the time,

or later when they were distracted by the awful events of 9/11 and it's aftermath.

Not only can you fool all the people some of the time and some of them all of the time

but in finance all bets are off and you can fool most of the people all of the time.

 

 Tables below show US paper money supply surges in three widely-used measurements used around the millennium when you and your American cousin put away a bit of your hard-earned for a rainy day, without realising what was happening in the murk.

Money Supply Indicators are used to measure the amount of paper in the system.

 You don’t need to understand MSI indices; just note the numbers. Imagine you are an ordinary citizen, living an ordinary life, in an ordinary town, across the millennium. You eat, sleep, work, play like everyone else. You were smart enough to put a wad of cash to one side for for a rainy day.Or were you?

In 1998 you had organised your nest-egg here in the UK.

You had an American cousin who was savvy like you.

His wad was $1000, (one thousand dollars

His $1000 was a significant figure in 1998.

$1000 was one BILLIONTH of the total ‘wealth’ of America in 1998.

To ensure you retained your stash at the same level of wealth across the millennium

(and using the MZM index )

you would have added (4.70%) to the 1998 stash to maintain your spending power.

Starting 2000 with £1047 another (3.40% of 1047) would be needed during the year

and in 2001 you would have had to top up with another £115

You should have pumped in 47+35+115=197 on three years.

almost £200 on £1000 over THREE YEARS

just to stay as ‘rich’ as you were in 1998.

Being your own banker you paid yourself 6.9% interest

for each of the three years to stay as broke as you were!

 The money-printing presses stalled world-wide economic downturn and stock market decline at the beginning of the millennium. The dark clouds casting gloom across the world's economic landscape in 2001 were pushed back, by devious and judicious use of smoke and mirrors, until 2008. What was not known to the public at the time, nor would they have cared anyway! is that in 2001, U.S. stocks suffered collapses comparable to those of 1929. World stock markets reflected this but when did the US or for that matter the UK ever look outside it's borders to see what was really happening in the other world?

Plummeting US share prices were an early sign of a day of reckoning. It would be seven years before the fairy-tale became a nightmare. Amazing financial magic can be achieved using smoke and mirrors and picking the right day for bad news. The western world is now (2017/8) commencing a real recession to correct the economic excesses of the so-called "years of prosperity". The market is about to correct fifty years of pretend or ‘fairy-tale’ wealth based on a dream which is about to become a nightmare in the Atlantic arena.

Paper may be deemed money.

It may NOT be deemed wealth

When paper money can be created at will, governments are enabled to ‘finance’ every feel-good programme imaginable. With no constraints on printing, politicians don’t have to make difficult decisions between competing schemes. The UK can have an NHS and a housing boom as well as a war in Iraq and Afghanistan and even military correction in Lybia.

If only! 

In any recession, people, whose ‘wealth’ is redeemable only in paper bonds, savings accounts, etc., see the "fruits of their labours" vanish. People who opt to own their own house (actually paid-for) or own land or gold or silver or oil-paintings or other tangible assets (even bottles of wine buried in the cellar) are better protected, but no-one escapes a crash.  If goods and services (think food and fuel to cook it) are not available because of a devastated economy, everyone will suffer in some way. Hark back to your £1000 stash which of course you did NOT top up by 6.9% pa back in 1998. Instead, using smoke and mirrors your government somehow made your £1000 lose 200 i9n real spending power.

In the US, paper proponents already argue as to whether to keep the dollar or install a new currency. Mugabe had the same problem in Zimbabwe. Don’t hold your breath while waiting for that economy to pull through. What is needed in such a situation is a ‘hard’ currency but there are none. The nearest commodity might be OIL. Or not?

While paper money has a dismal record, gold and silver have stellar track records, and their history stretches back a bit. Gold was the enduring currency of all enduring civilizations: Egyptian, Macedonian, Persian and Chinese Empires, the Greeks, the Romans and the Byzants. (The quality of Byzantine coinage was sufficient to be accepted without question from China to Brittany, from the Baltic Sea to Ethiopia.) History shows that even Byzantine currency was slowly debased, but medieval England's Exchequer Rolls were kept in bezants. The British Empire relied on its sovereign, a small gold coin (.2354 oz). The sovereigns resulted in one hundred years (1815-1915) of uninterrupted economic growth, with none of the booms and busts which seem to be the trademark of paper systems and central banks.

 Unfortunately, most people neither understand nor care about the history of economics.

 Worse still, very few know what ‘money’ is.

 You may search a pocket, handbag, purse, pull out some notes and say “This is money”.

You may wave a cheque book, a credit card, a smartphone.

All or any may be ‘money’in-so-far as a shopkeeper or banker will take the tenner,

the cheque or the card and give you food to make dinner.

Or the restaurant will let you "Just Eat" sit in or take away.

But what is behind the dinner and the smoke and the mirrors?

 

 WHAT IS MONEY?

 

 Money has three linked facets which make it viable:
 
ie:-
 
It is 1.) .. a medium of exchange,
 
 
It is 2.) .... a measure of value,
 
 
It is 3.) ..... a store of wealth.

 

If any one feature goes missing, or weak, ‘money’ can become worthless very quickly.

 

Historically, gold (and silver) have met the three basic requirements to be ‘money’.

But, any barterable item will do.

Spices have served the purpose and conch shells.

So long as the commodity  buys food and the fuel to cook it over, it is ‘money’.

Zimbabweans with local currency do not have money, because their paper buys nothing.

A single US dollar in Harare might buy enough food to feed a family for a day.

£2 could serve almost a week.

(Well! £2 served until October 2016 when reality struck sterling overnight)

 

1. A Medium of Exchange
 

As a ‘Medium of Exchange’ paper functions well most of the time. Reliable notes are accepted in most places on earth. Since the collapse of the Soviet Union, paper dollars are de-facto currency of most former Soviet states including Russia. Today, the dollar is the world's pre-eminent paper currency. But it has not always been trusted.

 In the 70s, the dollar was under pressure and falling against other major currencies. When Nixon closed the window in 1971, foreign investors were left holding "IOU Nothings." The consequences of Johnson's "Guns and Butter" policies during the Vietnam War took a toll. The US had printed a lot of paper dollars. At times in Europe, US tourists could not pay taxis, hotels, or restaurants with dollars as the vendors feared the dollar might drop further before they could convert to their local currencies. These problems were solved when Ronald Reagan took office. The Fed raised interest rates, choking price inflation and making a dollar more desirable, because of higher interest rates and a fiat! that price inflation would be brought under control.

Inflation: (Monetary and Price): Today (late 2011), price-rises are called ‘inflation’. Long ago, inflation was defined as "increases in the supply of money or credit, resulting in higher prices." Higher prices were not inflation; they were the result of easier credit or a deluge of paper. Word definitions change. These changes must be taken into consideration. Investors who choose to know what is really happening in the financial world need to recognize the difference between "price inflation" (rising prices) and "monetary inflation" (increases in 'money' supply.) Rising prices show that someone somewhere has copped that the monetary authorities are printing too many bits of paper. When Europeans refused American dollars in 1970s, they knew inflation (both price and monetary) was a problem.

 

 

2. A Measure of Value:

 In serving as "a measure of value," money delineates relative values.

People living in their £400,000 houses are more wealthy ( materially ) than people who live in  £200,000 houses. A £60,000 BMW is more ‘valuable’ than a £10,000 Fiat. Here, though, is where paper money fails as a measure of value. If you paid £10,000 or £60,000 for your house it tells me nothing until I know when you bought it. A house bought for £99,000 in 1960 is in a whole different league from a £99,000 house bought in 2007.

We are probably talking about mansions and hovels here.

Price inflation, brought on by monetary inflation, keeps prices climbing.

The houses do not  become more valuable. 

The measuring stick just gets shorter.

In Jun 2017, sausages did not go up in price.

They went down in weigh. 

By 20% 

Something is happening and it shows up as less sausages in your pack.

 

 

3. A Store of Wealth:

 

As a store of wealth, paper money performs poorly.

In 1970, a 60yo man retiring with £90,000 in the bank expected to be set for life.

He could live off the interest; at the 10% rate then pertaining.

He'd have £9000pa to spend at a time when that bought a lot of goods and services.

So long as he spent £9000pa, his capital sum would never go down.

However, interest rates fell inexorably during that time to 1% in 2011

and an unbelievable 0.5% in late 2016.

At 1% his interest (and thus his income) was decimated (literally)

but prices had gone up ten times over.

Think of the 10/- 50p gallon of petrol from 1970.

In 2010 a litre cost £1.25.By 2011 a litre was closer to £1.40

Late 2016, UK 'stabilised' it by use of smoke and mirrors.

Years ago, probably around 1980,

our 70yo retireewould have started eating into his savings

if he had not seen what was happening.

By 2010, allowing he had lived to be 100 his money would have been long gone

and he would have NOTHING.

 ... Just for a moment consider how pension funds which should pay pensions ...  

 

 

What is a Pound?:

People think a ‘pound’ is a share in UK Ltd. redeemable in gold or something from the Bank of England. If only! A £20 note promises to “pay the bearer on demand the sum of” £20. But £20 of what? A Real Pound is a weight of gold and is clearly defined by law. (All currencies work the same way). However, when you present your £20 you will not get gold. You will get coins made of shoddy metals. Dip a magnet into a fistful of change and see all the ‘copper’ stick to it. If you went into a wine store in 1980 with a bunch of fivers and got a bottle of wine for each fiver, it is not impossible that each bottle might now get you £50 and indeed some might return £500. That wine would have been wealth. But you guzzled it.

 

What is a dollar?  

currently defined as 1/42.22oz gold.  $42.22 will not get you an ounce of gold anywhere. In  2011 you would need over $1600. So a dollar is really worth less than half a cent. How can a dollar supposed to be worth a dollar be really only worth half a cent and maybe not even that next year. Well for the same reason that it costs over $105 to buy a barrel of crude on 7th Oct 2011. On the 1st Oct 2011, a litre of diesel could be purchased for 99p. 9 barrels of crude was fair exchange for 1oz of gold in 2010. By Oct 2011, the exchange rate was 15 barrels. In October 2016 the price of motor fuels began an inexorable rise. 

 

“It’s far better to know the value of everything and the price of nothing

than to know the price of everything and the value of nothing!”
 

Until 1933, a dollar really was 1/20oz of gold. A $20 dollar bill got you a  “Golden Eagle”.

In 1933, President Roosevelt called in all the gold and gave the people $20/oz..

Sounds not un-reasonable until you hear that as soon as he had the gold in Fort Knox,

he devalued the dollar to 1/35 oz of gold and made it illegal to own or hoard gold.

It was a 75% devaluation of the dollar in one stroke.

Before the call-in, a dollar was worth 1/20 oz of gold;

after devaluation, a dollar was worth a dollar.

Roosevelt's infamous 05/04/1933 Executive Order meant the receipt-holder could no longer claim his gold from Fort Knox. He could only swap dollars for other dollars. Imagine a wheat farmer harvesting his crop and delivering it into storage until he found a seller or the price was 'right'. The silo owner issues a receipt for the grain, but when the farmer returns for it the silo operator tells him to piss off. That's what the US did in 1933. If a private firm that, they would be up for fraud or larceny.When a "government" does it, it's " legal and necessary" and for the commonwealth

 

Throughout history, people with large amounts of real assets such as gold, art etc.

always had a challenge keeping it safe from pillagers.

Throughout the world, safe storage emerged where gold could be held until needed.

As with any warehouse, the depositors received warehouse receipts.

Gold warehouses evolved into banks.

In the early development, the warehouse receipts carried the names of the depositors,

and only the depositors could redeem the gold on presentation of the receipts.

As time went by, receipt holders began to sign over the receipts to merchants,

who would later redeem the gold backing up the receipts.

Over time, instead of redeeming the receipts,

merchants would pass the receipts to still someone else,

and paper money began being used.

Gold was heavy and easily robbed;

paper receipts were more convenient and gained popularity

where the warehouse operators were trusted.

 

 

Throughout history, this scenario has been played out many times all around the world. But, the important thing to remember is that, in all instances, it was the gold that had the value. The receipts were only paper, having no intrinsic value in themselves. All over the world, Governments have jealously guarded the right to be an issuer of ‘money’, whether as paper or coin. This allowed governments to profit from the mintage of coins and cheat people with paper. The esteemed US Double Eagles are an excellent example of how the Fed profited from the mintage of gold coins. When Double Eagles were first minted, a ‘dollar’ was 1/20 oz of gold; consequently, twenty paper dollars were worth 1oz. in gold. Double Eagles contained  0.9675oz of gold, allowing the government 0.0325oz for out-of-pocket expenses on the mintage. It’s called “seigniorage” and is generally accepted as, well, fair dinkum.

As early empires approached their ends and were less able to tax people, their rulers  typically debased their coinage. The Romans clipped bits off as coins passed through the treasury. The clippings were then ‘coined’, thus increasing the ‘money’ supply. Other empires typically debased their coinage by reducing the gold content. History shows that government control of paper money is where real danger lies. The history of paper money is one of abuse. At first, paper money was introduced as a convenience redeemable in gold or silver. Then governments took it on themselves to print the paper used to redeem the gold.

Later, people stopped being diligent about government control of their money.

More paper money was issued than there was gold or silver to back it up.

  When people realise what is happening and the realisation becomes general, they present their paper for ‘specie’, without realising the coin itself was worthless in the first place. This, by the way, is what is known as  a "run on the bank" and nowadays people run to the bank to get wads of paper! To thwart the people, governments 'suspend' conversion. Roosevelt suspended domestic redemption in 1933; Nixon suspended foreign redemption in 1971. Now, the whole world is stuck with ‘fiat’ money, which is "legal tender for all debts, public and private." (See the paper money in your pocket.) It is money by order of "government".

 

Following the terrorist attacks on Twin Towers and the Pentagon, the Fed "increased liquidity" by $200 billion. All the Fed had to do was buy bonds in the open market. The ‘money’ to pay for those IOUs was created by punching numbers in a computer. No taxes were increased. No money was borrowed. Virtually no effort was expended. Yet, the money supply grew $200 billion. That's all there was to it.

Of course, as any economist or "sophisticated Fed watcher" will tell you, it was the “right thing to do”. The Fed had to avert panic. Besides, the government needed $40 billion to fight terrorism. Those dollars now compete with the dollars citizens have in their accounts so the 'new' dollars debase the "old" dollars.

Someday, Americans are going to realise that those new dollars the Fed creates to "avert crises" have equal purchasing power with those for which they had to work. Most citizens did not get the ‘wealth’ in their bank accounts by participating in the stock market boom of the 1990s. They worked for their money. They watched the pennies, drove their cars a few years longer than they would have liked, wore their soles of their shoes a little thinner than they wanted, did not eat out as often as they would have liked, stayed home for vacations. Their frugality enabled them to put aside "a little for a rainy day" and for retirement.

They are about to find out that their savings are tied up in investments redeemable only in paper dollars, which the Federal Reserve can create at will. Each dollar of the $200 billion in "liquidity" that the Fed pumped into the financial system after September 11 has the same purchasing power: the same claim to goods and services, as the individual dollars for which individual Americans worked and scrimped and saved.

Someday, and it may be very soon, people are going to say to their banks, "Give me my pieces of paper. I want to buy something of real value, something the Exchequer cannot duplicate or ban." They will rush to buy real estate, classic cars, firearms, antiques, wine. Some may buy stocks, thinking they offer protection against inflation. Others may buy gold and silver. once the exodus becomes widespread, the US will suffer a devastating "confidence crisis," and the dollar will plunge on the world currency markets because foreigners will dump dollars as well. In fact, foreigners will probably lead the exit. That will be the day of reckoning for the paper dollar, the Federal Reserve Note, the IOU Nothing. It may also be the worldwide day of reckoning.

That day is unavoidable. The world has been on a “fiat” paper system for over forty years. All paper currencies have been abused for three decades, inflated to levels never dreamed of in 1971. The dangers of paper money and the value of gold were illustrated during the 1998 Asian Crisis. Across Asia, paper currencies sank as people lost faith in them.It was a classic "confidence crisis." In local currencies, gold rocketed in price. In South Korea, the importance of gold rose to the forefront as government agents went door-to-door asking people to donate gold so the government would have "hard currency."

It is attributed to Ludwig Vin Mises that "Government is the only agency that can take a useful commodity like paper, slap some ink on it, and make it worthless." We are nearly there. It is time to stop thinking of gold and silver as vehicles from which to earn profits recorded in paper, but to view the precious metals as money. It is time to realize that gold and silver are the ultimate forms of money and that paper, albeit useful in many instances, eventually becomes worthless when used for money.

Bill Haynes November 5, 2001 A Day of Reckoning first appeared in the October-November 2001 Monetary Digest, Certified Mint's precious metals newsletter.

Bill Haynes wrote the original article. WallToAll keeps it alive

 

 

 

A Quote From August 15, 1971

August 15, 1971 was the day the Nixon administration announced they had cut the last tie binding the US Dollar to Gold. Prior to that date, the US Dollar could be REDEEMED for Gold at a ratio of $US 35 to 1 ounce of Gold - but only by recognised foreign governments or Central Banks. After that date, the US Dollar was not REDEEMABLE by anybody in anything except another US Dollar.

The following quote appeared in Money Meltdown by Judy Shelton. It comes from Mr Herbert Stein who became president of President Nixon's Council of Economic Advisors shortly after August 1971. Along with Nixon and his Treasury Secretary Fed Chairman Arthur Burns, and Treasury Under-Secretary and Fed Chairman-to-be Paul Volcker, Mr Stein - was present at the Camp David meeting at which the decision to "close the gold window" was taken: This is what he had to say about that meeting.

"Even though acknowledging that the window was closed does not, in this perspective, seem such a historic step, the people at Camp David that weekend did consider that they were cutting the dollar's last link to gold, with the possibly serious effects economically and politically. The issue did not appear on the conventional terms of sticking to the gold standard and fighting inflation versus abandoning the gold standard and tolerating inflation. Insofar as there was a connection, closing the gold window did not permit less anti-inflationary action but required more anti-inflationary action. There were people, at home and abroad, who regarded our link with gold as an anchor against runaway inflation in the United States. If we were to cut loose from that anchor we would have to offer them some assurance, which was one reason for packaging the closing of the gold window with the price-wage freeze.

For some of the participants in the August 1971 meeting the choice was not gold versus inflation but was gold versus free markets. One must remember that in the summer of 1971 the country was going through one of its spasms of hysteria about the balance of payments, the balance of trade, and, particularly, competition from Japan Inc. This anxiety was stimulating demands for quotas or higher tariffs on imports and for retaining the controls on capital flows that President Nixon had promised to remove. Cutting loose from gold was a way of defusing these demands for restraints on trade and capital movements by increasing the possibility for achieving international adjustment through changes in the dollar exchange rate.

When President Nixon decided to declare that the gold window closed he knew that there might be serious political repercussions. But these repercussions did not appear. For a great many people closing the gold window was welcomed as a declaration of national economic independence. A much larger number didn't care. There was no more sign of a deep-seated loyalty to gold in 1971 than there has been on any of the other occasions when the government took steps to dilute the role of gold. This says nothing about whether the action on gold in 1971 was correct. I believe it was wise, but that is another story. The 1971 experience suggests it is unrealistic [to assert that] the gold standard will present governments with an unequivocal choice between inflation and adherence to gold which governments will be forced to make in favour of gold because the public has a strong emotional attachment to it."

Herbert Stein died in 1999 aged 83. But what he wrote back in the early 1970s is typical of what all politicians and most mainstream economists thought, and still think, about the role of gold in the "modern" financial world. Stein incidentally authored the comment

"If something can not go on forever it will stop"

These attitudes have been assiduously poured into the brains of at least three generations of economists, and distil the essence of the "modern" financial world. The difference is that over the last eighteen months or so, ever since the continuing upward move in the price of gold could no longer be written off as a mirror image of a falling Dollar, the same dark fears which propelled gold from $US 35 in August 1971 to $US 850 in 1980 (and $1650 in October 2011) are raising their ugly heads again.

Let's look at a few quotes from Mr Stein. "Insofar as there was a connection, closing the gold window did not permit less anti-inflationary action but required more anti-inflationary action..." And what was this "anti-inflationary" action? To quote Mr Stein again: "If we were to cut loose from that anchor we would have to offer them some assurance, which was one reason for packaging the closing of the gold window with the price-wage freeze." This is classic. "Anti-inflationary action" consists of passing laws forbidding wages or prices to rise. Since by 1971 the definition of inflation as "rising prices" had been firmly established, this was deemed to be all that was necessary.

The next paragraph also contains a classic:

"For some of the participants in the August 1971 meeting the choice was not gold versus inflation but was gold versus free markets. ...Cutting loose from gold was a way of defusing these demands for restraints on trade and capital movements by increasing the possibility for achieving international adjustment through changes in the dollar exchange rate."

This is the modus operandi behind the entire fiat currency edifice.

In a system of fixed currencies redeemable in gold, "capital movements" in the form of gold go one way while goods and services (trade) goes the other. The former pays for the latter. In a system of paper fiat currencies redeemable in nothing, goods and services still go one way, but what goes the other way is nothing more or less than IOUs - whether the IOU is in the form of an interest-earning debt instrument or a simple "note", like a Federal Reserve Note or US Dollar. And when the amount of this paper required in "exchange" for real goods and services becomes "excessive", the solution is "changes in the exchangs rate".

When Mr Stein talks about "gold or free markets" in this context, he is talking about the "freedom" to buy goods and services without having to actually pay for them. Today, every piece of paper issued by every Central Bank in the world is deemed to be "legal tender for all debts public and private". Not having the ability to pass and enforce laws, counterfeiters can only make copies of this legal tender and hope to get away with it. Governments and their trained Central and commercial banks can and do make and enforce the laws, so they have gotten away with it for over three and a half decades.

That leads directly to a last quote from Mr Stein: "When President Nixon decided to declare that the gold window was closed he knew that there might be serious political repercussions. But these repercussions did not appear. ...There was no more sign of a deep-seated loyalty to gold in 1971 than there has been on any of the other occasions when the government took steps to dilute the role of gold."

By 1971, gold had not circulated as money in the US for thirty-eight years. On top of that, Americans had been barred by law from owning or trading gold for that same thirty-eight years. That's two generations. Government had indeed been diluting the role of gold for a LONG time. And it is true that it was not a "deep seated loyalty to gold" which propelled its "price" from $US 35 to $US 850 between 1971 and 1980.

What did so to a far greater degree was an ever deeper-seated DISTRUST of the Dollar.

What led to that distrust was not any deep understanding of the role of gold as money or the inevitable consequences of politicians and bankers being let loose in a world where there were no constraints on their ability to lend money into existence. The distrust stemmed from rising unemployment, rising prices across the board, and steadily increasing interest rates. It stemmed from the onset of FALLING living standards for the majority of citizens, a condition which has continued to this day and is now deteriorating faster than at any time since what are known as the "inflationary" 1970s, the first decade of the global fiat money system.

In truth, of course, a deep-seated loyalty to gold and a deep-seated loyalty to political and economic freedom and liberty are inseparable and mutually dependent. You can't have one of them without instituting ALL of them. In equal truth, this is and always has been understood by a small minority of the people. Inside the US and most of the rest of the English speaking Western world, that minority has seldom if ever been smaller than it is today.

In his analysis of the 1971 decision to sever the Dollar from gold, Mr Stein comes to no conclusion about whether what was done is "correct". What he says is as long as the public doesn't care about or even know about the connection between gold and their personal and financial well being, such questions are beside the point.

The problem is that the question cannot, by the nature of the fiat money system, remain "beside the point" forever. It wasn't beside the point at the end of the 1970s when Fed Chief Volcker was faced with the choice of abandoning control of US interest rates or presiding over the demise of the US currency. It isn't beside the point now when everyone from the IMF to the OECD is screaming from the rooftops about the utter unsustainability of the US "twin deficits". Everybody still gives lip service to the hope that a "benign solution" can still be found. The problem was that gold soared from $US 515 to $US 720 in the five months between mid December 2005 and mid May 2006. That was opening the question in more minds that maybe there wasn't a workable "benign solution". There isn't, of course. But everything is still OK as long as the public doesn't really suspect it.

Gold at $US 650 asks less pointed questions than when it was at $US 720, but apart from that, the situation remains just as it was. Over the three and a half decades of the floating fiat currency era, not a year has gone by when a financial crash or crisis didn't crop up somewhere. As time has passed and the issuance of debt paper has accelerated, these crises have become more frequent and more damaging. But since gold peaked in $US terms in 1980, it has been the one "price" above all others in the new system which has been short circuited. As we say at the top of this page, in an introduction which stands unchanged since it was first posted in late 1995: "The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of gold." That is what the US Dollar price of gold is now doing. The recent "correction" will do nothing more than delay the inevitable.

 

The only thing left to wait for is how long it takes to be resolved.

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47 YEARS EXPERIENCE IN GOLD INVESTMENTS! Jack Weber January 2008

 The owner of Golden Eagle Enterprises, Inc., Mr. Jack Weber, bought his first St. Gaudens Double Eagle gold coin in 1960. He began helping others invest into gold in 1966, after he came to the realization that God made gold, not Federal Reserve Notes. When Harry Browne (Libertarian Party presidential candidate and author of the N.Y. Times bestsellers: “How to Profit From the Coming Devaluation – 1970 and “You Can Profit From A Monetary Crisis” – 1974) noted Mr. Weber’s expertise in gold, he encouraged readers to contact him. Thousands did and benefited immensely when Mr. Weber sold them out of their gold investments in January 1980, when gold was over $700/oz. Mr. Weber has participated in the daily trading of gold for over 37 years. He works alone, so you will pay no salesmen’s commissions if you chose to deal with him and his mark-up on coins is about half what other national firms charge. If you have a question that no one else has been able to answer, feel free to email him and he will reply to you as quickly as possible. Otherwise, Mr. Weber assumes you have the necessary background to make the important decision to invest into gold coins. If not, read “WHY GOLD?” [Most Recent Quotes from www.kitco.com]

           

THE CURRENT GOLD BULL MARKET

The bottom of a 20-year decline in gold occurred in July 1999 at $250, and a new gold bull market was confirmed in March 2001 at $255.  If you’d like to benefit from the coming multi-year rise in the price of gold, contact Golden Eagle Enterprises, Inc. at their email address: jack@goldeneagleenterprises.net

2002–Gold=$250/oz  2007–Gold=$750/oz  2008–Gold=$860/oz  2011-Gold=$1650/oz

Exactly 28 years ago I mailed all my clients a newsletter suggesting that although other “gold experts” were predicting an imminent rise in the gold price to $2,000/oz., it was my opinion that it was time to sell, since gold was rising more per day than the total price ($35/oz) was when I began placing their savings into gold investments in 1966.  Gold was $625 the day I mailed those newsletters, and 20 days later, it topped out at $850 and began a 20 year bear market. Now, gold has finally exceeded that former all-time high and is sitting at $864, and here I am writing you to suggest that this present gold bull market is just getting under way (after 5 – 7 years since it was $250), and it’s time to be buying gold coins and stocks.  Incidentally, the previous gold bull market lasted 10 years, from 1970 until 1980.  I predict that this gold bull market will last more than a total of 10 years, and will far exceed the 1980 prediction of $2,000/oz. If you don’t wish to benefit from my 42 years of experience with gold investments, I hope you’ll benefit from the sage advice found in the following articles.

 

GOLD/SILVER - Green Flags! Peter Degraaf -- Dec2007

 

“Currencies in a number of countries are being inflated at double digit rates, while the gold supply increases at about 1.6% per year. If all the gold ever mined were in one place it would form a cube of less than 20 metres (which computes to less than one ounce per person – worldwide and dropping yearly as the world’s population soars). Most of this hypothetical cube is in jewellery. The driving force behind the current bull market in gold is the fact that fiat money is being created some twelve times faster than gold. In 1980, when gold topped out at $850, the US M3 money supply was 1.8 trillion dollars. Today gold is pegged at $800, but M3 is now 13 trillion dollars. A ratio similar to 1980 puts the potential gold price at $5,600.00. Following are just a few reasons why gold will rise:

 

   1. Annual deficit between production vs consumption.

   2. Federal Reserve is printing dollars [like confetti].

   3. The US government is running a huge fiscal deficit.

   4. Congress does not worry about deficit spending.

   5. U.S. private debt is at an all-time-record high.

   6. Many large banks are over-exposed to derivatives.

   7. War costs money. Wars last longer than anticipated. Wars are inflationary.

   8. The US has gone from a net creditor to a net borrower.

   9. The US dollar is in a bear market.

  10. 'Real' interest rates are negative. Whenever the true rate of price inflation rises to or above interest rates, gold rises.

  11. Gold is rising in virtually every currency.

  12. Central banks, including the USA, are overstating their gold reserves.


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EDITED TO HERE 25TH SEPT

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EXIT 2007: DENIALS & TONTARIA Jim Willie CB --  Dec26, 2007

“Gold is giving the wrong inflation signal, since the Consumer Price Index has yet to show any surge whatsoever. The rise in gold has no basis”. The most crucial of all economic indexes is the CPI, whose doctored numbers permit broad price inflation to be misrepresented as economic growth. Cost of living increases must be kept low for Social Security payments, for government pension payments, and for all manner of official statistics often reported after adjustment for price inflation. The export of inflation has been increasingly difficult recently, sure to be more difficult in 2008 after the global revolt against the USDollar and toxic bond export from Wall Street, not to mention trade war with China. When money supply is growing at 14% to 15% in the US and Europe, systemic price inflation must be immediately in its wake. IT IS! The Shadow Govt Statistics folks report a CPI without gimmicks over 10% steadily in monthly figures, more in touch with reality. They also report a GDP in reverse, as in minus 2.3% for 3Q2007 and running negative in almost every quarter since 2001. No no no! Gold is flashing a warning signal from unprecedented Western bank monetary inflation, the likes of which have never been seen in modern history. Gold is flashing a warning signal for banking system breakdown, even geopolitical global tensions. To be sure, some new money supplied to the system has gone to offset dying assets in bailouts. The rest spills into gold and crude oil and other materials. In 2008, gold will hit $1000 per ounce without the slightest exertion. After the banking panic, economic recession recognition, continued revolt against the US$, and utter desperation to seek remedy, gold will advance toward $2000 very quickly.

 

“WE ARE WITNESSING THE SLOW MOTION MELTDOWN OF THE US$-BASED BANKING AND BOND SYSTEM, AND THE RISK MODEL ITSELF. THE GREENSPAN DESIGN OF ECONOMIC DEPENDENCE UPON HOUSING AND MORTGAGES FAILED. US FINANCIAL ENGINEERING THROUGH COCKEYED INNOVATION HAS FAILED MISERABLY. THE FLIGHT INTO GOLD WILL ACCELERATE IN BREATHTAKING FASHION IN 2008. BUT FOR 2007, THE SHILLS NEEDED TO PAINT A NICE PICTURE, AS WE RING OUT THE OLD YEAR. DO NOT BE FOOLED. THE YEAR 2007 WAS A TURNING POINT TOWARD CATASTROPHE. PROTECT YOURSELF WITH GOLD AND RELATED INVESTMENTS, AND FLEE FROM BONDS AND HOUSING. THE FASTEST ROUTE TO POVERTY IS EMBRACE OF USDOLLAR INSTRUMENTS AND US-BASED CREDIT INSTRUMENTS OF ALL KINDS, INCLUDING HOMES AND MORTGAGE BONDS.” (emphasis not added)

 

GOLD AND A KONDRATIEFF WINTER http://www.gold-eagle.com/images/clear.gif

Aubie Baltin CFP. CTA, CFA, Phd. (retired)

 

“A Rising Gold price is a warning signal; casting doubt on every economy in which Gold is appreciating against its currency. I am convinced that inflation is far higher than reported, especially since money supply growth is currently growing at a 14% clip and has been doing so for more than 7 years. Moreover, the Debt/GDP ratio is now over 350% vs. the 270% peak prior to the 1929 Crash. To make matters worse, the 'fiscal deficits' of the Federal Government are so convoluted that their auditors have refused to sign off on its books for more than ten years. (emphasis added)

 

“Just as most of today's financial market participants do not remember the last bull market in Gold, most are still not yet considering Gold as a sound investment.

 

Adjusting Gold's all time high price for the, low-balled, US CPI figures, gives an inflation adjusted equivalent price well over US $2,000/oz. During the last phase (Wave 5) of the 1971-1980 Gold Bull Market, Gold rose 128% in less than three months to reach its all time high.

“GOLD Where to now?  In my opinion, we have just completed an Elliott Wave: Wave 4, diagonal triangle consolidation and any move to a new high will confirm my Wave 5 buy signal explosion to my target of between $925 to $1075 and this would only mark the end of Wave I with Up Waves III and V yet to come. At some point, I think that the rise in the price of Gold will lead to a rapid acceleration in demand, not only from Central Banks with large US dollar reserves, but also from Mutual Funds, Hedge Funds as well as from private investors. (In economic terms, Gold is deemed to be a Superior Good). This explosion in demand could be triggered when Gold blasts through its all-time high of US $850/oz or in response to an economic (Black Swan) event.

 

“Gold is able to perform the role of the ultimate money due to the following:

 

    * It has a high intrinsic value per unit of volume.

    * It is homogeneous, divisible and durable.

    * It is traded in a continuous market on a global basis.

    * It cannot be debased; production averages approximately 2% per annum at most, in contrast to the unchecked creation of fiat currency by central banks.

    * It is the only financial medium of exchange that is not a third-party's liability.

    * It is accumulated rather than consumed.

 

“THE WRITING IS ON THE WALL: But so far, like the Biblical Daniel, none are able to read and interpret it. The real question is no longer IF, but when will we be in Recession AND will it or will it not turn into Depression.

 

“WHERE TO NOW?  The most logical course of action is a wave of new credit and fiat monetary creation and a resultant rapid increase in inflation as Bernanke attempts to stave off the inevitable. We may (I repeat may) see one more rally to new highs as Wall St. will initially deem his moves to be favorable. But shortly thereafter, the Stock and Bond markets will crash as Gold begins to rocket skyward as FEAR sets in and combines with Greed. The Stock Market will lead the economy down. You may recall that, as I have often mentioned in my previous letters, there is nothing more powerful than a BULL MARKET IN GOLD which is fueled by both greed and fear! BUY GOLD on any $15 to $25 dips or on a break-out to new all time highs.”  That “break-out” has now occurred – it’s time to buy!!

 

Since it’s that time of year, I’ll share the 2007 results in gold and gold coins.  Gold bullion went from $640 to $835, or 30.4%.  The gold coins that I encouraged clients to buy last year were the Liberty Double Eagles in both MS63 and MS64 grades.  They increased from $1,110 to $1,600 (44%) and $1,625 to $2,500 (54%) respectively. Not as good as I hoped, but certainly better than gold bullion.  I fully believe that this year the best buys are the MS64 and MS65 St. Gaudens, and that they will do much better than the Liberty coins did last year.