Feeling unknown and you're all alone
flesh and bone, by the telephone
lift up the receiver, I'll make you a believer
Take second best, put me to the test
things on your chest, you need to confess
I will deliver, you know I'm a forgiver
Reach out and touch faith
Your own, personal, Freegold
Paying for Profligacy
The financial people of the world, Wall Street, and the "big money banksters" have all been bailed out by the Fed, the US Treasury and Congress through TARP and dozens of other Ponzi schemes. In addition to these bailouts, the Obama socialist dream including the ill-conceived stimulus plan has, and is, being funded totally through public debt. Does this mean that you will owe it all back in the future? Does it mean that you, your children, your grandchildren and your great grandchildren will be paying for all this profligacy and theft sometime in the future?
No it doesn't! The fact of the matter is that transfers of real wealth always happen in the present. When you borrow money, you are bringing your future earnings into the present and spending them now. So, in other words, you are acquiring real goods and services in the present and promising to work it off in the future.
But what if you die tomorrow? Or what if you go bankrupt in a year and never pay off your debt. Or what if hyperinflation makes it possible for you to pay off your debt with a single gold coin in your pocket?
Let's say you borrowed $100,000 to buy a fast boat. You now have a boat, a real hard asset transferred to you in the present. Someone somewhere had to work hard for many months to build you that boat. And now that wealth has been transferred to you in the present for nothing more than a promise of future payment. And as I have recently shown, that future payment is far from guaranteed.
So if all transfers of wealth always happen in the present, how should we properly view the transfer of wealth to Wall Street and Washington, DC by pure government fiat, that is happening right before our eyes?
First of all, we must understand that in today's world, this transfer of wealth will NOT be paid by our children and grandchildren in the future. Instead, this theft of present real, hard equity will be paid in the present, right now! It will be paid through the total loss of purchasing power by anyone holding dollars, dollar denominated long term contracts, dollar denominated bonds, or dollar denominated Ponzi paper promises of any kind including annuities, corporate debt, and even those promises made by the present Congress of the United States of America.
Our future obligations like Social Security and Medicare will not be paid in this way. In fact, they may never be paid at all. But the current debt will, as will the present transfer of wealth to Wall Street and Washington DC! (See: Washington, DC - BOOMTOWN in No Free Lunch)
The good news is that there is a way for you to avoid paying your share. If you are a good little socialist that would like to pay your fair share of Washington, DC's present profligacy, you can stop reading this blog right now and turn on CNBC. Just follow the advice you hear and you will be sure to pay your fair share!
There are plenty of blogs about what we should do as a society. About how we need to start a new gold standard; a return to honest money. How we must return to a hard, commodity-based currency that will restrain the profligate governments and their greedy bankers from inflating the money supply at will. But what we must understand, what is often difficult to understand, is that there is a big difference between what SHOULD happen and what WILL happen. There is a difference between FIGHTING for something and simply OBSERVING the real world to plan your next move. There is a difference between being an ADVOCATE or PROPONENT and being a PASSIVE OBSERVER of the changes we are actually living through.
This blog takes the latter position in all of these cases. If you would like to be an activist for a better world, this may not be the blog for you. But if you are a hard working producer and a saver worried about how to protect your purchasing power from the hungry collective, this blog may be just what you are looking for!
Money Versus Wealth
Modern man has dug himself so deep into the hole of debt that he will never get out!
What I mean by this statement is that he will never again accept a 100% Pay-As-You-Go monetary system. This is not to say that every man in the world wants it this way. Indeed, most of "our crowd" would like to go back to a gold standard of some sort. But for the Global Collective, this is simply not acceptable.
As we know, some nations, corporations and individuals are already so deep in debt that they will never get out. But what I am talking about is mankind's addiction to money being a form of credit. Man can no longer live with the idea of a gold money that cannot be inflated. Better said, "if you cannot borrow it, lend it or inflate it, it's not a money we can use."
It is with this understanding that I attempt to show you how natural evolution is returning to those of us that wish to live a "pay-as-you-go" lifestyle, the most important role of gold: the store of value function! The ability to retain hard-earned purchasing power intact, over any period of time.
The idea of any "basket" of finite commodities used to back a "super-sovereign currency" is this same supposed "perfect vehicle" as the old gold standard. It is the same concept that we used to tie gold into a credit inflating system. Just as the early bankers did by first promising to issue singular gold storage notes instead of circulating actual bullion through the economy.
It didn't take long for the basic cravings of humans to demand a subtle change in the workings of that system. That is, "lend us some of those gold receipts so we can buy a better lifestyle today and pay for it tomorrow". "If later we cannot pay for it, all of us will get the rules changed so you bullion storage guys can just print some more gold storage receipts".
Any "commodity basket" currency will ultimately be inflated beyond the commodity itself, punishing those who save that currency as if it truly represented those commodities.
Think of the IMF right now printing a trillion brand new SDRs, supposedly a balanced "basket" of national currencies. Yet they can print them at will, whenever the global collective demands more money. Remember, the collective demands that money be available whenever it is needed, no matter what money is declared to be!
History has proven that when real wealth units are tied to our credit money, credit inflation blurs our ability to measure our worth. It is for this reason the Austrian definition of monetary inflation is so important. To view inflation only as it is reflected through rigged CPI pricing measurements removes the perspective necessary to see what is actually happening to our paper-denominated wealth.
And once again, we as a society make the demand that drives the "buy now pay later" illusion. So, our demands will be met with bankers' supply in the form of more Ponzi credit IOUs for gold, or commodities, or national currencies (or whatever) that doesn't actually exists. Both then, now and in the future!
Further, people today never value their wealth in terms of other wealth items. Such as in an ancient "gold wealth barter system" context. Modern Western thought cannot conceive this because there is no standing wealth medium that can mark to the real market all forms of real value! Gold is and was the only wealth asset that could do this well. Again, as long as gold is tied into a money credit system - as the dollar reserve still tries to do - its value will be subjugated by the credit inflating needs of society. In this function, gold cannot be saved as a "wealth asset" that measures our true worth. A worth that carries our savings from generation to generation. But it will again... soon.
Be HAPPY that our collective WILL NOT go back to a gold standard, but will instead leave gold FOR US as a stand-alone wealth reserve asset that will put anyone who holds it on an equal footing!
Official money has always... ALWAYS been a political beast. As I said in a recent post, when the collective decides it needs money, it will have it. It will take it by force, or it will print it. Always has... always will. Even if we returned to an "honest money", this simple fact of life will not change!
Another simple fact of life: The people want credit! They don't want to "pay as you go". Ever since the concept of money and credit combined, this has always been the case, and it always will be the case, at least for the rest of our lifetime.
This is the basic reason modern economic systems use a fiat as their trading unit. Barter along with its finite payment is no longer wanted as a trade vehicle. You see, once society has a "money" unit declared and usable, the credit expansion qualities of said fiat money are restrained by tying the "transfer of ownership" to some physical barter unit. In other words, gold only gets in the way of man's socialist credit expansions.
If we combine credit with "honest money", the "honest" money supply becomes automatically inflated and subsequently DISHONEST as a store of value. This is unavoidable. It happens in a gold standard, in a gold exchange standard, and today, under the global, purely symbolic fiat "trust me" standard.
Money is always subjugated to the needs of the state. And when it is, who pays? The savers do!
Here is a simple equation. (Savings) = (Production) - (Consumption).
And another one. (Debt) = (Consumption) - (Production).
Production and consumption both happen in the present. Savings and Debt represent the belief that this PRESENT transfer of real wealth will be settled some time in the FUTURE. This is not the case today! To believe it is to put your faith (and savings) into highly flammable paper "promises to pay" as some sort of rickety store of value.
The monetary economy is like a see-saw, with money on one side and all the real, solid 'wealth of the world' on the other. As the money supply is expanded and diluted it is weighted down driving up the nominal value of all real wealth.
In our modern world of collective control over money dilution, any real, solid wealth item tied to the monetary system is wrongfully placed on the money side of the see-saw, and must be taken down in value along with the money.
Freegold is different as it places gold opposite the money supply for the first time in history! Gold can still be held as a wealth reserve by the money-diluting collective, but it will automatically offset any profligacy by rising in price as money is weighed down through printing. Gold will be truly demonetized. We are almost there. All that is left is for gold to break the chains of the dollar, the Fed, and its proxies like Goldman Sachs and JP Morgan. We are so close!
Freegold for Everyone!
I will now demonstrate from a practical perspective how the transition to Freegold will work using the Eurosystem as a primary example. This same, simple principle demonstrated by the balance sheet of Freegold's very own architects will also work on all scales, even for you as an individual. Yes, you can have your own, personal, Freegold!
In July of 1998 the ECB and Eurosystem Freegold concept went public. The ECB would take in a small portion of the overall Eurosystem foreign exchange reserves as its own. Of those reserves held by the ECB itself, 15% would be gold. Furthermore, any change in the Eurosystem's consolidated foreign exchange reserves, consisting of 30% gold at that time, would be subject to the approval of the ECB.
ECB Press conference: Introductory statement
The Governing Council furthermore agreed that this initial transfer should be in gold in an amount equivalent to 15% of the sum I have just mentioned, with the remaining 85% being transferred in foreign currency assets. I should stress that the decision on the percentage of gold to be transferred to the ECB will have no implications for the consolidated gold holdings of the ESCB.
The precise modalities of the initial transfer will be finalised before the end of the year.
Before the end of the current year the Governing Council will also have to adopt an ECB Guideline pursuant to Article 31.3 of the Statute of the ESCB, which will subject all operations in foreign reserve assets remaining with the national central banks -including gold - to approval by the ECB.
In connection with the setting-up of common market standards, the Governing Council also reached agreement on a number of issues related to the quotation and publication of reference exchange rates for the euro. Specifically, it was agreed to recommend to market participants the "certain" method for quoting the exchange rates for the euro (i.e. 1 euro = X foreign currency units) and to have daily reference exchange rates for the euro computed and published by the ECB.
So, upon establishment of the Euro, the plan was that gold would remain an important part of the foreign exchange reserves for the entire Eurosystem, and that their value would be quoted each quarter in the consolidated statement priced in euros. That was step one. Put 30% of your savings into physical gold and then mark it to the market price quarterly!
Step 2 said that going forward there was no need to worry about keeping the physical gold portion of your savings at 30%. Just do it once and watch what happens!!
Remember, this was 1999. And ever since they have been net sellers of gold under the control of the Washington Agreement which was signed on Sept. 26, 1999, renewed on Mar. 8, 2004 and again on Aug. 7, 2009.
So in 1999 they had 30% of their savings in gold. Since then they have liquidated a small, controlled amount of that gold on a regular basis. Now let's take a look at where they stand today, in 2009!
Eurosystem International Reserves
Today the total Eurosystem reserve assets stand at 428 billion, including foreign currency reserves, IMF reserve positions, SDRs, foreign assets and, of course, gold! 428 billion Euros total. And the gold reserves now total 233 billion Euros. So in the past 10 years, through many liquidations, gold has now grown to 54.4% of the total reserves!!
But wait! There's more. Have a look at this news article from last Wednesday, Oct. 7:
ECB-Gold reserves up 6.26 bln euros after repricing
FRANKFURT, Oct 7 (Reuters) - Gold and gold receivables held by euro zone central banks rose by 6.26 billion euros to 238.169 billion euros in the week ending Oct. 2 after a quarterly revaluation, the European Central Bank said on Tuesday...
Gold holdings rose because the quarterly revaluation more than offset the sale of 15 million euros worth of gold by one euro zone central bank, consistent with the 2004 Central Bank Gold Agreement, the ECB said.
So in just this latest quarterly report filed on October 7th covering through Oct. 2, 2009, despite selling more gold, the Eurosystem's total gold holdings ROSE another 6 billion Euros through the simple process of marking to market the gold held in reserve! You can see it here on the official quarterly financial statement, line 1 (a seriously bold position to place a very serious wealth reserve... LINE 1)...
Eurosystem Consolidated financial statement - as of Oct. 2, 2009
So let's see. Just in the past quarter of 2009 those Eurosystem gold reserves have swollen from 54.4% to 55.6%!
Can you see what is happening? Can you see what will happen when gold heads for the moon? Can you see how "dollar reserves" are becoming less and less significant at exactly the same time as physical gold is taking over the balance sheet?
This is why China is buying gold. Very soon China's balance sheet will be swelling in size even as it writes off its remaining dollar holdings. They will become worthless. Even so, their balance sheet will EXPLODE in real value!
Now think about your personal balance sheet. Think about your savings. Would you like to lever your savings so that your purchasing power is preserved even as the dollar is devalued? Or would you rather lever your savings to EXPLODE in purchasing power as gold explodes in value?
In the 90's it was fairly common advice to put 10% or 15% of your portfolio into gold. What do you think was the reasoning for this advice? Can you see now that we are living the last days before this "insurance" will pay off big time?
Somewhere between 0% and 100% lies the exact percent that will perfectly preserve the purchasing power of your savings today. Anything above that number will EXPAND your real savings as we transition into Freegold. Anything below it will DIMINISH your purchasing power. So what is the magical number? No one knows. It is unknowable! Is it 1%? Is it 5%? In my view it is probably somewhere between 3% and 10%. But as I say, know one knows. This is why FOA said the REAL LEVERAGE is in physical gold in your possession. Not in leveraged contract paper!
When you buy gold coins, you remove your savings from the reach of the collective. You remove your wealth from the expansionary, dilutionary practices of the entire financial industry. Have you noticed how even good companies like to inflate their stock by issuing more? It's called stock dilution! The entire international financial industry is at risk right now. Remove your wealth from the system! Don't end up paying for the collective's profligacy WITH YOUR SAVINGS!
Some day in the future we will know what that magic number was on October 10th, 2009. And anyone who went double that number, doubled their savings... and so on. Imagine if you put 20% of your savings into gold coins! Or 40%! How about 80%? Or even 90%! Or, God-forbid... 100%. So grab your calculator and have some fun with numbers! Just remember to go with a percentage that matches your personal level of understanding and comfort. This is the best advice I can pass along!