Someone once asked me if all of our thoughts were on the level? Well, at a young age I often thought there was a difference between fact and opinion; then I learned that everything spoken was opinion and anything written was fact! A few years later, someone told me that anything spoken is not true and anything written is opinion! Last year I was told that everything is an opinion and nothing is true! Ha! Ha! So, today, I state for the record that all of our Thoughts are Absolute fact! (smile) -- FOA (08/06/01)
You know, I am not making this stuff up. What I write on this blog comes from journey, discovery and understanding of a train of thought that was many decades in the making. A thought process that began in the 1960's, around the time that Charles de Gaulle, president of the French Republic, began to seriously question the sustainability of the Bretton Woods system.
The process of journey, discovery and understanding of the transition we face today, on a collective scale, has taken just as long as the unfolding of time itself. Isn't this a curious thought?
Please join me on the Gold Trail and discover with me the anti-dollar train of thought that has not only been coming down the tracks of time straight at us for more than 40 years, but is bearing straight down on us today. Or, dismiss these thoughts if they make you uncomfortable because of everything the dollar system has taught you since 1971. But do so at your own financial peril.
I do not want a one world currency, and in fact, I think it is most unlikely. I am not anti-dollar. I am not anti-American. Quite the opposite! I am simply an observer, reporting what I see... from my own little perch on the poop deck of the Titanic.
A Paper for your Property
Let's start off with a fantasy visualization. Have you ever checked your coat at a show? Yes, some people still do this. And the coat check clerk will give you a small paper ticket with which you can retrieve your coat at the end of the show. No? You've never done this? Okay, then imagine the valet ticket you get when you drop your car off at the front of a nice hotel. One small piece of paper with a number on it represents your right to later retrieve your car.
Now imagine that I, a smashingly handsome salesman-type character hanging out near the valet line, offered you a very special valet ticket, one that was good for ANY car in the valet lot! How much would something like that be worth? How much would you pay for such a magic ticket? (Assume that it is totally legal.) And if you bought it from me, how long would you feel comfortable holding the ticket before you "tested it out" to make sure it was really what I said?
Now imagine that I offered you another special valet ticket. Only this one was good for any car on any valet lot anywhere in the world! Would this one be worth a little more? Assuming you redeemed the first ticket I gave you successfully, would you be willing to take this second, "global" ticket home with you? Maybe test it out somewhere else, like Italy?! On a nice Ferrari perhaps?
Now imagine that both tickets performed perfectly and legally as advertised. Can you imagine how such extremely special tickets might circulate as currency, only rarely getting turned in for a car? Especially if they cost less than the outright purchase of a car?
So now that my little experiment with special valet tickets has caught on, imagine that I start printing them wholesale and selling them far and wide. They clearly exceed the number of cars parked in valet lots around the world at this point. And perhaps at some point soon you will realize that such a wide distribution of these special tickets raises the odds of your own car being reclaimed by someone else!
You see, even if all these fantasy auto ownership transfers were somehow legal, the circulation of "universal valet tickets" would make car ownership very AMBIGUOUS. If you hold a ticket, do you really own a car? If so, what kind is it? And if you own a physical car, how long before someone takes yours?
I suppose at this point you would stop leaving your physical car with the valet! Right? With odds like this, sooner or later someone is going to take YOUR car, and perhaps it will be the last one in the lot! And as this perception spreads, less and less cars will be entrusted to young valets around the world, putting them out of work and sending them to the unemployment line. And with empty valet lots all over the world, what do you think will happen to the value of all my little paper tickets?
So... Is Gold Money or Not?
When gold was used in straight trade it was not money. It was simply gold, an item to barter with. In fact, it was the very best possible item to barter with. And because it was the very best property to own for future trading purposes, it became the wealth reserve par excellence.
The very concept of money evolved from the coinage of gold (the barter item) allowing for a numerical accounting system backed by rudimentary laws. This allowed for the emergence of great civilizations. These civilizations died off eventually when the legally enforced parity between the numerical accounting system (money/a medium/an incomplete transaction/ambiguous ownership of the physical world) and the physical market place (gold/barter/complete transactions) was stretched to the breaking point.
What we have today is a breaking point that will return gold to its ancient job, wealth reserve par excellence. In this role, gold will be revalued by the global marketplace, in its physical form only, to somewhere between one and two orders of magnitude higher than it is today!
Perception is the key. Early in the life of a currency (like my valet ticket currency or paper gold) full value parity is the perception of the masses. But there always comes a time when the masses begin to perceive that the outstanding claim checks outweigh the tangible deposits. And you can imagine what this shift in perception does to the per unit purchasing power of the paper tickets.
When we proclaim "Gold is Money!", we give the bankers full license to treat gold just like they treat money. This opens the door to AMBIGUOUS notions of ownership and lost purchasing power of the metal itself.
The best reason to pursue this concept, to cement in our minds that gold is simply property, simply the very best tradable, tangible item, is to end the misguided attempts to use gold as a currency by those who will not let gold simply be gold. So we call it "wealth", since our Western upbringing forces us to "pigeon hole it" (and "wealth" IS what is should be called anyway). But be careful calling gold money, unless you are prepared to retract your statement when unexpected wisdom visits you like puberty some fine day!
A deep contemplation of the "honest money" concept will reveal some longstanding misconceptions about gold, the physical item. Your personal journey to understanding money must *MUST* encompass two very influential factors. The first is banking. And the second is government (or law). In other words, you can't claim a full understanding of the money concept without a commensurate understanding of its defining institutions.
Banking institutionalizes the accounting of money while government, or the Rule of Law, institutionalizes the vitality of monetary contracts. How well these two operations serve a society is revealed in the value that society entrusts to its monetary unit.
Gold is the perfect physical property existing in nature, used by and passing through these evolving money systems in cyclical ways. The exchange of a lump of gold for something else of value, say a chicken, is a barter exchange. It is a full transaction of physical items. There is no "medium" in this exchange. But it was the evolution of gold from lump state into coined state that catalyzed the emergence of the money concept as a pure numerical system.
The money concept emerged as this new numerical accounting system peacefully coexisted with the physical barter exchange world of the property item gold. Together they grew and matured, because an UN-COERCED marketplace of physical exchanges (including gold) was allowed to "GEL" with the new Rule of Law and the new numerical accounting system. This symbiosis, while it lasted, allowed for great advances in human civilization!
The problem with the US dollar as a monetary concept is that it was never actually allowed to gel with an un-coerced marketplace. And the problem with gold today is that it has a low barter value because it is not free to behave like a piece of physical property. It is encumbered by the bullion banking system as a token standing behind an artificial value created by derivatives trading.
The risk that has developed is that the US dollar will collapse if this low priced gold is removed! This low priced gold is THE stabilizer in the unbacked US dollar's 38 year bid to be the world's currency. But if low priced gold becomes HIGH priced gold, then perhaps the dollar has failed in its bid to be "money par excellence".
Newer currencies like the Euro are trying not to make this same mistake. They want the marketplace to form a stable network of pricing and contracts without the false pretenses surrounding gold. They are refining the evolving money concept in the hope that it will gel with the physical marketplace. They mark their gold reserves to whatever the market says they are worth, and they don't fear a price rise because it will only make their reserves more valuable.
In fact, they even encourage the free trading of gold by making it available at common places people go! Why do you think this is not done inside the dollar's zone?
If this new and improved money concept works well throughout the transition to Freegold, currencies like the Euro that adopted this new concept may actually become the world's first full fledged money, in the most proper use of the word! In fact, by trading peacefully along side an un-coerced gold market, they could even be said to be "honest money"! At least as honest as the Rule of Law that stands behind them.
This is not an argument for saving, holding or trading these currencies for profit, but instead it is an argument for using as a medium only currencies that "gel" with gold used as a parallel reserve!
But of course, as we know, the Rule of Law can change as the hungry collective elects socialists into office. This is why we will use honest gold property as our core wealth holding! We will own it to compensate for the human inability to create PERFECT money!
In other words, because we have to settle for using, AT BEST, a system of honest money which will always be flawed by human nature, we need GOLD to return to its ancient job description as perfect property. The kind of stuff that can be OWNED, not "as money," but rather, OWNED....... (wait for it......).... UNAMBIGUOUSLY!!!!
Political Money, Political Gold
Today the ten-year-old Euro currency is not defined as any certain quantity of gold. Instead, it uses gold as a financial reserve so that each increase in the price of gold brings an increase in the Euro's reserves and thus an increase in the value of the Euro itself! This Freegold concept is closer to the tenets of Libertarianism than the gold standards of the past because of the gold exchange restrictions that always inevitably followed a gold standard.
Freegold is not a new currency. Instead, it is a completely sustainable exchange system between transactional fiat currency and gold, the wealth reserve par excellence!
On an individual level, the idea that your wealth is meant to be placed in harms way in order to earn a yield is a perpetual lie of the current inflationary system. Low risk yields cannot beat real inflation in the long run, and they often don't in the short run either. Your hard earned wealth was never meant to be risked. It only needs to be preserved!
We view the US dollar's value today through the window of the USDX, a relative comparison of the dollar with its most significant trading partners, primarily, the Euro. But imagine the situation of an exploding gold price combined with a terminal dollar. The ECB could easily use not only its dollar reserves to buy up spot gold, but it could also print Euros outright to buy any gold still offered for sale.
The dollar, on the other hand, must SELL gold if it hopes to slow its own collapse. So the dollar must sell gold to defend itself, while the Euro is free to BUY gold while defending itself from a systemic collapse!
Freegold will not compete with the Euro the way it will with the dollar. Freegold is not a competing currency to the Euro, but instead it is a wealth building asset within the Euro's monetary construct! As this transition unfolds, even the raw printing of Euros for gold, normally an inflationary event, can strengthen the Euro from within its golden asset base. Architecture! Planned, executed, now in use.
FOA taught us that clarity in understanding this new gold market comes from the understanding that there are many political factions involved in this dramatic monetary evolution. The largest pro-gold factions are actually those that want a global currency that is not subject to the health of the American economy (or ANY economy for that matter). Currently, most forex reserves held by foreign central banks are merely a debt of the US government, backed only by a properly functioning, tax-paying American economy.
You would be surprised how clearly this concept is understood outside the USA. It is quite an uncomfortable position to be in, to have your wealth's very existence depend on your neighbor's ability to produce enough income to service his unsustainable debt!
These most-pro-gold factions are not necessarily the ones you would think. They are much of Europe and the oil producing Middle East for the most part. These are the major factions that will be hurt least by a collapse of the dollar's economy, because they have been preparing for it for decades. But others, like China, are starting to come on board with this anti-dollar, pro-gold movement. (Perhaps even India too?)
These political factions are not interested in a new gold standard like the failed Bretton Woods system. No, they are seeking something far better. They no longer see any advantage in holding a Treasury promise of future payment (half a transaction) over holding physical gold as a payment in full. The fact that Treasury's pay interest has become a joke in these central banking circles. They see clearly now that economic instability and currency fluctuations can easily wipe away any interest earned, overnight!
No, the only reason left for holding these paper reserves is the futile effort to stabilize a collapsing system. You hold foreign currency today so that you can sell it to buy back your own currency if it falls. Or you buy foreign reserves to lower your own currency if that is desired. This is not a game of wealth accumulation as it has been played. And this fact is not lost on many countries outside of the dollar zone.
On the other hand, buying gold on the open market, using either your own currency or your excess Treasury's and dollars, creates a far different exchange/reserve dynamic. It takes physical gold off the market, increasing its value. Gold has always been the dollar's only competitor for global exchange reserve status. And no nation will ever run out of its own currency (which it can print) when buying gold. Of course this will drive the price of gold sky high, but from a CB perspective it is viewed as taking on reserves, not selling them off.
Basically, this is the direction the entire non-dollar world is heading. This new system is not being built on the foundation of any single nation-state or economy. In the future, any one fiat or its attached economy can fail completely without bringing down the whole system. This is what stability is all about. It is the separation of the money concept from both gold, the tangible, tradable physical wealth reserve, and from the albatross of the hungry nation-state.
Would you like to get a glimpse of the future the way the Giants see it? Pick any price for gold. Say, $39,000 per ounce. Then list out the CB reserves of each country as they are now, and also as they will be when their dollar "assets" are worth maybe a nickel on the dollar (purchasing power) and gold is $39,000. This will give you the "birds-eye view" that they have their eyes on. With this view it is easy to see why there is a movement to end the dollar standard, which is backed only by a healthy US economy. In other words, it is currently unbacked!
When you understand how it is, that it is economically (and therefore politically) undesirable for other major currencies to appreciate against their peer currencies (which is exactly what would happen to any currency replacing the dollar’s reserve status), you will subsequently know why gold shall continue to emerge as the de facto solution to the international reserve question.
And here I emphasize de facto rather than de jure because this has become a global phenomenon driven by a natural evolution (survival and ascent of the fittest) and does not require any additional international treaty or enabling legislation as a prerequisite or for motivation.
The breeze is fair and the road ahead is clear for the ascent of gold. -- Unknown (but wise) Author (11/05/09)
Credit for elements of this Thought mash up go out especially to Aristotle and FOA, but also to Belgian, The Invisible Hand, MK, and of course Another. I stand here in full view because I stand on the shoulders of true Giants! Thank you all!